Periodically in a long bull market like this one, you find yourself breaking to all new ranges and those ranges tend to intimidate and frighten.
You get used to a stock being at a certain place, a certain bracket, and then it breaks out of the bracket and you tend to be incredibly skeptical. "What's that stock doing up there? That makes no sense. It's too expensive. It has to go down."
I wish I had an answer for this fear, but I don't. I wish I could tell you to forget the ranges that have bound a stock, it's a whole new ballgame. But I am just as critical and unsure as the next guy.
Last night, for example, I fielded a question from a tweeter about what to do with Salesforce.com (CRM) now that it has run up so high. The question is a great one: The stock is up 48% this year -- and it is shocking to see it at $152 ahead of this week's quarterly report on August 29.
Any betting hedge fund would have to say that it has to be sold and shorted, because when it has run like this it has been unsustainable.
I come back, though, and say, no disagreement but has that been the right LONG-TERM approach to the situation? Has that been a good move, considering how you have had to be near perfect to get the timing right?
I told her I thought it was worth holding on to, but I can't blame her for selling some. Yet, every channel check that every analyst has done -- every one -- has said it is a strong quarter.
I say the range is broken and the stock is free to run, even if it has to cut back a bit to advance more.
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Or take Chipotle Mexican Grill (CMG) . People got used to this stock being in the low $400s. Suddenly it is above $500 and there is a ton of skepticism about it. But, I think Chipotle has always deserved a premium multiple -- and it lost it, not just because of the health issues but because the co-CEOs struggled with the growth. Brian Niccol, late of Taco Bell, is doing a phenomenal job. Just phenomenal. So I think the range breakout makes sense.
The real dazzling breakouts are in retail. Five Below (FIVE) traded between $45 and $55 for ages before breaking out and blasting off to $114. For many, that's just way too much, too soon, especially give how much of their merchandise is sourced from China. But this is a regional chain going national with a fantastic concept -- with a management that is executing superbly. It is most likely not done going higher.
Lululemon's (LULU) another. Here's a company that had been bouncing around for ages in the $60s, give or take ten points. I think that almost every hedge fund had taken a shot at shorting it. But now it has blown through every range imaginable.
But just because we aren't used to it being beyond the $70s doesn't mean it shouldn't be at $138. Just because The Gap (GPS) can't get off the schneid and Walmart's (WMT) been in the $80s and $90s forever, that doesn't mean this one can't go sky high.
I say forget about ranges. We are in uncharted waters and the ranges are not helping you. What matters is the earnings -- and in all these cases and so many others, the numbers are there. And that's why the ranges have failed to contain these stocks that seemed rangebound forever.
