People always prepare for the big one. They never seem prepared for the small one. I am talking about the doomsayers and their followers and their insistence that we are going to get crushed if we own stocks.
I hear this stuff every day, read an article in the paper this morning about some smart young fella who is doing the big-short thing because, well, the market's up big, it's too expensive, gotta go down, will disappoint.
Look, the fact is, if North Korea declares war against the United States or lets loose ICBM missiles on Tokyo, that Circe is going to be dead right. We always have that existential crisis issue. There was plenty of talk when Fukushima occurred that the nuclear power plant fallout couldn't be contained and whole parts of Japan could be wiped out. I was at Goldman Sachs when the nuclear accident at Chernobyl occurred in Russia, and I can remember plenty of wealthy people exiting stocks because of the Kiev nuclear cloud that was headed our way.
I get it.
Thermonuclear war, among many other things, would send the stock market down. Any bull left standing will look like an idiot.
But to me, living through Fukushima and Chernobyl, I am inclined to want to stay the course.
What makes me so sanguine?
Why can I come out here and shrug off the losses today in FANG and its buddies?
First, the checks are in the mail. I am talking about the checks that you get from the insurance companies for damages, like the rain damage from Hurricane Harvey.
How do I know this?
Because nothing gives you clues like the stock market. Remember the peak-auto thesis? That's being disrupted by all those destroyed cars in the Houston area. Look at the stock of General Motors (GM) . It is finally breaking out after years of toiling in the House of Pain. That's those insurance checks. Look at the stock of Magna International (MGA) . Morgan Stanley has the misfortune of downgrading the stock right before the storm. Now it is hitting 52-week highs as the slowdown thesis for this major auto parts manufacturer is now kaput.
Take a look at the stock of Illinois Tool Works (ITW) . A week ago you couldn't give away that stock because it has auto exposure. For six straight days it has roared higher. Why? Because it has auto exposure. A short becomes a long and it's probably not done because the bear case has been wiped away.
CarMax (KMX) and AutoNation (AN) , two of the more reliable shorts of late, have zoomed higher. Why not? That's where you buy cars. After so many downbeat interviews on Squawk Box, I don't think AutoNation CEO Mike Jackson's going to be singing the blues next time. So if you are one of the short-sellers, and 26 % of the stock is in their hands, what's the bear case now? I don't know it.
Or how about the rails? They'd been chugging along waiting for something good to happen with steel, or with coal or with minerals or with ag or with wood or cars. Bingo. Wood, how about how much wood they will need to rebuild Florida. Cars? How do you think they get to the Houston area? Is it any wonder that Norfolk Southern (NSC) and Union Pacific (UNP) keep running? And you know what's fantastic? The companies have said nothing yet. That's how you want it.
Second? The market's doing one of its rotations that I like so much. Most people hate these darned things because they can't read them well. They look at Facebook (FB) and Amazon (AMZN) going down and they think, as FANG goes, so goes the market. They see Apple (AAPL) going down again and say, well, I guess it's all over.
This market's rotating into what's been left behind of late, notably healthcare. How can you spot these? Simple, let me give you Cramer's rule for spotting rotations. First, you look at what stocks are moving up. Second, you look to see if there is news or research behind the move. If there's nothing to it, if there is no reason, no all-important breakthrough or upgrade, then you are witnessing the beginning of a rotation.
So take a look at the stock of Johnson & Johnson (JNJ) . After resting for ages, literally since the summer began, it's bursting higher. That's perfect. Big-time money managers don't want to buy stocks that have run. They want to buy stocks that are about to run.
Why do I say we are at the beginning of a rotation? Because here's the way the Street, the name for all the activity that goes on day to day, works. When we get the move based on nothing, like the move today, it allows the analysts to say something tomorrow that explains the move. Believe me, all the JNJ analysts have been waiting for a move like this as a reason to reiterate their buys. Oh, and I don't mean to isolate JNJ, as you could be talking about Merck (MRK) or Pfizer (PFE) or Lilly (LLY) , with the latter actually having a bit of news making it even more likely that the analysts will squawk about it.
But what, you say, is worth squawking about if there's no reason for the move? Oh you big silly, something can always be ginned up. JNJ has huge overseas sales. Gigantic. Only about 50% of its sales are from the U.S. It's big in Europe. So why not go over the hoot and holler -- the slang for the actual squawk box at a brokerage house, and yes, that's where the name came from -- and raise numbers for JNJ based on currency. It's as good a reason as any. Or how about Lilly? It's been getting hammered for setbacks in diabetes and rheumatoid arthritis. But today it issued a release about some decent early results in a formulation against atopic dermatitis. Hey, that's something one of the Lilly acolytes can point to as a rationale to buy that stock.
I know, I know, it sounds so theatrical, but sometimes that's what it is about.
How about the rotation into another stalled group of late: aerospace. It's been month since the stock of Boeing (BA) roared higher off a great quarter. Sure enough, it just announced a boost of Dreamliner production from 12 to 14 a month. That gave Deutsche Bank an opportunity to raise its price target for this $245 stock to $300. The whole complex of aerospace then roars, including the stock I told you to buy at $109 the other day: that of United Technologies (UTX) . You might want to sneak in some Arconic (ARNC) here, which is one of the remaining independent aerospace companies that hasn't been snatched up. That CEO search since the departure of Klaus Kleinfeld has been going on for months. What the heck is that about? (Illinois Tool Works, Apple, Facebook, Lilly and Arconic are part of TheStreet's Action Alerts PLUS portfolio.)
Final reason to shrug off the Apple-FANG blues? Have you seen oil at $50? That's been the level that's repelled it forever and I think it could do so again. But the one thing the oil traders didn't count on is the short-term demand created by refiners, owing to the storms that need crude badly to make more gasoline at these higher prices.
If I were short these stocks, I would fear upgrades from the lurking bulls who are currently in bears' clothing and want desperately to recommend the one area of value left in this market, even as we know from the Delivering Alpha conference earlier this week that short-sellers have targeted this group as hapless and totally lacking any spending discipline.
They aren't wrong. But remember, this is only a rotational play, and like the Bard meant to pen in that seminal financial text, As You Like It, "all the stock market's a stage and all the men and women merely players."