How much should we believe in this industrial stock comeback? Is it happening just because the Chinese stock market is closed until Oct. 8?
Is it happening because Trian, the investment vehicle of Nelson Peltz, is taking a big position in Dividend Stock Advisor portfolio holding General Electric (GE)?
Is it because Ellen Kullman, who fought against the break-up of DuPont (DD), suddenly retires and now traders think it is game on for Trian's break-up plan even though the company had a monster shortfall?
Or was it all about the Fed?
You have to be ready for this reversal to be based more on psychology than on numbers, because my fear is that that when we see them, we won't be all that happy, and we could go back to the roller coaster, albeit in a less violent fashion if China gets better.
I want to write about the psychology, because if you go back a week to when Alcoa (AA) announced it was going to break itself up into two companies, you will see that the news was greeted with a pretty ho-hum fashion. Three days after the announcement, the stock traded below where it was when the break-up news came out! It was like nothing happened, because we all hated the commodity stocks, split up, gussied up or just plain unch.
Yesterday it jumped almost 10%, ostensibly after signing a $1 billion fastener deal with Airbus (EADSY), although it is hard to imagine that deal going to any other company.
The real reason why it is running? I think it is because people are frantically looking for "China" plays -- the stocks of companies that might have their fortunes changed if China's getting better.
Or take Caterpillar (CAT). On Sept. 24, it gave you a horrendous pre-announcement, replete with big layoffs and a giant revenue cut, although I could argue not enough given how weak China's become. Now the stock is down only about a dollar from when it made that hideous cut, going from $63 to $79.
Deere (DE) and Joy Global (JOY) are attempting comebacks, too.
All of these, though, I would regard as psychological comebacks; bets which, like that of Micron Technology (MU), are assuming that estimates have gotten so low that the stocks will bounce when they report.
The problem, of course, is that unlike Micron -- which truly had estimates so low that there was an actual chance to beat them -- I don't know about these other companies. Business has been that bad.
No matter what, the test case will be Alcoa, which reports the same day the Chinese market re-opens for business. Even after this most recent pop, the stock is down 34% and I have to believe the quarter will be a tough one. If it gets hit, though, will it matter in this environment where we suddenly like everything that we hated a week ago?
My take is that in this tape it is too hard to actually gauge that day's thinking. If we can, literally, on a Friday experience total loathing of stocks in the morning after the employment report and then, when oil turns higher, frantically grab at all stocks, who knows what will happen three days from now?
Nevertheless, you have to believe that these reversals are coming from a particular place which is, "this time it is different" with China. This time, the government's willing to pull out all of the stops. This time the country's going to start beating the estimates.
But if they don't?
I think the move, as great as it has been, will be repealed.