Pain breeds negativity. So when there's too much pain, there's too much negativity. That's pretty much the story of what happened with this market going into yesterday and continuing today until the sell-off near the close.
I know I felt the gloom. All last week as retailer after retailer disappointed and the oil and technology stocks were pounded mercilessly, I was blown away about how genuinely weak the market had become.
I had been off Friday but was following the market the best I could. It just seemed like there was bad news everywhere you looked. The night before we got that nightmare report from Nordstrom (JWN), the one that pretty much indicated that the consumer had simply stopped shopping. Nordstrom is such a good retailer that you don't say, "Hmm, maybe she stopped shopping at Nordstrom." Instead, you think she just decided that she had everything she needed. When you combine Nordstrom's comments with those of Macy's (M) earlier in the week, how could you reach anything but such a glum conclusion?
Right on top of that came an earnings report from Cisco (CSCO), the technology company that is often thought of as the backbone of the Internet and is part of the Action Alerts PLUS portfolio. The numbers looked totally solid. But the outlook? Decidedly not solid. Indeed, I can only describe it as downbeat, and not because of what Cisco was offering; the product lineup seems very strong. No, it's because of the world, and an obvious slowing of demand.
The brutality of the obviousness of the softening future coupled with the steady drumbeat of the need for the Fed to tighten furthered the gloom. How could you not be gloomy? Here you have the CEO of one of the best technology companies in the world telling you that the global economy is decelerating, and you have Fed governors and Fed presidents talking about the opportunity to raise rates. Why? So they can lower them when the slowdown that Cisco's Chuck Robbins is predicting hits home? Could they be all that obtuse?
All of this is comes on the back of another pounding of the oil futures, which, in a bizarre twist, is simply regarded as awful news for the economy. The thesis is simple: The money that's being saved at the gas pump is doing nothing, as we know from Nordstrom and Macy's. At the same time, the decline in oil is taking away one of the great growth stories of the era. So it's a double negative whammy!
We all know about the tragedy that unfolded that afternoon, one that put the market's sell-off in perspective. At the same time, though, pain begets gloom, and pain was the most salient emotion most of us felt about the horrendous events in France as they unfolded.
So on Sunday evening I sat down with the charts to take a look at how bad things really were out there. It's something that had special urgency for me because I had missed the close of Friday's market and because the futures were indicating a precipitous drop at the opening of trading. I had that sick feeling in the pit of my stomach that comes from when you know a beat-down lays ahead, especially when I could only find 30 charts with positive action -- this, after scanning about 1,000 pictorials of the most recent action.
Yep, there was some real technical damage out there that was getting worse, not better, and the charts showed that it was accelerating. The Twitter feed was filled with people who said they couldn't take it anymore.
Things got worse as the night progressed and I was trying to formulate my thinking about how to dovetail the horrendous events with the stock market and how much I didn't want to talk about money but recognized that's my darned job and I couldn't shirk it.
But you know what happens when you get too negative in this market? The scenario you most dread doesn't come true.
First, the futures selling, so often wrong that it's amazing we even pay attention to it, dried up as the clock ticked toward the opening. I theorized with my partner David Faber that it was entirely possible that we had is what I had seen before, which is the so-called patriotic bid -- an emotional wave of buying that comes from individuals and institutions that regard a sell-off as giving in to the terrorists. Mixed in with that bid was a conspiratorial notion that Friday's sell-off anticipated the terrorist action -- in other words, that perhaps some knew it would happen and sold stocks. I have no idea if that's true, but I know that conspiracies abound when people talk about the direction of trading, so those who believed in this kind of thing believed that the worst had already occurred. The fact that the oscillator I follow had, at last, reached oversold conditions, certainly emboldened those who thought that too much selling had occurred before the Paris tragedy.
Then a third group of buyers joined in, the ones who theorized that the Fed, which looked like a sure thing to raise rates the previous week, couldn't take action because of the palpable slowdown that a wide-scale terrorist action could cause.
Finally, a fourth group surged into the market when the price of crude rallied, perhaps because of what could be a geopolitical bid, an expectation that any wide-scale escalation of war in the Middle East could create supply problems that at last would break the back of the bearish worldwide glut.
Next thing you know, the market is flying, and all of the negativity spurs one of the biggest rallies of the quarter.
Now, though, we have to accept the fact that much of what caused the increase evaporated today. First, TJX (TJX), Home Depot (HD) and Wal-Mart (WMT) all reported excellent quarters. Let's see -- if a giant off-price apparel company, the biggest housing-related retailer and the world's largest retailer all report terrific numbers, then the Fed has to take notice, and yesterday's "Fed must pause" theory evaporates and the "Fed must raise" banner unfurls right on our screens.
Second, there's no attack on the oil infrastructure, so oil goes right back into its downward spiral.
Third, despite an amazing $143-a-share bid for Airgas (ARG) from Air Liquide, fully $36 a share above where the chemical company was trading, there was simply no pin action whatsoever.
Today serves as a reminder that this is a market that likes to do just the opposite of what you expect it to do. If there's too much strength in the economy, as represented by those retail reports, then whatever slowdown thesis that was operative the day before is now history. If oil is too weak, then you know the stock market will have a gravitational pull lower. The two -- the Fed worries and the lower oil prices -- are riptides that cannot be navigated no matter what good news we may be getting, especially when most of the good news relates to robust consumer spending, something the Fed not doubt feels it must react to with a December rate hike.
Too much bad news produces a rally. Too much good news? The rally pauses. It's exactly the opposite of what you would expect, which is why 2015 is proving so difficult for so many to make a profit.