You have to play the hand that's been dealt to you. You can't throw it back. You can't give up. You have to look at the cards and figure out how to make something work. Today's action represents attempts by several different card players to augment their hands in this new environment.
First, when I got up, the futures were down hideously, for a couple of reasons. Both Chinese imports and exports showed levels that indicate the decline in Chinese growth continues to accelerate. We now have had 13 straight months where imports slumped. No wonder copper is in free fall. No wonder there's no place to put aluminum or steel. No wonder iron is under $40, a catastrophic figure.
It's just bad over there now, as the economy frantically switches from being export- and industrial-based to consumer-based. Only one-third of the Chinese economy is based on consumer spending. Ours is two-thirds. The Chinese want their country to be like ours. Doesn't matter to investors. When we see any data that shows the big industrial engine of China sputtering, we freak out.
Things only accelerated when we heard that Anglo American, one of the five biggest mining companies in the world, is slashing 85,000 jobs. Only 135,000 people work there. These mining stocks have been obliterated. As the report leaked out, we realize just how bad this industry has become. Anglo already is down 71%. Glencore is off 72%. Vale (VALE) is down 69%, BHP (BHP) 55% and Rio Tinto (RIO) 39%. These are gigantic companies that produce raw materials that China used to consume like mad. They are gigantic users of capital equipment. They are a sign of worldwide commodity weakness.
As Anglo disseminated its news I saw oil, which had been rallying, drop a dollar and change. It's looking like $36 a barrel, which makes for another house-of-pain day for the gigantic complex of energy that, while it represents about 6% of the S&P 500, is actually much bigger because of all the oil-and-gas pipeline companies that are not in the S&P 500.
Then we get two stories that really throw me. First, Toll Brothers (TOL) reports, and the high-end homebuilder gives you a pretty good set of numbers and some excellent housing commentary about how the best is yet to come. What happens? The stock starts getting sold down before the opening bell. I mean, gets sold down big-time.
Second, Southwest Airlines (LUV), the premier airline company, comes out with terrific traffic numbers. But wait a second, there's a flipside. It looks like there's been more discounting as competition heats up. Remember, we like the airlines because of lower oil prices. However, we hate the airlines if there is discounting, Hate is trumping love right now, so the stock gets knocked down big before the opening.
Next thing you know, the futures are indicating the market is going to open down a percent. By the time the opening bell rings, there are 10 stocks down for every one that's up! That's a key ratio -- a ratio that the late Mark Haines taught me occurs when you get a contra reaction because there's an unsustainable amount of selling. He always told me that when that many people want out, you have to take the other side, and it was that kind of wisdom that caused him in March 2009 to call the bottom -- named the Haines bottom for his wisdom. Mark made very few calls when he was at CNBC. And he only made them when he thought that things were at extremes.
Now here's the problem, though. We have two groups of investors playing cards. The first group, the one that has resigned itself to the Fed raising rates, just takes its cards and throws them back. If the Fed is going to tighten at the same time the economy has taken another step down worldwide, you have to get out and out of everything. I hate this kind of thinking, but we see it all the time. It is so negative and rarely right.
Why do I hate them? Because let's think it through. If the Fed is going to tighten when the economy is getting weak, then it stands to reason that you don't want any industrials or minerals or mining stocks and you have to be careful with airlines and construction companies and auto manufacturers. You sure don't want homebuilders or any of the raw materials that go into homes.
But how about the other card players? The ones who say, OK, I have a not-so-hot diversified hand. What can I throw back to get better stocks? These card players toss out the same industrials that they may have, maybe some oils, of course, anything machinery, anything connected with a smokestack.
But they don't leave the table. What they do is immediately use the weakness of the quitters to pick up their high cards that they threw out in disgust. And what are the high cards in a slowdown? Why, it's companies that can outrun a slowdown, especially a slowdown that's exacerbated by the Fed raising when it is obvious that, despite the strong employment figures, things are looking real bad in many other areas of the economy.
So, out of that sea of red emerges some islands of green. First ones? Biotech. I saw Biogen (BIIB), which is part of the Action Alerts PLUS portfolio, and Celgene (CELG) rally within a few minutes of trading. Thanks to chartist extraordinaire Bob Lang for pointing that out. Then I saw some of the old-line drug companies rally to go with the big biotechs.
There had been some real pressure on Netflix (NFLX) and Amazon (AMZN), but they, too, reversed. And then the some of the higher-growth semiconductors turned around.
Now, I think all of this move would have been wiped out fairly easily, but oil, the coin of the realm, began to reverse, and while it never actually took off, the fact that it wasn't down emboldened buyers to come into that bedraggled group. Even some of the master limited partnerships, the oil pipeline companies, actually turned up, although, no offense to cute kittens, this could very well be a dead cat bounce.
But oil is not up so strongly that we can't continue yesterday's rally in the off-priced retailers, such as the dollar stores, and the casual dining companies save Chipotle (CMG).
Now, none of the rallies were truly strong. And many faded near the end of the day as the averages kept up their relentless gravitational pull.
Not for one minute am I saying that the entire market can rally off of slow economic growth. If the Fed has indeed made its decision to raise, you aren't going to see a recovery in a housing stock. If the airlines are back into price war mode, you won't see money go that way. Industrials will have their estimates cut as well they should. If Anglo American is laying off 85,000 workers, it is not going to need a lot more Caterpillar (CAT) machines. If there are price wars in the airline business, you shouldn't go grabbing some Boeing (BA).
There are simply more bad cards in the deck than good ones at this stage of the game, and the only thing that would change that is if China would somehow break its pathetic string of misses while the Fed says, "Hey, we will raise, but the data away from employment might make it so we have to wait a month or two."
Otherwise, it's a limited group of high cards, but they are enough to make the session a little more palatable than it seemed it would be at 9:30 on this, another day where we feel the hangover of that beautiful Friday morning where employment was strong and so were the averages, as we had total faith that the Fed was going to do the right thing.