Traders are creatures of habit. They respect ranges and they know when stocks are stuck in a range and know when they can't go any higher.
Or at least, until this particular market they thought they knew.
This stock market may seem like none other, and no two are alike. However, both in the mid-1980s and the mid-1990s we experienced markets like this, and they were incredibly intimidating to traders because of the incredible amount of power behind these moves.
Remember, we didn't get to the Dow 20,000s all by cloud-of-dust running. Sometimes, like now, we went through the air.
Take the forward pass of the stock of Caterpillar (CAT) . For a month and a half, it hung in the $130s after a massive upside earnings surprise. So, the smart trade was to sell it at the top of the range and then try to recover it as it got hit to the bottom -- all the while thinking it would have to retrace at least half of that magnificent move higher from the dynamite quarter.
Next thing you know, the stock is in the $140s off some analyst chatter and a couple of good monthly numbers -- that's all, go back and look -- and it bursts out from the line, and the previous range looks like history.
Close followers of stocks have seen this pattern multitudinous times in the last few months, and it is a surreal pattern for traders. They can't get over the concept that Norfolk Southern's (NSC) stock has rallied so much, or FedEx's (FDX) , or Union Pacific's (UNP) . They can't comprehend a stock like Boeing (BA) , which just seems to lift off every single day, sometimes by one or two points before the opening bell.
Now, to understand moves like this, all we have is history. And I can tell you that history is on the bulls' side. Take the 1980s. Back then, we had stocks like that of Coca Cola (KO) and Merck (MRK) and Pepsico (PEP) and Bristol Myers (BMY) , which were forever blowing through ranges. It was almost eerie that these stocks could put on so much heft. I remember a BusinessWeek cover that questioned how Coca Cola could have a bigger market cap than General Motors (GM) .
No one could believe the top ranges of these soft goods that had been so entrenched for so long didn't provide a ceiling, and that some soft drink and pharma stocks would just keep blowing higher while the industrials languished. They didn't bend metal. They didn't make machines. They simply produced sugar water and pills. Well, we saw how that came out; industrial America passed the torch to the soft goods, for good. It would never be the same.
Then there was another era in the 1990s when we simply couldn't believe how tech exploded first through the P.C. and then through the internet. The stocks of Action Alerts PLUS charity portfolio holding Microsoft (MSFT) and Intel (INTC) galloped. They tore through targets like a knife through cream cheese. Butter's too tensile an analogy. Analysts would be forced to raise their goals furiously, just to keep up with the stocks themselves.
I know that many analysts who are new to the business would question my rigor in calling out these leaps. Many traders would argue it's not natural for a stock like Dollar Tree to have such an insane move. They would question the sanity of someone buying Deere after this 50-point run. They would puzzle over how the stock of JP Morgan (JPM) could break out above $100, or how American Express (AXP) or Bank of America (BAC) vault through $100 and $30, respectively, without them.
Now, you would think that traders would know by now that this is no ordinary market. But they keep thinking in limited and linear way, the way their ilk watched helpless as Coke and Merck captivated buyers, or Cisco (CSCO) and Qualcomm (QCOM) left so many stocks behind in the late '90s. They are bounded by convention and are conditioned to believe that these kinds of breakouts are meant to be bet against.
It's this kind of what I would call "range skepticism" that's keeping so many traders on the sidelines or making them short every rip, which has been a terrible mistake.
I do not know what brings back stocks to those old ranges we knew so well, other than a wholesale move down that right now doesn't seem in the cards.
Our confusion about all of this, of course, is made deeper because of all the hedge fund manager letters and pronouncements we had to endure, which said the market was no good and headed south. So many smart people were plain out-fooled, yet we kept paying attention to their jeremiads.
I say, get used to the breakouts. They are -- to use a despicable term that hedge fund managers like so much -- the new normal.