You want answers to the rally. You want something concrete. You want to know why it is happening and how long it can last. Is this move sustainable?
Here's what I know. When you have a rally based on the quicksand of a quiet weekend, one where nothing really happened, it's easy to foment reasons. I could just say, as I did on Twitter this morning, this is a classic case of a bear market rally, that means one that traps you into thinking that the worst is over and it's okay to come in and start buying.
Of course, if you subscribe to that logic, the time to buy was Friday when it was the worst, when even a big football win couldn't make up for the mistake of taking down some stocks on that miserable afternoon.
In retrospect buying that particular dip worked, something that has not been the case for much of the year beyond short-lived gains.
That's not history. Prologue. Prequel.
Now let's get to what we can expect, what's real and what's not.
First, this market got very oversold on Friday; we just reached minus 5 on the proprietary S&P oscillator that I subscribed to and have subscribed to for 30 years. That's a sign that selling is too aggressive and, like a forest fire, can burn out on its own accord if there's no more oxygen.
Even in a bear market, and I think all but a handful of stocks are in a bear market, so why not call it one, the oscillator has worked. We have had three significant corrections within the bear market that have produced that level of too aggressive selling and we got, on average, a 5% bounce after we hit that marker.
So, trading history, which is pretty accurate, but not perfect, says that we will have more of a bounce than we have had today given the oscillator reading and subsequent rebound.
Anything concrete to justify the recovery beyond the oscillates pressure. Some, somethings to hold your hat on.
First, United Technologies (UTX) , giant conglomerate, got its long-awaited approval for its deal to buy Rockwell Collins (COL) from China's State Administration for Markets or SAMR. The deal closes in three days. Now others will feel similarly emboldened to do deals and still others will say the Great Thaw has begun ahead of the G-20 meeting that starts at the end of the week. The approval, one year after the request was submitted, does matter because the Chinese have no reason to approve it ahead of the G-20 except as a gesture of good will. The deal was subject to approval because United Technologies makes so many parts for the Chinese manufacturers and it could have pulled out without approval. Still, you can't help but wonder if President Trump puts on his peace face this weekend making Vice President Pence into the hot warrior and he into the happy warrior.
Sorry, it's all phony in the end: Trump wants regime change in China and will do anything, including hurt U.S. profits even for Apple's (AAPL) iPhone, because he believes we are funding Chinese worldwide ambitious including what he sees as the insidious Belt and Road initiative of sometimes dastardly foreign aid with real strings attached. But anything can happen in a couple of days of smiles, including chatter about a stay of trade execution also known as the 25% tariff that comes into play in January if there's not some agreement between the two countries. I reiterate that a 25% tariff on so many of the things we buy from China would be quite bad for the U.S. consumer and she doesn't see it coming.
2. We got a decline in the key Baker Hughes rig count on Friday. Sure it was only 3 rigs off of an 888 basis but close observers of the oil market have to be betting that the $50 level is the line where drilling is just not profitable in the Permian because there's not enough pipe to take it to market. The discounts, sometimes as much as $15 below the posted West Texas price make it so these companies are losing money on every barrel they are pumping. There's a lot false stories floating around that the balance sheets are stressed for oils. The fact is that it's the opposite. They are much stronger than the last go-round down to $26 because they never did increase their drilling budgets as we thought they would and many raised equity. An oil bottom does put less pressure on equities as we know that there are plenty of funds that own both and have to sell equities to fund their oil futures contracts or blow out of oil outright. The reality here? If the prices cut back our drilling at all, and they will, then there could be a positive equilibrium. These prices are good prices for the consumer at the pump and will cut back drilling just enough to cause layoffs in what was the hottest job market in America.
3. The Fed itself could be a source of solace this week as Chief Jay Powell speaks Wednesday and will be hard pressed NOT to show his hand. Any sign that he says "one and wait" instead of his imprudent "one and three," meaning that he raises once in December and three times in 2019, he will be viewed as pure gold. He caused half of this bear market - the other half being caused by Pence in his Containment Doctrine laid out on October 4th at the Hudson Institute. A prudent statement by Powell based on slower housing and autos - thank you GM (GM) for the gigantic pre-Christmas layoffs today - and the declines in commodity pricing would ignite a vicious short squeeze and get us to the 5% rally that has come post minus 5 on the aforementioned oscillator. Powell needs the cover to give us one and wait. He can say he has to raise in December because of the aggressive consumer spending for the holidays but then he has to wait for the tariff news and the impact of the post-Christmas retail closings which should be fast and furious.
4. It looks like we are getting some resolution, at last, with Brexit and with the Italian budget crisis as seen by the cooling of the rhetoric of the interminable British ineptitude around the long-awaited good riddance as well as a higher Italian stock market. I am sure that you can say these issues could cause the dollar to lose value and which could give a boost to earnings. Plus, never underestimate how the big hedge funds like to link Europe to our banks. No wonder that JP Morgan's (JPM) stock rallied today. These stupid hedge fund managers always seem to buy the stock of that great bank when Europe goes up even as it's a total false tell, a term which is an homage to the late Ricky Jay who once played cards with me and knew everything I was about to do before I did it. He was the greatest magician of our time save David Blaine who actually has other worldly powers.
Now to be sure this market can be as hateful as ever. Apple's stock was down again and it's in a perma-bear phase that will only be cured after we get multiple downgrades and a down opening that produces a reversal. The transports, which have struggled mightily to stay in bull market territory, are now rolling over because of oil. Yet the oil drillers couldn't even sustain a rally.
But here's the bottom line: We get a rally reprieve, especially if we get a good number and forecast from Salesforce.com (CRM) after the bell tomorrow. Never, though, confuse a bounce with a sustained move because the only sustained move we have seen since the October 3-4 watershed is, ultimately, one that goes down as the bear market rolls along, stopping only when others, besides me, call it that.