When you have to sell before Sept. 17, this is what you get, a market that opens up but can't stay up, because people want to get out when the getting is good.
Last week we talked about how, seasonally, the 17th has been the beginning of a significant decline in the markets. We are relying on the work of Larry Williams, perhaps the greatest technician of our era, not because he can observe obscure head-and-shoulders formations or "W"s or cups and handles, but because he spots patterns that are worth worrying about or can be profited from and we are about to head into the most negative of moments.
Today, as I saw all week, this market sucks in those who want to bottom fish or scalp only to find themselves in a black hole, a tsunami of selling, that makes one regret that there seemed like an opportunity to buy.
This pattern is often a prelude to buyers' remorse and exhaustion. It's why, I believe, Williams will be right and the market is on shakier ground than we think.
What causes the pattern of decline? Tolstoy said it best in the opening lines of "Anna Karenina." What he said about families could be applied to markets: All bull markets are alike, but each selloff is unhappy in its own way. But right about now we get a confluence of bad that causes the selloff, an accumulation of disappointment and confusion to cause they buyers to say they have had enough.
First, I like to look at leadership. How broad is it? Every day there's a different group of leaders, but we have to ask what has staying power. Right now, the only part of this market that has staying power is the worst part: oil and gas. Now there are algorithms that are set to buy stocks when oil is up, because it is supposed to mean that the economy is strong and you can buy a whole lot of stocks.
Those algorithms are wrong. These days when oil goes up, nothing happens except oil stocks go up and they don't have the bullish cause one bit. Instead, they help shareholders of Occidental (OXY) , Pioneer (PXD) , Devon (DVN) and Chevron (CVX) . By itself, I like Occidental, which tends to go up the most, because it needs oil higher more than anything else. No, I don't mean to split hairs, but if you are a buyer of these stocks you need to know that natural gas has become the most scarce commodity. I like these stocks, but, I am not under any illusion that they can lead us anywhere except down. Oil and gas have become parts of the basket of raw costs that has made this moment untenable.
When these stocks lead, you always get the sense that oil is about to bust out. I remain convinced that when oil gets to $70, as it is today, the Saudis turn on the spigot and bring oil down again so producers don't make too much money and therefore start drilling.
It gets worse. Unlike the stupid algorithms that presume higher oil and gas means a better economy, we are beginning to run into the opposite conclusion: higher petroleum complex means higher inflation means lower prices for stocks. These days we are seeing a reverberation of costs throughout what we are calling "the system." Transport costs are climbing at a record pace. Plastics are through the roof. That unholy matrimony of superstorm Uri and Hurricane Ida has meant that prices of everything from paper to plastic products to basics like boxes and disposable cups are going up in price, so that we can't believe there can be no let-up. Aluminum, a huge energy user, is at prices we haven't seen in ages. Inflation is rolling through the system seemingly everywhere. It is hard to find anything that's the same price as it was a year ago and ne'er impossible to find anything that's lower.
If that were just it, we'd look the other way. But we have another confluence that's part of the lexicon that hasn't been in ages: shortages. Monday morning 3M (MMM) talked about inflation being higher than expected and business being rocked by forecasts that just aren't negative enough. Inflation and supply chain interruptions are endemic. That's how 3M could forecast a down 6% auto production when just a few months ago 3M thought would be down 3%.
3M is not alone. If anything it is a precursor to what other industrials are going to say. Most of them are already down for the year without much of a concomitant upside for any stock at all. At the same time, we are seeing the transports doing worse, because of the ports, both here and in Asia. What's incredible for me is that we want to say "of course" these things are bad, but each time we read them these days, investors act surprised and sell.
Same with retail. Almost every retailer is scrambling to get product for the holidays and it seems as if much of what is sought after can't be found or is stalled off some port somewhere, perhaps a COVID-struck port in China or Vietnam with the latter complicated by ports that aren't scaling. Just Monday we got a report from a brokerage house that Nike (NKE) will likely miss the quarter because of an outbreak of COVID in Vietnam. That stock can't handle any disappointment.
Neither can many others.
The strange thing is that tech had been seen as a safe haven and got bid up all over the place. But we don't have a substantive reason to keep buying. There's no gold rush. They can only go up so far without information or news and there isn't any. This is the group that has the most to lose going into the 17th and I don't expect a big move up into that seasonal weakness. Only the semiconductors put on a decent show, although the source of that strength eluded everyone I talked to. I don't trust that rally as far as I can throw it and in the interim we see tech after tech IPO that no one really wants, but we can't do anything about it.
Sure, on any given day, we see a relief rally. Monday we saw some health care stocks go higher, chiefly the health insurers. The banks put on a decent show. I like Wells Fargo (WFC) , a stock down hard because of a $250 million federal fine for things the old guard did, not the new one. The company's stock lost $20 billion market cap in anticipation of a much larger punishment but has only made up a fraction of that decline.
I don't want to be too aggressive about anything, though, because if that litany of ports, freight, raw costs and overvaluation isn't enough, we have the Democrats trying to raise taxes, especially for corporations and that doesn't help the bull cause, either.
I have said over and over again that September is the cruelest month and it's playing out that way with rolling corrections all over the place. What goes up today will go down tomorrow and vice- versa. That's a recipe to lose money. Better just to keep some cash, own some gold and wait, unless you are a trader and if that's the case, heed the Williams warning and do some selling today tomorrow and Thursday, if only just to get ahead of all of those who don't know that Sept. 17 starts the toughest period of the year.
(WFC is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells this or other stocks? Learn more now.)