Why do you have to buy on the way down when we get oversold like this? Why do we have to make a judgment that the moment of total pain is the moment you must act. Because as I always say, nobody ever made a dime panicking and for the last two days we have seen endless panic.
So what happened to generate this vicious positive backlash where all three averages are having their best days since January?
First, a Chinese minister indicated a softer line could be coming in trading talks. There's a thin reed if there ever was one. But when you don't know which way you're going all roads look good and traders are taking this road as a way to get to the promised land of a deal.
We will know there's a deal when presidential adviser Larry Kudlow comes out of the shadows and says that progress is being made. You can't be long enough if that happens.
Second, a Mexican official assured the media that there's real progress being made that could head off a June 10 tariff war against Mexico. We know the president has been adamant that the Mexicans have been all talk and no action in trying to stem the parade of immigrants coming to this country. We also know that the Mexican economy is very strong mostly because of the auto industry. Thirteen automakers produce about 4.5 million cars in Mexico, most of which go to America so that 5% tariff is a big deal and makes these cars much less competitive. So anything that forestalls that tariffs is excellent news for stocks.
Finally, best for last, Fed Chief Jay Powell, in a statement, said he is monitoring the trade wars closely to see if there is any economic fallout that may make him take action. If you are short stocks you have to cover, especially as Fridays' non-farm labor report looms huge as a reason for the Fed to act. I think that is a big reason for such panic buying which, by the way, is just as stupid as panic selling.
It looks like the Fed put is alive and well since the last rate hike caused such a calamity.
Now I am going to urge you not to be too complacent. This morning the president talked about how he wants every nation in NATO to pay its fair share which amounts to spending 2% of their gross domestic product. Germany pays about 1.2% although the president has rounded that down to 1%.
The president, who made those comments in a joint press conference with Prime Minister May earlier today, did not say this idly. I think it is a not-so-veiled threat to slap tariffs on German cars destined for the United States whether made in Germany or made in Mexico. Why not? The president thinks that tariffs have ignited the base and force other countries to pay, which helps close the budget deficit. I think Germany may be next, so don't get cocky and ignore the rally. Instead, now that we have taken off be looking for things to sell.
Further we don't know whether we can trust Jay Powell. He can monitor away but he just raised rates not that long ago and President Trump keeps hectoring him to cut rates. It would look terrible if he reacted that quickly. The optimistic comments about a possible cutting should never be confused with an actual cut.
And, oh my, do we have short memories. Yesterday Washington declared war on Facebook (FB) , Alphabet (GOOGL) and Apple (AAPL) . How quickly we forget. I sure don't. I am very concerned that if the trade talks with China get ugly again the president will remind us that the Justice Department and the FTC are gunning for all of these companies. It's not like the president ever declared a peace treaty with Amazon (AMZN) from last year's harangue either.
Now these FAANG stocks rallied strongly but they are still well below where they were a week ago and it wouldn't shock me if we get some negative rhetoric about Facebook given that both the House and the FTC are none too happy about how this company had handled itself.
Apple? The rap is simple. Apple takes a big chunk of what you sell at the APP store and not everyone thinks it's fair. I will have more on that later but suffice it to say that if the China talks don't restart I think you can expect a 10% tariff on Apple goods made in China that are exported here. I think that's outrageous given how 2 million people are employed one way or another in this country including building apps, like the ones discussed yesterday in Cupertino, something that was pretty rudely interrupted by a leak about a Justice Department official and the need to investigate none other than the app store. When it is pointed out that such a tariff just plays right into the hands of Samsung (SSNLF) , which will not have a tariff on its goods because it is made in South Korea, the White House tends to be dismissive of that kind of thinking. What matters to them is jobs coming back here or never should have moved over there. When it is pointed out to people in the White House that those jobs were never here to begin with those who point that out are branded as naïve, Chinese apologists.
Now there are some positives that cannot be ignored. The banks moved up in part because they aren't able to make as much money if the economy slows and Powell's rate cut may ignite the group even further.
We got multiple buys on the stock of Uber (UBER) which is inching up to where it came public at $45. While it may inspire sells there as people love to get back to even, the story of an ecosystem, not a cab company, was made by multiple research firms.
Finally, the cloud kings which were shelled horribly the last few days, sounded like they had a pulse today and that's a good sign because it can't all be FAANG. That's too narrow
Can it go any higher? Of course it can as the president loves it when the Dow Jones Industrial Average goes higher. He seems less willing to help the Nasdaq where Alphabet, Amazon, Apple and Facebook reside. Today's rally was led by industrials as interest rates went up, something that companies that need a strong economy crave. The drug stocks haven't been in any politicians' crosshairs. That's not going to last. And finally the rally in the semiconductors was pronounced, too pronounced given that the group is slowing.
So here's my take: once again the proprietary oscillator that I used to pick bottoms worked. Remember that, because it's the real reason why a series of statements from non-luminaries could move the market so much when the Fed declares that it's just going to its job, but it might even cut rates to battle the endless war that Trump's waging.