It's almost as if someone hacked the president's twitter account to goose up the stock market on a positive tweet about China, only to see it then crater when the real goods come out about how rotten the relations really are.
That's how the stock market could roll over after an incredibly bullish opening - up 368 Dow Jones points - before giving it all up and then some, again confirming the operative term for this tape: treacherous.
Let me set the scene.
This morning I got up at 3:30, and even though Europe was looking real good, our futures were down double digits and I expected to give back some of the gains off the bottom of yesterday's strange down 500 to flat session on the Dow Jones Averages.
Over the next few hours the market rallied back to even and then surged into the black around 7:00 as we began to hear encouraging things about the low-level talks between the United States and China over trying to get a trade deal. We started hearing that the Chinese might be giving in on cars, removing tariffs, that there's some desire on the part of the Chinese to stop the onerous joint ventures they force on our companies doing business in China and to go away from stealing our intellectual property. Those are at the crux of what even the hardliners in the White House are looking for.
Then at 8:19 the president tweeted: "Very productive conversations going on with China! Watch for some important announcements."
Holy cow. What an opportunity to buy the stock market. You have an upcoming greenlight in what had been some real bitterness post the arrest of the CFO of Huawei, one of China's largest companies, in Canada on the very same day that President Trump indicated that the Chinese really want a deal that would be good for the U.S. Bam! The next thing you know the market roars. Remember, there are only two issues we seem to care about, one, whether Fed Chief Jerome Powell knows that he called the top the economic cycle when he started going on about the need for four rate hikes in some intemperate comments at the beginning of October and two, that we reach some enforceable deal with China that no longer gives away the store.
The next thing you know, though, is the president starts talking about the wall and a government shutdown if he didn't get his way with Congress. Market participants hate government closures. Despise them. So that caused a pull back from the highs.
And then at 11:35 the Washington Post headed, "Trump Administration to Condemn China over hacking and economic espionage, escalating tensions between superpowers."
We will soon hear about "a series of actions this week to call out Beijing for what it says are China's continued efforts to steal America's trade secrets and advanced technologies and compromise sensitive government and corporate computers," the article says. "Multiple government agencies are expected to condemn China, citing a documented campaign of economic espionage and the alleged violation of a landmark 2015 pact to refrain from hacking for commercial gain." One of those agencies? The Justice Department, which plans to indict multiple hackers suspected of working for the Chinese intelligence service and participating in a long-running espionage campaign that targeted U.S. networks.
Now do you see why I say that if you had to fool buyers more than Trump did it is hard to imagine how to do it. So much for productive conversations. The next announcements are most likely announcements about law suits.
Now this hacking news should come as no surprise to watchers of Mad Money or readers of this column. We just had FireEye (FEYE) on not long ago for our Veterans Day, and they were talking about a dramatic pick-up in Chinese espionage, something that's been echoed in a bunch of cybersecurity conference calls. It's part and parcel with the Chinese plan to have worldwide hegemony by 2025 at the expense of the U.S. which, with its substantial imports, is basically funding the plan.
Now this market has the memory of a mayfly and after dropping almost 200 points - about a 500 point swing - we started rallying again. But my prediction is that when the formal announcements come out we will have another reversal of fortune.
What are you supposed do to in these markets where you can get picked off so easily by a bullish presidential tweet followed up by a bearish Washington Post piece followed by a rip-snorting rally on next to nothing?
I think you have to go back to broad themes that hold up through this madness because they involve secular growth stories that do not have much to do with China.
What do I mean? How about the cloud kings, companies like Salesforce (CRM) and Splunk (SPLK) and VMware (VMW) and Workday (WDAY) that always come down on days like today. I would purchase some Palo Alto Networks (PANW) , which my charitable trust has been buying. Need to know more? Join the Action Alerts PLUS club to find out why this one is perfect for the China hack syndrome.
I like health care, particularly managed care, think UnitedHealth (UNH) or Centene (CNC) which has a meeting at the end of the week. I like medicines and devices, especially ones with ground-breaking drugs like Merck (MRK) or J&J (JNJ) . And now that the market's come down so much I am looking for accidentally high yielders, companies with good balance sheets with stocks that yield more than 4%, something that's pretty attractive given that the economy has clearly softened and even a rate hike next week won't kill the story. One you might consider? AT&T (T) , which yields 6.7% and has enough cash flow not only to cover it but to raise the dividend.
I think the story of this market is that you have to buy on the way down but in what we call wide scales where if you wanted to buy, say, some Microsoft (MSFT) , which had a terrific cloud business, you wait for a swoon, and put orders in, say for 25 when the stock goes down from $108 to $106, another 25 at $104 and then 50 at $100. If you don't get it all in, that's fine.
Notice what I am trying to stay away from: anything remotely connected to the Chinese economy, anything that could be boycotted by China in retaliation or anything that has to do with international industrials or oils. They just aren't worth it unless they have accidentally high yields and can afford to pay them. I feel the same way about the banks. They are in the grips of a terrible bear market and yet they still don't yield more than 4% which would, indeed, make me attracted to them.
I know this market is nauseating but I also know that it is out of synch with individual stocks. Many of the ETFs, for instance, that have been put together for big fees, have a mixture of stocks that can be hurt by China and stocks that can't. Better to pick individual stocks and forego the "group" risk you are exposing yourself to. I am specifically excluding larger indices like the S&P 500 which I am cool with provided you don't buy at once.
We have to call a spade a spade; the market isn't volatile, it is treacherous. Don't let the treachery get to you. Use it to your advantage or don't use it at all.
(Salesforce, Palo Alto Networks, UnitedHealth, Johnson & Johnson, Microsoft are holdings in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells CRM, PANW, UNH, JNJ, or MSFT? Learn more now.)