Sometimes it is just a confluence, a few negatives here, a couple of oddities there, throw in some history and you begin to get perturbed. Toss in some virtual for even suggesting some selling and you know it's there, a moment in time where taking something off the table seems logical and downright commonsensical.
That's what happened Wednesday, a recognition that both the bull camp and the bear camp can't be right and the market decided that the bear camp has the edge for the moment.
For the moment, let's be judgment-free. Let me give you some evidence, some new factors that have to give you pause, and therefore a reason to do some selling.
First, the "Awaken American" trade has taken a turn for the worse. There's been a disturbing spike in cases in Alabama, Arizona, North Carolina, South Carolina and Texas, a infection level so high that the New York, New Jersey and Connecticut governors have slapped a 14-day quarantine on travelers from hot spot states. That's just plain bad news for everything from the airlines, which were just making a comeback, to any of the travel and leisure companies in New York that were counting on a return of visitors.
Remember, I said that either the Awaken trade or the stay-and-work-at-home trade would prevail. It looks like it's the latter, but the problem with those stocks is that they have run so much that they have gotten to nosebleed territory. What makes me say that? Simple: the Nasdaq index is up the most since the fourth quarter of 1999.
Now, as someone who has been around for a while, I never want to hear anything that even remotely sounds like that quarter, where the high fliers exploded to insane levels in a series of parabolic moves only to crash in the next quarter.
But as CNBC financial journalist David Faber reminded me, those prices back then were absurd, given the lack of earnings or even sales of some of these companies. If you are talking about the big five now, Alphabet (GOOGL) , Amazon (AMZN) , Apple (AAPL) , Facebook (FB) and Microsoft (MSFT) you are talking about immensely profitable companies. We are not going to see these stocks be rolled back to nothingness. Just the opposite. I expect them to right themselves rather soon. And no, I am not to count out the Zooms (ZM) and Oktas (OKTA) and RingCentrals (RNG) and Twilios (TWLO) and Etsys (ETSY) and Wixes (WIX) , either. But you have to understand that eight-straight days of up for these stocks is unnatural and they are going to bring in sellers.
Every one of these big sales like Wednesday's has brought in new buyers. It could happen again as we show using the work of Larry Williams. Larry demonstrated that historically buying stocks two days before the July 4 holiday has almost always produced big gains. So, history favors the bulls on those two days, but when we got sellers Wednesday, there seemed to be no price that attracted much interest.
There's something else, however, that's come to the fore with the failed America Awakening trade-- the resurgence of Joe Biden. As The New York Times wrote in a story on the bottom left of the page, "Biden's War Chest Swells Along With the Polls."
Hate him or like him, we know that President Donald Trump favors a higher stock market. Biden? I think we can safely say he favors higher taxes, particularly on the rich and on corporations. Biden apparently plans to increase the recently slashed corporate taxes, which would knock a considerable chunk of profits from the S&P 500, making stocks much more expensive. He could also move to make capital gains equal to ordinary income, given that the rich accrue capital gains at a far greater level than the middle class. That would cause a rush in selling.
Now, again, the election is far away. But America wants things to go back to normal, including sports, and if southern teams aren't allowed to play teams in New York City, you aren't getting a season. Any season, unless all players are stored in a box in some place like we keep hearing might occur in Florida. The New York basketball teams are so bad, though, it may not matter.
How about froth? It's pretty textbook. If you eyeball the stocks that retail's buying, two sectors jump out at you: airlines and cruise lines. If you wanted to know which are the two worse sectors out there when it comes to balance sheets, customers and regulation, it's those two. The other ones that startle? The huge number of stocks that are too small to talk about here. There are more tout boards and non-fundamental gurus around right now than I have seen in ages. Not good.
The penny stocks? You know my feeling about those. They tend to be pump and dump schemes. But the airlines and the cruise ships? They are being kept alive by the Treasury and the Fed in the first case and the fed in the second. That tends to be good for the bondholders, but not so hot for the common stock holders and it's the latter that's being bought, not the former.
A couple of other frets: Gold is soaring, which has historically been bad news for stocks. After going up for ages, oil now seems headed down, because of high inventories.
Finally, big institutional buyers seem to lap up every price target raise that any analyst comes up with, even if the reasoning is repetitive and specious. Stocks that go up on the same old same old over and over again are traveling on an ill-tailwind that can't last.
Now I want to be clear about the confluence. It can be un-confluenced. The virus can be tamed by masks and distancing and the morbidity rate is now much lower. Biden has not proven himself to be an ideal candidate. Price declines can make the stocks of high-growth companies attractive, although that's not the case with bad ones with terrible balance sheets. Oil can reverse up on demand. Gold can go down on supply. The purveyors of froth can be blown out.
Most important, it's awfully hard to stay in cash, given how it yields pretty much nothing. Bonds represent very little value, especially the high quality product. The yields on some of the great American companies with little economic sensitivity will beckon as the stocks go lower. Most important, the biggest companies, the ones that have led this rally, are not outrageously expensive. There are too many momentum players in everything, but the momentum players in the big gun stocks will disappear quickly leaving buying opportunities.
This brings me to the curse word of our ages "sell."
I said Tuesday to trim positions and raise some cash. My comments were greeted not only with contempt, but with people telling me I didn't know what I was talking about, that I was urging people to incur taxes or to leave the table when stocks have been the best long term investments.
I never said leave the table. I said take something off the table. I said you can raise cash so you can buy back stocks at better prices or just create a more conservative posture given the uncertainty ahead. And, when I hear the sirens of buy and hold I think buy and homework, and the homework on some of these stocks shows suboptimal fundamentals. Oh, the tax man? You know when you don't worry about him? When you have no profits, which is what occurred in 2000 and 2007. The bottom line: When I am castigated for having horse sense I have two words for you: "good luck."