Can we trust this market? It remains treacherous but the constant in trying to find a bottom in the overall market is that when it gets real oversold, when it sells down to minus five on the S&P oscillator that I pay for, you have to cover your shorts and do some buying. On Friday we went through minus five.
Now the unnerving thing about this market is that when it gets on a negative roll it blows through all convention. Remember the Christmas rally thesis? Out the door because of the Fed. Remember the gridlock thesis post the election? Out the door with the government shutdown even as my historical work says you have to buy the shutdown, not sell it, because it is almost always factored into the stock market ahead of the closing. Remember the idea that the stock market can trade to a premium at the beginning of a tightening cycle as long as the economy stays strong? This time its only hurt you to think that way because the Fed chief outlined a course of repeated Fed tightenings for next year and has yet to fully discredit that view. Remember the thesis that the market usually trades up in the third year of a first-time president? The endless investigations of his business dealings seems to put an end to that line of bullishness. Remember how the yield curve is supposed to have inflection at this time of the cycle with employment robust? Worldwide manipulations of yield curves have left our bonds with what I would call most favored nation status putting unnatural downward pressure on longer term yields, something that shouldn't be happening if the Fed also sells its enormous treasure trove of bonds. Who would have thought that the Fed would turn huge gains into losses at its own hand? It's almost too silly to believe.
Remember the 'Art of the Deal'? The president has been trying to get tariff deals through with every country except China where he wants total capitulation. Meanwhile no deal has yet to be approved and now Congress is going to debate the new deals with Canada and Mexico, the United States Mexico Canada Agreement or USMCA. If the inability to pass a vote to fund the Mexican wall without a Democratic majority in Congress is a prelude, perhaps USMCA will fail too.
All of these reversals of typical fortune are taking a severe toll on investor confidence. Money has been flooding out of stocks. It often seems like there is nothing safe to buy. Witness the incredible slaughter of Johnson & Johnson (JNJ) by a Reuters piece that literally had no new revelations and I have been through the article on a point by point basis measuring what had been out versus what we sellers thought was new.
All of these issues almost make you wish for a crash so we can get the downside over with. Unfortunately a true bear market does not let that happen. Hence we find the dribble, dribble, dribble, bearish rotation that has exhausted all but the hearties of investors and the brain dead ones who would never sell no matter what. Oddly I think ultimately it will prove to be the sellers who are brain dead, not the owners. But right how that's way too good to be true.
(Johnson & Johnson is a holding in Jim Cramer's Action Alerts PLUS member club. Want to be alerted before Jim Cramer buys or sells JNJ? Learn more now.)
