this is what is giving him ideas about staying in cyclicals
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Relying on the Charts
By James J. Cramer
5/14/99 12:06 PM ET
For about the 15 billionth time in the past 10 years, I find myself in near total agreement with Helene Meisler. I like the cyclicals and think they can be bought; I hate the stuff she hates. I am selling the stuff she says should be sold, in the rare intersection where I am long and she recommends the boot.
When my wife and I used to trade together, we always found Helene's work to be a great mediator when the Trading Goddess and I disagreed.
Let's say I thought Coke (KO:NYSE) should be kept, and she hated Coke. Helene's work would then be the accepted arbiter.
Ten years later and the wife is home with the kids and Helene is in Singapore -- out of touch except for this site. And her work continues to confirm our fears.
I think one of the reasons why that may be is that when things are in flux and you can't get conviction, you fall back on the charts and their wise interpreters. When the bonds are your enemy, even when the fundamentals in the stock market seem steady, you can't have surety. But you can have Meisler. That's about the best thing you are going to get in a time like this.
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Back to the Starting Line
By Helene Meisler
Special to TheStreet.com
5/14/99 9:47 AM ET
The market moves so fast these days that if you blink or turn away from the screen, you might just miss a big move in the market. Well, at least some kind of move. Bob Rubin's resignation decline lasted all of 15 minutes. Perhaps that was his 15 minutes of fame, at least according to so many pundits: It seemed unanimous that while Rubin did a good job, he won't be missed.
Can you imagine that? Some said he was the best Treasury secretary since Alexander Hamilton, yet he won't be missed? So many insisted that he was just one cog in the wheel that can easily be replaced. Perhaps that is true. I don't have a strong opinion either way, but what I do find interesting is that if these folks believe that Rubin won't be missed, why is the media focusing so much attention on his resignation? It certainly wasn't a slow news week, was it?
Once again, we have Russia falling apart, yet no one seems to care. The riots at the U.S. Embassy in China were largely ignored. (And I live in Asia -- China was not the only country where there were riots against the U.S.) Even Kosovo was shoved off the front page for a day in favor of Rubin's resignation. Yet he won't be missed?
Ah, but this is the same group of strategists who thought the market was great when technology and the Internet were hot and everything else was not. But now that tech has cooled off and the Internet stocks have lost their luster, these strategists say it's OK because there's been a broadening out of the market. Hmm, seems to me those great cyclical stocks have gone nowhere for weeks now. Neither has tech. Or the retailers. Or the drugs. Or the banks. Broad? Maybe, but more likely that nothing has moved in tandem.
The drugs, out of favor for the past two months, found some bottom-fishers in the past few days. Take Schering-Plough (SGP:NYSE) for example. A month ago, it was trading at 60, and now it's at 50. Last year in mid-May, the stock was trading at 45. The market has zoomed ahead a zillion points in 12 months, yet Schering-Plough has done nothing.
And how 'bout Intel (INTC:Nasdaq)? It traded at 72 in January, and now it's at 60. Microsoft (MSFT:Nasdaq) is no different. Yahoo! (YHOO:Nasdaq) was also higher at the beginning of the year than it is now. Yet the Nasdaq has tacked on 200 points since the beginning of the year, almost 10%.
Oh sure, plenty of stocks are higher now than they were before, such cyclicals as Caterpillar (CAT:NYSE), Alcoa (AA:NYSE), AlliedSignal (ALD:NYSE) and International Paper (IP:NYSE). Oh, wait a minute, Caterpillar was 61 last May, exactly where it closed yesterday. And International Paper traded right here in April and May of last year too. (Did you notice how IBM (IBM:NYSE) was 90 points of the 107 that the DJIA tacked on yesterday? J.P. Morgan (JPM:NYSE) was probably the rest of it!)
These are just a few examples of why the number of stocks at new 52-week highs is an important indicator. It matches stocks against themselves. How are they doing relative to their own performance one year ago? In this case, not very well.
I have only reproduced the chart back 2 1/2 years (too much more data made it look scrunchy and illegible) but you can see how when the market is rising in a healthy manner, the number of stocks at new highs exceeds 200, or even 300 in most cases. We currently are running around 100 new highs each day. That is simply not healthy.
This is not an indicator that tells you when to sell; it is an indicator that depicts how individual stocks are trading. Let's just say you're a buy-and-hold type of investor, and you bought Cisco (CSCO:Nasdaq) in January. Let's say you did not catch the high, but rather bought it at 110 in the middle of the month. The stock runs to 118 the first week of February. You feel brilliant. It immediately plunges to 92. Now you feel dumb for not selling it at 118. You hang on because you're a long-term investor. In early April, you are rewarded as Cisco climbs back to 120, making a new high.
Everything is great now, right? The stock's at a new high -- it's gotta keep on going. Nope. Back to par in just over a week. Back to 120 a few days later. Another correction, then great earnings. Where is it now? Same place it was in early February, at 118. An investor has not made money in this stock in the past four months because this stock can't seem to make a new high and maintain it. This does not make it a negative chart, but it does depict how hard it's been to make money in such former winners these days. They are correcting their big price run-ups from the October lows. This is why we care about the number of stocks making new highs. And right now, they are telling us that very few stocks have caught a real uptrend lately.
The cyclicals are fine charts but many (not all) are in the same place tech was in January: ready to consolidate their big gains. For the most part, the huge run-up phase is over for now. It's correction time for them. In the DJIA, the only name I write down now as a buyable cyclical is Union Carbide (UK:NYSE) (perhaps that takeover news will resurface?). Hewlett-Packard (HWP:NYSE) is still a really good chart in the DJIA, too; it measures to well over par.
Elsewhere, Colgate (CL:NYSE) will looks good in here. So does Gannett (GCI:NYSE).
On the negative side, General Electric (GE:NYSE) is really having some trouble on the upside these days. McDonald's (MCD:NYSE) acts awful and should be sold into any bounce.
Outside the DJIA, Anheuser-Busch (BUD:NYSE) should be sold into this rally. Gap (GPS:NYSE) (why couldn't it rally on the best earnings ever?!) should bounce and be sold into that bounce. The same is true for Dayton-Hudson (DH:NYSE) and Home Depot (HD:NYSE). Merrill Lynch (MER:NYSE) has had enough rallying for now.
So, maybe Rubin will not be missed, and the markets will not care that he is gone. But that has nothing to do with the action of stocks. Until stocks making new highs can do so and maintain those highs, it is unlikely that this rally can sustain itself much longer. Think of a correction as starting a race from the beginning. What we need is everyone back at the starting line at the same time so they can all take off together. Until then, I remain cautious.
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