Bull and Baird Blog - May 27, 2014

Equities start the day higher as our long weekend tragically ends.  I’ll tell you what, there’s nothing that halts work momentum more than a 3 day weekend.  When I sat down today I felt like I was in the Twilight zone.  That being said, I did learn a few lessons over the past few days I’d like to convey in a quasi-humorous fashion.  First, I can’t cook ribs to save my life.  They are either dry as a bone or tough as nails.  I can cook couscous and scallops but not a slab of meat.  I feel like a failure of man.  Second, this market refuses to correct no matter what anyone says.  Remember how everyone said the market was topped out because we couldn’t go higher?  Well it appears our long sideways nightmare has come to an end because we breached 1,900 on Friday.  Why did we finally bust thru that ceiling?  Your guess is as good as mine but I think it has a lot to do with the infamous “pain trade.”  Higher is going to cause a lot of angst because everyone, and I mean everyone, has been saying “this cannot continue without a correction.”  Don’t sleep on the fact that a lot of people treading water will have to do something now.  Third, any week without Game of Thrones is a disaster.  Fourth, we really need to see the Rus2k break out of its malaise.  Rotation into large caps isn’t necessarily a bad thing but I’d like to see small caps help out again.   Fifth, have you ever, in your life, seen people more excited than this?  You’d think John McClane had just destroyed a world killing Asteroid.  Anyway, bring on the World Cup because this is one American who loves a soccer party!

After the open the market continued its breakout managing to 1,911 in the first 2 hours.   Lots of good to solid economic data today:  Durables beat, Flash PMI (services) beat, Consumer Confidence beat, and March Factory orders were revised higher.   That should be good enough to give a boost to the Citigroup Economic Surprise index that we often speak of.   Let’s remember that the main reason people stayed bullish was that “once cold weather is gone the data should improve.”   Is it improving?  Sure, but for bears it’s not enough.  Ahhh bears, always a fun bunch.   What else….the protein trade was on today as JBS SA, a Brazilian food conglomerate, offered $5.6B for Hillshire Brands.  You just can’t go wrong cornering the chicken nugget market, the Dukes should’ve focused their efforts there.  Other winners were FE, NRG, AAPL, TSN, and EXC (utilities continue to dominate the leaderboards).  Losers were NEM, GME, WHR, AZO, and HPQ.   Oh you know what else is sitting at its all-time high?  Other than my love of Kit Kats?  Transports.   Good old fashioned “we move the world’s economy” transports.  Come on bears, tell me how this chart could look at better?

The back half of the day saw the market rally to its high 1,911, where it closed on this glorious Tuesday.   We got the follow thru that we needed from Friday’s breakout and all day you could feel people being dragged off the sidelines.   So what now?  Where do we go?  When does this piñata party come to an end?  Birinyi had a nice quote in the WSJ that sums up my feelings on the matter:  “We are still of the belief that this market will, like others before it, end with a burst of enthusiasm, with magazine covers and with detailed stories about the stock market perhaps even making it to page on[e] now and again,” he added.  This won’t end with bloggers calling top, it won’t end because bond yields are falling, it won’t end because you think its “overvalued”.   It ends when your neighbor buys a Tesla, it ends when your brother gets rich off a biotech stock that might have the cure for eye twitching, it ends when it’s all too easy (said in a Darth Vader voice).  Right now it isn’t, too many people have been biding their time, too many people have been calling top, too many people are in cash, too many people think economic data is bad.  So it’s time to surf the breakout!   Final Score:  Dow +42bps, S&P500 +60bps, Nasdaq +124bps, Rus2k +142bps.

Volume was low, it’s been low for a month.  No one has any idea why.  Our desk was better to buy.  Buying in Financials and Tech.  Selling in Health Care and Industrials.  Shorting in nothing.  News Highlights:

  • Barry put up a long winded article on how he made it in finance but the part I want you to focus on is his top 10 list at end of the article.  Particularly #6 and #8 because those are the one’s that really matter.
  • And along those lines this is how I always view writing my recap (which I promise to do more): “In other words, don’t be afraid to seek out something effective before you reach anything even resembling sophistication
  • You think this guy will EVER live down this video?
  • Never, not once, ever.
  • Uh oh.  “Banks are seeing more clients taking out loans or lines of credit secured by the holdings in their brokerage accounts.  Among financial adviser Jason Katz's clients, 21 of them took out such loans for the first time last year, about four times as many as the previous year
  • I’m about to make you cringe….how much pain you think that guy experienced?
  • Just gorgeous
  • Tweet of the Day
  • Josh has it nailed here:  “In my view, this speaks to the indecision inherent when a gradually (but definitely) improving economy meets a fully valued stock market. If the economy picks up speed in the next few years, we’re not so expensive. If it plods along as it has been, we’re probably a bit stretched – especially in the US”
  • Remember kids, the first rule of Crossfit is, you ALWAYS talk about Crossfit.

We’re gonna end with another solid Fail video.  I have a couple of questions though:  1) would that play be a Touchdown?  2) Is that the highest stage dive ever?  3)  Did that guy really put his nose in a bear trap?

http://youtu.be/ZQia5Ikw4Bc

Have a good night.