- the importance of discipline; and
- three high fliers.
This Market Mocks Discipline Posted at 2:18 p.m. EDT on Friday, Sept. 13 I found myself stymied this morning on "Squawk on the Street." David Faber, Carl Quintanilla and I were all talking about what's about to happen in Washington -- that we could be looking at another federal government shutdown. Judging by the rhetoric that's precisely what is going to happen. We'll be staring right down the barrel of another federal fiasco fewer than three weeks from now. I then turned to Carl and said that when that occurs we are going down because there's no way this stock market can handle that kind of pressure from Washington. We're going to hear about social security checks not going out and possible U.S. government debt downgrades and these will all weigh on the stock market. So he asked me a logical question: do you just sell now? I thought about it for a second and said, "you know, I have been advising people to so some selling but, candidly, I've been wrong." Then David asked what will I be thinking as we get closer. I told him here's how it works. I will say do some selling right into the event and the market will keep going higher and I will then say, that's it, I can't stand it, just go buy something and that will mark the top. Of course I was being facetious. Sure, the market's stronger than I expected. But it is also frothier than expected and I don't like froth. Take Ulta Salon ( ULTA), which ran up $18 today after it reported a better-than-expected quarter. Now, I know there were people who thought that Ulta might miss. It's a very-highly-valued retailer and it's heavily shorted. But this rally today, these 18 points, weren't only about a short squeeze. There are tons of portfolio managers who simply can't resist owning a retailer that actually had a better-than-expected quarter.
These Stocks Are Flying Too High Posted at 11:49 p.m. EDT on Friday, Sept. 12 There are a lot of ways to measure froth. Many would say that you gauge it by looking at the action in the stocks of highflying companies that don't have highflying earnings per share. They look at the action, say, in Tesla Motors ( TSLA) and Netflix ( NFLX) and declare it insanely and unsustainably bullish, given that Tesla has rallied 386% and Netflix has galloped 225% since the year began. I get that. While there are many good things happening at Tesla, including strong sales for its new cars, and Netflix has had tremendous success in original content such as "House of Cards" and "Arrested Development," I don't blame a soul for wanting to take profits in either name, as these are cult stocks, and cult stocks don't have a lot of rhyme or reason to them. They are just loved. My hat is off to the Morgan Stanley analyst who nailed Netflix and downgraded it today. What a call. To me, a better sign of froth is when regular stocks react to regular upgrades. For example, today Walgreen gets added to the Conviction Buy list over at Goldman Sachs, and the stock pops an astounding 2 points. On an upgrade! Or how about Kroger ( KR)? I have been saying it would have an upside surprise when it reported today. That's exactly what it did, and I figured the stock could have a nice gain. But it immediately flew up a dollar as if the quarter were incredible, which it wasn't. it was just plain old good. D) when it just got approval to build an export terminal for natural gas at its Cove Point facility? This was a totally expected event, something that you would have heard repeatedly when we interviewed CEO Thomas Farrell many times on "Mad Money." But the stock immediately traded up 3 points on the news. This is a utility, for heaven's sake. The company is also going to form a master limited partnership with some good Marcellus shale assets, and that's some positive news, but the idea that it should be up 3 on that is also fanciful. The stock settled down later, but the enthusiasm just got way ahead of the story.