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- when good things happen in the market when they aren't supposed to, and
- what to do when you want to buy stocks for the long term.
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The Grim Fairy Tale
Posted at 3:45 p.m. EST on Wednesday, Jan. 15
Sometimes markets go up because a lot of negatives that were supposed to happen failed to materialize. I think that's what's behind many of the movements in today's session.
Let's start with the banks. Here's a group, part of the largest sector in the S&P 500, the financials, that isn't supposed to go up. First, the banks, almost every single quarter for several years, go down not up when they report. They always seem to have some number, some statistic, some statement, some government investigation that just hammers the heck out of them, and we resent that we owned them into the reports.
Last week, for example, I featured Bank of America (BAC) as a potential breakout, using the always terrific work by technician extraordinaire Tim Collins. Do you know what heat I took for that? Do you know how many people were skeptical about this one? We have done a ton of "Off the Charts" segments for "Mad Money," I have a whole chapter devoted to them in Get Rich Carefully, and I have never had an outpouring of sentiment against a positive chart before.
With all of the talk of Fed tapering and how that would be terrible for the financials and with all of the chatter of the weakness of the mortgage and refinance markets, it was natural to think that this was going to be a year when the banks, already laggards and dullards, would get hammered when they announced their earnings.
Wrong! Today Bank of America recorded a legitimate upside surprise. That's right, a bank substantially beat the estimates -- and not in a one-time way. In fact, I could go as far as to say it was a blowout, with an amazing growth in deposits, terrific investment banking and simply incredible net interest margins, the difference between what they pay you for your deposits and what they can do with the money.
It didn't matter that the mortgage market has been declining at what would otherwise be an alarming pace because that business is way overblown as a profit center. Mortgages are, alas, a commodity. It didn't matter much at all that there was still a big $2 billion litigation hit.