NEW YORK (Real Money) -- Be careful what you wish for. It might happen and you aren't ready for it.
That's how I felt watching Thursday unfold. It was one of the more perfect setups for the bulls because of a host of reasons: 1) Oil. 2) The dollar. 3) Pessimism. 4) Earnings.
Let's take them one at a time.
The speed with which oil has been rallying and the consistency of the move, the sheer viciousness of it, have just totally obliterated the positive stories for whole swaths of the market. A huge rally in anything that amounts to a higher tax on the two-thirds of the U.S. economy -- that is, consumers -- can just be a gigantic buzzkill.
A 50% jump in crude can crush a whole market. Yet that's what we have had.
Now, how significant is it? If you look at the charts of any of the retailers, restaurants or airlines, you will notice a peak in these stocks coincident with the bottom in oil. It is almost as if it doesn't matter or hasn't mattered what these companies say on their conference calls, the action has all been bad. Don't believe me? Hit up the charts of American Airlines (AAL), Delta (DAL), United Continental (UAL), even Spirit (SAVE). They act like death.
Or check out the action in Fiesta Restaurant Group (FRGI) and Sonic (SONC). These two companies reported remarkably good quarters, as did Texas Roadhouse (TXRH), Denny's (DENN), Darden (DRI), Jack in the Box (JACK), DineEquity (DIN), also known as IHOP and Applebee's, and they all look the same. A peak and then a bruising, even though all we heard were good things.
Because big portfolio managers are always trying to figure out if the earnings are peaking. In each case, the judgment in the stocks mentioned signaled peak. Only the international growth stories and the activist-oriented stocks, like Domino's (DPZ) and Yum! (YUM), took off. And if you missed the quarter or guided negatively? You had a Noodles & Co. (NDLS) or a Chipotle (CMG) on your hands. A day with oil down is a godsend or, alternatively, a reason to cover your short.
Rest assured, you now know the correlation. Stop kicking yourself about why Jack in the Box is down. It has little or nothing to do with the execution of Jack in the Box, it didn't suddenly become Hack in the Box, it's just that if the consumer has less money, then the presumption is she will spend less. Hey, you have to admit it is a reasonable assumption. You could even say it hurt Disney (DIS), which reported one of the best quarters ever. But you have to believe people were wondering if that big driver that is theme parks could stay strong with gasoline going higher. I say yes, absolutely, but I am just describing, for the moment, what drives near-term performance.
Second, we need the dollar to stay weaker, or at least not go higher for some time. We know now that earnings season is through that analysts and buyers didn't look through "currency," in other words, they didn't say, "You know what, I won't adjust for it, I will just act as if it is constant and there are no worries."
If you looked at stocks before and after earnings, you will know that if sales or margins were hurt by a strong dollar, the stocks didn't go higher. What got so difficult, though, was that the money from these big international companies was going into the restaurants and retailers as well as the health care stocks. But that spigot got shut down by higher oil as well as inflation fears that stem from higher commodity prices and wage gains. Almost every commodity has rallied from lows that make it so we get nervous about raw costs. We also take back some of the gains we were hoping to see from the consumer packaged-goods companies that use a gigantic amount of plastic. That was supposed to go down in price. Now it might not.
Plus, we were really beginning to see companies have to make concessions to get or keep business and stop competitors. Think back to what the tremendous infotainment company that is Harman (HAR) had to say. It just couldn't be as competitive as it would have liked because it had to make deals to keep business and help customers. That's a chief reason why the stock's acted so poorly.
Yes, a dollar that stays put or goes down allows for the hope that we are seeing the end of the dollar tyranny that has weighed so heavily on stocks.
The third piece of good news? The bad news has made people quite pessimistic. We almost expect stocks will go down these days. The charts are almost uniformly horrible on stocks. The fears that the last good quarters have occurred are ingrained in us now. When I woke up at 4 a.m. ET Thursday, we saw German bonds get hammered again because business is coming back strong in Europe. We don't think how good it is that business is coming back. We simply think turmoil, pain, more selling.
Just as I abhor big up openings, I like it when the market's looking down big. Then people aren't picked off. If you have your shopping list, you can buy when others are panicking. Remember Warren Buffett's aphorism: You want to buy the stocks of the companies you like at prices of your choosing. That's what these down days do for you.
The pessimistic icing on the cake? Comments from Fed Chief Janet Yellen that stocks are overvalued, kind of a shot across the bow that what makes stocks overvalued, their relative worth over bonds, is going away when she takes rates up. Doesn't matter that she's been wrong before. She took out the bull and shot a bolt through its head. Nasty.
That's the perfect environment for the wellspring of a rally. You need that negativity and the washing-out of the skittish to put stocks in firmer hands.
Finally, there's earnings. Now you may have been riveted by the disappointing same-store sales of Whole Foods (WFM), which caused the stock to get hammered mercilessly. Perhaps you were surprised that Tesla (TSLA) didn't explode higher on what were better-than-expected earnings, except that's exactly what happens with cult stocks and why I say they are so hard to game. You could have been perturbed by the miserable number from Keurig Green Mountain (GMCR), and as horrendous as that number was, the conference call was even more dismal. If you want to own that stock, own it through its 16% holder, Coca-Cola (KO).
But we had some huge positive earnings surprises today, none bigger than Alibaba (BABA), which reminded us that it can still go higher after its relentless decline from the previous quarter. Looks like the market is still enamored of companies that can grow 40% after all.
Perhaps as significant? The amazing quarter from Qorvo (QRVO), a company that you may never have heard of, which is the combination of RF Micro (RFMD) and Triquint (TQNT), two other companies you may not know. Suffice it to say this company provides key parts to the cellphone industry and the read-through from this quarter was simple: The industry, including key customer Apple (AAPL), is alive and well and doing fabulously.
That segment's been horrendous of late, and the glaring declines in Skyworks Solutions (SWKS), Avago (AVGO) and NXP Semi (NXPI), the other member of the big four cellphone parts makers, were finally arrested.
So far, every day like this in 2015 has been pretty much a one-day wonder and everything that's positive gets reversed tomorrow. We have to be prepared for just that as we have the huge Labor Department payroll number today at 8:30 a.m. ET. I think the real takeaway, though, is that you can have a positive combination of inputs and the market will still lap it up if every I is dotted and T crossed. It's rare, but it's no longer impossible; it did happen and it, therefore, can happen again.
Editor's Note: This article was originally published at 1:09 p.m. on Real Money Pro on May 7.