Doug Kass shares his views every day on RealMoneyPro. Click here for a real-time look at his insights and musings.


Takeaways and Observations

Originally published May 25 at 3:22 p.m. EST

Though the internals remain poor, Mr. Market continued higher for the sixth consecutive trading session. ( More records.)
 
More deep thoughts that modify my opening missive. Read it and think about it.
 
 
 
 
Added small to XLE-- an investment and not a trade.
 
 
Bitcoin has more moves than a short stop batting .110.
 
Bottom Line on today's action: Another day higher on low volume and more technical divergences.
 
* The U.S. Dollar strengthened in a modest way.
* The price of crude oil fell by -$2.55 to under $49/barrel.
* Gold rallied two beaners.
* Ag commodities: wheat -2, corn -2, soybeans -10 and oats +3.
* Lumber down a big figure -$10.
* Bonds continue to rally and the yield curve flattened a bit more.
* Yields dropped by two basis points and the 2s/10s spread is at 95 basis points.
* Municipals and junk bonds were unchanged.
* Banks continue to underperform--usually a negative market "tell." But we are in abnormal market conditions these days.
* Insurance had a strong rally. Hartford Financial Services approaching $50.
* Brokerages didn't follow up yesterday's strong gains.
* Autos down on the GM ( GM - Get Report) emissions news. Value traps, still.
* Ag equipment mixed, with Caterpillar  ( CAT - Get Report) an upside feature.
* Rails are conspicuously strong. Union Pacific  ( UNP - Get Report) and CSX  ( CSX - Get Report) .
* Mixed media, Disney  ( DIS - Get Report) downside.
* Old media led by Microsoft  ( MSFT - Get Report) .
* iShares Nasdaq Biotechnology Index (ETF)  ( IBB - Get Report) still in the doghouse. Allergan  ( AGN - Get Report) managing a small gain. Speculative biotech a source of funds.
* Big pharma lagging.
* Energy stocks followed the commodity lower. Exxon Mobil  ( XOM - Get Report) , Halliburton  ( HAL - Get Report) and Schlumberger  ( SLB - Get Report) downside leaders.
* Consumer staples broadly lower, but I don't know why. Three days up for Campbell Soup  ( CPB - Get Report) .
* Retail was a standout to the upside--with Best Buy  ( BBY - Get Report) the feature creature. Nordstrom  ( JWN - Get Report) and Macy's  ( M - Get Report) rallied.
* (T)FAANG continues to be the "world's fair." Amazon  ( AMZN - Get Report) and Alphabet (GOOGL) are lovely, again.
* In individual stocks, DuPont  ( DD - Get Report) profit taking, Radian  ( RDN - Get Report) down to buyable levels and Twitter  ( TWTR - Get Report) stable.

Here are some value added posts on our site today:

1. Jim "El Capitan" Cramer-- oil is going down.
3. Andrew McMillan on China.
 
Position: Long SDS large SDS calls DD small RDN AGN large HIG large CPB large Short AAPL small SPY small FAST .
 

Deep Thoughts

Originally published May 25 at 12:10 p.m. EST

" Before you criticize someone, you should walk a mile in their shoes. That way when you criticize them, you are a mile away from them, and you have their shoes." -- Jack Handey

As recently as this morning and over the past few months, I have been writing about the notion that equity prices, particularly in leading names (T)FAANG, may be inappropriately valued and artificially bloated by mechanical quantitative strategies that allocate based on patterns and correlations.

If you spend a few minutes on the multiyear stock charts of (T)FAANG, it is abundantly clear that risk levels have been raised, arguably by the aforementioned domination of quant strategies.

Now to the psychology of this phenomenon and why it is so worrisome:

Any price level, no matter how bizarrely unrelated to any supporting value, if sustained long enough by technical market forces, will begin to appear to be completely safe and a rational level at which to buy. Too many now resemble the Pavlov's dogs of the market, and if food keeps coming no matter the shock, we will begin to act as if the shock is a pleasure.

I can't remember all the times (throughout my career) the chart seemed to say I was being presented by a "modest pullback" to what looked like a "support level" because it had traded there for a while--only to later be stunned by the massive drop down and away from that "safe level where everyone is buying."

Activity at any price level does not necessarily reflect rational, sustainable, long-term interest by real investors. Just think about Xerox (XRX - Get Report) and Avon Products  (AVP - Get Report) during the Nifty 50 period, the numerous and now defunct stocks embraced during the dot-com boom and/or the price of banks and insurers back in 2007-08.

Think about these observations, as they might save you a lot of pain in the near future.

Position: None.

Action Alerts PLUS, which Cramer manages as a charitable trust, is long AGN and SLB.