6 Themes to Watch; Retail Numbers: Cramer's Best Blogs

TheStreet.com

NEW YORK (TheStreet) -- Jim Cramer fills his blog on RealMoney every day with his up-to-the-minute reactions to what's happening in the market and his legendary ahead-of-the-crowd ideas. This week he blogged on:

  • what needs to go right; and
  • retail weakness.

Click here for information on RealMoney, where you can see all the blogs, including Jim Cramer's -- and reader comments -- in real time.


Six Themes to Watch

Posted at 12:56 p.m. EDT on Friday, June 7

So what has to go right to maintain the momentum that started midday yesterday with that amazing reversal? What has to go right to prove that was indeed a "whoosh bottom" (as the late, fabulous Mark Haines called it), where everybody who needed to sell has sold and buyers are at last attracted to the market?

First, we need interest rates to stabilize, or to go up at a slower level, as the economy recovers. The employment report this morning was slightly better than expected, which could provoke a gentle rise in rates. Ideally, we want them back down, which is something that's hard to get if the economy is improving. But secondarily, we want the velocity of the move to abate. You can't have a rapid surge in rates without havoc occurring throughout the system, which is exactly what happened in the last month, when rates exploded higher even as they remain historically low.


You want to see us go back to new highs? Then we need to get interest rates back to where mortgages are below 4% so sidelined potential homebuyers can say, "Thank heavens, I didn't miss the bottom and I have to move now or I will never get another chance like this to buy." That would put us back on course for a prolonged housing recovery and all that goes with it. Still, though, just a cessation of the huge jump higher could do the trick.

Second, we have been getting some better-than-expected data from Europe. That's shocking in itself, but it confirms that not only has Europe bottomed, but it might also be showing actual improvement. So many of our companies have huge businesses overseas, and this would be a godsend for them.

Third, we need to see some stabilization in China. Europe could really help here because they take so many Chinese exports. For that to happen the potential trade war between China and Europe over solar panel dumping needs to be nipped in the bud.

Fourth, we have to get a sign that all is not lost in retail land. We got some hope last night when Gap reported a good month, which showed us that Ascena , Vera Bradley and Francesca's , three huge disappointers, might actually be outliers. After all, Gap is a gigantic nationwide chain that has a real good handle on business that these three other companies simply don't have. We will hear from PVH next week. This apparel company is in every major department store and it provided continued momentum with a good report.


Fifth, we need to see some stability in commodities to verify that things around the world are getting better, not worse. I rely on iron ore, copper, aluminum and most important, lumber as signposts of improvement or deceleration. All of those have been terrible performers of late -- except lumber, which just started advancing. That's a terrific sign but the others need to follow.

Last, we saw our leadership groups come back today: aerospace, transports, techs, banks and biotechs -- the latter being the most visible sign of a better market. If those continue to build on today's advance, we have a fighting chance to say that we've seen the bottom and that the worst case scenario's off the table.

So those are six themes to watch for. Unfortunately, we need all six to go right if we are going to get back to where we were before the selloff began. But I would say four out of six would prove that the pivot we saw on Thursday was, indeed, a whoosh bottom. And that means, point blank, that the worst is over.

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the stocks mentioned.


Retail's News Just Isn't Good Enough

Posted at 2:02 p.m. EDT on Thursday, June 6

What makes someone like me skittish about the stock market? First, I am a sector-by-sector, bottoms-up guy, meaning that I don't take much stock in various broad government numbers, except the employment number we get tomorrow, as that is very important for the market. I don't care all that much about the charts, but I respect what they say.

In reality, though, I care about what the companies are telling us, and I try to form a worldview, an outlook based on what real business people -- not politicians, bureaucrats, strategists or chartists -- tell me. That way I am more certain in my convictions and I feel grounded. I always say that you need to be confident in your choices, and I don't care how you make those choices. Chartists like to look at pictographs. That floats their boat. Big macro thinkers like all of that data. I like the conference calls, the earnings reports and the research, and, alas, I haven't liked what I have heard of late, particularly in retail.


Take last night. We got earnings reports from four retailers, and three were just plain disappointing: Vera Bradley , Francesca's and Ascena Retail Group . Now we have not been a fan of Vera Bradley, the women's accessory store, and we actually had put it in our "sell block" not all that long ago. We didn't like the fashion aspect, the hit-or-miss element of its business, particularly its handbag line.

Sure enough, the company talked about merchandise assortment challenges, which, to me, don't happen if you have the right assortment.

Francesca's, which aims for the 18-to-35 demographic, talked about a weak spring for its apparel and accessories.

Ascena, which we have had on many times, just simply blew up, with every one of its store chains, Maurice's, Dress Barn, Justice and the newly acquired Charming Shoppes, well below plan. I mentioned on Friday's "Game Plan" that this could get hammered if it missed at all. I never expected it to be this bad, including down 7% for the core Dress Barn line and down 4% for Justice. That's plain terrible, and the company blamed weather, and more important, the weak middle-income consumer.

You put these three together, and you get a pretty gloomy picture of what's out there, with pretty much all ages, shapes and sizes spending less. When you couple that with Dollar General's disappointment the other day, you get a sense that May was a very weak month in the U.S. economy.

Now, that would be fine if we are all expecting that the Fed will keep rates low. But the huge increase in interest rates, at least on a percentage basis, is happening just at the wrong time. Plus there are all of these jabbering Fed heads who are thinking the Fed is too easy. When you combine higher rates with less business, that's a recipe for lower stock prices.

Now it wasn't all bad. We had a hard-goods retailer, Conn's , report good numbers. It sells all sorts of goods for the home, including appliances and consumer electronics. Normally that would be an important offset to Vera Bradley, Francesca's and Ascena. However, Conn's is a regional player, and the region is the Texas area, which happens to be in the middle of an oil boom. So I take its strength with a grain of salt.

Therefore, when I put it all together, I come back with a mixed retail picture at a time when I expected an improving picture. That, unfortunately, dovetails with the potential for a weaker housing market, now that mortgage rates have gone over 4%.

Is it the end of the world? Nope. But do these numbers embolden me to think the correction is over? No, not yet. And that's what gives me less confidence that things are going to improve for stocks, even though they've come down enough to embolden me to pick among some of the rubble.

At the time of publication, Action Alerts PLUS, which Cramer co-manages as a charitable trust, had no positions in the stocks mentioned.

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