As mentioned in each of my last two posts, crude in the $130 area should mark a significant high. Yes, a quick spike towards $135-$138 or a little higher is possible as short sellers throw in their towels, but this is the same emotional panic seen in many other markets that has exclaimed the manic blowoff just before dramatic reversals. CNBC will air a special report on the OIL CRISIS on Thursday the 22nd. Usually, these types of reports, along with popular magazine covers alerting us to what we already know, are the clarion calls of inflection. Hedge funds that played the lending bubble with massive leverage (not hedged as their name implies) made billions of dollars until that game changed. They inflated the housing market world wide. Recently, they needed a place to throw their money, and have chosen oil, gold, silver, the Euro, etc. When they exit oil (they appear to be leaving gold and silver already, and the Euro currently), the same "uh oh" effect will surface, as the plug gets pulled from that Look at Ambac and MBIA. Both were involved in the great lending bubble as insurers of bonds that were allowing huge speculators to "print money" as they borrowed cheaply in subprime debt and leveraged enormous bets in other markets. When that mania broke, and they ALWAYS break, they both exited three-standard-deviation heaven for 90% slaughters in less than 12 months. The graveyard of former mania "plays" is cluttered with similar stories. EVERY mania in history has ended with a collapse...without exception. If you have profits in oil stocks and oil related stocks, take some off the table and leave the last few hours to days of the bubble to the crazy folks that play it wrong every time. Perhaps taking profits in some solar companies would make sense too? A $30 slam toward $100 should be the minimum seen in the next few months, with $80 still likely this year.
The area from 1.5750 to 1.5825 in the Euro this week should be as high as it gets before another down wave takes it toward 1.5000 minimum, perhaps 1.4400 in the coming weeks to months, but certainly this year.
Stock indices are rolling over and have likely started their next wave lower, that should slice through the January/March lows and explore the 10,800 Dow, 1100 S&P, and 1800 Nasdaq levels in the not-so-distant future. Are you ready if it happens? The Wall Street saying, "sell in May and go away" refers to the big money leaving after Memorial Day to summer in the Hamptons. Stock Traders Almanac informs us that historically stocks rally a bit into the Memorial Day holiday. Prudence suggests that any near term bump higher into this weekend should be used to exit risky positions (like those on our lighten up list below, but in general, any and all stocks that have rallied from the March low).
Many analysts are saying that tech is still the leader and should be bought right here. I agree that tech is the leader, but see it leading markets lower. In fact, the Semiconductor index, SOX, is breaking 400 now on the way toward the 275 area, or lower this summer. On the other hand, the financials are too far into their current corrections to remain short, so cover most or all of your banks, brokerages, and other financials here. The Banking Index, BKX, is testing, and might slightly break its January/March lows of the 73 area, but should not take out the 2002 lows of 61 on this wave of selling. Rather, a bounce into the 90-100 is more likely later this year. Once the next disaster hits though, probably adjustable rate mortgage repricing in 2009 or credit card defaults, the 60 area could break later in 2009 or 2010.
Popular stocks to lighten up on at current prices or higher are: CSCO above 25 (but buy near 18), EBAY above 30 (but buy near 20), AMZN above 80 (but buy near 50), COST above 70 (but buy near 53), INTC above 24 (but buy near 18), YHOO above 27 (but buy under 18), SNDK above 30 (but buy near 15), RIMM above 131 (but buy under 80), AAPL above 180 (but buy near 100), BA above 82 (but buy under 50...any close under 70 will activate a head/shoulder top, with 40 as the target), GOOG above 560 (but buy under 350), to name a few. More to follow in coming posts.
Interesting stocks to add to gently: GE from 30 could test 36, SBUX from 13-15 could test 23-25, GRMN from 40-42 as pointed out for weeks could test 60-75, AMGN from 40 could test 52-58, ABK from 3-5 could test 20+, WM from 7-10 could test 18-23, to name a few. More to follow in coming months.
For what it's worth,
Ken
Subscribe to:
Posts (Atom)