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It’s been a while

Since I’ve posted anything, and I have a new style of writing now. I’ll be less speculative about government numbers in general and be more speculative about what I think specific stocks, currencies and commodities will do. A lot has changed since I last posted, the dollar experienced strength–which has since passed but I believe may return again soon, and equities have rebounded off of their lows with the Dow Jones climbing briefly above 10,000. So where do I think the market is likely to move from here?

USD I believe will make a move higher, it has stood up around 1.5050 vs the Euro and made a quick move down to just below 1.48, if there’s another rebound take the opportunity to short it, the next move down should be swifter and perhaps take us down to 1.4450 to 1.45, if however the USD falls below 1.5050 reevaluate all of the following scenarios.

Yen looks poised to move higher, and it does usually show strength before the USD does, so when you see the Yen move up, look for the dollar to move next. The pair I favor most is GBP/JPY short, look for support around 1.44, short it here at 149.50 or on a move up toward 149.80.

Gold is currently trading 1041 and I’ve shorted a small amount of it at $1050 with a stop at 1068.75 (it got really close to stopping me out once). I think gold will trade down in tandem with equities, but there’s a chance it will have more weakness on the way down because it was a laggard on the way up.

Equities I believe should be avoided here for the most part, there are a few sectors that can be shorted from here without too much risk, some include technology and real estate. I would short PCLN, AAPL, BIDU, RIMM, INTC, and GOOG–of these BIDU and RIMM are the most vulnerable. In real estate I like BXP short. Long QID or SDS is a preffered method for a diversified approach to shorting the market. Stop out of QID on a close below $21, stop out of SDS on a close below $37.

Commodity Crunch…

It seems now there is no safe haven for money, if you have any left at this point you can rest assured that you will likely have less the next day if it’s invested in the market. After reporting record earnings, the last bastion of strength in this market is faltering; the commodity stocks such as POT, TRA, MOS, X, GTI, MEE, ACI, and the list goes on and on are getting sold off day after day relentlessly. There seems to be no reason for the sell off when you consider everything the CEO’s of these companies are saying on their conference calls, MT assures us that metal can still increase in cost and car manufactures will only need to raise the price of a vehicle by .9% to recoup costs and pricing power will remain as steel is in short supply. From the CEO of MOS you hear a similar story in regard to the shortages of potash inventories and the record demand for the fertilizers from farmers around the world, so why the sell off?

I think the reason for the sell off is simply the market itself getting weaker over time, in combination with a Fed decision this week where many analysts are unreasonably bullish on the dollar. I would argue they are bullish for no concrete reason other than it has fallen so much and other countries currencies are no safer than our own because they face an economic peril similar to our own. While this is true, and the possibility of the $USD rebounding strongly in short-order may spark a further commodity sell-off, I think ultimately we will get a rebound in commodities within days of the Fed decision.

The reason I think we will get a rebound in commodities (oil, soybeans, corn, ect) is that the CRB index is still in a solid uptrend holding onto about a 100% gain over the last 9 years. Past commodity bull markets have lasted an average of 21 years producing an average gain of 330%, so this would leave quite a bit more of room for upside on the table, and with a substantial pullback to some simple moving averages it would seem reasonable to begin entering bullish positions if you do not have any existing long positions on the following stocks: TRA, ACI, MOS, AGU, X, FLS, ATW, CHK, EXM, and possibly PCU.

My most favorite of the commodity stocks are the ones that deal with fertilizers, my least favorites are gold and natural gas. I did mention in a previous post that we had a glut of natural gas coming online with all of the exploration coming online, of course I could not predict when traders would ultimately react to the reality that with all these new fields being exploited there would ultimately be lower prices for natural gas with the increase in new supplies. Stocks like HK, CRK, and SD, and even less speculative issues such as CHK and XTO shot up to extremes day after day. The uptrend in natural gas finally broke and within a matter of days gains that took months to build up vanished.

If you want to play commodities on the bullish side I would say protect yourself by buying some call options on the SMN while simultaneously buying call options on the leading issues within the realm of commodities, that would mean going long AGU, TRA, MOS, POT, X and take a stab at a shipper like EXM. I am less willing at this point to put money toward coal and natural gas because there is the possibility that natural gas will fall further, unless of course Aubrey McClendon of CHK can get congress to go along with T. Boone Pickens’ plan of moving our transportation over toward natural gas and away from gasoline. I do believe it would be a good idea, it does burn cleaner and it costs about 1/3 as much based on today’s prices, obviously that would change slightly if we were to begin using more natural gas for transportation the price would go up, but then there would finally be a real alternative to gasoline in the intermediate-term while we wait for more viable alternative energy vehicles to be mass produced.

To profit from the possibility of Aubrey’s & T Boone’s attempts to coerce congress I would be interested in FSYS and CLNE. FSYS makes alternative fuel conversion kits and allows vehicles to run on natural gas. CLNE sells CNG and LNG, as well as helps fleets (think of a city’s bus fleet) convert over to CNG & LNG–they also build and maintain CNG & LNG fueling stations. Imagine if even half of the current gasoline stations added a natural gas fueling pump terminal, how much money could CLNE make off of that? Seems like valuations could get pie in the sky quickly if they can convince congress to move on the issue.

So, in summary, short-term there may be a further decline in commodity stocks but I would use the weakness to buy into, offset some risk by buying call options on SMN, to further avoid risk from too much commodity exposure I would short gold on a failure of its 200dma @ 889 on the spot market with a target of 855, then 750 with a break of 840. GL to everyone!

Crazy January..

So the declines in the leading stocks were far worse than the bounce back in laggards, but the laggards I did mention have experienced a nice bounce–IHP 1 month return from Jan 5th – Feb 5th is +20.05%, HD +12.14%, SLM 22.44%, BJS -5.98%, CELG + 12%, LTD + 8.18%. Meanwhile the SPY has fallen about 5.08% in the same period, so the only loser was BJS! This seemingly antiquated strategy actually works when you give it enough time–the entire month.

 The refiner trade I prepared many people for ahead of VLO’s earnings toward the end of January worked but faces many headwinds this year so I will not be accumulating calls on it this season. There are too many other traders focused on it and many of them are on Fast Money giving the trade away so I think this year it may not work without a substantial pull back in crude oil and more stability in monthly data to spur on some consumer confidence and consequentially higher prices for refined products like heating oil and gasoline.

In February I think you should look to trade smaller size to keep yourself out of trouble and don’t stay bearish for too extended a period of time and look to pick up banking stocks like BAC, WB, and USB. Also, look for retailers that have had a history of making a strong connection with a large group of consumers, even if you’re not one of them. You can buy retailers now with the backing of other large investors like Icahn, low multiples and the government on your side–I think you should look into GES, MW, BKE, AEO, & GYMB. I will track them based on today’s price; however, I think you can subtract 6-8% from today’s price and get filled on a limit order before February is over and check back in May-June and you’ll have a gigunda gain. Generally the economy lags fed cuts by about 9 months, the Fed began cutting rates last year in September so you can expect to see upticks in employment, ISM, services indexes and such by June 08, with that in mind the market does lead the economy so it’s reasonable to believe there will be a bottom in the spring. If by chance the market goes with the same old sell in May go away theme it would be the perfect buying opportunity from my perspective, either adding to long positions or opening new positions.

If you just consider that the $tnx is yielding 3.58% a negative return when you calculate headline inflation into the mix and the great likelihood of principal degradation it is very reasonable to believe there will be a massive exodus from the treasury market and into the equity market sooner rather than later and you will not want to miss out on it. Keep this in mind before sending in sell orders on stocks with low valuations, good fundamentals and strong brands, don’t outsmart yourself. If your money is not in stocks it’s in a money market account  or savings account that will yield less and less as the fed continues to cut the fed funds rate. Looking at the history of rate cuts, generally the market will decline as the fed cuts (they are anticipating slower growth so it would seem reasonable) but ultimately the fed gets what it wants and saves us, so do not fight it. You especially need to buy when they begin their first round of rate increases once this cutting cycle ends.

 I hope this helps some people… :D

Year-end

          Today is a day of loss-taking and profit hoarding, Wednesday you should see people take their gains on the biggest winning stocks and then put that money into some of the losers that have been forced to lower levels than usual by tax-loss selling, while the winners have been pushed to newer highs from deferred tax selling. Some stocks to look at on the losing side would be HD, LTD, CELG, IHP, SLM, and BJS.. notice I didn’t mention any true financials, it’s not really worth the risk to me to be long any of them even with the possibility of the January effect pushing them up.

          This is my second year of trading and I have learned a lot, but I am not where I want to be yet–I’ll get there eventually! This year a friend of mine, Jason, got me into trading currencies and with some guidance of his and a little foresight of my own I’ve managed to get my account up 56.2% in 6 months! Not bad.. if I can replicate that for a full year next year with this account then I’d be content.

Long Awaited Post..

         Ahead of the NFP tomorrow the USD is showing modest strength against the EUR, I have already taken profits from an earlier short sale and I’m looking to reenter short from a higher price overnight or take a short position in the EUR/USD pair when NFP is released. I expect the number to come in well above estimates for no other reason than the government needs some way to fight the ongoing deflation in housing. One way to do that is to cause equity prices to rise to offset the negative wealth effect from a declining housing market, so expect a strong NFP and a 25bp cut on Dec 11th. Don’t think I’m a conspiracy theory loon, it makes sense not to fan the fire from housing to equities and if all it takes is saying we added 200k jobs instead of 60k then why not do it? NFPs can always be revised down in a month or two.

            As far as previous posts of mine go, the government did finally release a plan to save home owners, it just took them about a month longer than I thought it would take. Oil nearly hit $100 before diving some 13 points to 87 a barrel. I do still believe in a bull market for the equities involved in commodities which include metals, agriculture, and of course energy! But oil does not need to be above 100 for oil companies to make money. The next seasonal play in the oil sector is upon us. You can get long natural gas, but I am not a big believer in natural gas simply because of the easy access to it here in NA, and all the exploration going on in the Barnett Shale but it could work. Some stocks to focus on in natural gas sector would be XTO, APC, APA, and EOG–alternatively you can buy coal stocks since coal can be used as a substitute. You may want to be aware of the fact that Americans don’t welcome the use of coal as a source of energy, but we have lots of it and China loves it. It’s a cheap form of fuel and China doesn’t care too much about the environment yet. Some companies to look at in this sector would be ACI, BTU, FCL and YZC; you might be able to tell the stock market doesn’t care about the political pressures against the use of coal by way of the fact that most of these stocks are hitting 52-week highs.

           Be on the lookout for the next energy play in refiners starting the 4th week of January, I’ll explain it later when I’ve had more sleep, but you can probably figure it out if you look at a chart of VLO–VLO shows it best, but other stocks in the sector that I like would be MRO, TSO, HOC, FTO and WNR. You cannot buy these stocks yet! It’s usually best to wait until just before February a few days before VLO reports their earnings.

 ALSO!! HURRAY Chavez lost the election in Venezuela which is good for buyers of heavy sour crude and that includes.. Valero! The largest refiner in the U.S, they happen to refine the heaviest sour crude which gives them an even bigger advantage when the crack spread widens. Maybe you already know where I’m going with this?! :D

Risk Aversion

          With equity markets unraveling, traders have again begun to seek shelter in the Yen. The AUD/JPY pair in particular has fallen some 700+ pips since late October, and the USD/JPY has fallen to new 18 month lows. With that in mind, it seems reasonable to lean into this momentum of the Yen and short the EUR/JPY, AUD/JPY, or USD/JPY and just be mindful of any news that could be released that may cause the equity markets to bounce back. Also, the USD is experiencing a nice bounce off of all time lows just as it did back in August against many of the major non-Asian currencies. The AUD/USD & NZD/USD are both a short on momentum down along with a long USD/CAD position.

           I have a suspicion this week we may hear something from the U.S. government that will calm the credit markets, so if there is news released you need to be ready to cover and reverse.

Fed Meets, Santa Looms

          This week the Fed’s decision on rates has been priced into the markets–equties, forex, and commodity markets alike are pouring on bets against the dollar, which may allow for some profitable bets against the crowd but not very probable to make you any money. The Fed has shown an affinity for giving the market what it wants, so it certainly feels like you could just go long equities and look for a Santa Claus rally. Make sure you don’t buy lagging equities with the expectation for larger gains on the “catch up” theory because lagging stocks will experience tax-loss selling before long. Only buy winners and focus on technology. Keep an eye on crude oil as it nears $100, it may provide an opportunity to short sell USO. I think once crude gets to $100, everyone who has been buying it will be looking at each other waiting for the next buyer before they all turn into sellers.

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