DD, I'm not sure if your invitation to prognasticate is on the topic of natural gas or on the stock market in general. I'll take the opportunity to give my opinion on both.
Making a short term market prediction right now is a coin toss, but the disciplined trader/investor can still come out ahead. Over the last year, I've been fine tuning my trading strategy, but I remain focused on breaking down individual sectors and finding individual stock plays within hot sectors. Thanks to my interaction with you, I've learned to back up my investment in individual stocks within a sector by buying corresponding sector mutual funds, then when there is confirmation that the sector is hot, I look at large block trades as a beginning point for
finding individual stocks within that sector.
The market in general is stagnant and in need of more information. History indicates that the Fed is not likely to change interest rates in the meeting succeeding a half point change. This means that we're not likely to see a change in interest rates until August. Digesting the implication of new reports and data and their potential impact on inflation has replaced baseball as the national pastime.
Durable goods and per capita income/spending reports released on Friday didn't satisfy the thirst for unequivocal data. Spending has slowed down, but the pace is still very high and the personal savings rate remains anemic in the face of increasing interest rates and a dangerous stock market. Durable goods report provided evidence that the interest increases have slowed the economy, but a one month slowdown is not enough to establish a trend.
Home building/construction reports are probably the best indicators of economic growth due to their sensitivity to
the interest rate climate. (I think you mentioned that in a post this past week). A report on manufactured homes released two weeks ago showed a decrease in demand. Manufactured homes represent, for the most part, the entry level home. The move up buyer is the key to the home buying sector. A slow down in enry level home buying has a domino effect on the home building industry and the industries that service new home building. Costco's earning slowdown reported this past week is an example of the effect of a housing slowdown.
A discussion on the economy is more than I care to tackle. I
am not prepared to review the impact of the falling eurodollar and other international factors on our economy. I included the above discussion merely to reference where I think our market is right now in order to quickly come to my conclusion. Interest rates are not going to go much higher this year and they're going to remain stable in 2001, consistent with Dismal Scientist forecasts:
dismal.com
Moving on to individual sectors, looking at natural gas first. NG is heating up just in time for air-conditioning
season, and is likely to sell off on profit taking soon. This sector, as well as the utility and other enery related and natural resource sectors have been in play as safe harbors on days when the high techs have sold off, but YTD returns have been excellent. Utilities are up almost 20% (not including dividends), natural resource stocks almost 10%, energy stocks almost 10%.Oil and gas drilling sector is up over 50% YTD!!!!
On natural gas, I'm sticking with my holdings, even though profit taking is likely to come when the high techs eventually rally. It's still a great play. Even with profit taking, I think that prices will remain over the newly established benchmark of $4 on Henry Hub delivery contracts.
On utilities, I am already invested in a mutual fund, but have yet to start picking up individual plays. I need to look over block trading and hope to use the extra day this weekend. Charts on the Dow Jones and S & P utility sector are both very bullish recently completing 50 day ma crossover 200 day ma.
207.61.23.98
207.61.23.98
Utility companies today are not the same animal that our parents bought and put under their matressess or in a safe deposit box while they reaped the dividends. These companies are coming into their own thanks to deregulation of the industry and new technology. These companies are becoming not only your electricity provider but your internet access, power, communications and cable provider and they are finding new methods to market themselves and the new technology. I am particularly interested in Enron's (ENE) New Power Co., for example.
biz.yahoo.com
Just a few words on other sectors to watch.
The semiconductor sector has been red hot. Up over 100% over the last 12 months. Friday's durable goods report included a 20% drop in electronic equipment, but a declining trend is yet to be established and the demand for semi-conductors has found new sources, particularly in internet and communication applications.
I unloaded Maxtor recently, but I think the storage sector is still in play. The recent sell off in this sector was not solely based on market deterioration, but was also based on the decline in disk drive prices. Memory cost 1% of what it cost 10 years ago, but the need for memory and memory devices has increased, particularly for Network Attached Memory devices.
Deregulation in the satellite tv industry will bring this sector into play. I like GMH. Once the arbitrage associated with the GM spin-off is over and done with, GMH will be able to enjoy outpricing cable tv companies.
Ken W. has been mentioned REITs as a long term investment due to their high dividends or payouts. I noticed that REITs are up almost 10% this year. I don't know enough about REITs but from their growing strengh conclude that REITs go up when interest rates go up. Is that true?
Let me end right there with a question. Appropriate in today's market.
Sergio |
