Time For You to Make a Decision
Everyone on TV is getting emotional over this weekend. You see on Friday the DOW plunged 213 points while the Nasdaq dropped 54 points. This is the biggest one day drop we've seen in the market in years. Although all of the analysts are still talking bullish you can see in their demeanor that they are a little uncomfortable right now. Everyone has lived through the bust of 2000 and no one wants to consider the possibility that it could happen again. Last year the markets rallied hard in the first week of January and then started a sell-off as earnings season began that turned into a really lackluster market for the rest of the year.
Well the analysts have a reason to feel uncomfortable right now. They've been shown to be DEAD WRONG. Oh this isn't the first time they been wrong. Far from it. But it is particularly troubling for them to be wrong now, because they've been predicting big things for the economy and the stock market this year, claiming that once the Fed stops lowering interest rates that we are going to have an economic take off.
I've been very skeptical of this notion to say the least with our current deficit way above the 5% crisis level and the yield curve now inverted. But they say these things don't matter. They say ignore the warning signs and just listen to us. They said that in March of 2000 too when insiders bailed out of tech stocks to "diversify" their portfolios.
Well we've now seen 20% of the companies that make up the S&P 500 report earnings this year and so far a whopping 24% of these announcements of them have come in below analyst estimates, which are usually made purposely low so that companies can beat them. Earnings have been a pure disaster and that is why the market has been dumping the past few days.
The analysts claimed we were going to have an earnings bonanza. They were wrong. Motorola missed estimates and saw its stock price blow. Citigroup failed. Xilinx missed while General Electric failed to deliver. CNBC will never tell you this, but General Electric is a managed earnings company. It also happens to own CNBC.
Oh yeah, and Google, which was the speculative darling of 2005, made a new low for the year on Friday. It is a troubling sign when market leaders fumble.
Oh the market is not going to fall down to zero from here. We'll probably get a bounce into the end of the month FOMC meeting as everyone buys in the hopes that the Fed will make one final interest rate hike and then will become a market friend again. But its already been a market friend, pumping so much more money into the money supply that the Fed has more than offset its interest rate hikes and succeeded in putting a bid under the stock market and creating an inflationary mess, thereby driving gold and oil prices higher. The situation has become such an embarrassment that the Fed has announced that it is no longer going to release the official money supply numbers.
I know FOX News is telling you to believe in the market and believe that President Bush will keep everything on track. I don't trust my finances to anyone and don't believe that I can just sit there, hold some mutual funds, and trust that Bush, Greenspan, Bernanke, or the Federal Government are going to levitate the market up forever. But that's what the media will lead you to believe. Don't think, just believe. But I want you to think.
I actively manage my money. That means investing and trading in the market sectors that I believe are going to continue to outperform the market this year. I don't care what the DOW and Nasdaq do. I don't care if the analysts are right or wrong. I just care that I make the right decisions. I take responsibility for my investing. That's the decision I made and the decision you made by educating yourself about the market and having your own investment accounts.
Right now everyone is getting emotional about the DOW and Nasdaq. Don't get caught up in that. It doesn't matter as long as you are positioned so that it doesn't. Don't think too much about gold and gold stocks either right now. They'll provide an incredible entry point over the next few weeks too. One that will be the trade of the year and you'll be there to take advantage of it.
Right now what you really need to do is make a decision about the energy market. It's decision time when it comes to energy stocks. On Friday the IYE energy index made a new 52-week high while the price of oil closed right under $69 a barrel. Energy stocks are in the process of breaking out and beginning their next bull run. Last week I added GI and SWSI to the recommendation list and Andy and I mentioned about a dozen more oil stocks in the WSW Pro bulletins. GI is already up 6% from my recommendation while SWSI has gained 15%.
You need to decide if you want to participate in this rally or not. If so now is the time to get in. Don't wait. I believe all of the energy stocks on the recommendation list are buyable right now, even ones such as BHP, which have been on the list over a year. Maybe you just buy gold stocks and don't want to mess with energy stocks. That is fine. Just wait and a few weeks I'll be back in the gold market, buying new gold stocks no one is talking about yet.
But if you want to have your holdings a little diversified then you should really consider making some plays in the energy market. If you are one of those stuck with a bunch of junk tech stocks holdings from years ago you should think hard about selling them and putting the money to work in companies with real earnings growth and momentum. Free up some cash. I'll have another energy stock recommendation this week or next once one of the ones I am tracking line up for a safe entry point.
I would not be shocked if energy stocks went sideways for the next 5-10 sessions before breaking out to start their next leg up. The bollinger band width has gotten above 10, which has marked paused in the IYE index before. Daily stochastics on the IYE are also overbought. It seems like we are in a similar situation as we saw last June - a short pause before the next big move up. Of course momentum is to the upside so we could move up without a pause.
I bought shares of UDRL on the open Friday and mentioned it in the WSW Pro premarket bulletin. UDRL is a recent IPO underwritten by JP Morgan. It provides onshore contract drilling for oil and gas companies. Analysts are projecting earnings growth of 664% for the company this year, giving it a forward P/E of 11.50. With oil and gas prices poised to go up their projections are probably low. You can't these type of fundamentals in the broad market, DOW, or tech land. Not even in gold. I had planned on adding it to the recommendation list this morning, but don't like to add stocks to the recommendation list unless they are pausing and about to breakout. UDRL already did it on Friday. If it pauses this week I will add it. I have two dozen others I am watching closely too.
Trader Mike |
