June 4, 2008
Oil + Financials = Opportunity
|
Our Performance vs. the Market |
|
|
IR* |
DIA* |
SPY* |
QQQQ* |
|
3 Months |
5.90% |
5.50% |
4.90% |
11.50% |
|
6 Months |
16.70% |
-3.70% |
-6.00% |
-10.00% |
|
1 Year |
42.10% |
-2.26% |
-6.60% |
4.29% |
|
3 Year |
22.00% |
8.40% |
10.20% |
12.38% |
|
5 year |
21.50% |
10.30% |
10.28% |
14.40% |
|
Inception |
25.00% |
1.66% |
-0.40% |
-5.70% |
|
*IR = Our Investment Rate Model used
for market Timing. Dividends are
not included in these returns.
Inception was 1.3.00. Returns as of
5.5.08. 3,5, and inception data are
annualized. |
|
Click here to Review Our Returns |
The decline in
financial stocks over the past few trading
sessions has created a capitulatory environment
for many would-be bulls.
Suddenly, traders who
were once content with market direction and stability
are fearing the financial sector again. But
capitulation on a broader level has not been realized;
the market overall is hardly facing a panic selling
situation. In fact technology stocks are outpacing
the broader market by a wide margin, and that tells us
that buyers exist in today's Market. Because
buyers are absent from all sectors in broader
Capitulatory situations we cannot call the recent Market
pullback 'Capitulation.'
Capitulation is focused on Financials.
The current pullback in
the Dow Jones Industrial Average (DIA) began two weeks
ago when oil began to surge. 'Bubbles' exist in
both directions as we know, and the bubble that we
identified in oil last week presented an excellent
shorting opportunity. Our clients currently hold
short positions in US oil (USO) which were initiated
near the highs; these shorts were based on the excellent
timing of our USO Trading Report. Our USO Report
also offers a downside price target which we expect to
be tested, and when that downside target is reached the
concern about current high oil prices should dissolve
out of the market.
Oil was the first
catalyst for the recent pullback. Concerns about
financial stocks took over from there. Lehman Brothers (LEH)
lead the way down, but that's not the only stock in this
sector with weak relative performance. Goldman
Sachs (GS), Merrill Lynch (MER), Morgan Stanley (MS),
and the entire financial sector (XLF) has been under
relative pressure during the past 30 days, trumping the
weakness in the DJIA. This pressure began to weigh
on investor sentiment early this week when Standard &
Poor's cut their ratings broadly, and this is what has
caused the capitulatory environment in Financials.
The
market is overreacting.
Wall Street was aware
of the weakness in financial stocks before Standard &
Poor's cut their ratings. Most analysts had
already built in lower earnings expectations for these
financial companies into their models too, so the
writing was already on the Wall.
 Lowered
earnings expectations should come as no surprise, but
the recent pullback in the financial sector after the
retracement initiated by escalating oil prices has
created a capitulatory environment which offers
opportunity, and we should take advantage of it.
Last week
we initiated short
positions on US soil (USO) because of the 'Bubble' we
identified in the price of Oil; now, in light of the
recent pullback (inverse Bubble) in the financial sector
we are likely to initiate buy recommendations on select
financial stocks this week as well.
Our analysis and
recommendations will be market correlated based on our
objective Trading Reports for the financial stocks we
choose.
Lehman Brothers, for
example, has just tested a level of longer-term support
according to our LEH Report. Preferably, we'd like
more of these stocks to do the same before we issue a
buy recommendation on any of them, but we are close and
we are ready. The financial sector might have one
more leg down before it solidifies a bottom and turns
higher again; we are watching closely and we are ready
to send buy alerts when the timing signals from our
Trading Reports tell us to do so. You can prepare
by reviewing the Reports right now.
Buy when
others are selling.
Overall, our current
Market Analysis tells us to expect higher Market levels
and a test of a resistance level defined by our
Strategic Plan for 2008. Lower Oil Prices and
stability in the Financial Sector could allow that to
happen.
Current members and
trial members have access to our Trading Reports
already, and they will receive our trading
recommendations and rationale by e-mail too.
Review the table above to evaluate past performance and
sign up so that you can take advantage of our Timing
Models, if you are not already a member.
Sign up for a free trial:
Good Trading
Stock Traders Daily
http://www.stocktradersdaily.com
1.866.213.2067
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