DJIM #2 2008
Monday, January 14, 2008 at 07:30AM Get ready for the battle ahead! The coming week may give us a tradable short term bottom, if the weeks barrage of Eco#'s allows. With financial companies like C, JPM, WFC, MER.. reporting, we'll have another in depth look of how things are unfolding with this sector. Chances are, more write downs will be announced by the financial companies but the stock reaction may actually be positive. Why? Most of these companies have dropped quite a bit since last quarter in anticipation of more write downs and it isn't a surprise anymore. We think that some of the financial stocks have priced into more write downs. Also, with the recent buyout of CFC from BAC and new investment from sovereign fund/investor into Citi, this sector may just seen its bottom, for now. We also noticed that during Thursday and Friday's poor market showing, financial companies have even managed some good gains. This is a sign that the sector is bottoming. Of course, this is still a process that can last days but it does look encouraging. Bear this in mind, we still aren't going to go out and shop for financial stocks. What we feel is that the stability in the financial sector can provide stability for the overall market. Hopefully, any short term downside risk is limited at this point. This is why we pointed out on Friday that despite the fact we dropped to near Tuesday's low, aggressive pressing of shorts at this point could be dangerous given the events that are coming up in next week. Basically, what we are feeling is that there's more favourable excuses/catalysts to trade up than down in the coming week.
Besides the financial stocks, we have a number of market impacting technology stocks reporting this coming week. Believe it or not, with the way some of these technology stocks have been dropping, it's as if all those companies will report a big miss and forecast negative growth for the coming year. Yes, that sentiment is a little too extreme. So again, we think the potential trade is to the upside from this earning period. We are looking for key reports from the likes of IBM INTC to give us some clue.
Given some of the heavyweights reporting this week, it doesn't mean that we are going to go all out and bet on huge upside movement. We are simply going in with an upside bias and trade aggressively if things do turn out the way we feel. However, keep in mind that this is still a very turbulent market and if things don't turn out the way we like, then we still have to do the right thing. So, be there and be prepared and let the market do the talking.
Our playlist isn't changing and we'll focus mainly on the hot sector at this time(chemical and agriculture), with names like MOS MON TNH CF CZZ and SEED COIN on the more speculative side of trading.. We'd be playing a combination of big ones and speculative ones so we don't get left out on either. We'd also play the market betas like AAPL (MACworld coming up) RIMM BIDU in case if the market rallies and/or some techs report favourable numbers . Again, this is not the time to find a winner before everyone else. This is the time to play what everyone else is playing when the direction is in our favour.
Jan 15 PPI, Retail Sales Jan 16 CPI, Industrial Production Jan 17 Housing starts/ Building Permits/ Phily Fed/ Initial Jobs claims Jan 18 U of M confidence