Just another wild week, even a modestly flat close on Friday was spun from another 7% range from hi- low on the SPX. Based on Thursday’s trade, our tone had changed towards the market and Friday morning the investing world woke up to Buffett’s, “ Buy America. I am”. Buffett reinforced he was buying Thursday morning, but stopped as the markets were rallying. The way we look at this is simply what we believe now in starting positions for either intraday or longer trades and that is buy on the dips. This example is well- served from Fridays action, we noted night before to maybe start some homework and this included looking back into the commodity stocks. The morning started with a gap down and the commods‘ followed suit tracing the $CRX, OIL (OIH our oil vehicle) to nice gains till profit taking ensued around 1:30pm in the broad market. In consideration of the daily wild swings, buying dips beats trying to catch a runaway move that can start to flop by 1:30 like on Friday. If commodity plays continue to do act well as in the last few days, the late day sell-off may have been another dip opportunity. Some days, you’ll just get lucky and forget about accumulating and just take the profits generated that day, eg a POT run of up to 10pts or any of the other nice low-hi ranges in the commodity stocks witnessed. CMP, is our safe play favorite here as it's got more going for it (diversified) as in it's salt business with winter coming.
The big picture remains, a faltering global economy, latest U.S figures confirm recession ( latest retail numbers, homebuilders survey new cycle low, early October factory surveys from the Philadelphia Fed (down to -37.5) and New York Fed (-24.6).......plunged !), hit with additional financial credit shock that isn’t going away overnight, despite signs of subtle improvements, thawing of the credit markets late in the week. The severity of the damage is hard to gauge and we just have to trade around it, even if the result is the worst recession since the early 1980’s. The consumer will tell the tale of how long and how deep of an economic contraction this is going to be. Right now, hope is short and shallow. Last week’s rebound in US and Japanese stocks, amid awful economic data, is the first sign of a resistance level. It is encouraging that equities went up this week even as economic data continued to deteriorate. Equity markets gained 4% for the week after the previous week’s 20% crash. Daily volatility remains very high and the VIX reached a new record high.
Nobody can tell if a deep Global recession is priced in, but considering we are off 45% in global equities since October, it may suggest it is priced in. We discussed last week the signs that policy actions are working on funding markets, we won’t consider going long seriously overnight till we see impact of all that has been done. The only cushion is the price of crude, besides the newest policy initiatives that relieve total gloom. These are pretty powerful forces to cushion the economic fall and boost spending, but is it enough to fight all the strong negatives out there. Unfortunately, as traders we’d like crude to spike here and there, so the vast commodity names get some life. Downside risk from a further decline in oil and gas prices is much less at Oil levels here, so most commodity plays have potential for upside from their current price levels.
The only stock making NCH's these days is EBS (alerted Oct 1st), it also made #1 IBD this weekend, this pretty well sums up the market and the difficulty in finding anything to go long for a period of time.
A big scope of corporate earnings this upcoming week (see earnings link), investor reaction is what we will monitoring closely to give the market some direction, besides the commodity plays