DJIM #25, 2008

Summer has just officially begun in North America and things are seemingly heating up for the next few months.    For some reason, we have this feeling that this is not going to be a relaxing summer for many traders.    Of course, there's always two sides to every coin and it all depends on your trading strategy, you can be either be stressed or relieved as we go forward.     Market as a whole, is not doing too good lately as we all can see.   Oil and Financials continue to rule the market on a daily basis.   Nasdaq is in danger of breaching it's recent lows while Dow is headed for primary support at 11750.    SPX, is also much closer to its year low than the year high with it's primary support at about 1270.    We are literally at a point where many market participants have to ask themselves, "what are we really fighting for?"

Much of the market turmoil is being blamed on the financial sector and its credit squeeze and this is perhaps the most troubling side of this market.    If our capital market fails, nothing else really matters.    Well, what's happening out there is not the case that the system is failing, it's just the fact people do no have any faith in the recovery of the financial sectors.    Right now, no one can  intelligently give a reasonable time frame of how much longer the financial sector will suffer.   P/E and valuation is currently useless when the confidence level is so low towards these financial companies.    In hindsight,  some of these financial will probably make a great investment in the long term.    However, at the present time, you'd be thrown out of your office if your investors find out you are still holding/buying these troubling stocks as a money manager.     To DJIM, the process of gaining faith and confidence in the financial market takes time and unfortunately we do no have the insight knowledge nor time and capital to wait it out.   So, we pretty much leave everything and anything that have to do with the financial market alone.

For some of us who have started trading in the 90s, we really haven't dealt with an inflationary induced stock market.    Also, the world isn't the same now compared to the 70s or 80s.     You can draw parallels only to a certain extent between different periods and the rest is new and unfamiliar to us.     The energy crisis now is definitely different from the energy crisis in the 70s.    The inflation worry now is also different from the inflationary period in the late 80s.    The major difference, in our opinion, is that the crisis we are going through now is more of a world problem, as opposed to the problem for the western countries.     China and India and many other developing countries didn't  matter in the world economy 20 or 30 years ago.    Nowadays, they are probably the very reason we are entering a high energy price era.      Demand and supply of crude or any other commodity is no longer just a North American or G7 issue.     The point is, commodity issue is a global issue and it takes a long time to balance things out.

For DJIM, we got crude and inflation plays covered and we leave financial stuff alone, what else do we have to worry about at the moment?   Nothing really!    We fight the good fight and we leave the risky stuff to others.  That's the difference between being stressed out as we come back to March lows or being relieved by playing the commodity stocks.  In a few weeks, another round of earning reports will start and we'll have a much better picture this time to gauge how much oil and other commodities are affecting our economy.   In the coming week, our focus will continue to be on our fave groups, including the Shale plays ( in depth look in tomorrows Journal) and other ones with good technicals, such as those making new highs eg. X, ENER.   MON will report on Wednesday and this one will be interesting to watch and we have a feeling it'll crush the number and investors will give it another rosy reaction.    Also, some M & A activity starts the week off for this group.