DJIM #23 2008

Lets just say the past week ended in a pretty gruesome fashion.     When both the economic worry and surge of crude oil hit you in the heart, pocketbook there's really no chance this market can be bullish in anyway.     In any case, this market might have just over reacted a bit over the Friday's news.   As traders looked to a modest job losses number, the attention turned to he unemployment rate which jumped quite a bit.  There is two arguments to this as expected.   We think it's an aberration, reminiscent of the ISM plunge in February to 41+. The market overacted in regards to the employment situation, the big picture here is the job losses are holding up.    As far as oil price jumping over $10, that should not come as a surprise because we all pretty well agree it's going higher.   Simply, we think the market has underestimated the rising risks to crude oil demand.

Is this market in trouble?   If you look at the technical, we are really just a couple of days away from the March low, as far as DJIA is concerned.  However, both QQQQ and IWM are still far off the March low.   So in another words, the broad market isn't in as big of a trouble as the Dow suggests.    Of course, if you look at many plays on DJIM shadow list, it really wasn't until the last trading hour on Friday that some of the plays just gave up some gains due to the overall pressure and natural profit taking.     We think last Friday is more than likely a one time event.    Adjusting to high oil price isn't going to be done with one day and the volume isn't suggesting any sort of panic.    We have mentioned before that the likelihood of sustained high oil price is pretty high and the market will have to learn to deal with it.    In fact, there's an article in this weekend's Barron's that talked about the oil situation.    The same analyst who called the $150 oil price a few weeks ago from Goldman is seeing the peak price of oil between $150 to $200.    The one point he remained unclear though, is that how long the high oil price will stay with us.   

For DJIM, the focus on oil these days is very good for us.    The more media and analysts talk about the surge in oil price, it probably means more commodity plays will benefit as well.   Coals were upgraded again on Friday.   At this point, we have come to realization that some of our plays, including the coals may not give us a good pullback we had hoped for.    What we hope now instead is that some of our plays slow down so we can simply catch some on a pause.    We added a new play IPHS on Friday and we have noted that it held up extremely well despite the weakness of this market.    We are looking to add more in the coming week if it stays this strong.

Besides the Oil, spotlight will be on LEH this week to see how much they cut their leverage and what losses they'll report.  It won't be rosy, but if they throw out the kitchen sink finally, it 'may' help the financials in days to come.   In a low volume environment as we have now, we have the same ability to take a run to the upside just as quick.  Be prepared early in the week, if a turn comes it will likely be a pretty good one.  We definitely think volatile days not seen since early in the year are back for the short term.

The Haynesville Shale play is not going away.   PVA was only the first to release results and the market has responded very well.  Many more will and this will idea will remain in play as results will be catalysts.   So as solars, shippers etc, we think the shelf life on this play will continue and DJIM will be all around it.       HK, GDP, XCO, GMXR are the other operators in the area we like.