Low Drama...
Thursday, June 5, 2008 at 08:00AM A pick up in volume, doesn't always translate into wicked action. Today was one of those days where the volume seems heavier than average, but the stock action is overwhelmingly boring. Of course, if you are heavy into the financial stuff, you actually may have had a couple of wild days in a row. For those of us who are following the commodity plays, beta plays, today was not the day to get busy. Basically, as we pointed out a couple of days ago, we have gone into cash mode to wait for entry. Until this market gives us either some better action or better opportunity, we will be staying mostly put. Lets run down a few sectors here for the heck of it...
Beta stocks, these include RIMM V AAPL MA GOOG SOHU..., other than SOHU (a nch today), everything seems to be in a consolidation phase here. We want to make sure this market is able to hold the recent downside momentum. There's really no point buying beta stocks now if this market takes another leg down off any potential bad news from the financial sector. Playing this group is actually easier than the commodity group because all you have to do is to follow the main indices.
Coal, out of all of the commodity groups, this the group that's first on our buy list when it comes into range. Lets face it, ever since the group's break out in the beginning of May, the group hasn't really had any pullback. Right now, we'd be concentrating on PCX and ANR mostly but others like MEE, FDG, JRCC... can all fit into the profile. So, it's a matter of personal taste in this case when the time comes again.
Steel, we have to admit, this group did have quite a run so far so extended consolidation is understandable. We aren't sure how much more juice this group has left if another breakout takes place so we'll take other things into consideration when it happens.
Oil, the ones that are discovering or proving more reserves are definitely faring better than others. PVA CLR GDP types are holding much better than the rest of the oil sector. If crude oil reverses the recent slide, we'd like to trade these more. Believe it or not, even though crude price has dropped nicely the last few days, we are still above $120/barrel!!
Agri-chem, this group is back onto the radar and a couple of them are nearing highs again. This maybe the first commodity sector to turn to when a commodity reversal is evident. Right now, we are only looking at some of the well known names from the past such as POT MOS CMP MON..
Solars, we just like to avoid this group at this point especially when FSLR is out there skiing in the Alpine. After last Fridays gap this group has done very little with the German subsidy rumor. As we said, we didn't chase the gap or look to buy until the news comes to fruition or something else fuels this group.
Yes, we know market action is kind of slowing down, so we have to be more prudent when it comes to choosing plays and their setups. Bottom line, we'd rather miss an "opportunity" than getting into a potentially dangerous setup. After today's data, the Friday's employment number may not be enough to give Bulls or Bears any leverage, instead we may get a play intraday on Thursday if the Financials don't cause more havoc. The $CRX has fallen to the 50ema quickly (980 to 943 this week), we'd love to see it slip some more and after do an intraday reversal to spell a short term end to the downside.