Slow things down a bit....
Tuesday, April 22, 2008 at 11:00PM Basically, as much as we'd like to see 200+ pt gain every day, the best course of action for this market at the moment is to chill. Yes, we have broken that all important resistance level last Friday and now comes the task of defending that level as support. Because we are still in the midst of an earning period, the market will tend to be volatile because of the uncertain outcome of earning reports. We'd allow this market to go 100 points either way, as long as there is strength in selected plays. We cannot control nor predict whether a market will go up or down 100 points tomorrow, but we can definitely take advantage of opportunities that are presented to us. This is assuming that we are on top of our game and know exactly what to look for.
Today's slide is mainly from the technology area and we aren't particularity concerned about that. Yes, some of the tech names have gone up tremendously ahead of their earnings and it's only natural to see some pullback. Frankly, if AAPL's earning suck tomorrow, nobody wants to pay $150+ for it. It's as simple as that!. On the other hand, the commodity market is still alive and kicking. What else is new eh? Honestly, this is getting to a point where we don't even care about any sector other than the commodity ones we've been stalking. It's not that the commodity plays go up the way like in the dotcom days. It's the fact of how scarily steady they go up with respect to the overall market. It doesn't seem matter whether we have a down market or an up market, there's always one area of the commodity market that's getting hot money. In today's case, we have oil and agri. and shippers and a selected steel MTL, we long ago said might follow in the footsteps of our big play (X) when it dipped into $110's. To us, that's more than half of the plays on our watchlist, your DJIM shadowlist. To some, this may get frustrating as the inevitable question arises "why don't some of these names pullback for once?" Well, this is the perfect illustration of hot money flows. Is this going to be a bubble waiting to be burst? Frankly, we don't know and we don't care at this point. They blew it up once recently and we came back and said this is not 'dead' and soon after it all started up again!. Only thing we have to say at this point is that, if you don't trade the commodity this year, you will be greatly under performing those who do.
Now some sector digestion in no particular order...
Oil, it sure is getting hotter out there and we are not even through April yet. What ever happened to spring? We literally jumped from freezing temperature to mid 20s C in a matter of a week. This can also illustrate the market with oil right now. It just feels like there's no stoppage, now that the summer is coming, which is seasonally strong for oil price. As far as plays wise, we are sticking with some of our popular ones like HES, EOG, RIG, XCO, ATLS and BZP.
Coal, with earning reports out of the way from BTU ACI and FDG. We only have a couple of interesting ones left to report. We are looking to establish some good positions next few days hopefully on dips. The story with this sector is again demand + pricing power. The current reports may not justify the future potential of this sector.
Shippers, just about every shipper had a good day today and this is more of a recent sector move than anything. We started getting very bullish on this sector at the beginning of April and it's been paying off nicely so far. This is a secondary play for the commodity market, but it's a very important sector. Basically, you have only so many vessels and you can only built so many of them a year. The rising demand of commodity will give those shippers good bargaining power down the road. Most of these shippers are already trading at a very low P/E so now it's the matter of change in perception as far as trading goes. DRYS, EXM and TBSI are of course our three top dogs we like to trade and we'd stick to them for the next while. We rode them last summer after alerting the sector and we are once again since the start of April. If you're visiting DJIM, you can go to our Alerts-page and /or search our stocks through our search of Journal entries, or just keep scrolling down these pages and see the stocks we've been playing highlighted in bold.
Agri., about a year go, not many people have even heard of POT. These days, you can't log into a trading system without at least checking to see how much POT is going for on the street. How ironic, eh? The success with POT has everything to do with how huge the IPO of IPI was today. IPI is a pure potassium play that markets its product to America. Given the scarcity of this resource and the increasing demand of this ingredient in food planting, IPI will likely get some more momentum down the road. POT is reporting on 24th and we think both the report and guidance will be good. It's hard to say how these stocks will react initially, but we'd be buying/ recycling on any weakness.
Bottom line, it pays to go after the obvious and easy plays. In a bull market, every play will look extended and that's the way it's going to be. This is the case with commodity plays right now. We have to constantly remind ourselves that this is where the hot money is and this is where we want to trade.
Jon | Share Article | Print Article | Email Article | tagged ATLS, EOG, HES, IPI, RIG, Shippers back, TBSI, X, XCO, coals, pot