Tuesday, May 29, 2007

Wednesday's Sell Off

China's Shanghai Index is trading down over 6% about half way through its trading day. It is mostly in part to transaction fees tripling in their trading markets. I think it is mostly due to a government that is trying to cool the market a little. They have had an incredible run, and it is bound to come down some.

Remember, on Feb 27, Chinese markets sold off 9% and the down dropped 500 points. You'd have to think that we'll see some response tomorrow in our markets.

Here's the details via Bloomberg, which is the best worldwide resource if you're trying to keep track of the world markets 24/7.

Some Comments on Gasoline

I think its time to takes some profits on the refiners. Gas prices have risen drastically mostly due to supply concerns for the summer, not higher oil prices. I'm still bullish on the energy sector long term, but I think gas prices will ease now short term, and we could see a decline in Frontier (FTO) and Valero (VLO).

Its interesting how the market responds with fluctuating energy prices. Last year crude oil went into the 70's per barrel, and gas prices rose. We haven't been near that yet this year, but gas prices rise on supply worries. It seems that no matter what happens, the common denominator is higher gas prices. Higher gas prices will affect consumers and could spill over into other areas in the economy. Fuel prices seem to affect corporations less, as they tend to pass those prices on through surcharges and price increases.

Saturday, May 26, 2007

This Coming Week

This week will be shortened because of no trading on Memorial Day (Monday). I have some concern heading into the week. To begin with, lets look at last weeks trading. Thursday saw a sizable sell off on high volume. Friday though, is where we need to look. There was a rally on relatively low volume. This could be attributed to the fact that people were leaving Wall Street to get an early start on their weekend, but it cannot be overlooked. A rally with low volume following a large drop is a negative sign. So we have that hanging over the weekend.

Also, we are getting into a predicament with the Fed. There are a lot of data reports coming out this week, but most investors are worried about rates. If we get positive economic data, it will actually be received poorly by Wall Street because it means that the Fed will be less likely to cut rates. A rate cut typically is very good for stocks. If we get negative reports, the Fed could still cut rates, but it could mean that we are more likely to see a recession.

I see the combination of these items leading us to trade lower this week. I'm recommending to take some profits if the opportunity presents itself. I'd also look to get some exposure to the sell-side if the markets turn. I'm continuing to keep an eye on the Chinese and other world markets as well. ETF shorts (DOG) and (DXD) are easy ways to play any drop. DXD is 200% leveraged short and trades with a little more volatility.

Thursday, May 24, 2007

Sell Side Exposure

As I've mentioned before, I like buying into an ETF to get my sell-side exposure. I think you have to look at the funds that short the Dow rather than other indices. I like (DOG) at this point, because I see little downside risk. If the market corrects, it would put some money to work going the other way.

Correction in Sight?

You can begin to feel the energy slow down in the market. I've been watching the trading in China's Shanghai Index, and it finally traded lower today (about 0.5%). Former fed chairman Alan Greenspan made comments that their market will correct. He wasn't exactly going on on a limb in that statement, but it did catch the attention of a lot of investors.

One thing to remember is that weaker markets typcially open higher, and work their way down the rest of the day.

I think that the rest of '07 still has the potential to be a good year for investors, but I think short term, most likely during the summer months, we'll see a slower trend.

Tuesday, May 22, 2007

Something to Consider

The blog Crossing Wall Street posted an interesting stat about the potential market bubble.

Click here to view the post.

Saturday, May 19, 2007

Market Psychology

Although many of us are awaiting a correction in the markets, it is important to keep in mind that you shouldn't try to go against the trend. Wall Street is too strong, and it is better to go with the trend then to try and call the bottom or top of the market. I've been reading a lot of interviews with successful traders lately, and almost all say the same thing. Individual investors make the mistake of trying to find the top or the bottom. You are better off waiting until the market shows us a direction, and follow that direction.

We should strive to get the "meat" of the run, and not get greedy trying to capture the whole thing. If you're thinking of taking profits, keep in mind that it is a lot easier selling when the market is going up, as opposed to waiting until stocks start falling to sell.

Thursday, May 17, 2007

Oil Again

Oil continues its strong run up. All of my favorite oil stocks have been performing well. Again I see strength particularly in offshore drillers with international exposure, and in refiners. Noble (NE) and Global Santa Fe(GSF) look good for the drillers, and I continue to like Frontier (FTO) and Valero (VLO) for refiners.

I'm starting to growing weary on the rest of the market though. The April retail reports came in pretty light. I'm still concerned that the mix of inflation and high gas prices will hurt the consumer more than people think. Here is a nice article to read more about this.

But this bull market is being driven by corporate activity rather than consumers.

For some sell-side exposure, I'd look at an ETF that shorts the Dow, which is (DOG). I see little downside risk in this. If the market continues to climb, it won't do so as quickly as the last month. I do see a potential correction to be likely. The volume traded in the fund is rising, which I see as a sign that investors are thinking the same thing. It traded 3x the average volume in today's action. We'll see what the future brings.

Wednesday, May 16, 2007

Nice Resource

If you're looking to invest in ETF's, I found a great worksheet that breaks them down. It was put together by the Bespoke Investment Group. You can view it by clicking here.

Right now I'm intrigued by ETF's to track various industries. With the market getting into a somewhat overbought position, there are funds that allow you go short on the market, which could be valuable in the next six months.

I should mention that I found it displayed on James Altucher's daily blog watch at thestreet.com, which is a nice resource.

Tuesday, May 15, 2007

More Strength

Each time we get some movement toward the sell side, it is quickly reversing. Stocks are continuing to climb and it looks like the Dow should hit 13,500 soon. M&A deals continue to power the economy, and there have been no shortage of deals.

We've seen a fair amount of negative news, but yet the market continues to climb. I think that it is because this bull market is being driven by strong corporate results, and the individual investor hasn't taken part in it.

The factors that we've heard about: weak retail results, inflation, subprime mortgage issues, high gas prices are all affecting consumers, but corporations are continuing to post solid gains. The big, blue chip companies are doing best, and that is why the Dow is doing so well. Tech stocks and others in the Nasdaq haven't fared as well. I'll continue to keep an eye out for new ways to play this market.

Thursday, May 10, 2007

Falling Knife?

Looking at today's trading, we're seeing a healthy drop across most sectors, and it was long overdue. I watched Amgen(AMGN) drop 5% in less than an hour after some negative news came out from the FDA requiring Anti-Anemia drugs to have more restrictions. This has made me think is this a buying opportunity or would buying be trying to catch a "falling knife"?

In a case like this, I like to see some stability before I buy in. It isn't that important to try and catch the bottom when buying. Preservation of capital is more important, and you're better off sacrificing a couple of points than buying too early and sacrificing much more.

As a side note, any more pullbacks would be a good opportunity in oil stocks, particularly the ones I've been writing about as of late.

Wednesday, May 9, 2007

Inflation

The Fed left rates unchanged, and stocks are responding by rallying this afternoon, which is a fairly typical response. I'm still concerned about inflation though, and although it isn't hurting stocks yet, I think it will.

But as long as things are positive, we might as well make some money. The blue chips are almost all looking strong right now. Coca Cola(KO), Goldman Sachs(GS), and Apple (AAPL) are looking particularly good.

Frontier Oil(FTO) dropped a couple of percent on earnings and lower crude prices. I'm still strong on both Frontier and Valero(VLO) heading into this summer and the possibility of $4 gas.
Buyers seem willing to buy on any pullbacks, and if we don't experience any major political or economic announcements, I don't see why the Dow won't hit 13,500 fairly soon. The big correction that the bears are calling for just seems to be put off.

Tuesday, May 8, 2007

International Exposure

Stocks are trading lower today on relatively light volume. I think some people are taking profits, which explains the drop, but most people are in "wait and see" mode. I think the Fed is going to have to address inflation issues. I think that it is a factor that has been underestimated in the past year.

The Berkshire Hathaway meeting occurred over the weekend. I'm always interested in what Warren Buffett has to say about the market. His candor is very refreshing compared to the usual Wall Street jargon that we usually hear. I agree with his comments about getting international exposure. He said that the weakness in the dollar is a problem, but rather than trading the currency, he said to buy stocks with international exposure. He also said that Berkshire is going to make some major purchases in the next year, and those would most likely have some exposure to new markets.

Some US companies with big international exposure: Coca Cola (KO), General Electric (GE), AIG (AIG), Noble (NE).

Some international companies that I like: Cemex (CX), CNOOC (CEO), BHP Billiton (BHP).

Friday, May 4, 2007

The Weak Dollar and Where to Go

It seems that everyone is dismissing the weakness in the dollar. It seems that the market has risen in part because of credit and so called "free money" flowing like crazy. If you look at the deficits our government has created, as well as the amount of credit consumers are using up, it makes you wonder if the recent strong performance isn't just inflation taking hold? Will the Fed have to raise rates to deal with this? Even though the market looks strong, its important to look to the future to make our next investing decisions.

I like to get some international exposure to start. I'm a fan of Dodge and Cox's International Fund (DODFX). It isn't focused on one area, but rather makes investments in many countries, including the US. One of their largest holdings is actually News Corp (NWS/A), which I have recently discussed. But they also provide exposure to expanding markets throughout the world as well.

I've also mentioned the company Cemex (CX). Their recent drop was an excellent buying point, and I picked up some shares for the portfolio. It has responded with two strong trading sessions, which I'm glad to see.

On the conservative side, you could look at Vanguard's Inflation Protected Securities Index Fund (VIPSX). They provide a nice hedge against weakness in the dollar, and the broad market.

Changing of the Guard

M&A deals are continuing to drive the market upward. What's this I hear about Microsoft(MSFT) possibly acquiring Yahoo(YHOO)? That would be nice for Yahoo, whose performance has dwindled in the past year or so. I think Microsoft has just been reaching, and now are showing their vulnerability. While they have created many great products over the years, to me they are just being beaten creatively by companies like Apple(AAPL) and Google(GOOG). Look at their attempt into the mp3 player market. Their Zune product offered little buzz in a market that thrives on it. Their Vista product hasn't been received all that well, and many companies have refused to change to it. And now this? To give you an idea of Google's dominance in the search advertising market, consider this: If Yahoo and Microsoft combined, they would control 27% of the market to Google's 65%, and that's if they combined!

Simply put, I think Google is the company of the present, and certainly the future. They are making timely, well executed purchases, and are simply more creative hard working than its competitors.

Thursday, May 3, 2007

International Exposure

In these recent times of the weak dollar, I like to get some exposure to international companies as well. Cemex (CX) is a company I have followed for quite some time. They are a Mexican company, but supply cement to growing areas throughout the world. They are in a battle to acquire Australian rival Rinker, and it appears that the deal will go through. I like this company for a number of reasons. As always before picking a stock, I go through the fundamentals. They are there. What is causing me to get excited about this company though is the fact that they are doing well even though the US construction market is down. They are benefiting from the growth in Mexico and throughout the world. And once the US market gets back on track, they really stand to gain.

Tuesday, May 1, 2007

Another Big Deal

News Corp (NWS-A) made a bid for the Dow Jones company, which owns the Wall Street Journal, Barrons, Market Watch, as well as some other strategic alliances. This is a big move for Rupert Murdoch and News Corp. They are launching a Fox Business Channel to compete with CNBC this year. Having the alliance of The Wall Street Journal and Barrons will be huge to give the new channel instant credibility. Fox News already has very high viewership, and to me the question mark that would be Fox Business Channel, just got legitimized if this acquisition goes through. I've been a fan of News Corp for the past couple of years, and especially after their acquisition of social networking website Myspace. I think Murdoch has this company on a great track to become the premier media conglomerate.

There was a nice article about the deal that you can read here.