future stock to watch

I remain bearish overall on the US equity markets, but this is not a prediction on how the major indices will perm in 2008. I do not make predictions; I follow price trends and make changes accordingly. The infrastructure sector trend is still moving higher, and one of the strongest performers is FWLT.

FWLT is the perfect candidate to reestablish its trend if 2008 starts off strong. The main reason I like FWLT is the current support at $155.

The $155 level was resistance in both October and November and has now become support. If the market opens in 2008 to the downside, you have an easy out of FWLT, right below the $155 level.

today’s tape

The final trading day of 2007 ends with substantial losses on very light volume. Though, the financials actually finished higher on the day. Perhaps the shorts were covering some of their gains; or maybe investors were beginning to place bets that names like WM (up 4% today) BSC (up 1%) the homebuilders (the XHB was up almost 3%) will recover next year. The airlines also rallied substantially after weeks of selling. Fortunately there will always be traders on the wrong side of the trend.

This same logic may explain why some of the best names of the year fell today. GOOG, RIMM, MSFT, BIDU, TRA, MOS, JEC, FLS, the ultra defensive names and the OIH all dropped today. These names are all still worth owning next year until their individual stock prices and the sectors they trade in start to fall.

If you have some free time tomorrow while the markets are closed, take the time to review your trades of the past year. Write down what went right and what went wrong. Did you overweight the strongest NDX tech stocks? Were you overweight the oil service sector and the agriculture names? Are you still holing onto one of the explosive solar names? Did you try and pick bottoms in the banks, investment brokers and homebuilders? Do you still own any names from this sector?

Though the second half of the 2007 trading year became extremely volatile, decreasing the probability of a long term broad market trend, many sectors held firm as strict bullish/bearish plays. Trading only with the trend and would have produced spectacular returns (and it did, for some). If you missed out, I’m willing to wager it wasn’t because of the stocks you traded – it’s how you traded them. Maybe it’s time to reassess the trading system you employ, instead of looking for the next hot stock to own.

future stock to watch

Many foreign based companies produced spectacular returns this year thanks to the ever weakening US dollar.  After showcasing some rare strength two weeks ago, the dollar is, once again, losing ground against the Euro.  If this trend continues in 2008, you can expect many of the same foreign companies to benefit.  NOK is one to watch because technology stocks may also continue their run next year.

NOK has been in a year long up trend; but notice how this trend was tested during August and more recently in November and December.  Now take a look at the performance of the EURO.

Both in August and during the past 4 to 6 weeks the Euro began to fall as the US dollar increased in value.  But when the dollar falls, NOK handily outperforms the S&P 500.  This dynamic may continue in 2008.

today’s tape

The early morning futures suggested the market would bounce firmly after Thursday’s sell off, but the latest batch of dreadful housing data quickly deteriorated equity prices, and we ended the week virtually unchanged. The DOW, S&P 500 and the NASDAQ continue to trade in a tight range. This will likely change soon. Whether the catalyst is the first day of trading in 2008 (Wednesday), the upcoming jobs report (Friday) or an unexpected economic/geopolitical event, increased volatility will return to push the major indices out of their current channels.

The major movements on Friday were the weakening US dollar and strength in Gold. Virtually everyone has declared the “shorting the US dollar trade” over. You may recall my reluctance to change my bearish stance on the US dollar after short term bounce. From December 18th:

Stepping away from equities, one of the major movements of the past few weeks has been the rebound of the US dollar. Many believe the dollar has reached its bottom. I’m not so sure.

Well, the US dollar has been crushed by the Euro and other currencies the past 5 sessions, and it may begin another significant drop.

The falling dollar has helped the price of Gold break out of its current trading range. The GLD (Gold ETF) closed at a new 52 week (closing) high. Given the current domestic economic climate, the price of Gold may be able to reach $1,000 in 2008, as many are predicting.

The spike in Gold and Silver, helped boost the gold and silver stock index, the XAU. The less volatile bullish play is simply to own the GLD instead of a gold or silver stock. Since the GLD is not a stock, it will not be thrown away (as gold equities surely will) if the stock market falls. Here is the 3 months performance of the GLD versus the XAU.

The financals continue to lose value and cannot be owned. C reached a new 52 week low, even though the company has yet to give in and cut their dividend. Most believe a reduction in the dividend is a forgone conclusion. If the dividend is cut, this stock may get slaughtered the same way WM has. It will also be interesting to see what C announces on January 15, their next earnings report. The same can be said for MER; it will announce one day prior.

The mortgage insurers continue their race to zero. MBI, ABK, PMI and MTG all dropped because Warren Buffet decided to enter the mortgage reinsurance market by creating his own service, rather than coming to the aid of the current businesses. The entrance of Buffet into this market provides local governments and other municipalities a much safer option then engaging with MBI or ABK. It’s very likely that at least one of these 4 companies will go out of business.

Oil stocks continue to outpace the S&P 500. In addition to boosting the price of precious metals, the falling dollar continues to support the price of crude oil. The price for a barrel has remained in the $90 to $100 level for months, but we may finally see a break to the upside. The integrated names, appear ready to burst through their 52 week highs. CVX and XOM are both testing their $95 resistance resistance levels. The 30 day moving averages of SLB and NOV are beginning to slope upwards again.

The larger technology companies are really starting to dominate the tech space. ORCL and RIMM reported strong earnings recently and can be owned. GOOG, AAPL, and MSFT are also candidates to consider. Stay away from the smaller companies from the Russell 2000. The NDX is killing the small caps at the moment.

With only one more trading day left in 2007 (and a half day, at that), I don’t expect much to happen on Monday. It’s time to get ready for 2008 – likely to be another volatile year.

future stock to watch

Over the last 5 months, I have provided many ways to play the downside of the housing market.  The REITS have fallen in sympathy, but the damage has been somewhat contained compared to the homebuilders. But I now see an opportunity in the IYR, the real estate ETF that is influenced by REITS.  Before I throw up the IYR chart, here’s the 2 year performance of PHM, HOV and RYL – three random homebuilders.

These names have been trashed the past 24 months.  Now take a look at the 5 year chart of the IYR.

After 4 years of spectacular returns, the IYR is crumbling.  The recent drop may just be the beginning.

today’s tape

After a few days of steady gains led by the solar, energy and agriculture stocks (hello?!), the major indices ended Thursday with significant losses for the first time since the December FOMC meeting.  The assassination of the Pakistani opposition leader, expectations of larger write downs at C, MER and JPM and a durable goods number that was lack luster sparked the sell off.  But I believe the market would have had trouble advancing past their current levels, regardless of the today’s news.

The S&P 500, the NASDAQ and the NDX were all sitting right at resistance entering today’s session.  The S&P 500 still cannot break out above the 1490 to 1500 level I have been mentioning for weeks.  The NASDAQ and the NDX also fell from their former support and new resistance levels of (about) 2725 and 2135.

The markets will continue to have difficulty breaching these resistance levels when there are so many economic and geopolitical issues for investors to worry about. Take a look at the S&P 500 chart once more.  You’ll notice that the highs established by the index are becoming sequentially lower, yet the lows are are becoming higher.  This is an interesting dynamic.  The bulls and bears are each trying to gain control of the market, and they are tightening the trading range, as a result.  Eventually one group will win out, and a very large move will push the S&P 500 out of this pattern.  As more traders return from their holiday break, volume will increase, potentially giving this market a clear direction.

Even thought the entire market has no discernable direction at the moment, many sectors continue to trend.  Financial stocks continue to reach new lows despite the daily yammering of some new CNBC talking head, suggesting now is the time to buy this group.  Meanwhile, C ended the day at a new 52 week low, finally ending a session below the $30 support.

I don’t care that C, MS, MER and other financial firms have received billions of foreign investment.  This group cannot be owned.  A lack luster holiday retail season continues to give the bears the edge with stocks like JCP, M and GES.

Hostility in the Mideast continues to support the price of crude oil, now trading back above $96.50.  If not for a terrible day for equities, XOM, SLB and others may have continued their run higher.

As always, certain stocks fared well today.   Agriculture (POT and TNH) technology (AAPL, BIDU and AMZN), energy (CAM).  The stocks to own continue to be the top performers of the year.  Don’t stray from what works.

We could see the selling extend back to the support levels we just bounced from.  But the real move that shapes the 2008 stock market probably won’t take place until late next week.

today’s tape

I will be taking a much needed break to relax over the Holidays.  I will return with regular posts on December 27th.

future stock to watch

If you don’t own a stock exposed to the agriculture sector, you probably aren’t outperforming the S&P 500.  In previous future stock to watch posts, I’ve mentioned CF (October 18; at the time trading at $77.81) and POT (September 18; at the time trading at $92.37, and July 26; at the time trading at $78.02 ).  Now, I bring your attention to TRA.

The $40 level had been resistance in early November and parts of December.  TRA was on its way to blasting through this level to reach a new 52 week high, but the morning sell off drove the stock lower.  Even still, TRA has increased over 45% in value over the past 3 months.   The S&P 500 is down 5% over the same period.

If the market ever starts to rally again, this stock may continue to surge.

today’s tape

The markets finished the day with a a roller coaster session; gapping higher at the open; succumbing to some mid-day selling pressure; and rallying  into the close, essentially finishing where we ended yesterday.  The earnings at GS gave the market a quick, if modest boost, but the investment bank that everyone maintains can do no wrong finished lower by 3.5%.  But how can this be when GS beat earnings, taking the other side of the suprime mortgage trade, raking in billions of profit?  It’s because the market (and more decidedly the financials) is in a bear market!

You cannot own any financial stocks.  This has been my thesis since July.  Last week, LEH announced strong earnings, yet it trades lower today.  If GS and LEH are falling on good reports, what might happen if MS (releasing tomorrow) or BSC (Thursday) miss expectations.  If MS breaks through the strong (to this point) support of $55, the financial sector may get hammered.  Same with BSC and the $90 level.

C is also con the brink of breaking the $30 level.  Bottom line: you don’t want to own these stocks.  Now, they could certainly rally from these support levels if the market (overall) trades higher.  But there are much better stocks to own in sectors that are outperforming.

For instance, the solar companies.  FSLR, CSIQ, YGE, JASO, SPWR and ESLR all jumped over 3% today.  This group continues to thrive.  Everyday you hear of another company increasing its business.  Today it was JASO; Last Thursday, ESLR; last Monday, LDK.

Stepping away from equities, one of the major movements of the past few weeks has been the rebound of the US dollar.

Many believe the dollar has reached its bottom.  I’m not so sure.  But the recent strength in the US dollar may explain the relative weakness in crude oil and gold.

Trading volume is becoming very thin, and this will add to the volatility.  If tomorrow’s earnings don’t derail the markets, we could see an extension of today’s gains.  Today’s best performing major index was the Russell 2000, gaining over 2%.  The small caps have been the worst group recently, but the index held firm today and bounced off the 740 support.

But again, earnings from MS and ORCL tomorrow will probably determine tomorrow’s tape.

today’s tape

The equity markets continue to fall, this time with the NASDAQ leading the way down.  GOOG, AAPL, MSFT, INTC and other large tech stocks were hammered today as the selling continues to spread.  I first warned about additional sector deterioration as the miners and precious metals began to fall last Thursday (as they did again today).  Now, the NDX is beginning to drop, and will likely trade below 2000 as it reaches the near term support from November.

Even more telling about today’s terrible session was the performance of the ultra defensive stocks.  KO, MCD, PEP, MO and CL all had rough sessions.  We are seeing a new bear market develop, and these are the signals.

Though, in the very near term, we could see a boost.  The financials outperformed today as every other sector was sent lower.  With the possibility of GS pleasing investors tomorrow, we could see a substantial bounce.  But the XLF and S&P 500 still have room to fall before reaching their November lows.

The foreign markets had a terrible day, as well.  The EWZ and FXI were destroyed.  The EWZ has failed twice to break through the $85 level.

This is not promising.  If these ETFs, representing the high growth countries of Brazil, China and others, continue to fall, the mining and infrastructure names – two of the best groups of 2007 – may be hit the hardest.

There’s not much else to say, really.  You should be more short than long at the moment.   I would the agriculture names here, but little else.  TRA, POT and MOS all finished higher against today’s terrible tape.  Moving forward, the main thing to watch for now is whether the S&P 500 will hold the 1410 level.