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There were two new BLOGs posted
earlier today. First, a recap and some comments on Spicy Pickle (OTC
BB: SPKL) which has held up rather well in the current market meltdown,
and Apple Computer (NASDAQ: AAPL), which has done just the opposite.
Comments on both for your review.
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The Big Giant
Woosh |
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Yesterday, at the open, there was
a big, giant WOOSH in the US markets as stocks were flushed down
the proverbial toilet- triggered by Monday's declines in world wide markets.
All the major indexes have given up the last 18 months of gains with one
notable exception- the SOX index- the index that reflects semi conductor
stocks- it has given up nearly 5 years of gains going back to the end of
the 2002 bear market.
The market was in an absolute free
fall at the open yesterday as US investors were sidelined thanks to Monday's
holiday. We had to sit by and watch stocks get clobbered internationally.
At the open, there was a huge appetite to sell.
After the first hour of trading,
the fund managers were no longer in charge of the action- the margin clerks
took over. In a market like this there are forced liquidations all over
the place.
Mid morning Ben Bernake stepped in
with his 3/4 point rate cut, and the markets were temporarily soothed-
but not much. The debate then became more about the FED being too late
to the party, and too far behind the curve. Here's the FED's problem- if
you are putting gas in your car or buying food, you know inflation is a
problem. If you are selling your home or getting a loan of some sort, you
know inflation is not a problem, but a slowing economy is. So, which is
it? Our current FED has been of the belief slowing growth and inflationary
pressures about equaled out- now they have sided towards slowing growth
being the far bigger problem- hence the dramatic interest rate cut. This
has investors wondering if there is something going on behind the scenes
to spook the FED. No, there isn't. The FED is finally being responsive
to the financial markets.
I much prefer this scenario of a
quick and painful decline, as opposed to a multi month slow and shallow
decline. Three short weeks into the new year there is already great debate
about when to buy stocks- the market is already pricing certain sectors
for either a softer period ahead or a full blown recession.
Here's the current debate- was yesterday's
session the big, irrational sell off traders have been waiting for, or
are there further declines ahead? There are some interesting looking charts
in some big names I believe are worth exploring.
If you are thinking about bottom
fishing, here's a couple of ideas I believe look technically great. Let's
start with semi conductors. Here's a monthly chart of SMH which
is a basket of semi conductor stocks. This ETF trades up and down
with the SOX index, but can be traded just like a stock.
On a monthly chart, the SMH
has now given back all its gains going back to May of 2003- nearly five
years of gains wiped out in the last month. It has arrived at a nearly
perfect 61.8% retracement from the Post 911 bear market which hit its lows
in 2002.
Remember, this is a monthly picture,
so you have to think in monthly terms. Don't invest if you are worried
about where we are going to be tomorrow. Only do so if you can think out
at least one month, and preferably many more. Semiconductors have now fully
priced in a recession, so there shouldn't be a lot of downside from here.
Many of the major semiconductor manufacturers have very robust overseas
sales, so globalization should help these companies.
Here's another chart that has become
technically very appealing. Yahoo! (NASDAQ: YHOO), one of the great
success stories out of the demise of the Dot-Com world, looks very attractive.
The stock has completed a nearly perfect 61.8% retracement of its
entire move since 2003, and technically is due to bounce.
Again, this is a monthly look, so
think about where the stock could be in 1 to 3 months.
Another notable- one of my featured
stocks, is actually having a very good day. Cree (NASDAQ: CREE)
is trading at nearly $29.50 as I write today's edition. The stock
is now up $4.50 from my original suggested entry level, and bucking
the free fall trend. The company was out with earnings post close yesterday,
and they were not robust. However, the company provided a good outlook
for the March Quarter, and indicated sales of LCD bulbs was starting
to pick up. Hence, the stock is up over $3.50 today- the exact opposite
of AAPL with great trailing earnings but a cautionary outlook. Unfortunately,
I am out of the stock right now. I will look for a pullback to get back
in.
Two major themes for the remainder
of 2008 will be Green and Foreign (emerging markets). I'm content to wait
for the market melt down to end before delivering any new ideas in the
microcap world. There will be money to be made- we just have to find the
right ideas.
I believe the statement out of the
FED's
meeting next week is a key for establishing a bottom. The
FED needs
to demonstrate to the investment community it is on top of the deteriorating
economy, not behind the curve. Then, I believe we can call the bottom.
One over riding thought- this sell
off has been so fast and furious it is too late to think about getting
short- the risks of being short are far greater than being long at this
point- at least in my view. The market has already fully priced in a recession,
and there will be some great opportunities as a few positives start to
emerge.
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