Monday, August 11, 2008


Do you believe that we have the worst behind us and everything is going to be smooth from this point forward? I DON'T. I know that traders are excited over the drop in oil and the much needed strengthening of the dollar. I just think that we are over reacting at this point. A good case in point was Fluor's (FLR) earnings report today after the bell. They showed excellent growth and were trading up about $5 in the after-hours session. This stock had been unfairly punished while oil was falling. Yes, FLR did break records with their oil and gas segment, but as I have said before, they are going to continue to see robust demand with oil prices anywhere above $80. In full disclosure, I own shares of FLR.

Just a short month ago, the question on every traders mind was "HOW HIGH CAN OIL GO?" now all of the talking heads on television are asking how LOW it can go. I am not fighting the selling, but I do believe that it is going to get overdone and there will be another time to buy the energy sector and make good money. I mentioned in my post yesterday that I was looking for stocks that had been unfairly punished and Transocean (RIG) was high on my list. I must say that I almost pulled the trigger on this one a couple of times today. I think we are getting close to a good point, but patience and discipline are paramount at this stage in the game. Knowing when NOT to trade saved me money today. At any rate, RIG is still on my radar screen.

Now as for why I don't think it is smooth sailing from here. First of all, we still have oil prices are still above $115. If I had asked anyone 24 months ago what would happen if we had an extended run of oil prices above $115, I don't think anyone would have told me that we would be ready to move up significantly. Second, we have not really had a decent reading on the consumer over the last couple of months. The results we have seen have been tainted by the "stimulus" checks. We need only point to mammoth Wal Mart (WMT) to see the struggles ahead the retailers. I was totally shocked that at their recent revenue numbers. I expected Wal Mart to benefit greatly from the stimulus checks, but we just didn't see it. I think that when we see retail sales for the Christmas season of this year, we are going be sadly dissappointed.

I have talked to several traders that disagree with my view. They argue that the markets have already digested most of the bad news in the financials and these traders are quick to point out that we are not seeing $10 spikes in the price of oil at the mere mention of a adverse geopolitical event. They also argue that the cause of the latest decline in the price of oil due to demand destruction at home and abroad. I agree that we have SOME demand destruction, but I don't see that causing the sudden drop in the price of crude. If you believe that when the U.S sneezed, the rest of the world catches a cold---then you don't believe that demand destruction will last very long do you? I believe that the global growth story is still intact, even though it may have hit a bump in the upward road.

Given my thoughts on the global groth story, I am watching Freeport McMoran (FCX) for the same reasons I am watching RIG. I think this one has been overblown to the downside based on falling copper and gold prices. I think this one could give you a quick return if you wait for this rotation out the sector to slow.

I am urging CAUTION at this point. Now I did buy some September QQQQ calls today, just in case this rally catches more legs. I like the technology names as a whole and think they will outperform the DOW. I used the options to limit my downside risk.



Anonymous said...

it is going to be a soft landing and Bernnke is owed an apology by folks like Jim Rogers because he orchestrated the greatest bailout ever!!!

Dollar.Discipline said...

I am not sure about gold, but I wouldn't sell it short until we see what happens with Russia/Georgia.

Anonymous said...

bernanke ain't due an apology yet

we know most of this crap is greenspans fault. that idoit still runs his mouth and hurts the market