Monday, September 8, 2008

Dead Cat Bounce????

I am becoming increasingly more bullish. I think we are beginning to see several signs that we are close to the bottom. I have said on several occassions that we will see the financials and the transports lead us out from the bottom. I think today was more than a dead cat bounce. When we cut the early morning rally in half---it seemed as though we were having the self-fulfilling prophecy that this rally could not last. I can't tell you how many traders made comments over the weekend that they were ready to sell back into any rally. I think the end of day action surprised a lot of so called experts. It doesn't mean that we can't go lower, but it is a better sign that there are better days ahead---I think!

So what is the best way to play the transports and the financials? Is it Goldman, JP Morgan??? I am acutally favoring a strategy of playing the REITS. As the credit conditions improve, the REITS should have an easier time finding attractive financing. One of my favorites in the space is WRI. DRE is another very attractive play. Neither are sexy---but they pay a nice dividend while you wait. I still like SWS for a financial play. I think you are going to see the combination of a very well run company in an environment where multiples are expanding in their industry.

Speaking of a change in multiples---the energy trade couldn't look more dead. I am shocked at the action in FLR and NOV today. Both were hammered, but FLR is the most difficult to understand. This one had record backlogs when they reported their last quarterly earnings about a month ago. I SAID RECORD BACKLOGS. We are seeing real multiple contraction in the industry and I just don't understand it. I know the market is a leading indicator, but the way they are treating the energy stocks and the ags(particulary the fertilizer names) you would think that we are headed for the worst decline in commodity prices---EVER. I just don't see it. I can't beleive that NOV traded under $60 today. At these levels, some investors must be valuing oil at less than $80 in the near term. I guess we will finally see how short the consumer's memory really is. If demand destruction continues after oil slips below $100 (assuming it does) then we will know that the consumer got a real scare this time and the lesson sunk in. I just don't believe that will be the case. The daily declines in these stocks and others such as XTO and CHK are certainly worth watching. When they turn, I think there will be some fast money to be made. I hope to be in on that trade.

I think tomorrow is going to be a pivotal day. If we can build on todays rally, we may see the tide turn. If we don't---we could be headed for DOW 10,000. Yes, I think tomorrow is that important. We are hearing more and more from the "we have seen the worst" crowd. I will post an article from former guest Jerry Bowyer later tonight. Keep an eye on Hurrican IKE brewing in the gulf. It appears to be headed to Texas, but the levees in New Orleans don't appear to be ready to withstand another surge. This could have an impact on oil and natural gas prices.