Thursday, September 11, 2008

Transports and Financials

This market is enough to make your head spin. When the futures were getting hammered this morning, I was giving in to the bears. Then the bulls came out this afternoon---although volume wasn't exciting. I was especially pleased that the market rallied this afternoon in the face of LEH losing another 40%. Is the market over its obsession with LEH's plight. I think we have accepted worse case scenerio with LEH. There is talk in the after hours that they are negotiating another takeover of LEH. Now I got pissed off this morning and said that it looked like we were headed to DOW 10,000. Good news on the financials could serve to change that call. We are seeing some really good things, transports are strong---oil is declining. The one thing that concerns me for headline risk in the short term is the fact that the stronger dollar is going to hurt the trade deficit and also hit the earnings of the multinationals. We have been able to hang our hat so to speak on the earnings growth of the multinationals as our goods became cheaper abroad. I think we are going to lose that prop BEFORE we see earnings growth domestically. This could serve to cause some fear and hence another leg down. The other side of that equation is that the FORCED LIQUIDATION may have taken many companies down below the area that the headline risk would cause.

The list of companies that I highlighted in my post last night did well today. I must say that I am totally confused at the action in Seagate Technologies STX. This one closed below 14 today and that was less than a 6 P/E. It pays a good dividend at these levels and has good cash flow. I am lost on this one---in my opinion it should double. I have been wrong for a while on this one.

Did you see the action in NTRS today? It was awesome. I still like SCHW at these levels.

Everybody is saying to own the refiners here. I tend to agree and my favorite in the space is Valero VLO. I would be very disciplined but I think this one definitely has potential. Just a little common sense application---Have the prices per gallon of gas dropped at the same rate as oil since it hit its peak around $140? Not in my neighborhood. This means that the refiners have been making higher margins since the oil decline began and so they have a couple of months under their belt. Many like SUN in this space, but I prefer VLO.

For sophisticated traders, I like a pairs trade selling COF short and buying SCHW. I think there will be more headline risk for the companies that have large amounts of credit card debt on their balance sheets. If receivables have been tough to collect in the mortgage arena, you can bet that they are going to be tough to collect in the credit card space.

One of my older picks ICOC stands to do well as the economy rebounds. I would not be surprised to see that one double in the next 18 months. It has been a very well run company.

There is much focus on the dollar play right here. I am watching my tape of Fast Money and they have guru Dennis Gartman of the Gartman Letter talking about the dollar trade. Before I comment on the dollar play let me tell you a little about my experience with Dennis Gartman. We have tried to contact many investors on our show and most are nice enough to speak with us. GARTMAN DOESN'T RESPOND. His assistants won't even respond to emails. He does make a good point about the dollar. His call tonight was that he was on the sidelines and that is exactly where I would be with respect to the dollar. It has gone a long way in a short period of time---not where I want to initiate my trade. I have learned that it pays to not trade at times.

The action in FCX was nothing short of amazing today. It got hammered hard early and then recovered nicely. Unless we see some kind of weird down move in gold, this one is cheap. For those that read our blog on a daily basis, you know that I think we are going to see demand for commodities start to turn up again---when it does FCX is going up sharply.

I must stop and reflect on the terrible events that occurred 7 years ago today. I am proud of my country hope that we never see anything like 9/11/01 again. I AM PROUD TO BE AN AMERICAN AND AM THANKFUL TO ALL OF THOSE MEN AND WOMEN THAT HAVE FOUGHT FOR OUR FREEDOM. THANK YOU, THANK YOU, THANK YOU