Despite a short week to start the year, commodity related areas failed at a fast pace. There is no reason to panic given the start of the year, a new month and plenty of ambitions, expectations, desire to trade and other news factors. Even a week ago, few noticed the fading rally in energy and gold. More importantly from a cycle perspective energy was sluggish as crude consolidated most of 2006. Key sign of shift in leadership took place this summer and that trend should not be taken lightly.
My 2007 outline included two points just a week ago:
Somehow rates and commodities are interlinked and will be monitoring on a weekly basis. First, sub prime and housing stocks, might offer a shorting opportunity. Mainly a fed and 10 year yield call. Secondly, select commodity run-up can be tested, inflicting pain on commodity bulls. Therefore, one more correction in commodities awaits, but wiser to focus on unripe places.
I did not waste any time to take profits like GoldCorp Tuesday, as an exit of commodity related run because the sell-off demonstrated more panic than substantial new market material or evidence. Of course the extra day-off might have contributed towards panic trading but importantly the warm weather continues to dominate general news even driving the downside energy move.
Not surprising that the lagging sectors this week focused on energy related areas:
Coal -5.0%
Oil Service -6.4%
Gold & Silver -6.4%
Trading view: Some want to buy these oversold names for a trading recovery, which should offer a bounce. But from an investment standpoint, I am not thrilled on sustainability of a recovery bounce. Interestingly, I like to chase oversold extremes and part of a buying screen. Given the long-term data, it is not appealing for the first quarter if not the first half of 2007. Crude offers a strong support around the $55 level. Also start of the month balancing can bring back prices back to norm, thus its longer term contracts worth watching.
I think the marketplace is accustomed to getting a sharp rally and energy being a portfolio saver. But after a 3+ year run, I am not convinced that old groups can offer same upside results using general tactics. Therefore, play the trades with cautious and think ahead.
Communication and Networking: Themes and stocks of Interest:
Telecommunication themes like S (sprint) positive here, street has a bearish outlook, relative strength turn pending. Accumulate closer to $18.50, might be ahead, and use near-term consolidation to enter long ideas.
TLAB (Telllab), following a sharp summer decline, an attractive group but negative outlook. Looking for a surprise upside move while using the $10 as an exit level. Potential upside move closer to 12+. Worth a shot given a positive theme outlook.
NTGR: Also worth a look with positive trend remains in tact.
In healthcare: Those interested in growth can build on BLUD strength. For those seeking value check out PPCO – bottoming above $16. Other medical products include: PSSI and VAR.
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