Have You Traded These Stocks Lately?
Time again to visit the
wonderful world of longer term forecasting/speculation. As most of
us are already too aware of, it is summer, and things are slow. Nonetheless, we
live in what I would consider a rather unique time, one where the vast array of
opinions on the economy and the market have never been quite so polarized. This
can mean only one thing, that there will be a tectonic shift at some point.Â
Naturally, timing is the wild card. For me, this is what makes the markets
truly fascinating. While longer-term analysis is like a moving target, it does
add conviction to one’s decision and actually does play a role, albeit small, in
your day-to-day trading.
Over the weekend, I read some rather diverse
observations on the market and am beginning to see a pattern emerging.Â
Individuals who were rather bearish just a few months back are becoming more
optimistic. Optimistic in the short run at least. Most, if not all of what I
consider to be objective analysis does not believe for a minute that we are
about to embark on a new bull leg or that the economy will regarding its
footing. Rather, they concede that Alan Greenspan will in fact win out in his
fight against deflation via massive monetary stimulus, but they believe it is
merely postponing the inevitable adjustment from years of excess and marginal
business.
What I find most interesting is the whole mantra
of deflation. Deflation, as I understand it, is a combination of falling
prices, but more importantly a contraction in credit. The latter is one that
certainly is not happening at present. Anyone who can fog a mirror can get a
loan. Just witness all these ridiculous commercials for no money down, no
payments until after you die etc etc. No, this easy credit is not making things
better in the long run. If flooding one’s system with liquidity were the answer
to all economic ills, then countries like Zimbabwe and other third world nations
would be rather prosperous.
Falling prices are probably more a function of:
1. Higher productivity
2. Cheaper manufacturers around the globe.Â
China comes to mind for manufacturing, and India for service and high tech.
So, more dollars will not improve this trend, in
fact all it does is allow us to buy more of those products — thereby increasing
the trade deficits. But I digress. The market is apparently somewhat
encouraged by this credit/monetary expansion. It has kept the housing sector,
and to a smaller extent the consumer sector, robust. However, the true
determinant of a consumer’s purchasing habits is reflected in sales tax
receipts, this tells a vastly different story than do the reported figures from
the retailers. Regardless, it is working. The logic is that this small pick-up
will ultimately feed upon itself and get the economy going. It may very well, I
honestly do not know.
Meanwhile, the naysayers point to these
facts/observations:
1. Rich valuations
2. Bond market breakdown
3. Top line revenue growth not improving
4. Rising gold prices
As I said, I am not here to draw definitive
conclusions, just to throw some ideas out there for contemplation. The one
thing that does seem reasonably certain is that tech stocks are not on the verge
of recovery. Regardless of all the garbage spewing from analysts mouths, there
is no basis in their research or lack of. While it may difficult to see that
now as the stocks continue to trade like pumped-up Internet stocks, eventually
the fact will set in that tech is merely a commodity. I love tech just as much
as the next guy, meaning the great gadgets and gizmos, but when I can go to
Wal-Mart and find 19″ Flat panels for under $400 as well as whole computer
systems for under $500, I know that margins are shot. If you want to pay
upwards of 50, 60 or 80 times earnings, be my guest. The odds are stacked
against you.Â
So where does this leave us from an intraday
standpoint? Good question, you were probably wondering what all of this had to
do with my usual column. Well, in all fairness, it all ties together, but I do
like to explore these other aspects from time to time. But here is what it does
mean, at least in my opinion. It gives us traders an opportunity to start
watching and trading gold stocks. Have you been trading them lately? I do not
know about you, but I cannot remember the last time I have been able to look to
this sector for so many days in a row. Now, first off, gold stocks at present
are not good for HVT, however, throw up a
few of the more liquid ones a 5 or 15-minute chart and you will see some moves
which are tradable using some of the basic HVT
approaches. Look at stocks like NEM,
GFI, ABX,
BGO, AU
and DROOY. Lastly, as I mentioned on
Friday, do not be afraid to tuck some of these into your portfolio, if nothing
else, it makes your portfolio better diversified.
Lastly, the interest in gold stocks, I believe,
does help begin to draw a conclusion on this mess we call a market/economy. I
mean mess only in terms of the indecisiveness presently. If the move in gold is
to be believed, which I do, it means one thing:
1. Higher inflation
2. Lower dollar
Hmmmm, isn’t that what Easy Al wants? You betcha,
and he just may get it. However, high inflation and a weak dollar do not sound
good to me. I suspect the “smart money” feels this way also, why else would
gold/gold stocks be migrating higher?
Lastly, a couple of quotes I thought were
worthwhile sharing.
“Positive or negative expectations become
ingrained and self-fulfilling until markets become priced for perfection or for
the worst possible outcome, until there is nobody left to buy or to sell. The
investment cycle from sobriety to lunacy and back again is a crowd phenomenon.
It must be measured in generations and viewed in conjunction with the credit
cycle. No amount of interference by government policy makers can divert what is
essentially the playing out of human nature. Attempts to intervene and control
can only prolong the process and increase the amplitude of the cycle. The
predisposition to do so is grounded in the failure to understand these elemental
facts as well as the intellectual arrogance core to all social engineering.” Â
John Hathaway
“The true prophet is not he who predicts the
future, but he who reads history and reveals the present”. Eric Hoffer
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As always, I welcome
your comments and questions.
Dave