Let’s Party Like It’s 1974

Market Outlook: Bearish

David’s Picks: Short
(
QQQ |
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PowerRating), Long
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RRPIX |
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Peter’s Picks: Long
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WMB |
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WGAT |
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Short
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TOL |
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PowerRating),
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CAI |
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PowerRating)

Sector Watch: Up — N/A; Down — The Broad
Markets and Bonds

Navarro’s Broad Market Outlook: Let’s Party
Like It’s 1974

I’ve gotten more than a little grief from the “buy and hope” crowd that has been
losing money these last few months since my “short the bonds, stay in cash” call
mid-January. I get that. But get this:

We are in a new world of risk and uncertainty where the “stocks-always-go-up”
philosophy just doesn’t cut it anymore. (I actually had some guy on the radio
hit me with that little bromide last week and a had a flashback to the 1950s.)

And for the record, we at Platinum Capital espouse a much shorter-term trading
horizon that seeks to capitalize on the direction of the flow — which now
appears down. You pays your money, you takes your choice.

Our choice in the short run now is to watch this highly combustible mixture of
heavy stimulus, a sudden ramp-up in job creation, and a possible ugly
mini-explosion in inflation play out. It still could go either way — into a
1990s boom or, more probably, a 1970s stagflationary bust.

And one last thing: In my radio interviews every time I reiterate the idea to
“short the bond market,” I get one big yawn and a “let’s move on to some stock
picks.” Guess what? The money invested in the bond market
DWARFS that in the stock market. And my call to short the bond market in
January is one a lot of people could have retired in clover on if they had done
so. What more do you want??????? The next
(
TASR |
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PowerRating)? (Of course, you do.)

It will be pretty quiet on the data front until Wednesday. The risk-to-reward
favors a short in advance of the PPI and CPI as a no-inflation scenario is less
likely to have as much effect as an inflationary spurt — which at some point the
PPI and CPI is going to show. Nothing good can come out of the trade deficit
numbers on Wednesday.

David’s Pick:
“CA$H”

I continue to be short bonds and the Nasdaq for ‘04, and cash remains king for
the average investor.

Peter’s Picks:
Long WMB, WGAT. Short TOL, CAI

Williams Co.
(
WMB |
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PowerRating) is going to get a big
Barron’s bounce on Monday — and I’ve been holding May call options which
have been going nowhere so I’m happy. This seems to be a solid long term play.

(
WGAT |
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PowerRating) got a big bounce from its contract with Motorola for videophones,
then the piranhas came in short it to take some of the froth off. Now that it
has settled back down, it may be a good longer term swing or position play.

Take your pick shorting the housing stocks. I’m holding puts on Toll Brothers
which fell hard below 40 bucks this week. The risk to reward seems favorable.

Aloyan’s Technical Take:

As called for

last week, all three major indices (Dow, S&P 500 and Nasdaq), finished the
week in the red. Our sector watch produced 87% of sectors on the downside. The
underlying market internals continue to roll over, and are negative.

The AMG Data showed its first signs in quite a while of equity fund
outflows. Although a relatively small $14 million, this may be the start of
something more.

Investor sentiment polls continue to remain at historically low levels of
bearishness (<25%), despite continued deterioration in the broad markets.
Further, the volatility indices remain at historically low levels, as investors
remain complacent in the face of declining prices and continue to believe
there’s no need for downside portfolio protection

Crude oil finished the week at just under $40 per barrel (a new high),
continuing its uptrend). The US dollar was up on the week, while Gold
declined to $378 per ounce. The Bond market continues to break down,
with yields rising on the 10-year note, breaking out of a reverse
head-and-shoulders bottom formation, and approaching 4.77%–levels not seen in
over a year.

As I have been predicting, interest rates are rising (bond prices
falling), while stocks are on the decline. You should be on the right side of
both of these, and making money.

Bottom line: My shorter-term view is Bearish , and my longer-term view
remains Bearish . I continue to believe this is no more than an impressive
secular bear market rally which is coming to an end.

We enter this week: Bearish .

DJ-30

The Dow finished the week down 108 points at 10117. The daily chart below shows
prices have a “round top,” and are continuing their decline after a downside
breakout from their “bearish” rising wedge formation. OBV (On Balance Volume) is
below its moving average line. The MACD is below the zero line, and Stochastics
have turned back down below 20. Support is: 10050, 9921, 9800 area, 9700 area,
9600 area, 9500 area, 9353, 9277, 9219, 9127, 9077, the 9000 area, and 8855.
Resistance is at: 10200 area, 10276, 10400, 10488, 10533, 10600 area, 10700
area, and 11100.

S&P 500

The S&P 500 finished the trading week down 9 points at 1099. The daily chart
below shows prices have a “round top,” and are continuing their decline after a
downside breakout from their “bearish” rising wedge formation. OBV (On Balance
Volume) is below its moving average line. The MACD is below the zero line, and
Stochastics have turned back down below 20. Support is: 1091, 1072, 1059, 1050
area, 1040, 1030, 1020, 1015, 1010, 996, 984, 974, 965, 956, 927, and the 900
area. Resistance is at: 1106, 1120, 1142, 1150, 1160, and 1174.

Nasdaq Composite Technicals

If you have a favorite macroplay or stock you would
like us to consider in this column, send an e-mail to peter@peternavarro.com or
go directly to https://www.peternavarro.com . We’d love to hear from you.