Wednesday, March 4, 2009

Stocks Looking for a Bottom, Oil More Bullish

The 'Helicopter Economics Investing Guide' is meant to help educate people on how to make profitable investing choices in the current economic environment. In addition to the term helicopter economics, we have also coined the term, helicopternomics, to describe the current monetary and fiscal policies of the U.S. government and to update the old-fashioned term wheelbarrow economics.

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The New York Investing meetup had its March meeting last night and it was marked by controversy and intense audience reaction. Even during my first talk about the history of the Credit Crisis, two people walked out and one of them demanded their money back. While this was common a year and a half ago when we were one of the first groups to discuss the Credit Crisis and people continually left the group because they could just not believe what we were saying (almost everything we discussed at that time has since come true), it is surprising that there are still some people that want to live in denial... but there are. The second talk on Hyperinflation by Jeff Glenn was the real lightening rod for controversy however. This was indeed way over the top at certain points and one audience member attempted to shout Jeff down more than once. Other members of the audience then attempted to shout the heckler down. Fortunately, a riot didn't break out.

The market is attempting a rally as I write this, but it is probably not done on the downside in this move. The minimal requirement for this is that the Nasdaq fall to its November low of 1295. In the meetup last night we went over why a low in the month of March is likely because of the extreme oversold values of the RSI on the monthly charts. This line is below 20 for the Dow and S&P500 for February and is likely to reach the same level this month that the S&P 500 did at the market bottom in 1974. Just how oversold stocks are can be seen in a few eye popping statistics:

1. January and February marked the U.S. markets' worst first two months on record.
2. Last month marked the S&P's worst February since 1933, with the index posting a 10.9% monthly loss.
3. The Dow is down 38% in the past six months, its worst six-month return since 1932, when it plunged 41% (this was around the market bottom during the Great Depression).

Don't forget that big rallies invariably follow big drops.

The economic news is about as gloomy as it can get too and everyone is waiting to see just how bad the jobs report is going to be Friday (predictions are for around a 700,000 loss in jobs). Car sales came out yesterday and General Motors' sales fell 53 percent, Ford sales fell 48 percent and Chrysler's 44 percent year over year (the major Japanese automakers fared only slightly better). If the U.S. automakers are to survive, they will do so only with the help of continual government bailouts. Housing still isn't in good shape either, with a report this morning stating that that 20% of U.S. homeowners owe more on their mortgage than their home is worth and this number will go up substantially if house prices fall just another 5% (they are likely to fall much more than that).

While stocks may not be done on the downside, it looks like oil is. So far a double bottom has been put in on the near term futures in the 33 range in December and February. Nymex oil dropped below $40 a barrel yesterday, but popped back up above this level shortly thereafter just as it has done many times in the last two months. The market has repeatedly told us that it wants oil at 40 or above and we should be listening to it. At our introductory technical analysis seminar on Tuesday, February 17th, I recommended people start picking up DXO (200% long Nymex oil). At least one person got it a the very bottom price of 1.73 and several got it around 1.75. It went to 2.50 thereafter and provided quick short term profits for a few that cashed out. Others are holding out for bigger returns, which they will likely get.

NEXT: Quantitative Easing Today, A $50 Cup of Coffee Tomorrow

Daryl Montgomery
Organizer,New York Investing meetup

This posting is editorial opinion. Like all other postings for this blog, there is no intention to endorse the purchase or sale of any security.


Anonymous said...

Some controversy to what have been said in this group is understandable. Official media has the opposite opinion: keep (over) spending to save the economy.
You are doing great job, do not get discouraged!

Trevor Gauntlett said...

I would have loved to attend that meeting. Alas I'm in Seattle so it is a bit far, but I suppose in some ways I'm not surprised that you received "violent" reactions to the potential future. I know I vacillate from complete denial to acceptance with the 4 stages in-between. Here is a great post on the subject:

6 Stages of Awareness

We are in for a life changing happening and the future will look nothing like the past. This is very difficult for people to accept, and many will refuse to until it is too late.

I know I have some friends and family who "believe" that things will get better, but don't realize what the transition will be like. They fail to accept that everything is changing and crumbling around them as the prosperity created from cheap energy and easy credit is over.

The party is over and we are about to have one heck of a hangover. So, now we are the point where we have to ask what next? How do we prepare for a world that is unlike the world in which we presently live? We need to be asking ourselves questions about the what-ifs and which ones are the most probable and thus ones we need to prepare for.

I find the easiest way to think about the shift is as follows: Say you live in an area that is prone to natural disasters. How do I prepare myself and family in the case of a major earthquake or perhaps hurricane? What if I lose my job and home? Where do I go?

My 2 Cents :)