Daily Stock Picks Report Archive

July 15, 2008, Tuesday after market close (Weekly Wednesday)

This was an extremely volatile market day in all respects, not just in the financial sector as we have seen this past week.

Let’s review. Federal Reserve Chairman Ben Bernanke was testifying in from of the Senate Banking committee and giving his semi-annual testimony on the state of the economy. Bernanke said that the economy is slowing and numbers have worsened. That is obvious to most people are paying attention to financial news but the problem was that Bernanke did not inspire any sense of confidence from the investing public who heard him.

At the same moment, President Bush had a press conference on different channels. And his comments fueled the fire even more. It was sad to see because it looked like two comedians on two different TV channels looking really dumb. (I’ve been overall supportive of this President but this looked really bad).

By stating the obvious today when we all knew and heard months ago that the economic numbers were worsening, oil is rising, inflation is now a concern, and unemployment is rising, Bernanke shows the world that Bernanke is behind the curve in figuring this out. He also made another negative comment and the market went down -228 points. No doubt in my mind that his credibility was substantially undermined today. He would be a great Ivy League economics professor but his leadership is in question.

The world wants to know that the Federal Reserve Chairman understands what the issues are and what to do about it and his comments today puts that in doubt.

His commentary brought ALL of the financials down hard, especially FRE and FNM. But LEH, Lehman Brothers also looks like it is on thin ice, with headlines showing the CEO is shopping the company to sell itself but obviously, any qualified buyers in the banking industry have their own liquidity problems. I would stay away from LEH as a long as I am with FRE and FNM at this point.

We are close to a panic sell environment now and financials could have a day or two down days before a rally likely starts. You can see the market did not trust the "good news" announced Sunday morning regarding FRE and FNM. The market did not even trust BAC’s (Bank of America) announcement that the dividend will be safe nor will they have to raise more capital. Do you guys realize BAC’s dividend is yielding 11.8% at the current price of $18.52 at the close today? We saw an all-time record high volume on
BAC today which is often a good sign to see accelerating volume with an accelerating drop in stock price.

In the midst of all this bad news, gloom and doom, there is substantial opportunity to profit. I know that your gut will say NO – it is always hard to go against the grain. Eventually, I think soon, the financials will have a rebound and we are likely to see some 30-40% moves in some of these stocks just on what we call a "relief rally."

The investor sentiment is extremely negative right now, and as I write this report, the Shanghai index is down -2.39%. The Volatility Index (S&P VIX) peaked at 30.80 at about 1020am eastern time this morning. This is a very high number and the manner in which it has reached it is supporting my forecast that we should have a meaningful relief rally. Again, this is perfectly normal to have a sharp rebound within a bear market trend.

The US market tonight, expressed by the S & P futures (Standard & Poors 500 index) is up tonight, likely caused by the aftermarket earnings announcement by INTC (Intel).

Headlines read "Intel 2nd quarter jumps by 25%, beats estimates." This might be a small catalyst to begin to change the very heavily negative sentiment. I have to ask myself, is the economic conditions as bad as the investor sentiment? The press has a way of bombarding us with an exaggerated negative view more so than the positive side and the series of events that have occurred in the financial sector as well as the housing industry have set the market up for a ripe opportunity.

And I suggest you stand ready to profit from a likely rebound (very likely). This many stocks from so many sectors don’t go down in a straight line so deeply without a relief rally. (All bets are off if there is a new war, terrorist act or assassination of an important US leader. I am not predicting any of this).

I still think some financial stocks will do well and I am still eyeing another attempt at buying BAC but this time I’ll have a bigger stop loss, maybe a 75 cents below my purchase price.

ICE is starting to turn up and likely moves higher from here. It hit my target price below $85 and went below $83 for a moment this morning. I am long at 83.10. I am not too worried about that last hour sell off because most stocks were in a sell program the last hour.

ESLR moved up with news on a $1.2 billion order from a German company on their flat solar panels. That should continue to move up a little.

Biotechs are getting a lot of money flow from the outflow from other sectors. Look at GENZ, DNA and AMGN for example. These are not specific stock ideas, just an observation where money is going.

EBS is an interesting lower priced biotech that has been moving up. GTLS, Chart Industries and BMI, Badger Meter are also stocks that are high and still moving higher. They haven’t corrected during this last month and are likely to move higher at faster rate when the market rebounds.

The commodity sector took a big drop today. Just watching them.

Take small positions, don’t try to be a hero and build big positions. Learn to interpret charts. The indicators on the charts are mathematical algorithms that measure all shares purchased and sold in a time line and a line is drawn on a graph. If you want to put the odds in your favor, you need to develop this skill. It isn’t voodoo or superstition, it’s just math.

See you tomorrow.

Mitch King

To Receive Mitch King’s FREE Weekly Wednesday E-letter (you can also forward this link to a friend), please click here: