You would receive a margin call from a broker if one or more of the securities you had bought (with borrowed money) decreased in value past a certain point. You would be forced either to deposit more money in the account or to sell off some of your assets.
After looking at all the stocks from the list from last weeks’ newsletters, the daily charts on Worden Brother’s Telechart indicate that they ALL look like there are several more days of this upside but not quite as strong of an up day as we saw today. You do have to realize that we saw the bottom in stocks on Friday and then a rebound of 20-40% off that bottom just on Friday alone. Today was another follow through on the upside of some stocks moving up another day of 8-35% gains.
My guess is that the financial stocks (banks) won’t gain as much as the ag-chemicals, energy, mining-minerals, and coal stocks and please ignore any precious metal stocks like gold and silver. I know I didn’t talk about precious metals, I am just making sure you don’t get distracted by them, just take the gold and silver stocks off your screen.
Note that UNG, the natural gas ETF hardly moved at all with the other energy stocks. There is still shock over the drop in natural gas spot prices from the July 4th high of about $14.25 per contract to $7.25 this last week. So remember that UNG is disconnected with the energy stocks that rebounded up today and any rebound up in this ETF will be muted, unless forecasts or actual cold temperatures are coming in the central and NE states this winter.
Let’s look at the stocks on from last week’s stock picks. Starting at the top of October 6, 2008 table:
AGU, Agrium is from the Agricultural-chemical company is up 34.9% off Friday’s bottom and closed at $43.29 today. First target price is upper $50’s.
MOS, Mosaic, another ag-chemical stock is up 35.3%. First target price is low $60’s.
MON, Monsanto, ag-chemical stock that hits low 3 trading days ago on Wednesday, October 8, 2008 at $68.02 and closed at $93.64 for a 37.6% gain. The first target price is not too much higher at $102-$104.
The last of the 4 ag-chemical stocks that I follow is POT, Potash. This stock hits low last Monday on October 6, 2008 at a low of $76.86. It closed today at $105.80 and is up 37.6% as well. The first target price is $128-130.
NBL, Noble Energy, an independent oil and gas stock that had a bottom of $30.89 on Friday, rebounded up 17.8% all the way up to $36.39 on Friday alone, then closed at $33.19. Today was even a bigger day and opened at $35.01 and closed at $41.05 for a 23.8% gain today alone. Target for this should be in the mid to low 50s within weeks.
APA, Apache Corp, an independent oil and gas stock also rebounded big off the bottom on Friday, 23% that day and another 21.3% today. Target price for stock is mid to upper 90’s.
EOG, EOG Resources, an independent oil and gas stock, went up 10% off Friday’s bottom and another 20.4% today. Target price is in the mid 80’s.
COG, Cabot Oil & Gas, had only a 5.7% gain Friday but a 26.1% today. Target price is $35-$40.
HLX, Helix Energy is a low priced energy stock that hit $9.85 Friday and closed at $12.49 for a 26% gain but you can see it was not on the October 8, 2008 newsletter nor was HLX on my favorites list.
FCL, Foundation Coal looks a little on the anemic side the way it trades during the day but that is deceptive. This stock has been up 38% off Friday’s bottom and could easily exceed $40 but will take more time than other stocks.
ACI, Arch Coal is up 35.9% off Friday’s bottom and should get to low 30’s. I am looking at Arch Coal to potentially run into problems going over $35.
CNX, Consol Energy, is up 35.9% from Friday’s bottom and $48-50 is the target price.
MEE, Massey Energy is up 52.3% from Friday’s bottom and $38-40 is a realistic target price.
PCX, Patriot Coal is a low priced stock that came down from $82 in June and to $12.02 Friday and closed and closed at $19.50 for a 61.7% move already from Friday’s lose. This has a lot more potential than most of these stocks and I’d say upper $20’s to $30 is first target price.
TCK, Teck Cominco is from the metals and mining sector and is up 46% in 2 days from Friday’s bottom. First target price is upper $20’s to $30 a share followed by a fairly sharp sell off when and wherever it peaks.
FCX, Freeport McMoran, a metals and mining company that specializes in copper, is just one of many stocks that came down from $125 and lost 75% of its value. It bottomed at $32.50 and closed at $45.36 for a 39.6% gain. This should reach $60 without too much trouble.
SCHN, Schnitzer Steel hit a low of $22 on Fridayand closed at $29.92 today for a 36% rebound. Target price on this is mid-40’s.
X, US Steel, is up 29.9% after closing at $51.08. First target price is $75-80. On a longer term outlook, this could easily get back over $100 a share within a year.
AKS, AK Steel is another low priced stock and has bounced off $9.39 on Friday to close up 51.2% at $14.20 today. This could easily double again and get to the high 20’s to $30 for the first target price.
CLF, Cleveland Cliffs is another steel manufacturer that has bounced 41% off Friday’s low and closed at $35.83 today. Target price is $55 to 60 a share.
Even though CMC has bounced 18% off Friday’s low I am no longer interested in this stock.
MT, Arcelor Mittal, is a steel stock up 37.8% and has a lot of potential from here. Mid to low $50’s is first target price. This looks very good for a long followed by a short when it peaks.
HIG, Hartford Insurance Group, dropped all the way down from $60 to$17.69 in three weeks and has bounced to $24.63 since Friday for a 39.2% gain.
PRU, Prudential Insurance also dropped hard from $90 less than a month ago to $25.51 on Thursday and has bounced to $51 today for a 99% gain in 3 days. This should get into the low $60s this week and volatility should reappear on the downside later this week. Normally insurance stocks are not trading stocks because they don’t move much but big mouth Harry changed the landscape on this group.
AAPL, Apple Computer was a real favorite stock to trade last week and has bounced nicely too from a low of $85 on Friday to a close at $110.26 for a 29.7% move. First target price is $130. This will also be a good shortable stock if it moves up to the first level quickly.
UYM, Basic Materials ETF on the long side is up 50.7% from Friday’s low and is an ETF! This should get close to $50 within weeks.
I added IBM on Wednesday evening, October 8, 2008 and IBM does not have as much profit potential as these other stocks but has moved from Friday’s bottom of $83.51 and closed at $92.21 for only a 10.4% in 2 days.
I am watching ACL, Alcon as a possible short in a couple days from now IF it gets over $155-160 but I’ll watch how it is acting as well as the market in general before acting on that.
The target prices given here are the first level target prices that I am looking for within a matter of weeks, possibly days. What I would be looking for is a pullback at some point after this initial run up, followed by a period of a couple weeks of what the technical analysts call "consolidation" before heading up. Consolidation is correcting and going sideways in price before the stock begins making an upward move again.
Remember that most of these stocks are on buy programs by large investment companies, hedge funds, pension managers and money managers and stocks will move together this week, even in different sectors.
I am expecting these stocks to see higher highs than the first level target prices but that will take several months as opposed to days. These target prices are guidelines, not guarantees. The longer you wait to buy these stocks, the higher risk you have of losing if a news event causes the market to get scared again but I am not expecting much fear in the market for the next 2 days, depending upon how much stocks move up. If we continue to have big days like today the next 2 or 3 days, then the market will have a higher risk of correcting.
I am hearing many analysts still saying today and all last week Thursday and Friday not to buy energy stocks off this bottom because it is a commodity, as is wheat, corn, soybeans, steel, etc. There they go again (as Ronald Reagan would say), looking at this in a fundamental way. It is the technicians-strategist-traders that are dominating in this environment. The technical indicators were showing up in July as I posted in the July 9, 2008 report that the commodity sector is turning over.
TANGENT: You have to size up who is saying what and what kind of orientation and background that person has. The analysts are paid high salaried MBA’s with a finance background and have little or no risk of their own money in the market They analyze fundamental data like earnings, sales, ROI and P/E ratios.
The mutual fund managers are not the guys who know how to make large percentage returns on money. Managers get a high salary and a big bonus, which works well in a bull market. Over 80% of the mutual fund managers cannot even beat the S&P 500 index.
The guys who are the smartest in this business are guys who are long time traders or chief market strategists, or some of the hedge fund managers on the short side. Their existence depends upon the accuracy of their ideas. If you don’t have good strategies or good ideas, you don’t make money, real simple.
A good trader should be making at least 10% a month in a normal market and in the kind of volatility we have had this last month, it should be much higher. You want to listen to guys (or girls) who make their living on the stock picks and strategies they come up with-don’t listen to the salaried guys who also get a bonus if the market goes up.
A few of the guys I like to listen to: Jimmy Rogers is interesting, cynical as heck but turned $50,000 into about $15 billion. KenHeebner who started the CGM Focus fund, Bill Gross, who started PIMCO speaks the kind of thinking I like to listen to. Art Cashin on the NYSE is really sharp, just a real fine short term strategist. Jim Cramer has some good things to say but he says so much everyday it is time consuming to filter out what is useful.
Remember that markets drop and go up much further than you expect and now that we are on the upward direction, try to be less nervous and more patient than you have been feeling these past few weeks. You often see more and more news events that "come out of the woodwork" to support the move up. And yet we saw many more negative news events than we could imagine that influenced the market to the downside. So try to hang in there longer than what is comfortable and try not to look at your profits nor try to be trading with the idea of "making up for your losses." We are just coming off an emotionally difficult time for anyone who has been long stocks and taken losses against those positions. Your tendency will be to sell these stocks too early that are now on the rebound upward. |
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If for some reason that the stock market opens down tomorrow morning, which I am not expecting, it is probably a slight nervousness or correction that won’t mean much but you need to check the news and see what could be driving it down. The market should head up after any slight pullback tomorrow morning following an intraday chart pattern that I call the Nike swoosh (slight dip in the morning and steady upward movement throughout the trading day).
The stock market gets used to the same news if repeated and starts to ignore it unless the severity of the news gets worse. For example, when we saw the investment bank sector stocks spiral down or go out of business the week before last and then big-mouth Senator Harry Reid says a similar problem is going to plague the insurance industry (remember he " knew of a very large insurance company close to bankruptcy"), that type of news would be new news and the market would react negatively all over again.
At the moment, I just don’t see what kind of news that would surface in the next two days to interrupt the sharp rebound that we started on Friday afternoon. I think all the meaningful bad news is out in the market.
We should have another two big days up assuming no new negative news surfaces. It would not be surprising to see this market continue to move up for a couple of weeks but at a slower and slower rate than what we have seen so far. The look and shape on the daily charts will look like a perfect V at the bottom of the daily chart and then gradually become more of a shallow rise.
Back to the scenario….. if stocks open down a little tomorrow, it is very likely a good opportunity to buy long again but I’d wait after the first 60-90 minutes to see if the overall market goes down further before committing. I am trying to give you some professional secrets as a trade, which is difficult to do on a once a day newsletter. When we get the Trading Room up and running in November, we will be able to give more timely stock picks as they occur.
Get a lot of rest, we are going to have some outstanding day trading, swing trading and intermediate hold stock positions as well these coming two weeks, even though the market volatility and trading volume has dramatically slowed down today from last week.
Have a great day and I’ll talk to you tomorrow.
Mitch King
www.TradeStocksAmerica.com
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