Wednesday, January 2, 2008

Let me Stress this Post Again

Back in mid December I wrote 'Who Will Be the Last to Fall'

Let me bring that post back since a lot of new readers seem to have joined of late - also because today we see relative strength in infrastructure, agriculture, the teflon tech stocks (Google, Research in Motion) and solar (again). Everytime we have these swoons these groups hold up best. Generally only when the swoon is quite horrific do they fall (August, November). So until then they hold up (which is the current stage). I am remaining patient and we shall see if they too shall fall. Generally markets this bad generally end on a bad note in the last 30 minutes, but shorts have been burned repeatedly by "Fed actions" overnight, so each time the market looks ready to fall off the cliff we get an 'intervention'. So some light short covering etc might be in store as well, as many bears have been burnt by a Fed which seems to time things to inflict the most pain to people holding short positions overnight. (fair and balanced eh?) But as I wrote last Friday, the trend is set - we keep making lower highs and each week that passes more denial of the situation erodes (very slowly). We did test S&P 1442 and had some bounce. Again a key area - 1440. If that breaks, I think some of these sectors holding up will fall.

Myself I am hoping to get some panic out there so some of these stocks holding up, break down since I sold off so many in the past two weeks. Again, all my favorite sectors I want to increase exposure (the list above plus energy in the form of oil service and deep sea oil drilling) is holding up very well today....

Here is the post:

Interesting to watch which sectors have been getting hit, and in which order.

In November while the market corrected 4 sectors stood strong - teflon tech stocks (the big cap names everyone knows, Apple, Google et al), solar, agriculture, and infrastructure. For about a week and a half, when the market first began to degrade these names refused to go down. Then in order, they fell - first the teflon tech stocks, then the next day the solars, then the following day finally in 1 horrific day long implosion (you can see the huge spike down in the fund performance) down went the agriculture and infrastructure stocks.

We seem to be entering a similar time frame now (short of a big recovery in the markets). Solar, while down a bit today, is up huge in the recovery and is holding most of its gains, the teflon tech stocks have been relatively benign (not going up a lot but not going down a lot either), infrastructure this time around is more of a mixed bag (some names are already imploding), and in the agriculture space the fertilizer stocks have been bulletproof. Another sector also has held up very well - coal.

So if this pattern repeats as it played out last time (no guarantee) - these sectors will hold up while the rest of the market slowly crumbles, and investors in these groups will be giddy that they won't be affected by any correction. And then suddenly out of the blue these stocks will take 10-20% corrections in a matter of hours/days. So this is what I am observing to see if we see a similar playbook as we did just over a month ago. I am using solar, fertilizer, and coal as my tells as these are the 3 strongest sectors in my universe. Along with Apple and Mastercard. If these go, we all go....

I have my buying list at the ready.

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