Thursday, December 18th 2014 - 12:28:35 am

Daily Stock Picks Report Archive

Daily Stock Picks Newsletter from July 28th, 2008

The financials dropped hard this morning, as expected, and are likely to drop further at the opening tomorrow.  The daily charts say to continue to hold SKF, ProShares UltraShort Financials ETF but let's think about this for a moment.

This ETF is a "mutual fund" of stocks and options that are short the financial sector in a leveraged way.  This is not a diversified fund-the purpose is to capitalize on the falling price of this group.  When financial stocks like money center banks like WFC-Wells Fargo, BAC-Bank of America, USB-US Bancorp, JPM, JP Morgan-Chase, C-Citibank, or investment banks like GS-Goldman Sachs, MER-Merrill Lynch, LEH-Lehman Brothers and other leveraged instruments drop in price, the ETF price goes up.

MER, Merrill Lynch announced after the market closed today that they will be selling their troubled assets AND will sell more shares because they need to raise capital.  This news is very likely going to hurt their stock even more Tuesday morning and their stock price almost hit the bottom today as low as we saw on July 15th two weeks ago.  I am not totally convinced that this news is already built into the stock price.

John Thain is the CEO of Merrill Lynch who recently took over late last year.  He supposedly has a high credibility image among Wall Street (and beyond) and he was interim Chairman of the NYSE after Grasso left in turmoil with his $140 million compensation package.  Why I bring all this up is not to gripe about anyone's compensation package (hey, both parties agreed to the deal, the contract should be honored) but to give you a long but logical explanation to my thinking and how it affects our long position in SKF.  (Remember SKF goes up as financial stocks go down).

Thain's announcement is a total surprise because he has said at least 5 different times in the last 8 months that ".....there is no need to raise additional capital."   So this could be looked upon as a sign of panic and further drops in financial stocks is likely for tomorrow morning.  It could cause a further drop in LEH because that has been in question recently and perhaps is in a similar situation as BSC- Bear Stearns was just a few short months ago.

So, as I have said a couple of times these past few weeks as well as thoroughly being taught in The Wizard Training Course, try to find the maximum point of despair and that is the time to buy long or cover any short.  Since we are long SKF and it is an inverse relationship to the price of financial stocks, we should be considering selling SKF, probably tomorrow. 

You are probably wondering, "Why didn't you just say to sell SKF tomorrow?"  I could have but you wouldn't know why I came to that conclusion.  Aren't I here to teach you how to fish, not just to hand out a freshly caught one?  Yes, absolutely.   Well let me keep teaching then so stay with me.

If you look at the daily chart on these stocks you will see only two stocks that appear to have fully matured in the drop from last week's huge run up and those are MER and LEH.  Most of the others haven't dropped nearly as much.  So you could say to yourself, it looks like on the chart there is more to drop in these financial so why don't we just hang on to SKF for more profit?  We could but .......the risk is increasing that we could see the financials have a big turnaround at least on an intraday (same day) move.  And that wouldn't surprise me at all.  So it becomes more of a 50-50 situation where the financial stocks could go either way.

SKF had a range in price today of $128.27 as a low and $144.06.  I'm guessing we could see $150-151 Tuesday but my eyes will be on the group of financials listed above on a watch list and some on individual 1 min and 3 min charts to decide how they are acting and if I should sell SKF.

For the same reason, I am likely to close the BAC short position as well.

Sorry for the long answer but if I were in your slippers, I'd like to know why someone thinks they way he or she does if I am going to put money on the stock ideas.

CVX, BP, UNG, and oil indexes barely made a move with a slight upward bias.  I still think we are going to see a rebound in oil prices starting this week.

The airline stocks are still dropping even though oil isn't moving up.  They went up too far too fast.  ALK, LUV, DAL and UAUA is the group I am talking about.

ATPG, ATP Oil and Gas

UNG, US Natural Gas ETF

GDP, Goodrich Petrol

COG, Cabot Oil and Gas

NXY, Nexen

This is a small sample of oil and gas stocks that look real good from a technical chart to go long.

Repeat a 2nd time from July 24th report is that the ag-chemical companies look to be in a corrective process (AGU, POT, MOS) until they prove themselves otherwise.  It seems doubtful that they are going to make new highs and last night I said it is too early to make any conclusions but it is looking more and more likely these continue to have a general downtrend.

I am still looking for a bounce in stocks generally in the coming months.  I am reluctant to issue any new ideas tonight other than what we are working with.  We are kind of "in between" cycles now.  If the market corrects for a couple days we will have some high probability ideas develop and we need to let these current ideas mature.

We are likely to get a bounce upward after this little correction that may last only a day or two more before buying begins for higher highs that established a more sustainable run upward.  This may still take some weeks to complete a bottoming process before an intermediate term rise in stock prices that may last 3-4 months.  These are forecasts that I develop and am always looking for evidence to support or disprove that thinking.  I often change opinions decisively as market conditions or news change to support another opinion.

React to the market based on what you see is happening and don't let your expectations make you inflexible where you can't make changes in your portfolio.

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I hope you have been making money this past couple of weeks-it has been great trading.  See you this weekend.

Mitch King

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Mitch King is the founder of TradeStocksAmerica.com.  All material presented herein is believed to be reliable but we cannot attest to its accuracy. All material represents the opinions of Mitch King. Investment recommendations may change without notice and readers are urged to check with their investment counselors before making any investment decisions. Opinions expressed in these reports may change without prior notice. Mitch King and/or the staff at TradeStocksAmerica.com may or may not have investments in any stocks cited above before or after this newsletter is prepared. Opinions expressed in these reports may change without prior notice.

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