Dry Bulk Shipper Stocks Outlook

I believe we are in a simple downtrend in all the shipper stocks. Any good bounce to trendlines should be shorted. I think DRYS will be heading to 40s or even lower. Just as we have been seeing disassociation between GLD and gold stocks 1-2 years back, we are seeing the same behavior in BDI and shipping stocks.
GLD and gold stocks are in the same place (higher correlation) this year as BDI and shipping were in 2007.

As far as EW is concerned the B-waves were completed in late Feb on shipping stocks and now we are working on C-wave.

In terms of fundamentals, I think shipping stocks are dependant on world economy and the amount of infrastructure build out in India and China. There is a massive buildout in the second tier cities in India and Olympics has helped China's buildout. So, more steel, coal and raw materials will be transported to these countries from natural resource countries such as Brazil, Australia etc. From a long-term perspective, yes the fundamentals are in place for future rate increases. But what is affecting these stocks is Sentiment. The sentiment that as US slows, the emerging countries will slow down. If US is or would get in a deep recession, then the buildouts will be slower.

2008 Top Sectors & Stocks

I have been analyzing the market very closely over the past one month to find new leaders. The old leaders of 2007 will not be the leaders in 2008.

So, here are the top sectors and stocks to trade/invest in 2008:

1. Steel and Metal stocks: SID, MTL
2. Coal Stocks: FDG
3. Gold and Silver stocks: GLD-ETF
4. Other Commodity related stocks: FLS, BUCY, CMP, KWK

• Companhia Siderurgica Nacional (CSN) is a fully integrated steel producer in Brazil. The Company produces carbon steel, and also sells a variety of steel products. Its products are sold both domestically and abroad as a main raw material for several different manufacturing industries, including the automotive, home appliance, packaging, construction and steel processing industries.
• Mechel OAO (Stal’naya gruppa Mechel OAO or Mechel Steel Group ОJSC) is a Russia-based integrated mining and steel company.
• Fording Canadian Coal Trust (the Trust) is an open-ended mutual fund trust.
• StreetTRACKS Gold Trust (the Trust) is an investment trust. The Trust holds gold and from time to time issues streetTRACKS Gold Shares (Shares) in blocks of 100,000 Shares (Baskets) in exchange for deposits of gold and distributes gold in connection with redemptions of Baskets
• Bucyrus International, Inc. designs, manufactures and markets draglines, electric mining shovels and rotary blasthole drills (collectively, machines) used for surface mining, and provide the aftermarket replacement parts and service for these machines. The Company’s equipment is primarily used by companies engaged in surface mining for a range of commodities.
• Compass Minerals International, Inc. (Compass) is a salt producer in North America and the United Kingdom.
• Flowserve Corporation (Flowserve) is a manufacturer and aftermarket service provider of flow control systems.
• Quicksilver Resources Inc. (Quicksilver) is an independent oil and gas company. The Company is primarily engaged in the development, exploitation, exploration, acquisition and production and sale of natural gas, natural gas liquids (NGLs) and crude oil.

Tech was the leader in 2007 but this year is a big laggard. That has to do with the increase in chances of a recession. Following Friday's job numbers that reported a loss of 63,000 jobs, the chances of a recession are now even higher.

If you carefully go over the stocks and sectors that I mentioned, you would observe that I have listed only commodity related stocks. With the dollar weakening and setting new lows, commodities converted back to dollars are setting new highs. Oil above $100 and Gold near $1000 are good indications of this phenomenon. Also, most of the companies mentioned above have a lot of international exposure. More international revenues when converted to Dollars directly correlate to more revenues.
I have purposefully left out Agriculture leaders of 2007 viz. MOS, CF POT etc as on a TA basis, they seem to be in a no-man's land. I would like to watch their action over the next couple of weeks before adding thme to this list.

All these companies in the above list have excellent balance sheets and are fundamentally sound. The TA setups are also great pointing to great performances in 2008.

Homebuilder rally- New trend or not ?

Watch any homebuilder stock for the month of January. They have all rallied atleast 50%. Right now all the money flow has been going to these names.
The homebuilder index XHB ETF by itself has completed a 50% move. It has also broken an important downtrend line. Check chart of Hovnanian homes- HOV. This stock has rallied a massive 106%. Other residential home stocks like CHCI, MHO, PHM have rallied more than 70%.

These rallies have been fueled by the FED emergency cut of 0.75 and last week's additional cut of another 0.50.

Honestly, I completely missed these rallies. But no worries, remember there are always retracements to Fibonacci levels. I will be closely watching to see if this move can be sustained or if it was just a one-month wonder and short covering rally.

In stark contrast, check the cover of Business Week. It talks about further meltdown in the Housing market ;)

Panic buying

Today we saw a nice amount of panic buying across the board. Right now it looks like we have put in a nice bottom. Top players today were financials, homebuilders, retail. Anything that can benefit from a rate cut. Mastercard (MA) came out with a great earnings report and was a great intra-day trade as it crossed the important 200 level. This was the Right shoulder of the Head and shoulder pattern. But the market sold off in the last 5-10 minutes as players didn't want to hold into tomorrow' jobs report.
The rally will continue for a bit longer irrespective of the jobs report based on TA. This morning, we have news of Microsoft's offer to buy Yahoo sending futures soaring. I guess now, we have enough reason to keep the market green irrespective of jobs report, thereby complementing the TA.

Fed cuts rate by 0.50

Fed cut the rate by another 0.50 percentage points bringing the target FED funds rate to 3.0. It also signalled that it will keep the door open for further cuts. Stocks first rallied on the news but in the final 30 minutes closed down back to the same level. It shows market has still not decided what it should do. Gold rallied to new highs on the news.

US markets - S&P 500 25 year chart

Here is the S&P 500 chart for the past 25 years. I have also included the famous Black Monday crash of October 1987. The 25 year chart includes the financial crisis, recession, gulf wars etc. Do you see how the market ALWAYS bounces off the 50 EMA. The only time it didn't do this was during the Nasdaq bubble burst of 2000.

Last week we touched the 50 EMA on the S&P chart.
You should bet further downside in the market only if you expect that this time is more worse than 1987 and 1990s problems we had. If you don't think this time is as bad, then you should be buying stocks for the long term. Markets are as SIMPLE as that. We make it so complicated.
Good Luck !!!

Stock market indices print bearish engulfing candle

Bearish engulfing candle printed on all market indices. Watch how Friday's candle totally engulfs Thursday's white candle. This is a bearish setup which will display further weakness in the short-term. Watch for support at Fibonacci 61.8% retracement. I have initiated shorts in MELI and MOS on Friday to take advantage of this weakness.

From the long-term perspective, the weekly chart still holds well and the turnaround bounce should also hold well this week.

We have many economic news and Fed meeting this week. So more volatility. Good Luck !!