With most of the big name financial stocks well off its 52 week highs, is it time to start buying? Looking at some of these stocks, the dividend is particularly enticing. Many of the bank stocks enjoy yields higher than the 10 year treasuries, currently at 3.40%. From this viewpoint, the financial stocks undoubtedly look very attractive. At this point, it likely makes sense to start nipping at the high quality names. These are the institutions that have successfully navigated through the various debt disasters. They include Wells Fargo, Bank of America and JP Morgan.

The concerns for stock investors is when will the write downs start subsiding. From a valuation perspective, many of these stocks do indeed look cheap. The question is how solid are these institutions’ asset base and earnings. At this point, everybody is assuming the worst. Nobody knows for sure when the bottom will be reached. After all, nobody wants to be holding the next Bear Stearns.

A signal that the bottom for financial stocks have arrived is when dividend payments are being slashed. The most probable candidates are those with uncommonly high dividend yields, over 5%. At this point, the market is saying that Citicorp will be cutting soon. Price action has been promising of late. Hold on to your hats, the wild ride is not yet over.

Yesterday, Oracle quarterly results dissapointed the markets. The stock is down around 7% today. Their lower sales forecasts can be attributed to skittish customers. They have not cancelled orders, just delayed them. Along with the financial stocks, the tech stocks got whacked. financial institutions are big spenders of technology. Tech companies will not escape the effects of the overall economic slowdown. Never the less, the long term outlook remains bright for technology.

The growth of the Internet and need for better efficiencies means demand for better technology will remain strong. Looking at the tech ETFs, the SPDRs are trading at 13.62 X P/Es and the XLK trades at 17 X P/Es. Considering that the long term growth rate for the tech industry is 15%, these stocks can now be bought with no growth premiums.

Further weakness in the economy can depress business. With the low valuations of tech stocks, it is a good time to start building your position and average down. Who knows exactly if we have seen the bottom in stocks. Compared to the financial institutions, technology companies are unlikley to have multi-billion dollar writedowns. 

Since the big blowout by Bear Stearns last week, the stock markets have recovered nicely. The major stock indexes are approaching their 50 day moving averages. It seems that stocks are crawling out of its over sold levels, particularly techs and financial stocks. Thanks mainly to the Fed’s active role in injecting liquidity into the system, a major seize up in the credit markets have been averted.

With low rates and attractive stock valuations, don’t expect a quick recovery for stocks, especially the financial sector. It will take a while to flush out the excessiveness built up over the years. Investors still do not know what skeletons are left with the banks and brokers. Don’t be surprised to see a few more bank or broker failures. As a result, the recovery in the stock market will be long and shallow. Before the markets can really take off, there needs to be stability in the housing market.

Other clouds over the horizon are surging energy and food prices. People have less money to spend on discretionary things since they need to spend more on feeding themselves and their cars. There is light at the end of the tunnel but it still looks dim. For investors, this is a stock picker’s market. Good luck.

Oil guru T. Boone Pickens expects oil to stay around $100 during the second quarter and above $100 for the second half of the year. Despite lower demand from the United States, the world’s largest energy consumer, the slack will be picked up by the developing countries. Production, according to Pickens is likely capped at 85 million barrels per day. All the easy oil has been found. It is not in the interest of OPEC to boost production. It’s in their interest to keep oil prices high.

In this environment, the investor wants to be in stocks that benefit from the higher oil prices. The ones to avoid are the major U.S oil companies such as Chevron and Exxon. Their production profile is not growing. There are spending massive amounts of money just to barely maintain production. Others to avoid are the refiners. High oil prices and elastic demand are putting pressure on the crack spreads.

The ones that are most likely to generate good returns for investors are companies with long reserves life and growing production. I would look at Suncor Energy (SU) and Petroleo Brasileiro (PBR). Another is the oil service providers. I would look at Transocean (RIG) and Schlumberger (SLB). To keep production going, oil companies will need to continue exploring for new oil sources.

Today, the stock markets started off on a positive note with the S&P 500 up over 1%. The positive market sentiment was fueled by JP Morgan upping the share buy out of Bear Stearns from $2 to $10 and a better than expected resale housing numbers. The stronger sectors today is undoubtedly the financial stocks. Even though we have not seen the end of the bad debt write downs, the belief is the worst is likely over. The climax is the collapse of Bear Stearns.

The U.S. stock markets are recovering from oversold levels. The S&P500 is likely to recover to the 1,400 level. If there is resistance at this level, it will retest the 50 day m.a., at 1340. Given the massive damage to the financial stocks, the recovery will probably be more “L” shaped than “V” shaped. Unless the US housing sector show real signs of stabilization, the S&P500 will range trade between 1300 to 1400. A base needs to be established before any meaningful rally can occur.

With the US financial stocks bottoming out, it is time to start nibbling at this sector on dips. The hot money is coming out of the commodity sector. Other stocks to consider are in the technology sector and the industrial sector. It’s time to start looking at the beaten down sectors.

When fear and uncertainty hits the stock markets, investors automatically run for the exits. They don’t care whether the fundamentals of the companies are sound or not. They just want to get out. In many of these cases, the baby often gets thrown out with the bath water. Because of its smaller share float, penny stocks are more subject to wild price swings. In a down market, it will drop more than the more liquid stocks of large cap stocks. In an up market, these stocks will outperform its larger peers.

The best penny stocks to snap up during these volatile times are those of well run, up and coming companies. These companies have strong balance sheets, and are growing sales and profits. For resource companies, they are enjoying success with their exploration programs. Projects are coming on and they are expected to significantly grow production.

The most opportunistic times to buy high quality penny stocks is when they whacked for no apparent reason. So do your research, suck it up and put in that buy order. Good luck!!!!

For market participants, Sunday night and Monday was indeed a topsy turvy day. The big news was Bear Stearns being bought out by JP Morgan for a lousy $2 per share. It wasn’t that long ago that its share price was over $150. Talk about being long and wrong. The good news is that a sign of a bottom or capitulation is when a major player gets taken out. Here are some clues to look for. The XLF, the financial ETF, Monday’s trading range range was $22.29 and $23.80. It closed near its high at $23.45. Based on positive earnings from Lehman, Goldman and the Fed’s 75 point rate cut, the XLF closed up $1.91 to $25.36.

Lehman’s stock price action was even more dramatic. The broker was rumored to be the next one to go belly up. On Monday, the share’s trading range was $20.25 and $34.91. It closed at $31.75. Thanks to its better than expected earnings and disclosure of strong finances, the share price closed up $14.74 to $46.49.

It seems like the worst could be over. The clouds still hanger over this sector are with Merrill and Citi. Will there be more mega-sized write downs? Will they need more capital injections to shore up their balance sheets? If these institutions can stabilize their situation, the bloodletting can soon be over. Even if things stabilize, it will probably take a while for these shares to recover. Think more “L” than “V” shaped recovery.

From a technical viewpoint, the sector is vastly damaged. It will need time to build a base. Looking at the XLF, the downward trend is still intact. The housing sector needs to stabilize and foreclosures needs to slowdown. The excesses needs to be worked out of the system. It will likely take some years. I would not be rushing in to buy this sector just yet. Think short term trader, not buy and hold.

Last night Bear Stearns announced that they were being bought out by JP Morgan for a measly $2 per share. Last week, the share price was over $50. For many market pundits, it wasn’t really a surprise that Bear had to sell itself. The surprise was how cheap it was sold for. Bear executives were saying that book value per share was at $84. The lesson learned from this fiasco is not to trust the executives who have paid no heed to risk managment and ran the company to the ground.

So after Bear Stearn’s fire sale, investors are asking who’s next to be hanged? Investors are saying Lehman Brothers. From various reports out there, it seems that Lehman is likely to survive the current liquidity tightness. Bear Stearn was the smallest and the most exposed to the sub-prime mortgage market. The law of the jungle dictates that only the strong survive.

The financial herd needs to cull its weaklings. There will likley be other players that will be taken down. The excesses seen over the last few years need to be worked out. On the positive side, some major players needed to be taken out in order to signify that the financial sector is nearning a bottom. If last week’s S&P report is to be believed, the worst of the writedowns have already passed.

Tuesday will be just as exciting for the markets. Goldman and Lehman will be reporting. The Fed also has their meeting. The question is how much will they slash rates? Speculation ranges from 50 to 125 points. It will be an interesting day. 

The trading day started off miserably, continuing the negative performance from overseas stock markets. Despite the central banks’ move to inject liquidity into the system on Tuesday, the stock markets failed to follow through on any positive developments. There was widespread sceptism that the latest injection of liquidity was sufficient to pull the banks and brokers from their downward projectary. At one point, the Dow was down close to 225 points today.

Then Standard & Poor’s issued a report saying that the end is in sight for writedowns by the world’s financial institutions on debt linked to subprime mortgages. Writedowns from subprime-tied securities will likely rise to $285 billion, or $20 billion more than what was forecasted two months ago, the New York-based ratings company said today in a report. The firm said that more than $150 billion of writedowns have been reported by banks, brokers and insurers so far. S&P hiked its estimate as it assumes more losses on collateralized debt obligations.

If the report is indeed right, the debt fiasco for the major financial institutions are more than halfway through. If they are to be believed, they said the 4th quarter results were the worst. This is what investors wanted to hear, a light at the end of the tunnel. Foreclosures are expected to peak around the second half of the year. Housing is not expected to recover until sometime next year.

What bullish investors want to see is that the financial sector starts to stabilize and even go up despite bad news. If this occurs, the market will have legs to go up. Stock markets cannot go up without the financial sector. There is a lot of cash sitting on the sideline waiting for a reason to buy. Given the magnitide of the excessive leveraging in the markets, the recovery will be more of an “L” shape than a “V” shape. 

Another day, another new record high oil price. Today, the price of oil passed $110. As the saying goes among traders, the trend is your friend. Fuelling the run up in oil prices and other commodities such as gold is the sinking US dollar. With the Fed more concerned about avoiding a recession than fighting inflation, further rate cuts will further lower the dollar against other currencies.

Despite evidence of growing energy supplies and weakening demand in the United States, the price of oil still continued to climb toady. Longer term, there is little doubt that the price of oil will be much higher. Growing demand is outpacing production increases. Right now, it seems that hot money is chasing returns. A sign of a top is when the price spikes up but closes down on the lows of the day.

Before the price of oil can turn down, one needs to see capitulation. This is when all the buyers are taken out. Until that occurs, the upward trend line for oil will be intact. Oil bulls rejoice. Long live the weak U.S. dollar. Some are expecting the top side to be $120 and the lowside to be $85.