Despite Fannie’s changing of some executives, it will take more to change its fortunes. The company is still under capitalized. For current shareholders, it will mean massive equity dilution. Yes, the stock has bounced backed over the last few trading days. Resistance is around $8, the 20 day moving average. If this resistance level cannot be broken, the stock will likely retest the lows. Smart investors know better than to try to catch a falling knife.
The stock market usually predicts what will happen with the economy 6 months in advance. Looking at some of the stocks exposed to the housing sector, it suggests that the bottoming is near. One of the stronger competitors in this sector is Lowe’s. Presently at $24.79, the stock had a nice run up from its July low of $18. One should wait for a correction before accumulating this stock. The ideal level would be at $21.75, the 50 day moving average. Major resistance is at $27. Below $22, the risk reward ratio becomes more favorable.
With the shoulder season, stocks in the oil sector trends down. This presents a great opportunity to snap up stocks such as RIG. Unlike the oil producers, these drillers are not as exposed to the volatility of commodity prices. Currently, there is a shortgage of offshore drilling rigs. This gives good pricing power to the drillers, boosting their profit line. RIG is showing signs of bottoming out. If oil retest its high, expect RIG to also retest its high.
With higher commodity prices, particulalry for energy and food, many market pundits are warning about inflation. According to them, the biggest risk to the economy is stagflation. This is where prices are going up and the economy is not growing. In today’s global market, the need to be competitive means that pricing increases for goods and services will be kept to a minimum. Companies can source their production in low cost countries such as India, China and even Vietnam. As long as wage gains are kept to a minimum, inflation will stay under control. In a weakening global economy, there is less pricing power.
The auto sector is going through challenges right now. A weak economy and $4 gasoline are dragging down sales and causing a shift towards more fuel efficient vehicles. The Big 3 are suffering since most of their profits came from trucks. A way to play this sector is to play the companies and not this sector. Ford is better positioned to navigate through these stormy times than GM. Ford has in the pipeline vehicles that are likely to connect with consumers. They have divested much of their non-core assets. GM still has too many platforms and brands to deal with. Ford is responding much faster to the current crisis. Buy Ford and short GM.
As more of the world’s population enjoy a higher standard of living, the need for energy will only increase. Despite its dirty reputation, coal will still be in use. The reasons are sinple. It’s safe, reliable and there is plenty of it in the ground. Arch is a beneficiary of this situation. Demand for coal is unlikely to diminish. With its recent price correction, ARC is a buying opportunity. At its 200 day moving average, it is a buy around $52. As long as the stock trades above this trend line, the stock should retest its highs at $75.
For the very bruised and beaten financial sector, there could be light at the end of the tunnel. Looking at the financial ETF, the XLF, the bottom could have been seen back in July when it hit $16.77. If the $20 support level breaks, it could retest the low. Between $16.77 and $20, it would be a good opportunity to accumulate the XLF. Major resistance is around the $25 area. The financial sector is likely in a bottoming out process. Just don’t expect it to make a quick rapid recovery. Too much damage has been done.
This famed ketchup maker delivered tasty results today. Profits and sales are better than expected. Earnings revisions are probably going up, a positive development for the stock. In a time when food and energy costs are going up, Heinz has been able to pass on these costs, indicating pricing power. The stock chart of HNZ is strong. Both the 50 day and 200 day moving average are in an upward trend. A good level to start building a position between $47 and $50. There is strong support at the 200 day m.a.
Oil has reversed its downward trend. The bulls seem to have replaced the bears. Oil seems to have found a bottom at $110. The sellers have been taken out. The price of oil is going up on both bad and good news, a bullish sign. Ignored last week, oil traders are paying more attention to hurricanes and political events such as those occurring in Russia. The weaker U.S. dollar is also helping support oil prices. If there is strong evidence that the credit crisis is not yet resolved, more money will be going back into commodities. Oil could be range trading between $110 to $150. Get use to the volatility.
During tough economic times, consumers are discovering frugality. This does not mean they will stop spending but looking to spend smartly. With surging energy and food prices, people are looking for ways to stretch their dollar since wages aren’t going up as fast. Companies that deliver interesting products at competitive prices are seeing their profits grow. Value is in, big name luxury is out. Walmart, Costco and TJX are doing well in this environment. As for autos, Honda is thriving since they produce well designed, economical vehicles.
