Sept. 6, 2005
I have become extremely bullish on the stock market.
Last week a major US city was wiped out while at the same time energy prices went ballistic, particularly in Unleaded Gasoline....The natural response in the analytic community is to expect both of these developments to have been major negatives for the economy and the stock market.....YET THE STOCK MARKET CLOSED HIGHER LAST WEEK?...If the old adage, "Let the tape tell you", is at all accurate, I think last week's action, in the face of an event probably bigger than 9/11, is "telling you" STOCKS ARE GOING UP.....
I don't know the future but I would suggest the following:
Energy prices reached the point where the only real news from here is going to be, "SOMETHING HAS GOT TO BE DONE ABOUT THIS!!!". Just as in 1981, when prime hit 20%, there was no way the capitalistic equation had room for that high a cost of borrowing, neither can it survive beyond some particular price of energy....And I think we hit it last week. Whether it comes from the government, or the public's reduced energy consumption, or wherever, I cannot imagine last week being anything but the top of energy prices for a long, long, long time....With this in mind, as regards stocks and the economy, I think the news going forward will nothing but positive.
As for the devastation on the Gulf Coast, the government will now be pumping trillions of dollars into the economy as we begin to rebuild....And that money will not be going down a drain.....It will be creating activity and profits for any business you want to name, in a big and sustained way that will be felt for many quarters to come....Aside from construction, think about all the technology that has to be replaced?
And the fact the Fed now has no choice but to be accommodating has lifted the specter of further hikes in short term interest rates, which is also a positive for stocks....
To me, the bottom line is I believe any gage of economic activity you want to name will be soaring in the months to come....and so will the Stock Market.
I continue to recommend buying call options or futures any of the three Stock Indices shown below.
Dow Jones Industrials (weekly)
Buy Feeder Cattle
As I said last week, most people probably don't know what Feeders are and it really doesn't matter if they do. I have always contended the meats are where there is oftentimes more bang for you buck than any other area of the futures markets. Not that it is always the case, but I HAVE seen Feeders move very much in tandem with the S&P 500....I am still a buyer in this market, especially after last week's one day 200 point plunge that has now almost fully recovered what it lost....I think this is a CLASSIC chart, potentially about to break out and go relatively "straight up" 5 or 6 cents (obviously I may be wrong).
I have been on the sidelines in Cotton for some months now. In a nutshell, I think it is now ready to leave these very low historical levels and make a sustained move on the upside. I see all of the action over the past few years as having formed a major bottom in Cotton and to now see a 15-20 cent "non-stop" upside move would not surprise me at all. I am a buyer, looking for, to start with, a move up to the 60-62 cent area.
Enough for now...More comments on Oil (still short) and Copper (still short) in my next update....
Give me a call. Thanks.