Seeking Alpha
Contrarian, newsletter provider, commodities, industrials
Profile| Send Message|
( followers)  

There are certain times when the stock market taps you on the shoulder and says, “buy me.” This is one of those times. I don’t think this is purely short-covering as suggested by one pundit this morning, and this afternoon it seems the rally could extend itself further.

If the market falters, continue to buy (our list is below), according to your own personal risk tolerance and investment objectives and situation, because the rallies on the upside will be explosive. I highly recommend equity mutual funds if you can’t handle the volatility of individual stocks, to diversify risk. This is from my 27 years’ experience in the markets and having made a living at it for the past 9 years, since quitting my job managing a bunch of stock brokers for somebody else.

We correctly forecasted to the hour, the late day rally on the DJIA last Friday, when the DJIA went from a small negative to a 125 point gain. This is typical of the market when it is oversold. Here’s an excerpt from the May 19th general market email we sent out:

The euro rally today is a sign of life that indicates the worse could be over already, and the stock market and commodity market could actually turn around in a hurry (UP). But I believe a Wednesday is no time to think a floor has been put in. Look for a late Friday rally to surprise on the upside.

We had the default of CasaSur, a rather smallish Spanish bank, on May 24th, but the market took that as reason to heighten the crisis mentality and the DJIA declined. To listen to the outcry in the investment world, they would be running ahead of angry bankers, rather than bulls, in Pomplona, this July.

Yesterday, a nasty rumor the Chinese were about to sell their euro holdings (a plant by feverish gold bugs no doubt?) put the DJIA into a late day tailspin. A market this twitchy appears to have lost rationality, and therefore is ripe for good economic news to create a rally.

Right on cue, we had good April US new home sales of 504,000 s.a.a.r., versus 425,000 expected. No matter they were boosted by the First Time Home Buyer Tax Credit, now expired. These house signings still mean robust lumber and buildings product orders near-term. These houses will require trips to buy furniture and fixtures. And there is always a chance they will reinstate a similar program.

US May Consumer Confidence came in at 63.3 versus 59 estimated and 57.7 in April. Obviously someone forgot to tell the average Joe/Jill on the street how bad things were according to the Roubinis and Rosenbergs of the world. Even Jim Kramer, Mr. Bull himself, ended his Mad Money show last night calling for DJIA 9,500 or even lower, with an “8 thousand” handle, due to a systemic meltdown. Yikes.

But cash balances in money market funds in the USA are very high and waiting to be deployed. Industrial growth is rising – April Durable Goods orders were decent and up 2.9%, with the March numbers revised upwards.

Negative sentiment amongst “pros” has been terribly high which is a good sign. This market is going higher, in fits and starts. DJIA is currently up 230 points at 10,205 and the euro is up 2 cents. I expect a close at up 300 (only 1 hour left). TSX is up 161 at 11,704. Gold is down $2 and since we expect the crisis mentality to abate, we sold the rest of the gold position yesterday.

We believe you need to distinguish between the price of WTI crude oil (up $3 at $74.98 and probably going higher due to higher cost of being in the business) and the companies that refine and sell the stuff, which will be hurt by pending climate change legislation, making their odd situation similar to that of the tobacco companies in the 1990’s (product not sanctioned by government anymore – profitable but stigmatized and litigated at every turn).

Here’s our list of buys, which we believe are good value (at prices we bought at). I am sure I missed a few that we continue to own, such as Noranda Income Fund (OTC:NNDIF), Tembec (OTCPK:TMBCF), SFK Pulp (SFKUF.PK) (now Fibrek) and Interfor. There are many, many other good stocks out there – we just don’t have time to cover them adequately.

US

  • CF Industries (CF) @ $67-8
  • The Mosaic Company (MOS) @ $44-46
  • Potlach REIT (PCH) @ $34.50
  • Plum Creek REIT (PCL) @ 34.50

Canada

Disclosure: Author long NNDIF.PK, TMBCF.PK, SFKUF.PK, CF, MOS, PCH, PCL, ANWLF.PK, BCE, CXUSF.PK, CADNF.PK, TU and TWTUF.PK.

Source: Current Markets: More Than Short Covering