...we think many of our recently purchased investment positions will not breach their respective reaction lows made over the last few months. Names like Delta Petroleum (DPTR) made its low last November before Kirk Kerkorian’s “bid” for 35% of the company at a 20%+ premium at its then $16 per share price point. After Delta’s initial leap to nearly $24/share, we don’t believe these shares will trade again at Kerkorian’s $19 purchase price.
Similarly, we don’t think Strong Buy-rated Schering-Plough (SGP) will breach its $17.45/share January reaction low, which is why we continue to accumulate its 7.7%-yielding convertible preferred “B” shares (terms and details should be checked before purchase).
The call for this week: ...[T]he inflation-adjusted return of the S&P 500 remains 33% below where it was in the spring of 2000, as can be seen in the attendant chart. This is not an unimportant point, since our job is to produce “real returns” that keep investors’ purchasing power in excess of the nominal rate of inflation.
...[L]ast Thursday qualified as yet another 90% Down Day (volume and points lost were greater than 90%). As the astute Lowery’s service notes,This was the second 90% Down Day within four trading days, and the 7th within the past three months. Past experience shows that 90% Down Days are typically followed by one of three patterns: (1) a 90% Up Day occurring quickly after the 90% Down Day would suggest that a sustained rally lasting about two or more months is likely; (2) the absence of a 90% Up Day during a snap-back rally would suggest that a brief recovery rally lasting 2 to 7 trading days would most likely be followed by new lows in price and additional 90% Down Days. Such rallies should be used to sell stocks; (3) the lack of any snap-back rally within a few days after the last 90% Down Day would suggest a sustained market decline is underway that will probably produce additional 90% Down Days.
Indeed, we think this is a “kiss and tell” week and we continue to trade, and invest, accordingly.
Excerpt from Raymond James strategist Jeffrey Saut's latest essay: