Saut: Opportunistic Buys in This Schizophrenic Market

by: Jeffrey Saut

Excerpt from Raymond James strategist Jeffrey Saut's latest essay:


...[L]ast week’s schizophrenia caused the S&P 500 (SPX) to break below its May reaction low rendering a near-term price target into the 1320 – 1330 support zone. If that occurs, we would consider initiating “long” trading positions like we did at the January/March trading “lows.” It should also be noted that our proprietary oversold oscillator is close to rendering its first oversold “buy signal” in years. If the SPX slides into the aforementioned support zone, it would likely tip our oscillator into “buy” mode.

In the interim, as stated all last week, we “wait” in the trading side of the portfolio. For investors, however, we continue to be opportunistic buyers noting that many of our recent investment ideas acted pretty well last week. Indeed, Strong Buy-rated Delta Petroleum (DPTR) was up 18% for the week driven by expectations that drilling results from its Paradox Basin wells will make good reading when they are reported in July. Similarly, 10% yielding, Outperform-rated, LINN Energy (LINE) was up nearly 5% on the week, while 6.8% yielding Alaska Communications (NASDAQ:ALSK) and 5.8% yielding Embarq (EQ) resisted last week’s market machinations.

The call for this week: Friday’s Dow Dive of 3.24% was the first 3% down day since February 2007 when the senior index was carving out a “bottom.” It was also a 90% Downside Day (points and volume were 90% to the downside), following Thursday’s 80% Upside Day, in true schizophrenic style.

Also schizophrenically, oil and gasoline soared to new all-time highs, while the energy/economic sensitive D-J Transportation Average “tagged” a new all-time high. Meanwhile, General Motors’ (NYSE:GM) shares fell to a multi-decade low (so goes GM, so goes the economy), consumer net worth is down 1.0% year-over-year, the FDIC insurance deposit fund is close to its minimum statutory level, tax rebate checks appear to be driving the federal government’s deficit to over $450 billion, Britain is running dangerously short of electricity, the Gangotri glacier (one of the Himalayan’s largest glaciers) has shrunk by half a mile in the last 25 years (we continue to embrace the theme of companies playing to the rebuilding of the electric/water infrastructures), the Baltic Freight Rate Index registered new reaction highs (read: buy the dry bulk shippers), NYSE short-interest is at record highs, Ed McMahon’s house (Johnny Carson’s sidekick) is in foreclosure, and we keep asking ourselves, “How can inflation moderate from such an allegedly low level (read: core levels)?”