Oil has fallen further than we initially thought that it would, and with that we have to recognize that the investment community has very real fears about the economic growth moving forward. The news from Caterpillar (CAT) would seem to support this, and it will be something we monitor quite closely moving forward, but at this time we are still forecasting that the end of the year should see a pop in share prices and economic growth. This could be altered depending upon the election, but for the most part we feel that with Europe finally getting their act together coupled with China's stimulus package and the U.S.' QE3 shall result in increased economic activity going forward. Investors should continue to watch the price of base metals and how silver performs against gold for tells. If silver begins to lag gold, then we can figure that industrial metals will be in less demand and can extrapolate that information to our general investments.
The coal sector continues to get hit, and once again it appears we were correct to look to the chart for confirmation regarding whether or not to wade into the sector. We would like to point out that yesterday saw some of the blue chips in the sector hit hardest as Bank of America lowered its price targets and opinions on a few names. The brokerage weighed in on Peabody Energy (BTU) and Walter Energy (WLT), however shares in CONSOL (CNX) also fell in sympathy. The blue chips are where we will move into first when we do make our move, but with Bank of America analysts lowering price targets by $10/share and below the trading price of where shares are trading at (as was the case with Peabody) we are reminded that analysts still have the firepower to push shares lower from these levels.
From time to time we mention Caterpillar or other manufacturing names in our commodities article to shed light on the sector as a whole. Caterpillar announced after the close yesterday that they did in fact see weakness moving forward and that they would be lowering their 2015 forecast as they see growth slowing moving forward. Shares fell over $2/share in the after hours session yesterday, and we suspect much of the recent gains here will be lost as investors have to adjust to the new normal for the company. The market pays up for growth, and when those growth forecasts change, so too do the multiples assigned to growth companies- and this will be happening at Caterpillar over the next few sessions. Long-term it may be smart to initiate a position on the weakness here.
Rare earth company Molycorp (MCP) saw shares fall $1.41 (10.85%) to close at $11.59/share as investors traded 10.1 million shares. It is back at the levels where we were bearish of it and nothing has changed. With commodities looking to take a breather as they consolidate recent gains, we would look for high beta stocks with minimal revenues and profits to get pushed around with the general direction being lower. Molycorp is just one of the names on the list we think is headed lower, but there is a very real chance that shares dip below $10/share again. This will probably not be a popular call, but we feel it is the right call barring some unforeseen announcement from the company.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.