[The following is excerpted from Bill Cara's Daily Report]
In last weekend’s Week In Review, I stated:
Technical analysts looking at the major equity market indexes of various countries this weekend must be stunned to see a consistent pattern where prices are on the verge of simultaneous collapse.
I hope my opening paragraph captured your attention because it also means the end of the Bear is one step removed. Just one more leg down – probably 10-12% -- is what the sellers will take to complete the bottom, I believe.
Now is the time to be scouring the market for the best quality companies that trade at attractive valuations. Now is not the time to panic.
Earlier this year, I found the appetite for goldminer shares to be extremely voracious, so I opined that it was time to feed these traders by selling shares. I recommended selling Goldcorp (GG) at US$44.71. Wednesday, GG hit a low of $24.79 and closed at $26.42. Now is the time to be buying.
Because the price of gold has fallen to the mid-700s and silver to the low 10s, Wall St. analysts will be downgrading these commodity producers now on the basis their reserve calculations must be re-done at lower values. Remember, these are the same analysts who were, unanimously as I published in their own words in my report, so bull-minded early this year.
In most securities broker-dealers, the analysts and salespersons are not traders. In fact, most of them make lousy traders because they drink their own lemonade. Traders often see lemons, and take advantage of the weaknesses of their colleagues.
A true story is that when I worked at Dean Witter (now Morgan Stanley) over 20 years ago, we had a mining analyst in New York who, if he put out a new Buy report, we would sell into the bullish order flow. Call us skeptics, but I assure you we made more money trading than the clients of that analyst.
There will be plenty of downgrades in the Oil & Gas, Base Metals and Precious Metal industries in the next two months. That presents you the best opportunity to buy.
When the market comes to you, you buy; when it gets away, you sell. As a rule.
But you still need to do you own due diligence, and follow your own trading plan. If I told people I don’t know that GG should be bought at 26, I know for certain there will be somebody out there who will be screaming at me that their sister was able to buy it later for 25 or 24. The point is, I don’t know you and I’m not trading for you. Everybody in the market has unique characteristics in terms of risk tolerance, financial resources, strategies and tactics. You have to make these decisions accordingly.
As the DJIA heads to a cycle bottom about 1000 points lower and Crude Oil drops from 102 to maybe 80-85 in the next couple months, there will be downward pressure on the stocks of quality commodity producers. That will be the time to use the ammunition pile you have been building.
The next Bull will be economically driven, not financially driven, which will be something quite new in the annals of trading.