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Now what?

|Includes: CF Industries Holdings, Inc. (CF), EDU, GMCR, MNK, RL

This week all eyes are on the market because everyone wants to see if stocks are going to go down and crash again.  Many have said that the economy is in recession already, and while I don't know if this is true I do know that this past week was probably the first shot at pricing this scenario into share prices.


Additionally, stocks also priced in the risks in sovereign debt in a spectacular manner as S&P downgraded the debt of the United States.  Anyone who did not think this was a big deal got punched in the face financially, so I think it is safe to say that we now understand that downgrading the debt of the United States is a very big deal.


So now the question I wonder about is: did the market do enough to price-in a combined possible recession and debt downgrade?  I think it is too soon to answer this with any certainty though certain indicators like the VIX index and the amount of sell-volume says that the answer is probably yes.


Based on the charts, stocks did find some support as share prices rebounded off the lows, but if the economy does get weaker then stocks will most likely get weaker as well.  Stocks can forecast up to a point but they do not tell the future perfectly, rather they tend to forecast probabilities of certain facts and scenarios things happening.


When stocks get the probabilities or facts wrong is when things turn chaotic, because that means the market has to re-price things, generally in a violent and brutal manner, and why tremendous moves can happen both up and down.



Jesse Livermore said you always want to be on the Right Side of the market and I could not agree more.  How many participants ended up being on the wrong side of the market recently? More than most would care to admit.


Going forward I think it is best not to predict but instead to let the market sort things out and tell us what the future is probably going to be.  Price and volume will be the 'tells' for where the market will go so stay alert and open-minded and definitely have a plan if things go contrary to what you expect.




I have posted charts below of the Indexes, the VIX, and some selected stocks that appear to be more promising than others out there.  Former leaders may get passed up and not lead anymore so now is the time to keep our eyes peeled for new leaders no matter how obscure they may be.


The Indexes show some support but hard to read much beyond that.



The VIX is promising as it shows elevated levels of fear.  However, this in itself is not enough to make stocks go up.  Instead it is a secondary indicator on how market participants may feel at the current moment.

Selected stocks are below.  The one which most makes me think is a new one to my lists and that is Polo Ralph Lauren (NYSE: RL).  The reason why it makes me think is that, if we're going into recession, wouldn't a company that makes premium, high-priced clothing be going down and not up?  Your guess is as good as mine.


CF Industries (NYSE: CF)


New Oriental Education (NYSE: EDU)


Long-time leader Green Mountain Coffee Roasters (NASDAQ: GMCR)


Questcor Pharmaceuticals (NASDAQ: QCOR)


Polo Ralph Lauren (NYSE: RL)