Buy or Sell The News?

By Jim Farrish | September 19, 2008 | 10:01 AM | 2 Comments

The best answer is both. This is an opportunity to eliminate positions from your portfolio that are lagging and buy positions that have been in good patterns and breaking out. I will put this warning as a footnote; we will not move straight up from here just because there is a proposed solution to the credit crisis. There will be more volatility and a probable test of the lows. With this type of news a ‘V’ bottom is a possibility, while a ‘W’ bottom is more typical. This is what I am watching looking forward. The rally in financials is likely to result and the key is to find the strong components. I have listed some of those recently. Wells Fargo (NYSE: WFC), SunTrust (NYSE: STI) and US Bank (NYSE: USB) are a few of the banks I like. SPDR Regional Bank ETF (NYSE: KRE) I especially like looking forward. The regional banks have cleaner balance sheets in general and with some resolution to the credit markets it could spur some M&A activity. You can use BLOCKS software to scan through this ETF’s components looking for the stronger stocks or just own the ETF. If you are going to play them now take smaller positions and add on the pullbacks that will result after the emotions subside.

There are other sectors that stand to benefit from a solution to the credit markets and liquidity. Homebuilders, housing and REITs to name a few. As of last night’s close all three are at a breakout point from consolidation. The homebuilders I have discussed and posted charts showing entry points. The REITs have been on my ETF Watchlist for several weeks looking for breakout. (NYSE: RWR) is the SPDR DJ Wilshire REIT. I will point out that these are intermediate to long term play opportunities.

I have posted some charts below since pictures are better worth a thousand words. After the charts a few personal comments on the “Problem Solved” issue.

Problem Solved?

Paulson and company stated they have a solution similar to the RTC formed in 1989. If it functions as a temporary government entity and disposes of the troubled assets over time, great. If, it is another government agency designed to provide meaningless jobs, forget it. We won’t know the complete form of this structure until next week. In the mean time investors voted by buying stocks or at least those short voted by covering. Today should provide more initial buying as a reaction. As I stated above the work out will provide more volatility to the markets and looking to see how and if the bottom unfolds is key.

The SEC is rumored to be considering a no short rule on financials. While this may help short term it is not the legislation I was looking for from the SEC. I have to side with McCain on this issue. Cox has been asleep at the wheel, he could and should have taken action to stop some of this run on the bank. The erosion in investor confidence is partly his problem. But, let’s not forget the infamous President Bush, someone woke him up to make one of the worst confidence building speeches yesterday I have ever heard. Maybe he should have called Governor Palin to help him out.

Government starts these problems through their “helpful” regulations that end up causing more harm than good. Then they sit around and watch it fall apart until it is painful. Then their solutions is to add more government. We don’t need more government we need to enforce the rules that are in place. I stated before we have government agencies that are already paid to govern and manage the mortgage industry! They signed off on these products, but they wanted more Americans to own homes so they were willing to sign off on products in artificially low interest rate environments (thank you Mr. Greenspan) that they knew would become a problem. The point is the problem is never solved as long as government keeps its greedy hand involved, all in the name of helping improve citizens lives. From where I sit the short term improvements they provided have caused longer term grief. 

Great Close Bush looked like a President on the way out with his little pep talk yesterday - very funny comments! Submitted by Jerry Slusiewicz on Fri, 2008/09/19 - 3:32pm » reply |

BLOCKS software which you BLOCKS software which you mentioned. Googled it. Looks worth checking out. That was helpful. Submitted by useful (not verified) on Fri, 2008/09/19 - 11:09am » reply |