Roadmap for this week

Our view is that we’re in an ending diagonal and in the very last stages of this 5 wave move that started on March 6th.

Since we had a turn date on March 26th, there is a likelihood that this wave could truncate and we may have seen the highs on Thursday. Alternatively this last leg could extend upwards to as high as the 832 to 840 area and then begin a move down. Either ways, be alert to the possibility that this market is toppy and could be headed down.

With Germany the U.K and U.S seemingly on opposite ends of the spectrum there is a likelihood that the market will be disappointed by what is viewed as the last chance for coordinated policy to take effect. This could be the catalyst that takes the market lower immediately.

On the other hand, we have a proposal on Mark to Market accounting for April 2nd and the market could rally into that meeting.

Investment Strategy:

We shorted into the close on Thursday and took profits Friday morning so that we were flat over the weekend. Allocate 1 unit for every ten point move higher on the S&P.

Short term target: 770.

The Pause That Sucks In Fools..

The markets were up today with the Nasdaq leading the way. Going into Memorial Day weekend, I expect a bounce or upward bias in the market with selling continuing once things are back in swing next week.

FSLR – Sold FSLR yesterday, will look for possible re-entry if it moves higher, nice 7% move over the past few days. The P/E is in the high 40s and the stock will get creamed if oil corrects.

SRS – The SRS for those of you that don’t follow is the ultra short Real Estate index. Anecdotal information is finally beginning to emerge that the commercial sector in real estate will not survive and thrive as the market has them priced. The SRS has had a nice bounce off the double bottom around $80. My expectation is that this will be a lot higher than the Mar top it put in before all this is over. 9 of 10 top holdings in the index were in the red today. The move on this is going to be long and sweet, now is the time to consider getting in.

Oil – IF there is speculation, expect to see further selling in the USO tomorrow as traders will not want to hold this over the Memorial Day weekend. If you believe this is a demand driven story, well… good luck I guess.

My Old Haunt – Lehman is now predicting prices at $83 a barrel in 2009 and as low as $70 in 2010

Is $120 oil even real? Not if you ask the Saudis, or even Lehman Bros.

The investment bank’s oil expert said this week that the oil boom is due to bust. Economic growth across the globe will slow just as new refineries kick in, raising supply.

Recession or not, a U.S. slowdown will slacken demand sharply, right as new oil hits the market. “Supply is outpacing demand growth,” said Michael Waldron, Lehman’s oil strategist.

“Inventories have been building since the beginning of the year. We have pretty significant projects starting soon in Saudi Arabia, and large off-shore fields in Nigeria,” he said.

http://moneynews.newsmax.com/money/archives/st/2008/4/25/175710.cfm?s=al&promo_code=6231-1

Lehman is now predicting prices at $83 a barrel in 2009 and as low as $70 in 2010.

Although some years off, Brazil too has found as much as 8 billion barrels of light oil and gas offshore. The South American giant’s president says his country might well join OPEC when the Tupi field begins to pump, in 2011.

In addition, Middle Eastern sovereign wealth funds have pushed up the oil price by investing billions of their oil gains, ironically, in commodities index funds.

Now they could be looking to get out, warns Waldron. He figures the money effect has driven anywhere from $20 to $30 into the barrel price.

In addition, a weak dollar is holding oil prices high, according to a series of statements from OPEC leaders over the past week.

If you buy the views of OPEC’s various leaders, that’s at least another $20 of oil price that is not supported by the actual supply and demand situation.

In addition, Europe’s central bank seems bent on containing inflation there. A rate increase in Europe is sure to contain the euro’s rise against the dollar — if serious steps are taken soon.

Couple that with a lower-than-expected rate cut in the U.S. next week, or perhaps no cut, and the oil price drops as the dollar gains ground.

All this is having little immediate impact now, of course. U.S. gas prices at the pump hit $3.58 a gallon just as the summer driving season kicks off.

If nothing changes, analysts now expect gas to rise to as high as $4 a gallon in as little as a month.

Investment Strategy May 10, 2008

Oil – Topping Out & Down Next Week

This coming week will be a down week for Oil.  We view Oil is at a top here and view this as a decent shorting opportunity for Oil.  The best investment vehicle to short oil is the USO ETF (USO, $102.12); however many brokers prohibit the shorting of this ETF.  An alternative means to play a short in oil is the Ultrashares Short Oil & Gas ETF DUG (DUG, $29.72).

At this stage, keep your stops tight.  We do believe that Friday’s move in Oil was an exhaustion move and expect at the very least for the USO to come back to its 20 moving average, which is roughly 95.  Oil’s move last week was a blowoff intended to squeeze the shorts and with option expiration scheduled next week, we expect to see downward pressure on the USO and oil.

We also expect a catalyst for a drop next week for Oil, could be government news and we expect to see a topping move Mon or Tuesday followed by a down day.

Related Oil Plays: Tesoro TSO (TSO, $21.96) & Continental Airlines (CAL, $$17.38)

We expect the oil refiners and airlines to benefit from a topping pattern in oil.  Tesoro has been beaten down due to the lack of pass through pricing power and a decline in oil prices will help this company tremendously.  Stock is selling at a Price/Sales of 0.12 and the stock is down almost 60%.  We expect the refiners to boom as oil prices come down.

The airlines are another group that has been significantly beaten down and we expect any pull back in oil prices to benefit the airlines.  Again, this stock too is selling at 0.12 times sales, way lower than the industry average.