The Sons of Liberty

You ready to ride the rollercoaster back up?  The market is.  I’d like to call this the post freddie/fannie socialist bail out bounce.  If Citi reports lower than expected write downs and better earnings than the street has forcasted, we are well on our way to the 11,800-12,000 over the next couple of months.  Oil will correct to the $120 range (pending any middle eastern conflicts) and we’ll see a rally in the dollar as well.  Don’t kid yourselves though folks, we are still in a bear market and this bounce is nothing but a bear trap.  With this step back up, we’ll be taking two bigger steps backward.  Expect the Dow to be around 10,000 by the end of this year with major stagflation setting in (stagflation the market and federal reserve will no longer be able to ignore). 

So how do you play this hand if you are a trader or investor.  Since I’m a little bit of both, I’ll tell you and let you make up your mind.  From a trading stand point, I’d say it’s time to short oil.  The bull rush wasn’t quite able to break the $150 mark which would have set off a bigger bull frenzy.  Now that we are at $135, (unless the bulls get some major help in the next couple of day), oil will sell off as people take their profits and the shorts will move in, creating downward pressure.  I see short term upside potential as financials got way over sold during the freddie/fannie hysteria.  The ETF XLF will give you broad exposure to the financials.  I expect possibly a 25% upside.  I’d take profits after that kind of gain, but it’s really up to you on whether or not to hang onto it much longer. 

As an investor, I’d be waiting for some more correction in the oil/gold/commodities before adding more to my long positions.  I will be buying gold if/when it slips below $900 an ounce.  I sincerely believe it will be off to the races to $1200-$1400 an ounce by the end of this year, and will continue to perform well over the next 5-8 years.  With the weakness in oil, expect some major corrections in the prices of oil/natural gas stocks.  Don’t worry though, they will bounce back.  It may take longer as we are coming out of summer and into the fall (less demand for oil), but they will continue to perform strong over the next few years. 

I’ll let yall know what I’m doing once we get to the height of this bounce and idiots think that 11,000 was the bottom and the credit/dollar/oil crisis is behind us.  Believe it or not, there are alot of people out there who will see the Dow coming back and believe we actually hit a bottom here.  Remember, as a trader, be a contrarian.  As an investor, stick with the macroeconomic fundamentals.