Market Outlook

I will be back in the office this week, so I plan on communicating more frequently. Honestly, the market is a weird position, where we might break 1,000 and run straight to 1,050 or we will just pause, pullback slightly, then battle from there. Friday’s action at the end of the trading day really was shocking. Bank buy programs came in buying BAC, C, KEY, STI, etc to balance the Russell index out, while the DOW dropped from +52 to -2 within 2 minutes. This action could signal a top of some sort but I need to see more confirmation.
Below, I highlighted my 2 portfolios – 1 cash heavy and 1 net-net. One the long side, I will be looking at firms with metals exposure, given China’s stimulus (only 15% spent so far!) so money can flow in, especially on the infrastructure front. Steels, aluminums, coppers, nickels, etc. will all benefit for some time, thanks for our good friends in China. I am also looking at Financials, particularly credit card firms like MA or V. These companies actually make money from transaction costs, not bearing the holding of debt, like AXP. In addition, I will look at quality banks, with little exposure to Commercial Real Estate (CRE). The CRE short netted a lot of my profit in 1st quarter and the trade went away due to liquidity; however, I believe the trade will come back in the next couples months, as banks having been boosting loan reserves to offset “something’ and I believe CRE is that “something”. The cheapest bank on the street remains Bank of American (BAC) has I loaded up on here with a cost average just south of $12. If you want management, you have to pay a premium, and JP Morgan (JPM) is at the top of the list. Most of the regional banks are tied to CRE and Construction Loans, so they will be the most volatile and most at risk. BAC and Wells Fargo (WFC) are tied highly to Residential Mortgage, where JPM and Citigroup (C) are tied to credit cards. Other unique banks that I have research, like State Street (STT) are tied to leasing and are low across other types of loans. I will add to my bank exposure in time but I will keep them as 2011 plays not 2009 plays.

As for Friday’s actions, I sold all of my GNK (25% gain) and FRO (15% gain) like I said on blog and also sold my DRYS calls for a breakeven. I still am holding the DRYS shares. As for other holdings, I am holding AMD . The company is clearly stealing share from NVDA but is having a tough time with Intel. AMD’s sales are not the problem, it’s their debt load and gross margins. I will hold this out for the next few months, in hopes that last quarter was a gross margin trough, and they blow out numbers with new products in Istanbul. If they get their act together, fund managers have plenty of cash and will deploy it in the name, if they can get trust out of management. If that is true, it can print $5+. I am holding PRU into earnings, the life insurers was a INCREDIBLE trade. HIG and LNC are both up like 50% in 2 weeks lol. I think PRU might run to $50 but no promises. F and BAC are long-term holds for me, so I won’t sell them. FTK is a crap stock, will hold and hopefully get my breakeven but no guarantees. Then again, I will sell it at $2.50, then it will print $8, so you know how I roll. UNG is also a long-term hold and will increase with hurricane season (if we get hurricanes). EXM is a monster – enough said…they “should” crush earnings via spot rate exposure. DRYS is on a short leash because management is horrible and is always looking for a way to screw over the shareholders.

Update: Futures are smoking right now, I wouldn’t be surprised to see s&p break 1,000 today!