June 26th, 2008

Tune in to CNBC for Laughs

If watching the screens becomes boring, you can always turn on CNBC for some laughs. For example, the morning started off with the sell off in the energy area due to oil inventories being reported higher than expected (I don’t know about you, but the relationship between inventories of crude oil and the oil industry stocks has always baffled me. Why should oil stocks drop when crude oil inventories go up? If you have an answer let me know).

So for the better part of the morning, it looked like yesterday’s posting, “What We Fear Most” was going to come true even quicker than I expected. Oil stocks sold off across the board (as did most of the other hot commodity stocks) in the morning. As an example, here’s today’s chart of HK (Petrohawk), one of the hottest of the hots having gone from a low of 1.50 early in 2003 to today’s close of 41.33. But then until 11:00, it look like it hit the wall:

So CNBC trots out the experts to say that oil bubble had burst. The “speculators” were fearful of what Bernanke was going to say. The standing of the $US was going to improve and take the pressure off of oil and commodities without impacting the US economy (as raising interest rates would). To cinch it, the gold etf (trading at 1/10 of the actual price of gold), GLD, dropped like a stone:

But something happened on the way to the soft landing. Everything flipped and the old game of chasing weak $US stocks and running away from stocks impacted to the financial crises resumed. Look at:

  • Finance-related stocks like C (Citicorp)
  • or finance-sensitive stocks like homebuilders, LEN (Lennar)

And then the Fed’s report around 2:00. Next CNBC pulls out the experts who say that disaster was averted. By jawboning, the Fed was able to derive the benefits of a rate hike without actually having to put one in place. At first, it looked like the market was going to blast off like a rocket. But like the ones I used to play with when I was 12, it fizzled and dropped back to earth making all those talking heads eat their words of just a couple of hours earlier:The bottom line: have a game plan and stick to it. I spelled mine out back on May 8 in A Game Plan for Today’s Market. My game plan says that the market is far from forming a base. It won’t happen in a day; we’ll have ample warning to get on the train again as we see a solid base being formed. In the meanwhile, hold on to positions that work and keep a large percentage in cash.

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