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Is This Rally for Real?

Wednesday, July 23, 2008 | Teeka Tiwari

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IMPORTANT:  Before I get started, Chris Rowe has posted an urgent update to yesterday's article.  You should definitely click here to read it now.


Boy oh boy, crude oil sure did an about face didn’t it?  We’ve seen spot market oil collapse from $147 to $128 in a heartbeat.  And it's these declining crude oil prices -- along with the Fannie and Freddie bail out plan -- that appear to be fueling this nascent move higher.

Sentiment has changed dramatically over the last few days, and a very tradeable rally appears to be in the offing.

But how much of the long term picture has actually changed?  Has inflation gone away?  Is the commodity bull dead, and are brighter economic days just around the corner?

If this were a fairy tale, the answer to the above questions would be YES, YES and YES!

Unfortunately, to believe this would be to indulge in the most awful form of wishful thinking.

We have a fundamental supply problem in essential raw commodities, matched with exploding third world demand.  Any conservation efforts we make here in the U.S. is immediately sucked up by the rest of the world.  This is an economic condition that will last for years and years.

So with oil currently breaking down, and an accompanying shoring up of the U.S. dollar, together it's acting like a temporary brace to U.S. Stock markets.  THE KEY WORD BEING TEMPORARY.

Don’t let that stop you from making money on the long side.  Short term, the reins have been passed from the bears to the bulls.  When this occurs, dips can be bought into.

There is no accurate way to gauge how long this bull phase will last.  But given that sentiment had reached such depths, and that we have oil prices at our back right now, this move may have some legs.

Will we have enough “juice” to make new highs and turn this market from Bear to Bull?

Doubtful.  Very, very doubtful.

Where is the broad market accelerating earnings growth going to come from to push the markets to new highs?  (Where do you see earnings growth occurring in the intermediate term?  Feel free to leave a comment and share your thoughts with your fellow readers.)

The key for playing the long side during this next up phase is to buy the dips on those stocks you are looking to get into. 

Don’t chase.  Don’t buy on the up days.  All stocks move in alternating patterns of higher highs and higher lows when going up and the reverse when going down.  A quick look at a Point and Figure chart will give you a rough idea of a stock's trading range, and will help you identify pullback points for your buys.

So enjoy the rally.  Just don’t get seduced by it.

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“Let the Game Come to You.”

Teeka Tiwari
Chief Investment Officer
Point & Profit




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19 Comments

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  1. SRIRAM (2 weeks ago) Is this Spam?

    Dont be fooled by any of these "rallies". Blood will be on the streets again, come august 18 or so when the naked shorting restrictions are removed.



    The real thing to ponder is this - how bad it must be that the government has to stop people from being bearish on banks? But what I cannot explain is who is really buying the banks? Is it just because they crashed so much that people just woke up at vix=30, and went berserk? I guess they should be stopping now, as it is waning, and becoming range bound. So are we ready for a financial downturn starting next week?



    Good luck!

  2. cohan (3 weeks ago) Is this Spam?

    I have to comment on Mr Tiwari's latest article and I was wondering if other readers have the same notion I have. Mr Tiwari provides his insight, though I am sure with the best intentions but his advice is passive and reactive. It provides little new knowledge for an informed reader. I remember an article he wrote not too long ago where he said the oil prices would not peak until after the summer holiday season at the earliest. But now he has changed his tune. He was also saying a couple months ago in one of his artciles that the US economy was in good shape and run by a powerful few (I think he said powerful families, but cannot recollect for certain).... It is just a pity that the advice you provide is not what is actually occurring. You change your opinion once market conditions have changed. By the time the reader gets in, the conditions will have changed again.

    Mr Tiwari, you should enlighten the readers with true macroeconomics...The US is in a downturn that has no forseeable end. Housing prices are slumping and this will inevitably bring the market to its knees. The US banks are virtually illiquid and cannot provide loans and WILL NOT be able to as housing plumets further....There is no end in sight...........!!!

    Why dont you provide this knowledge to your readers????????????????????

  3. Philip (4 weeks ago) Is this Spam?

    Earnings growth in the immediate term is coming from fertilizer stocks. POT,MOS,TRA,AGU,SQM,CF.

    It seems monstrous earnings growth is not enough to move these stocks up. POT beat and raised guidance and was sold off heavy along with the rest of the list.It appears all of the above will beat estimates but the market doesn't care today. They only want to sell.

  4. johnny j (4 weeks ago) Is this Spam?

    YOUR COMMENT RE 'ONCE THE MARKET SENTIMENT HAS CHANGED' WAS A SOUND PIECE OF ADVISE! THANKS

  5. ray (4 weeks ago) Is this Spam?

    the oil market broke the up trend on july 15 and the stock market broke the down trend it was and is the great time to buy for the long term

    the financials too. If you did you already made a great profit. there will be another chance to buy bu t the recession will be over in 6-9 months

  6. rebecca (4 weeks ago) Is this Spam?

    Replying to John's (#12 post) below. John, what do you think of the first international SOLAR AIRPORT opening? We are getting closer and all the green technology is not just being developed. In fact, this company, WWAT did something else that has NEVER been attempted, they put the SOLAR PANELS ON THE RUNWAY!!!! Weird but hey, if it works.



    Thanks,



    Rebecca Salgado

  7. rebecca (4 weeks ago) Is this Spam?

    Teeka, I find it significant that the first week that oil prices drop dramatically that the first United States SOLAR International Airport has opened (a few days ago. The airport is he Fresno/Yosemite Int'l Airport. The solar company that contracted the work is WWAT.



    Thanks,



    Rebecca Salgado

  8. John (4 weeks ago) Is this Spam?

    The only sector that seems to be leading right now is financials, and we know the fundamentals there are still questionable. I don't see healthcare or biotech keeping this intermediate term rally going very long. Maybe tech can bounce back.

    Long term, I think we have to look to infrastructure and heavy construction to bail us out. The provocation for this will be energy conservation and the green movement. So we are a long way off, as the technology is still being developed.

    Although I dread a democaratic administration, I have to say that the infrastructure movement may come faster with democrats in power. I have noticed in the past, when the republicans are in power, the cranes are over the downtown office buildings. When the democrats are in power, the cranes are over the hospitals and universities.

  9. jester112358 (4 weeks ago) Is this Spam?

    Don't get fooled by this rally in the weakest sectors, financial and banking. This is nothing more than upward pressure caused by unwinding of short positions and PUTS (profit taking). Only when the profit picture improves should you put money in these sectors. The next bad news will cause further erosion in these sectors. Remember, banks have still not recognized losses due to CDS, VIE which have no market. Invest only in companies reporting increasing revenues and earnings. Wait until earnings session to make this determination.

  10. Ron (4 weeks ago) Is this Spam?

    I have to agree with you on the existing conditions of the economy not changing. Even if oil was to return to $80.00 a barrel we would still have the housing and banking issue to deal with. If we thought what happened to the banks during the Regan administration was bad this is much worse I'm sure. I never heard the word depression during the Regan administration but I hear it allot now.

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