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Your Daily Profit

March 11, 2009

*****Global Markets Up…

*****Oil Down?

*****Recovery Portfolio

Fellow investor,

Finally, early strength for stocks yesterday didn’t turn to weakness. And in fact, stocks finished the day with a flourish to close at the highs. Textbook.

Maybe even a little too perfect…

Traders have been anticipating a rally for days. The shorts are all covered. Bloomberg reports that hedge fund Paulson & Co. (unrelated to Hank or Goldman) recently took the last of its 606 million pounds in profit from downside bets on English banks…

Paulson: “Let others fight over the crumbs of profit in banking.”

& Co.: “Right you are!”

No, a rally was coming. Who’d bet against the Dow after it hit 6,440, turning the clock back to 1996? But, more importantly, who’s going to bet that the rally keeps going now?

*****After all, the stock market was just led higher by Citigroup, of all companies. If only it could have been U.S. Steel (NYSE:X) telling us that orders were up. Why couldn’t General Electric (NYSE:GE) have said that credit card debt wasn’t so bad?

Sadly, it was dollar-a-year CEO Vikram Pandit reporting that his Citigroup was having the best year since 2007. Isn’t that when the housing market collapse spread to the banks?

Again, I suppose if you get billions in taxpayer money, you should be able to put it to work in loan modifications and loan principle “adjustments.” I’m not so sure that’s worth a 38% one-day jump in your stock price.

*****I hate to sound a sour tone. And I’m painfully aware that investment wisdom states that the weakest among them, the financials, must lead. But I have a hard time believing that other investors will believe that things are improving for banks and the entire lending market just because Citigroup said it had a good couple of months. They’ve been wrong before…

In other words, it’s not that I don’t think the financial sector is getting better…maybe it is, maybe it isn’t (and between you and me, this is definitely something I’ll be keeping a close eye on.) It’s just that I wonder how many will take Turnaround Tuesday seriously over the next few days?

*****Europe’s biggest bank, HSBC, got in on the action and said it doesn’t need anymore government loans. Asian markets certainly seemed to love Citigroup’s news during overnight trading, too. Japan’s biggest bank, Mitsubishi Financial Group was up 6%. Never mind that machinery orders in Japan fell for the 4^th straight month, however less than expected.

And ignore the surprise 45% drop in exports in January while you’re at it.

*****The one thing that’s missing is oil. Why, why, in the face of such a clear demonstration of the return of the global economy, did oil prices trade lower?

Fixed asset investments in China rose 25% in January and February. Surely a possible return to double digit growth in China, the world’s second biggest oil consumer, would light at least a spark under oil prices? Nope, the U.S. Oil Trust (USO) fell 2.86%. Probably the only asset in the world that lost money Tuesday.

Strange times we live in…

*****I bring all this up for a reason. I’ve recommended a few stocks here in the Daily Profit And my SmallCapInvestor PRO subscription advisory letter is sitting on a 25% gain from a biotech stock we recommended last Monday, March 2.

I realize SXC Health Solutions (Nasdaq:SXCI), Graham Corp (AMEX:GHM), CardioNet (Nasdaq:BEAT) and Emergent Biosciences (NYSE:EBS) aren’t up 25%, but you could have some gains to protect. And I won’t be at all surprised if you could buy them all back 10%-15% cheaper in the next few days.

So let’s take advantage of any strength in prices today and get out of these stocks with an eye to re-enter, say, Monday.

*****As for the biotech stock, it’s called Arena Pharmaceuticals (Nasdaq:ARNA). It’s expected to release Phase III trial results for its obesity drug. Two other companies, Vivus (Nasdaq:VVUS) and Orexigen (Nasdaq:OREX) have already released less than stellar results. That leaves Arena carrying the easy weight-loss banner.

I have no plans to hold this stock into the trial results. That’s a recipe for disaster. But if the stock drops, there might be another 25% gain to be had in the next couple pf weeks. And if the results are good, there could be significant gains coming for this stock. 

For more on SmallCapInvestor PRO, click HERE.

*****Finally, the Recovery Portfolio video conference went great last night. We’re entering a trade that offers is highly likely to net 24%, and gives you 17% downside protection. You can view a replay of this even HERE

*****That’s it for today.

Ian Wyatt

Editor

Daily Profit