CHICAGO, Sept. 1, 2011 /PRNewswire/ -- Zacks.com announces
the list of stocks featured in the Analyst Blog. Every day the
Zacks Equity Research analysts discuss the latest news and events
impacting stocks and the financial markets. Stocks recently
featured in the blog include: Cummins (NYSE: CMI),
Suncor (NYSE: SU), Southern Copper (NYSE: SCCO),
National Oilwell Varco (NYSE: NOV) and CVR Energy
(NYSE: CVI).
(Logo: http://photos.prnewswire.com/prnh/20101027/ZIRLOGO)
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Here are highlights from Wednesday's Analyst Blog:
Gray Skies = S&P 1,050 Bottom
The current relief rally in equities is a thing of beauty. I
stayed short all my naked put positions in Cummins (NYSE:
CMI), Suncor (NYSE: SU), Southern Copper (NYSE:
SCCO), National Oilwell Varco (NYSE: NOV), and CVR
Energy (NYSE: CVI) and took some profits today on three of
them.
And I added some leverage to my prediction that the successful
test of 1,120 on the S&P 500 would carry us up toward 1,225. I
did that via buying an ETF intended to produce 3 times the returns
of the index, the ProShares UltraPro S&P 500 (UPRO). I bought
it at $49 the morning of the Jackson
Hole speech and have traded the swings all the way up to
$59.
Which Way Now?
Since it is highly likely that there isn't much more upside in
this relief rally -- 1,250 is optimistic -- we should look at
short-term scenarios while we trade in this range and play the
"recession waiting game."
This is especially important since I don't think we can say the
bottom is definitely in, though you will hear money managers start
to say so, like Brian Belski of
Oppenheimer on CNBC this morning.
Recall that on August 5 in "How
Long Will the Correction Last?" I proposed that the market would
trade sideways between 1,150 and 1,250 on swings of optimism and
pessimism until more data was received and processed about the
"probable recession."
I didn't foresee the extreme of pessimism taking us to 1,120,
but the basic idea has held up for the past 3+ weeks. And even
though we have had a good amount of data pointing in both
directions from the consumer and manufacturing fronts, we still
don't know if the third quarter's GDP result is more or less likely
to register a dip into recession territory.
Since I believe that markets will always continue to fool people
and overreact on emotional extremes of optimism and pessimism,
below is my view of the S&P chart now. I see a good 30% chance
that we can head down, break the 1,100 "extreme value area" as I've
called it, and then put in a bottom at 1,050 in the next six weeks
once we see that GDP won't slip much below the zero line.
Just because I see 1,050 as the bottom part of the major support
"band" along with 1,150 as the top, it doesn't mean we can't
overshoot and touch 1,000. But that line will definitely be make or
break.
I've heard technical guys talk about 980 and I say, "Listen, if
that's your extreme oversold/bottom level target, there will be
plenty of guys like me -- and many with a few billion more dollars
than I -- buying between 1,025 and 1,050."
In other words, while a spike below S&P 1,000 is certainly
possible, buying good stocks anywhere within 50 points of it will a
fantastic long-term opportunity. This is, of course, in the "gray
skies" mild recession scenario.
But even in worse cases, I will still be buying there because I
am definitely not in the Dow 5,000 camp of long-term doom.
Gray Skies and a 30% Chance of S&P 1,050
As we process the data, investors from the top research houses
down to me are still handicapping the probable recession. In my
"Just 2 Scenarios: Recession or Not," I highlighted the work of
UBS. Here's a recap of their outlook...
No Recession, 60% chance: Earnings estimates of
$95 to $100 for the S&P 500 stay
intact even with 2% growth into 2012 and the index makes new
recovery highs above 1,400 by the end of this year.
Gray Skies, 30% chance of mild recession: Here, corporate
profits could fall 13% as GDP declines 2% over the next year,
taking the S&P likely below 1,100 but finding its legs
somewhere in the middle of that period above 1,000.
Black Skies, 10% chance of severe recession: In this ugly
view, GDP would fall 4% over six quarters and take down earnings as
much as 27%, knocking the index down to 900 for starters and likely
bottoming near 775 one year from now.
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