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So here we are, at a very critical juncture with the equity markets being weighed down by an unprecedented credit crunch and surging energy prices. The offset is a crash in short-term interest rates, a government-sponsored economic stimulus program that has now seen phase 2 with Friday’s increase in the Term Auction Facility to $50 billion, a leap in the nation’s money supply (M2 growing at a double-digit pace), and a renewed dollar dive.

Clearly the Fed and the politicos have sprung into dramatic action to support “growth” and provide insurance against the downside economic risks. Regrettably, those reflation tactics have raised inflation concerns, which are threatening to complicate things, as can be seen in the charts below.


Click here to enlarge image


Click here to enlarge image

If indeed the markets are a discounting mechanism, and the government’s Herculean efforts are going to work, the downside retest of the January 2008 “lows” should be successful. If not, then the “call” is to “rig for heavy weather.”

In either event, we should see the situation resolved this week. Irrespective of what the major indexes do, I think many of my recently purchased investment positions will not breach their respective reaction lows made over the last few months.

Names like Delta Petroleum (DPTR) -- Strong Buy -- made its low last November before Kirk Kerkorian’s “bid” for 35% of the company at a 20%+ premium at its then $16 per share price point (now $24.24). After Delta’s initial leap to nearly $24 per share, I don’t believe these shares will trade again at Kerkorian’s $19 purchase price.

Similarly, I don’t think Strong Buy-rated Schering-Plough (SGP) at $19.75 will breach its $17.45 per share January reaction low, which is why I continue to accumulate its 7.7%-yielding convertible preferred “B” shares (terms and details should be checked before purchase).

There were numerous other companies that made impactful presentations at last week’s 29th Annual Raymond James Institutional Investors Conference in Orlando, Florida. For additional ideas, clients should contact their financial advisor.

The call for this week:

Well, once again I am in Orlando giving the keynote address at Raymond James' annual Financial Advisors' conference. Consequently, these will likely be the only strategy comments for the week.

Of note is that the inflation-adjusted return of the S&P 500 remains 33% below where it was in the spring of 2000. This is not an unimportant point since my job is to produce "real returns" that keep investors' purchasing power in excess of the nominal rate of inflation.

Last Thursday qualified as yet another 90% Down Day (volume and points-lost were greater than 90%). As the astute Lowery's service notes, "This was the 2nd 90% Down Day within four trading days, and the 7th within the past three months. Past experience shows that 90% Down Days are typically followed by one of three patterns:

1) A 90% Up Day occurring quickly after the 90% Down Day would suggest that a sustained rally lasting about two or more months is likely;
2) The absence of a 90% Up Day during a snap-back rally would suggest that a brief recovery rally lasting two to seven trading days would most likely be followed by new lows in price and additional 90% Down Days. Such rallies should be used to sell stocks;
3) The lack of any snap-back rally within a few days after the last 90% Down Day would suggest a sustained market decline is underway that will probably produce additional 90% Down Days." Indeed, I think this is "kiss and tell" week and I will continue to trade, and invest, accordingly.