Our ears still are ringing from all those professional traders from the floor of various commodity exchanges urging traders to believe that natural gas was a sure bet to go from $15 to $20… minimum! Now that the March contract is barely holding $7, it would seem those traders represented that kind of froth that kills an advance. Crude oil has not had nearly as dramatic a tumble, but it is pulling back enough to spur investors towards transportation issues:
Working on the railroad is not only the best ranked transportation industry, it tops all 139 industry groups we follow. Trucking, air freight and airlines rank in the upper echelons.
We are not expecting much out of the stock market for seasonal reasons. March can be a particularly treacherous month. However, we are getting some unexpected signs of healthy activity, especially in terms of leadership. Transportation issues are famous as economic bellwethers. Technology issues are high beta (meaning they are super sensitive to the direction of the market as a whole.) So, when technology performs so well in a choppy market, attention must be paid. These and other factors have kept us from taking short positions so far this year.
Hewlett-Packard (HPQ) is a classic example of a short squeeze. Short interest ballooned last month when price pushed to new highs. Shorting strong issues rarely pays off. Moreover, seasonal patterns are strong for HPQ into March. The recent peak in choppiness followed a minor pullback. Yesterday's action did bring the choppiness down to extremely low levels, indicating that its advance is maturing.
Next week we get fresh short interest numbers. They may provide a clue as to whether or not the sentiment picture can help the market turn its rally into a sustained uptrend. For now, we want to cautiously pick and choose stocks to ride the river with. We would love to say that the market is out of the woods, but the March-to-early-April seasonality suggests tempered enthusiasm. Stay tuned.
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