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Stock Market Roadmap for 2009


Software, energy, infrastructure ones to watch.

As longtime readers know, I usually have pretty strong opinions on a host of subjects. (Which isn't to say I always get it right. I don't.)

But given the exceptionally complex financial landscape, I'm finding it hard to have a strong opinion about what the stock market roadmap will look like in 2009.

Conflict Clouds Market Outlook

There are massive forces working against each other: Enormous fiscal and monetary stimulus, on the one hand; the undertow of the collapsed housing/credit bubble, on the other. Were it not for the imagination of Paulson and Bernanke, the financial system would have been vaporized.

In any case, the fear of what that undertow will lead to, combined with the damage that's already been done, is spurring the creation of ever-larger government stimulus packages as these 2 forces continue to thrash it out.

My opinion: At some point, it will be clear which force has the upper hand, and we can then decide whether (and how aggressively) to be long or short. But at this juncture, it's difficult to ferret out how and when those opportunities will set themselves up. This is one of those moments where it may really pay to be more liquid and flexible. I prefer to react more and predict less this year - at least until the roadmap becomes clearer.

Don't Scorn the Bridge-and-Tunnel Crowd

On the long side (other than precious-metal names), I would say the names to focus on would be the obvious infrastructure companies. (I'm sure folks can come up with their own list. I myself don't have a solid one yet.) I also happen to think the energy patch may be a worthwhile place to research.

Software names also make some sense. I recently mentioned Microsoft (MSFT) and Adobe (ADBE). In his current newsletter, Fred Hickey says that, in addition to Microsoft and Adobe, he owns EMC (EMC), Sybase (SY), Lawson (LWSN), Novell (NOVL), and Cadence Design (CDNS) - the latter 3 being sort of down-and-out and cheap stocks, though with visible prospects of recovery. The others are well-positioned, reasonably-priced, liquid names.

One place I have absolutely no interest in going long would be hardware tech. Yes, they'll bounce, but I think that sector will be a far better place to look for shorts. The financial arena, with the probable exception of the banks, will also be an interesting place to nose around for shorts. But I would rather see how the rally plays out before I set my short list.

On the long side, I think it pays to look ahead and investigate the names you might want to actually own once the prospect of a real recovery exists. I'd focus on those names for whatever trading rallies I'd feel confident in capturing.

I hope all of this is useful food for thought. I'll sum up with these watchwords: Be patient, and be flexible.
No positions in stocks mentioned.

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