Stock Market Analysis – Short Financials on Any Upward Strength?
Posted on | March 21, 2009 | No Comments
There has been a steady move up in the financial markets since March 6th. Over 20% has been gained by the overall market in two short weeks, but the market looks to be very oversold and vulnerable. Shorting any financial strength at S&P 500 803 was very wise as this will be a point of resistence for the S&P 500. The 50 day moving average is currently around 800 and this will be a psychological barrier until it is broken in heavy volume. Right now, it might be wise to short any financials that have shown recent upward strength.
Since March 6th, Citigroup is up over 150%, Bank of America is up 100% and Wells Fargo and JP Morgan are up around 50%. While these companies have seen heavy losses over the last six months, it is highly likely we will see a strong pullback in these financial institutions. Another area of concern is the life insurers. Lincoln National and Hartford Financial were each up over 60% during the March bear market rally. As I have stated in the past, we are likely to see a Life Insurance Crisis so there is no way these stocks will continue upward for a sustainable period of time.
We all know that shorting any stock is very risky but this is where the big money is made. If you had shorted some of the fianncial institutions a year ago, you would have almost doubled your money on many of these companies; some shorts would have doubled your investment in a matter of weeks. With that being said, if you do not like the risk tolerance of shorting stocks, now would be a great time to buy the SKF which is the ProShares Ultrashort Financials. These ETF is prone to some wild swings so hold on for the ride.
If you are not bearish on financials but do not want to own them either, a great place to be right now is commodities. I have repeated for over three years that commodities are the place to be for the next decade. Since then, gold has surged from $625 to $950. Crude Oil has come back to reality, but this is a great buying opportunity as the world will never stop using oil. Some of the declines in base metals has also offered great opportunities in the last six months. Overall, if you buy and hold commodities for the next five to ten years, you will not lose money. Some commodity ETFs to buy include GLD, DBA, DBB, DBP, DBE and SLV.
Overall, I feel that the market will see several bear market rallies over the next few years, but it will be very hard to make money unless you are a trader. If you buy and hold, you will watch the stock market grind sideways as inflation increases. In essence, you will make no money on your investments. This is why I suggest you put your money into commodities if you are a long term investor. The commodities bull has a long way to run if history gives us any indication.
Tune in to Subprime Blogger each Saturday for a weekly Stock Market Analysis. Each week I will give you my feelings on the current market and where you should put your money. Make sure to bookmark the page below for future stock market advice.
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