Thursday, June 29, 2006


Today has the makings of a fake rally. Low volume and stocks are flying through the roof ahead of the Fed meeting. Either Bernanke has preannounced he is dropping rates by a full point or we have a fake rally on our hands. Either way I am scouting out short positions and adding more where I can. This rally cannot be sustained in the long run. Bulls are in for a long and brutal summer. We have already had earning misses - RHAT comes to mind, and the downside is brutal. Either way, time will tell and I have my fingers on the trigger ready to go all in short.

Wednesday, June 28, 2006


I previously mentioned we are in a bear market. Google in my mind is a stock that will suffer tremendously at the hands of the bears. PE of over 70 , stock price that has quadrupled in less than 2 years and expectations higher than that of Brazil winning the soccer World Cup. All said, GOOG could be in for a nasty fall . The 50 day moving average is around $393 and currently GOOG sits above $400. You can be sure GOOG will drop below its 50MA within the next few weeks to its 200MA at $383 and than even below that. The expectations to beat earnings soundly are already priced into the stock and blowout earnings, may only lift the stock 20 points or even less. On the other hand, any hint of disappointing earnings or even just meeting earnings, could drop this stock an easy 50 points like we saw in early February, when GOOG lost nearly a 100 points in just over a week.You even have the Google CFO admitting that growth may not match investor expectations and is clearly slowing yet, multiples have not been cut. It seems unlike most Wall Street analysts, I still remember Yahoo, the spectacular expectations everyone had and that $500 stock price on January 4th 2000.Taking splits into account, Yahoos share price has fallen a spectacular 75% from its peak. What happened ? People saw growth slowing, cut multiples and this is the end result. Now you have Google with sky high expectations priced into the stock. Expectations are not met for December 05 quarter and GOOG drops like a rock. Expectations are exceeded for March 06 quarter and GOOG only jumps 25 points and than proceeds to lose 50 points in the coming days. This clearly indicates that there is far more downside to this stock than upside.It also appears a lot of fund managers used the March quarter profit beat to reduce their holdings of the stock. With the bear market upon us, GOOG is likely to have a very rough road ahead.


Well I am back to blogging. Its been a couple of tough months . Been moving offices, traveling as well as busy with other side projects. I have made a promise that I will try to update my blog atleast once a week from here on forth.
Alright now back to the markets and my outlook. Ok so I don't exactly have a crystal ball. At one time last year I envisioned oil prices falling back to $30 a barrel. I admit I was dead wrong. What was I thinking. While I do not think we will hit $100 anytime soon, I do think $50 is the lowest we can go over the next few years. I was listening to a report in Economist suggesting that there will be an oversupply of oil around 2010 which may ease prices perhaps even into the $30 range. The reasoning behind it was growth in China and India would not be as rapid as it currently is as well as the growth in popularity of cars consuming low amounts of gas.
The current equity markets suggest we have entered into a Bear market. Yes the Big Bad Bear is finally upon us. It was inevitable considering we have had a long running cyclical bull since early 2003 and the last bear ended end of 2002. You can expect a bear every four years and on cue its here. Time to cut out the longs and short every rally. As can be expected I am currently heavily in cash - almost 70% . The rest of my funds are selectively shorting securities that have broken their uptrend and are falling below levels of support like 50ma or 200ma. I expect this bear market to last till atleast September though it may go on till early 2007. We may get a light summer rally but do not count on it. As we speak the bear appears it is setting itself up for a further drop down. I do expect the Dow 10,000 level to be breached and we may even see sub 9,000 on the Dow. Nasdaq will breach 2,000 per my expectations and S&P 500 could fall below 1100.