Oil Prices is the Key to Stock Market Recovery (Part 2)

In short, I was wrong to some extent in my last post to some extent that the housing market is the key to your growth mutual funds rising from the ashes. It is only one component of the recovery. Still, the health of real estate will have a direct impact on the financial sector. On that note, real estate is very illiquid. As a result, things will take a...very...long...time (at least until 2009, if not 2010) to play out from the perspective of establishing support levels and even being bullish once again. Let's not get ahead of ourselves for now.

The more immediate imaginary key to the recovery in the stock market is the price of oil. As I had maintained in several of my entries, oil prices have been correcting. Unfortunately, oil only has about an additional -12% to the downside before it either finds support or trades lower. That means that the rally we are about to see might be short-lived.

I really don't like short-term trading, despite analyzing technical charts for short-term profits. My style is still buy and hold, and hold forever, but in today's market, the weak global economic health and weak stocks would mean that the sophisticated investor ought to participate in shorter-term trades to enhance returns.

Is a Housing Recovery the Key to Stock Market Recovery?

This week, sales figures were released illustrating that the the U.S. housing market was continuing its slump: June 2008 home sales declined 2.6%, and median prices fell 6.1%. In addition, US unemployment rose to 3.1M. These two measures are the only numbers I am looking at. It justifies to me that any rally in the stock market will be short-lived, until each of the following occurs:

1) There is evidence that home sales and home prices bottom 

2) That the government rescue plan for Fannie Mae and Freddie Mac creates a sentiment that effectively loosens the loan/credit market

These two items are acting as a positive feedback loop to each other, and until there is a catalyst to break this downward trend, it is best not to build a long position in stocks.

Incidentally, there was an article in Business Week suggesting that every $1 loss in the credit market was worth $30 to the economy. That is why investors really need to pay close attention to the health of both banks and housing.

In short, the stock market always trades well ahead of the curve. Read up on both economic and fundamental figures. Monitor positive action in economic policy taken by the government. Monitor the VIX. This index alone will help traders identify the moment of over-selling and panic. 

More articles on the housing market, below:

[1] http://seekingalpha.com/article/86973-the-worst-u-s-housing-market-in-a-generation-could-mean-1-trillion-in-writedowns

[2] http://seekingalpha.com/article/86870-why-the-housing-bill-won-t-help-the-housing-market

Calling it a Day with My Tech Favorites

Two of my favorite high-beta companies I have been tracking for some time are Sandisk and VMWare. Both belong to different sub-sectors of tech (Sandisk makes flash memory for cameras and peripherals, VMWare makes software), but both had the luxury of suffering a near-collapse in stock price.

The charts have not really been helpful in predicting today's massive sell-off. With Sandisk, the only red-flag was that every rally was met with a sell-off:



The same can be said for VMWare. As I stated in a previous entry, VMWare is going to face significant competition from Microsoft. Microsoft's latest operating system (which is slated for release November 2008) will include comparable virtualization software at a much lower price.

What's next for these guys? Well, I might guess a support price of $22-25 for VMW. SNDK has already violated its lower support channel. So in short, the bottom for both stocks is unknown.