V or W?

Good morning,

I have been asked this question many times in the last few days: will there be a V recovery or W shape dip before recovering? To be honest, no one really knows. The current economy is presenting a tricky situation for the policy makers. Their policy choices, which can determine if it’s a V or W recovery, depend on the fundamental questions: Has the economy recovered? If it is, will it continue so if the stimulus are removed? Timing the tightening of the policy is crucial and they need to balance between having the economy running into hyperinflation and sending it into the feared W.

With the policy makers still combating recession, I doubt they will tighten the policy sooner. Perhaps they will only do so after the 2nd quarter of 2010. Last year’s financial and economy meltdown is like a strong earthquake. Once the big shake is over, we can continue to see after-shocks and economy growth will face sustained headwinds. We should see governments reducing their budget deficits once they believe recovery is firm and stable, but until the forecasted 2nd quarter of 2010, the market will continue to be volatile.

The market opened sharply lower last night as a wider than estimated loss at UBS overshadowed Mr. Buffet’s purchase of Burlington Northern Santa Fe Corp. Though the market reacted to the UBS report, I am slightly positive because this result will delay the policy maker’s decision to tighten their policy. I personally see this as a positive sign moving forward for the next quarter if the stimulus plans are not abruptly withdrawn. At the session close, the broader S&P 500 managed to post a modest gain of o.24%. DJIA was down only -0.18%. There were 59% advances against 39% declines in NYSE and 58% advances and 38% declines in Nasdaq.

For the stocks KUTE chose, CAH was down slightly at -0.07% to close at $28.66, NBL advanced 0.88% to close at $66.27. PTEN closed 1.34% higher at $15.85, but it has yet hit my target so I am still holding.

As for the other stocks, BHI closed at $43.43, 2.89% higher, DRIV up 0.45% at $22.32, OSG up 0.21% at $38.12, SKX up 2.18% at $22.49. These stocks performed as expected if only beta rules are applied.

So did I make money in these stocks? To be honest my exposure is already at the 50% of the 30-20-50 rule so I have yet made new trades for CAH or NBL last night. Since I am a position trader, I don’t trade every minute on intra-day signals and I don’t buy stocks that didn’t pass through all stages of KUTE system. Sometimes there could be missed opportunities but overall it is better to stick to my trading rules.

Have a great day.

Francies Cheng
BBus MAppliedFinance