Friday Afternoon Thoughts

• Posted by Robert Sinn
• on May 4th, 2012

Equities look terrible heading into the weekend and it is hard to generate a viable bullish case for being substantially long here other than the fact that sentiment has plunged over the past 48 hours. Today’s jobs numbers may have been the worst possible set of numbers for equities given that they weren’t “too hot or too cold”, thereby leaving a great deal of uncertainty as to the current state of the US economy and the direction of monetary policy – markets HATE uncertainty.

Yesterday I wrote: “the ECB’s lax behind the curve attitude worries me as an equity investor – Spain, Portugal, et al. could easily get badly out of hand and it would be difficult for the ECB to put the pieces of the puzzle back together once things have been shattered into a million pieces.”

I believe that today’s massive liquidation in crude oil ($BZ_F $CL_F $USO) has a lot to do with speculators giving up on the oil speculation trade (Iran/Israel etc.) as they become more concerned about the specter of a tough deflationary slog ahead for Europe. The following chart highlights the precarious net long positions held by “managed money” (CTAs, hedge funds, etc.) heading into the large liquidation of the past 48 hours:

The large downdraft in oil is likely to offer an excellent buying opportunity in front of major support at $95/barrel ($CL_F) heading into the Memorial Day weekend and the summer driving season. However, the safest way for equity investors to attempt to take advantage of the current sell-off in the energy space is to buy some of the major integrated oil names such as $CVX $XOM or mid-cap names such as $PXD $WLT.

Finally, it looks as if the French election is virtually a foregone conclusion with the socialist candidate Hollande likely to be the next President of France. I wouldn’t be surprised to see some softer more conciliatory talk out of Hollande and other major European leaders (German and Spanish) come Sunday night once his victory is certain. All eyes are on $SPX 1370 headed into the close and I would not be surprised to see the market close right on support ($QQQ 65.00 and $SPX 1370) to maximize the level of uncertainty this weekend. With so much uncertainty and tension across markets, cash seems to be the prudent choice at this point in time – It appears to be a good time to remind ourselves of one of my favorite Livermore quotes:

“A loss never bothers me after I take it. I forget it overnight. But being wrong – not taking the loss – that is what does damage to the pocketbook and to the soul.”

The information in this blog post represents my own opinions and does not contain a recommendation for any particular security or investment. I or my affiliates may hold positions or other interests in securities mentioned in the Blog, please see my Disclaimer page for my full disclaimer.

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