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A stock to monitor for market psychology

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Over the past couple of weeks, we've had discussions in our commentary about how difficult it has been to trade the markets on a consistent basis. Every trader "knows" there will be losses and gains that have to be dealt with.

While I've been trading for stocks for years, as have many of our subscribers, there are some that haven't, and dealing with all of the various scenarios that are currently roiling the markets becomes a case that even Doctor Freud might shy away from, should a psychologicaly distressed market show up at his couch.

We've seen bullish moves in the major indexes be spurred by talk of tax relief on stock dividends, which could impact stock valuations favorably based on what decision is made toward the tax treatment of dividends.

Also impacting market participant psychology is the slow rate of growth for the U.S. and even the world economy. As discussed in past commentary, I have chosen an index like the Morgan Stanley Cyclical Index (CYC.X) 433.93 -2.01% as a sector that I feel should see first beneficial price action on the MARKET's belief that a more robust economy is taking place. With the CYC.X slipping back below its December lows in recent sessions, the price action here gives me little hint that the MARKET is currently thinking, or at least focusing on this group for renewed optimism of economic growth.

Traders and investors are also dealing with potential "Iraq war" fears, and how it plays into MARKET psychology. While I have my views on a war with Iraq not lasting too long, and I actually wish Saddam Hussein would simply "go away," I understand I don't live in a perfect world and that there are other people that don't think Saddam Hussein poses any threat to anyone. I accept these thoughts and must deal with them.

However, there's a stock I feel traders might want to at least monitor as it relates to the MARKET's psychology toward Iraq. It's really a "nothing" stock, but like many smaller penny stocks in the gold sector that have seen their price seeming double, triple or more over the past year on renewed bullishness toward gold prices, shares of Boots&Coots (NYSE:WEL) $0.40 +5.26% might be a stock for us to at least follow over time. This is one of the few companies I know of that is publicly traded that puts out oil/gas well fires. As discussed with a fellow trader that mentioned the stock to me in recent days, this may be a stock that the MARKET might make some highly speculative bets on, under a scenario that Saddam Hussein sabotages oil wells in his country, and implements a "scorched Iraq" policy as was seen in Kuwait, when Iraq troops retreated from that region back in early 1991. My thinking here by at least monitoring a stock, or similar stocks like WEL, is it can give a trader an observation of what the MARKET is thinking over time.

As mentioned in earlier comments in the market monitor, shares of WEL should be considered HIGHLY speculative, but we also noted a sharp rise in the stock on January 24th from $0.17 to $0.48 on volume of 23.7 million shares, which was well above average volumes of 300,000 shares. Today's pullback to $0.28 looked to have been quickly gobbled up and price taken higher as lighter volumes of 13.2 million shares and 5.1 million shares the past two sessions has seen a pickup in volume activity today with just over 8 million shares traded. This type of action, for this type of stock hints to me that there is focus on "war fears" in play in the markets, and most likely the "reason" for today's declines.

While energy stocks and the oil markets themselves have been a bit DIVERGENT from each other in recent weeks, it was noted yesterday that some traders have been shorting energy stocks, while offsetting that shorting by going long the commodity itself. If true, then these two investments make for more difficult analysis, and perhaps a stock like WEL is an observation AWAY from the energy stocks and commodity itself that gives us some insight into what the market is concerned about, and in the future, what the market is NOT concerned about.

Current market action has turned more decidedly bearish, and from price action in WEL in recent hours, it becomes my view that "war fears" are once again front and center and will most likely be with us for some period of time, which I really don't have an answer to. On February 5, next week, Secretary of State Colin Powell is expected to reveal some of the United States information on Iraq's possession of weapons of mass destruction to try and convince other nations that some type of action needs to be taken to unseat Iraq's President. We'll all be listening and just like you, the MARKET's will process that same observation and weigh it against those bets already made.

Disclosure: I've taken a small SPECULATIVE position in shares of Boots&Coots (WEL).

Jeff Bailey

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