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Finally A Down Day

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Finally A Down Day

 

Stocks in a bubble take the stairs higher but when that bubble bursts they take the express elevator down. Oil prices only declined -2.30 on Thursday. They were down slightly more than $4 at 1:PM but recovered half of their losses to close at $116. That is well off the nearly $120 high on Tuesday but there should be more selling ahead. The keyword there is "should". 

The real news was the selling in the commodity related stocks. Those that could not be slowed even by bad news in the sector were finally abandoned by traders as they rotated out of the momentum sectors.

In the fertilizer sector where there is more demand than supply the main players, POT, MOS and TNH were punished hard. Mosaic hit $143 on Monday and closed at $122 today for a $21 drop. Potash hit $216 on Wednesday and traded under $190 today. Terra Nitrogen hit $171 on Tuesday and closed at $145 today. When momentum stocks fall out of favor they fall hard.

In the energy sector the crack in the price of oil knocked -11 off CEO, -5.50 off APA and EOG. Even deepwater driller Transocean (RIG) gave back -4.50. Other losers included CLB, DVN, RRC, PBR and UPL with all losing more than $4.

Is it time to buy the dip on energy stocks? Time will tell but with the seasonal energy cycle so screwed up this year I would not bet on it just yet. Typically crude declines in price in March/April as demand slows. Prices begin to rise again in May as traders look forward to peak summer driving and possible hurricane disruptions. Goldman Sachs said on Wednesday the window for any potential decline in price was closing quickly and there was a strong potential for significantly higher prices later this year.

Crude has initial support at $112.50 followed by strong support at $100. I would not bet on seeing $100 again in 2008 but I would not complain if it happened. I would start nibbling at energy stocks in the $112 range and again at $109.

Jim Brown

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