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What’s the matter with …? (Fill in the blank with your favorite stock)

posted on December 18, 2009 at 2:22 pm
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Nothing like a market where volume is drying up as it usually does at the end of the year—which makes it easier for traders to move stocks on news and rumors. Especially when the world is so busy supplying lots of potentially market-moving headlines.

It’s a potent combination. Enough to send stocks on roller coaster rides and investors curling into fetal balls. No wonder the top question I’m getting right now is What’s the matter with ….? (You fill in the blank.)

Much of the time the answer is “Not much.”

The downgrade of Greek debt and the rising odds that the Federal Reserve will raise rates by the middle of 2010 (Whether or not those odds are correct is another matter.) have led to a move to safety that has pushed the U.S. dollar higher.

That’s knocked the stuffing out of commodities and precious metals (and the stocks of commodity and precious metals companies) and emerging economy stock markets. These assets were ripe for some profit taking since they’ve out-performed this year so investors were nervous to begin with. With volumes down and the news flow adding to fear, prices in these sectors have tumbled this week.

Does this reflect any change in the long-term fundamentals of economies such as Brazil, China, or Indonesia? Or of commodity companies such as Thompson Metals (TC) or Yara Internationl (YARIY)? Nah. The growth stories—and the downside of political risk, under-developed financial sectors, and lack of financial transparency or volatile end markets and big currency exposure—are exactly what they were a month ago.

That’s why I’ve been writing so much recently about using this downturn to look for bargains in these long-term stories.

In the days approaching the Christmas holiday and in between Christmas and New Years trading volume dries up on the U.S. stock exchanges. That leaves the floor to traders who try to exploit the lower volumes by moving stocks here and there.

That effort is easier when investor sentiment is pre-primed one way or the other—as it is now to the downside. And when the news flow provides lots of fodder for the rumor machine.

Which is certainly the case currently. Look at today’s headlines for example. From Copenhagen where the global climate conference isn’t exactly going smoothly, the headline on Bloomberg this morning was “China snubs Obama.” In the Middle East there were reports of possible incursions by Iran along its border with Iraq and the seizure of an oil well. And finally the European Central Bank chimed in with a report that European banks may need to write down 13% more loans—a piddling $268 billion—than projected earlier.

You’ll see there’s plenty of news to keep investors on edge. My best guess right now is that the end of the year volatility this year will be to the downside.

None of this means you should ignore movements in individual stocks—or the lack of movement.

For example, shares of Potash of Saskatchewan (POT) are getting hammered today on news that a competitor Agrium (AGU) has “made progress” on opening a brown-field potash mine, and on news that Brazil’s Vale is about to get into the potash business by opening a Greenfield mine. All that would add to global potash supply—some time down the road. If you’re looking for a reason to take profits in Potash, this is enough reason, I’d guess. If you have a slightly longer view—and a sunny personality like I do—you might see the moves by Agrium and Vale as signs that they believe that the potash pricing logjam now in place as everyone waits for China to go back into buying mode will be well over by the time these projects come on line.

But if you want to move the stock in the short-term all the momentum is to the downside and pushing in that direction is a pretty easy way to make a trading profit.

Would I like to have sold Potash at $122 and re-bought today at $108? Sure. Am I ready to stampede out of the stock on signals from what is the most unreliable time of the year for asset pricing? No way.

The one price signal I would take seriously in this market, however, is a stock that holds up or goes higher when the news and sentiment are against it. Vale (VALE), for example, has been holding its own—down only a bit on down days and up on a day like today—even as the commodities sector and the Brazilian stock market have been under pressure. For more on Brazil and Vale se my post http://jubakpicks.com/2009/12/17/brazils-economy-sambas-but-its-stock-market-sinks-bargains-anyone/)

I think rising spot iron ore prices—that strongly argue that iron ore prices will go u by as much as 30% in next spring’s annual negotiations—are behind the stock’s resilience. Iron ore prices had been projected to stay unchanged or go up just 10% next year. So that’s big good news for Vale and other iron miners.

If you want to pay attention to stock prices over the next two weeks, I think it’s situations like that—where a stock is holding up against the tide—that deserve your attention.

For the rest, it’s never time to go to sleep on the markets, but I’d certainly take end of the year moves, especially it looks like this year, with a grain of frankincense. ($7.98 for four ounces from Amazon.com.)

Full disclosure:  I own or control shares of Potash of Saskatchewan, Thompson Creek Metals, and Yara International in my personal portfolio.

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  • adamadamek on 18 December 2009

    Question answered. You’re the man.

  • terryw on 18 December 2009

    GLF has been making big gains and loosing small lately.

  • DJBarber on 18 December 2009

    frankincense @$7.98 an ounce you say ?!?
    Holly smokes!! (No pun intended, well on second thought, it is a pretty good pun…)
    I used to buy at 2.99 on the streets between Alphabet city and Astor place (Back in the good ole’ days that is)
    Just another sign of inflation that the Fed is ignoring I suppose..
    8! bucks an ounce!, sheesh!
    Happy holidays everybody!!
    p.s. TC sure has proved to be a short term stinker, but I’m a’gonna hold…
    Jim, any thoughts on FSUMF these days? (Not much has changed with it since you dropped it from your 12-18 month port, other then ore prices seem to be headed up again, in your evaluation, where would you say this sits in relation to Vale and BHP these days..
    Significant amount of debt coming due, Loose lips CEO (Possible removal of said), Expansion coming up.. But little love from institutional investors these days…

  • sevenacorns on 18 December 2009

    I agree with the sentiment here, but why sell BRF then? I’m going to hold it on through here.

  • Milestone on 19 December 2009

    Mr. Jubak,
    Do you think the time of the long term investor is over for now?
    I mean people that hold onto stocks for long periods of time and barely edge out a profit.
    Why didn’t you sell you’re stock at 120 and rebuy it at 108, it would of made more money.
    That is why we all invest is it not?
    Sunny temperaments get killed in today’s market.
    Like you said “rollercoaster” so why not get in, get your money and get out before it drops and you’re left holding your arms up in the air with a big smile on your face screaming at the top of your lungs at the bottom of a drop.
    For instance, take RIMM.
    You could buy today and sell today and make 10%+ on your investment……
    ……hang onto it and watch your money go up and down, up and down and so on.
    Personally, it is the news of quarter earnings and mergers and acquisitions and yes…rumors that move a stock up and down day today.
    I don’t get hanging onto a stock for a year and even if it makes 80%, you can make that in a week.
    If you put it in and pull it out everyday.
    GOOG might buy ONT, look out for a rise soon, they have a meeting this next week.
    Quarterly reports this next week: TIVO, COST, HNZ, NOVL (thursday after bell) and MRVL (Thursday after bell).

  • AndyM789 on 19 December 2009

    Milestone, it sounds like you stepped straight out of 1999. You keep right on day-trading. I’ll be enjoying my retirement while you’re walking around wearing a barrel.

  • bsorge on 19 December 2009

    New Years eve predictions
    - New BAC head CEO is a Turkey per his previous boss. Will not lead BAC to better times.
    - Look for tax on stock trades that might amount to $ 250 on every 100,000 trade. This could kill the market. (Per a Senator friend of mine)
    -Heavy profesional money is moving into Oil stocks. This from a Hedge fund owner.

  • georic on 20 December 2009

    Hello Jim,
    Is there, somewhere, an index of your daily blogs?

  • viwi on 20 December 2009

    It is the time to optimize your income tax, trade volumes are generally low because of the Holiday Season, so I expect nothing rational in the forthcoming week or two.

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