Point of maximum negative sentiment
It's never easy to buy when everyone is selling, when all hope is lost, and there seems to be no end in sight. That's also when you make the most money.
http://biz.yahoo.com/ap/071126/citigroup_abu_dhabi.html
I foresee a big bounce Tues. XLF, or IYF anyone?
posted by Junk Bonds @ 11/26/2007 11:40:00 PM
5 Comments:
Burning the midnight oil Ed? I admire your forecasting ability but are you planning to just trade this over the next few days? What would your endpoint be on this one or is it a long term holding?
I'm not convinced the banking sectors troubles are done, but I guess you're using me as a contrarian indicator! Now that's hard to swallow :(
You are contrarian. And if I am contrary to the contrarian, what am I? :)
XLF is off 45% from highs, and at 4 year lows. This would be the entry point for a long term buy, no trading for me.
By the time the market can see that the troubles are (near) over, XLF will be up 20-30% off their lows. Max pessimism means no end in sight.
When an Arab sovereign fund steps in to save the largest US bank (C), the end has to be near.
I like investing in US financials and I too believe that it should eventually rebound.
But how do you know that it does not drop another 40% before hitting the bottom? Are we willing to accept that risk?
Being contrarian is difficult and means thinking different than the mainstream at 'turning points'. During uptrends/downtrends the masses are usually right (efficient markets) It's usually at the peaks of euphoria or the pessimism at the bottom, that the crowds get wrong. It is always very difficult to time the absolute bottom, and those that do are probably more lucky than good. From what I'm reading, I don't think the worst is out yet with the financial sector and we could be patient with this play. Citi paid a very high price for this cash infusion, and I've read some reports that say their dividend is certainly at risk. So far we've not had one real bank collapse in the entire US banking system and in past credit contractions and economic downturns, there have been casualties.
I think oil is correcting right now due to impending OPEC production increases and potential economic weakness. If oil corrects here, it is likely to be volatile but the underlying picture hasn't changed. The world has been on a production plateau of crude and condensates production since summer 2005. This is in spite of increased price. So if the markets are to be believed supply is still not meeting demand.
Oil is correcting because Palestine is meeting with Isreal in Annapolis. This supply/demand economics pricing is so yesterday/old school :) But I agree, the long term fundamentals remain; Hamas is planning an terror attack. So let's buy HAL and SLB on weakness.
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