Cramer Predicts Commodities To Drop: Bullish Signal

Posted by Stock Online Trader in Basic Material Sector, Emerging Markets, Gold on 09-09-2008

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Cramer predicted a worst-case scenario for these names: They could lose all the gains they’ve seen since April 2005. That means Vale [RIO 20.96] drops 68%; U.S. Steel [X 93.69] 50%; fertilizer stocks like Potash [POT 140.26], Mosaic [MOS 77.01] and Agrium [AGU 66.65] could fall 80% to 90%. But this is only if you believe that the rise of these stocks was due solely to the increased value of commodities and not any growth by the companies themselves, he said.

So what’s it going to take to stop this? The world’s central banks – U.S., Europe, even China – have to cut interest rates. Industry consolidation would help, too. A rate cut in China might revive that country’s appetite for commodities, and that would mean investors would be getting a great discount on all these stocks right now.

If China doesn’t come back, Cramer said, “the commodity collapse has the potential to bring down the whole market.”

Cramer is one of those CNBC clowns that almost everytime get it wrong. If Cramer thinks the commodities are going down, its a bullish sign. I bought RIO today at 21.09$ and KGC at 12.01$ hoping to see a turnaround soon. Both RIO and KGC have been hammered lately and provide much safer bet to go long.

5 day chart for RIO shows 17% drop. Is the pain over ? No one knows. The trend is definitely going lower, but I believe its time for some bounce back.

6 month trend shows RIO bleeding…..no end in sight…..can that trend change ??

As for KGC, gold is going through a huge correction. Market manipulation has lead to jump in the dollar. Upward movement of the dollar looks short-lived, driven due to lower oil prices and Freddie/Fannie news bringing in global investors. Hurricane season and world politics can easily send the oil prices roaring upwards. Housing has not bottomed. Inventory levels are still high. Job losses make it even more difficult. Foreclosures are still reaching record high levels. This can turnaround in a flash causing dollar to take a dump and gold to go higher.

6 month trend of KGC looks ugly too. It has experienced huge price drops. Is this the bottom ?

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Should We Trust These Analysts ?

Posted by Stock Online Trader in Market News on 02-02-2007

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According to Investopedia
Analysts are typically employed by brokerage firms, investment advisors, or mutual funds. Analysts do the grunt work for brokers, preparing the research that brokers use. Analysts usually specialize in specific industries or sectors.

I personally rely on analyst recommendations as one of the factors deciding buying or selling of stocks. Analysts are in a much better position to make a judgement about the stock than you and me. They go through alot of financial reports and indicators which passive investors dont even want to know. However one important question everyone should always always try to find out is Why ? Why are analysts giving buy or sell signals. Good analysts will always give you a satisfactory explanation and back their recommendation by giving you their sources.

That said, what are analysts overall recommending in 2007 ?
A research shows that the analysts are not too bullish in 2007. The overall buy recommendation as a percent of all recommendations is at its all time low over 10 years. This is scary isnt it ? Does that mean it is time to sell off ? Probably not. Infact as a rule of thumb, when the herd is in agreement on the market’s direction, the opposite usually occurs.

Recommendations: Dont let some indicators scare you. Again the key is research. Try and understand why the analysts are bullish or bearish about the stock. If you find their reasoning satisfactory, only then bet accordingly.

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