|
Published: July 8, 2010
I believe the odds of a double-dip
recession in 2011 are high -- very high. The U.S. and global
economies are struggling.
You might think that good earnings reports here in the United
States are indicative of an economy on the mend, but I suspect
it is nothing more than a nadir for most companies. The bar to
outperform last year's dismal numbers was set very, very low.
Add to this that companies are trying to recognize revenue this
year instead of next year when new taxes could hit everyone,
including businesses. Some studies show that for every +1%
increase in taxes, it results in a -1% decrease in
GDP. If those studies are correct and if our GDP is growing
by only +2% or +3% in Q1 of 2011 without the tax hikes, the net
impact of tax increases could easily push GDP back into negative
territory and potentially into another recession.
Europe is now into a program of raising taxes and cutting
spending. This is not, in the opinion of many economists, a
strategy for growth. If the EU does not grow, its financial woes
could exacerbate.
I don't think it takes a professional chartist to see the next
couple of months could be ugly if you are long in this market.
But if you were following my
Mastering the Markets premium trading letter closely
this year, your portfolio would have gained money while the S&P
500 has lost ground.
Has every trade been a winner? Nope. But
that doesn't mean that I'm unhappy about beating the market in
the first six months of a very tough market.
The bottom line is this: if U.S. and global economies move
toward another recession or they remain tepid at best, the
outlook for an increased demand for energy (oil and gas) could
be significantly dampened. Yes, the moratorium on drilling for
oil in the Gulf of Mexico will put more pressure on the supply
side and could push oil and gas prices higher, but I have a lot
of concern that the investor appetite for the energy sector will
wane almost in direct proportion to the declining economy.
With these points in mind, I want you to consider the chart
below of the Energy Select Sector SPDR (NYSE: XLE). I
think this
exchange-traded fund (ETF) looks poised to move lower during
the next five to six weeks and could be a source of decent
returns if shorted.
|
 |
XLE represents the
Energy Select
Sector. The top
holdings of the ETF
are: Anadarko
Petroleum (NYSE: APC),
Apache (NYSE: APA),
Chevron (NYSE:
CVX),
ConocoPhilips (NYSE:
COP), Devon
Energy (NYSE: DVN),
Exxon Mobil
(NYSE: XOM),
Halliburton (NYSE:
HAL),
Occidental Petroleum
(NYSE: OXY) and
Schlumberger
(NYSE: SLB).
This sector has been
dropping for the
past 10 days and
looks to continue
lower for the next
five weeks. There is
no guarantee as to
how low this drop
could be, but -10%
or more is certainly
possible.
Action to Take-->
I have two other
picks that could
handsomely profit
from market weakness
in my
Mastering the
Markets
premium letter, but
I think this fund
looks poised to move
lower during the
next five to six
weeks and could be a
source of decent
returns if shorted.
-- Mike Turner
Editor,
Mastering the Markets,
Trade of the Week
StreetAuthority |
