Monday, August 03, 2009

Weekly Stock Pick

Buy Sell Hold
The Market Week Ahead

With the main earnings season now slowing down investors are looking forward to the watching the economic data reports again for clues to market direction. Monday starts with the July auto sales report, which may most likely be aided and abetted by the “cash for clunkers” incentive program from the government. Congress last Friday infused another $2B into the “cash for clunkers” program. With the government pumping in money into the auto industry like this and the rest of the economy also, I don’t know how reliable reports like this can be compared to having real organic growth but something is better than nothing in the end I guess. The government is the market of last resort. The main economic report is the July jobs report on Friday. This week leading up to the jobs report could see a lot of volatility.

The buzz on the street currently is as market continues to rally, take profits on the rallies. In my opinion, I’m seeing a market that is ripe for another fall, and big long term fall very possibly taking out the lows in March. Maybe we have to wait for this October for that to happen, or maybe it doesn't happen at all. Wednesday Thursday will be key days for future market direction because of Friday’s jobs report. The worst is not over in my opinion, and I would suggest you get prepared for an extended recession, and a very possible depression. I’m betting on higher employment for more months and possibly years ahead, and if that’s the case, GDP is going down plain and simple along with the stock market.

I don’t invest or trade on fundamentals. I buy and sell based on fear and greed, hype and reality, market sentiment and psychology, or what we call the “social mood” which is the total reverse of fundamental analysis. With earnings season winding down now, lots of professionals say that earnings are the main driver of stock prices. Actually its reverse and research shows that every past market top coincided with stronger than average earnings. Click the following link for my stock pick last week and detailed analysis on earnings and their relation to market tops and bottoms. It’s an eye opener that fly’s in the face of the fundamentalists. Nothing against the fundamentalists, they have valid points to make as anyone. I employ a system of when I'm wrong, I'm wrong small, and when I'm right, I'm right big. Low-risk high-reward investing and trading.

My Stock Pick This Week

I’m shorting a stock this week that’s involved in an industry that is now known as the main reason why this current and historic financial crisis happened in the first place. The real estate industry. This stock is a REIT or Real Estate Investment Trust. My opinion is the US real estate market has not hit bottom yet and depending on the perspective you have, has much more room to move down further. The facts are that we are still in the middle of a historic crash. However, with radical fast changes in market valuations in the last year, there have been very attractive opportunities to invest and profit from, providing you have the capital, patience, expertise, a good plan in place, and a long-term investment time horizon in your plans goes all wrong. In the meantime, the profits are to the downside in real estate and on the REIT’s right now I believe.

Sell-Short AvalonBay Communities - Ticker AVB

Sell Entry: 61.47 to 57.17

Stop-Loss: 61.50 or Higher

Take Profit Areas: 53.69 to 50.21, 49.50 to 47.87, 44.37 to 42.91, 33.68 to 32.57, 19.74 to 19.00

AvalonBay Communities Company Profile

AvalonBay Communities, Inc. is a real estate investment trust (REIT). The Company is engaged in the development, redevelopment, acquisition, ownership and operation of multifamily communities in high barrier-to-entry markets of the United States. Its markets are located in New England, the New York/New Jersey metro area, the Mid-Atlantic, the Midwest, the Pacific Northwest, and the Northern and Southern California regions of the United States. At January 31, 2009, it owned or held a direct or indirect ownership interest in 164 operating apartment communities containing 45,728 apartment homes in ten states and the District of Columbia, of which (seven wholly owned communities containing 2,143 apartment homes were under redevelopment, and 19 communities containing 3,829 apartment homes, of which two communities containing 467 apartment homes were under redevelopment, were held by the Fund, which it manages and in which it owns a 15.2% equity interest.

Click here to review and trial the Trading Software we used in determining our short position on AVB.

Click the AvalonBay Communities Stock Chart for a larger view.