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Saturday, May 8, 2010

Market Thought... assumptions

With all the negativity, lets talk some negative assumptions for a bit.

I have been hearing a target low for the DOW to be around 9000 from Cramer and Jim Rogers, two people with a large soap-box that can potentially drive sentiment, especially with so much uncertainty. Since I do not follow the DOW, I try to relate this to the SP500. Either way its massive decline, and that would mean all stocks will decline. So how severe would the SP500 decline? The chart indicates to around 1000.

There is a very distinct history of the SP500 using the 320SMA as support.

With this, I must stress we have still not broken the 200 SMA, and there are many individual names that are at strong buy targets, technically and fundamentally right now!

Ultimately the long-term trend appears intact, but to test the trend is another 100 SP500 points.

So now we have to re-evaluate target prices for your favorite stocks. Here are mine:

1. IBM - Although they just increased their dividend, authorized an additional $8B buyback and showing interesting growth, current prices should be mouth watering to a value investor. However if the SP500 declines, it will see 105ish.

2. AAPL - It sold $1B worth of the iPad in a month and a half, and is sold out of its 3G version. A good problem to have, to say the least even with all this craziness. With markets declining, this high beta name will go with it, and am expecting it will see 205.

3. GS - Although I think it is at a major technical buy point right now, if the markets decline I must expect it to see 90.

4. MF - I want to buy this one around 7. This is an interesting turn around story with Corzine at the helm, but the macro events are obviously presenting an opportunity to enter this sucker lower. Corzine's package is predicated on MF stock valued at the 9 level. Even at current levels, you are basically getting it lower than he is, right now. Properly managed the firm could be in the high teens/low 20s.)

5. KMP - I managed to get some the other day with the massive decline. May sell it if it rallies to 64-65, cause with such a market decline it will see low 60s/high 50s again.

6. F - It is already nicely profitable, well ahead of schedule. With their awesome leadership intact, this earnings trend will continue. It currently has a single digit PE, but negativity sees no PE justification, and it may see the 9s.

Let me be clear, I do not agree with these assumptions, but we can not ignore all possibilities either. I knew we were going to correct, but not with these levels of negativity. I thought the SP500 correction to the 320SMA would present itself a few months out or early next year.

As for the above names, I do not believe we will see those levels. But then again, I am far more rational then most in times of uncertainty and stress, so I have to present myself with the 'fear' scenario to be prepared.

Also, points to note: The package was approved and an intervention unit controlling 70B Euro was created by the EU. Will this be enough? We will find out Monday morning.

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