Trading Strategy

The financial and homebuilding sectors plunged again today. The market was down earlier today, even in the face of even greater inflationary support, with oil hitting $104, and gold at $985. While profits are right now, I don't think they're ripe yet. So, I won't take them yet. The time to take profits will be when the dollar receives some support and the market drops below its Janruary lows.

One could argue that a risk to this strategy is that financials might find support even as the rest of the market drops. This could happen precisely because the rest of the market drops, forcing traders to take profits and seek shelter in other areas. This has happened a couple of times already. However, when we've seen the apparently irrational activity of "good" stocks dropping and "bad" stocks rising, this has usually been a short-lived phenomenon that signalled a bottom in the market, as it did around the time of the Janruary low below 12,000. Also, I'm willing to risk this kind of backdraft because I think that the risk is worth the reward.

At the same time, I may look for some bargains among "good" stocks. Barron's had an article showcasing risky "leveraged equities." They are stocks that have fallen so much that their equity is now worth much less than debt. Idearc publishes yellow pages. It has a P/E of 2 and a dividend yield of 23.8%. Carmike Cinemas is losing money, but yields 11.2%. I need to look at the summer movie schedule, but I think that the consumer is not so dead that he won't seek more entertainment over the summer to forget about his other economic woes. Also, I was in Santa Monica yesterday. I've never seen so many $175,000 Bentley's in my life. They were literally almost as common as BMW's. Cheaper alternatives (such as movies) to expensive trips should hold up well. If either of these stocks are below their prices from Barron's, I will probably decide to scoop up one or both.