This week's pick from the Daily Report was highlighted on September 13th and now it's ready to take off--here's your chance for another outstanding winner...
This stock has not made its move yet--but it is just about to--and the profits could be outstanding.
It has been weak relative to the market AND it recently broke below major support on heavy volume. If not for a major government contract, this company would have already gone bankrupt.
Unfortunately for holders of the stock that project will be completed this year and it was the only reason the company recorded any profit at all last quarter. It relies on municipal spending and local governments are cutting expenses as much as possible. This company will be back to square one in a matter of months--and as investors figure that out the stock will dive off a cliff.
The last time a bearish pick was highlighted like this in this newsletter (LIFE) the puts jumped 230% overnight. This trade may take a little longer to unfold, but the potential is huge - don't miss it.
I have been instructing subscribers to buy puts this week and they are making a killing today--and likely will continue to.
The stock below is ready to drop big time--subscribe now to get this pick along with two fresh plays everyday the market is open AND a Live Updates page that ranks them for you so you always know what to play.
Market Commentary - This morning, the market was set for a rally--the S&P 500 was up seven points in pre-open trading and the bulls were ready to rumble. News that Intel was buying McAfee added fuel to overnight strength in Asian markets.
But an hour before the market opened reality hit the markets like a cold slap across the computer screen---initial jobless claims were released and they weren't pretty. Analysts expected 480,000 new claims on the high end but they jumped to 500,000--the highest level since November 2009. Surprisingly, the market took the number in stride and it rallied on the open--but it couldn't last.
At 10:00 AM Eastern, the Philly Fed was released. The consensus was looking for a positive 7.5 and it came in at a negative 7.7--Ouch! That is a huge miss and it signals a dramatic fall-off in economic activity---exactly what we've been forecasting.
The economic recovery during the last year can largely be attributed to an inventory cycle build and boat load of government stimulus. Supplies have been rebuilt and wholesale inventories are rising as sales decline. This will weigh on manufacturing and eventually the biggest sector of the economy-- service---will be impacted.
Much of the job growth in the service sector has been tied to retail and restaurants. Those are low-quality jobs, but they did bolster the number and gave the appearance of a healthy recovery. This week, retailers have been posting decent results. Unfortunately, the guidance going forward has been very weak. Consumers are tightening their belts and they are only spending money on necessities. This trend was confirmed by Procter & Gamble and Colgate when they said shoppers are “trading down” to off brand products. Heck if folks can't even afford their regular toothpaste what else are they cutting out?
Last week, Cisco CEO John Chambers did a 180 and scared the pants off of everybody. All year, he has been steadfast in his belief that a full-blown recovery was underway. Now, conditions have changed quickly and “he has never had this much difficulty forecasting business conditions”. This frightenly fast deterioration is similar to what we saw in the Philly Fed number this morning.
Private sector jobs grew more than expected in July, but that was almost certainly a one-time event. Corporations are not going to add to the overhead expenses during times of uncertainty. They have had to make tough decisions and let good people go and until they see sustained demand, they will not add to payrolls.
Public-sector jobs fell more than expected in July. That trend will continue as state and local governments try desperately to balance budgets. A recent report suggested that 500,000 jobs could be cut from local governments in the next two years. States are preparing budgets for 2011 and they are running deep in the red ($84 billion next year). Their projections are always optimistic and we can expect huge deficits. According to the Constitution, states cannot incur deficits. This problem will have to be addressed immediately since states are already $300 billion in the hole.
The bottom line is that public-sector jobs will fall dramatically.
This morning, the CBO (Congressional Budget Office) said that the deficit for 2010 will be $1.35 trillion or 9.9% of GDP. That is the highest level in 65 years and enough to scare the heck out of anyone that can do simple math. Next year, they are projecting a $1 trillion plus deficit---but imagine what the deficit will be when Obama-care kicks in for 30 million Americans. Self-funding my arse!
As we warned in May employment will peak this year and it will mark the high before we slip into a double dip recession. Employment conditions are deteriorating quickly and the credit crisis will resurface as more people lose the only means they have of paying their bills.
The @#$% will hit the fan within two weeks--so start getting prepared now. China will release its PMI on September 30th and it will very likely fall below 50 indicating economic contraction. That will get the bearish ball rolling during a massive week of economic releases. ISM manufacturing and ISM services will both decline as they have been weakening for months. The ADP employment index will show a decline in private sector jobs. That will set us up for a horrible Unemployment Report just ahead of Labor Day weekend.
All of this news coincides with the weakest seasonal period for the markets--the lows from June will likely be tested and I believe they will fail. The wild card in all of this is the European credit crisis. Bond auctions have recently gone well so these concerns will probably not flare up this fall. That means we will have a contained decline likely setting up for a year-end rally.
Strong corporate balance sheets, good earnings, low interest rates and Republican election victories should set up a small year-end rally. In the first quarter of 2011, we have another chance for a major decline.
The market does not always cooperate however and longer term forecasts are often revised but a sell-off in September and October is EXTREMELY likely. Start buying October out of the money puts for the best entry prices you can--something we have been suggesting this for weeks.
If you don't know what to short, get the Daily Report now--we've got a list of the hottest down-trenders that should produce some incredible put profits over the next few weeks--sign up here for immediate access.
www.cashflowheaven.com/os
Trade Well,
Pete
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