Weekly Stock Pick

Submitted By Michael Michaud

Sell In May and Go Away?

Is the old cliché “sell in May and go away” going to ring true this year? After last week’s market action, it could very possibly be so. Last week the DJIA and S&P500 touched some major Fibonacci resistance price levels. I’m referring to the 61.8% Fibonacci Retracement level from the October 2008 high and then big market selloff to the March 2009 low. The Fibonacci 61.8% retracement level on the DJIA is 11,241.70 and on Monday April 26 it hit 11,205.03. The Fibonacci 61.8% retracement level on the S&P500 is 1,226.24, and on April 23 it hit 1217.28. Is this the top or a time for a correction and consolidation before another up move? We are going to find out soon enough.

China Raised Its Reserve Ratio Rate & Marc Faber Is Forecasting a China Economic Crash

China raised the proportion of deposits that lenders must keep in reserve at the central bank again, in a move to control inflation and clean up excess liquidity. China has been tightening their money supply since 2006 but has the market been listening? China May ‘Crash’ in Next 9 to 12 Months, Marc Faber is saying. Billionaire investor Marc Faber said China’s economy will slow and possibly “crash” within a year as declines in stock and commodity prices signal the nation’s property bubble is set to burst.

Goldman Sachs Fraud Charges, Sovereign Debt, Oil, and Earnings Reports

Bears were loving life last week as a myriad of uncertainties in the global markets were happening, and the markets were heading south. Goldman Sachs is now being investigated by the Securities Exchange Commission for criminal misconduct. Greece has its bailout now, but Spain is the next in line, and it’s five times larger than Greece, don’t forget about Portugal’s debt problem too. The oil spill in the Gulf of Mexico is still a big mess and costing billions. Is BP going to pay for it as Obama said, or will they pass it on to the US taxpayers or their consumers? Even with some good earnings reports last week and the market still down, what’s a bull to do now?

Next week’s big economic data reports are ISM Manufacturing on Monday, Australia Interest Rate Decision Tuesday, and European Central Bank Interest Rate Decision Thursday. Ben Bernake is talking in Chicago Thursday too, and then on Friday the mother of all economic data reports is the USA employment report.
So what to do this week? Go long on good earnings and economic news or sell short on the piling up financial problems? I suggest betting short and disregarding any good news at these current price levels. There’s just too much risk for the reward in the market right now that I and many others see.

This week there is a load of earnings reports coming in from S&P500 size companies. Don’t be so quick to buy into a good earnings report. Contrary to popular belief, the reality is that in the long term past, record earnings reports coincide with major downturns in the markets.

My Stock Pick This Week is in the Mining Sector

It’s a short sell on BHP Billiton, the world’s largest mining company. Take a look at the other miners too for short sell candidates. The market has seen a lot of selling in other mining companies around the world last week as the possibility of a global economic slowdown might turn into a reality for awhile, and with China possibly crashing as Marc Faber is predicting, it’s time to sell now and reassess the future later. Another problem for the miners, especially in Australia is that the government is planning on a “super tax” on resource companies and their resource profits that will start in 2012. BHP currently has 51 percent of its assets in Australia, and said taxes on its operations there will increase to 57 percent in 2013 from 43 percent right now. BHP CEO Marius Kloppers said “These proposals seriously threaten Australia’s competitiveness, jeopardize future investments and will adversely impact the future wealth and standard of living of all Australians.”

Sell Short BHP Billiton – Ticker BHP

Sell Entry: 79.57 to 76.62

Stop-Loss: 79.91 to 83.01

Take Profit Areas: 73.95 to 73.57, 69.34 to 68.97, Longer Term 64.00, 56.00, 48.00

BHP Billiton Limited Company Profile

BHP Billiton Limited, together with its subsidiaries, operates as a diversified natural resources company in Australia, the Americas, and southern Africa. The company explores for and produces crude petroleum oil and liquefied natural gas; mines bauxite, refines bauxite into alumina, and smelts alumina into aluminum metal; mines various base metals, including copper, silver, lead, zinc, and uranium; explores and produces diamonds, titanium minerals, and potash; supplies nickel to the stainless steel industry; and explores iron, manganese, metallurgical coal, and thermal or steaming coal. BHP Billiton Limited was founded in 1885 and is headquartered in Melbourne, Australia.

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