Backing Away

I continue looking for opportunities to get out of this market before summer is fully upon us. This year is following a familiar pattern so far. It knocked a little off the winter rally in January, then in February gave us back more than it took away, was mixed in March, and now seems poised for the usual trouble heading into summer.

I’ve long said that high oil prices are going to be a major weight on the market. That widely accepted thesis is playing out. I don’t like having so many people agree with me, but sometimes the crowd is right. If you’re having a picnic at a park and the sky turns black with clouds and many people run to their cars for umbrellas, wouldn’t you do the same? Something like that is happening with rising oil prices. Everybody sees them and a lot of people are running for umbrellas by selling stocks. On Friday, crude oil futures surged 3.4% to $57.27 per barrel, and that was on top of Thursday’s 2.5% advance. People are covering their short positions and speculating that refining capacity may not be sufficient to meet growing demand for gasoline ahead of the summer driving season. That’s precisely what I’ve been watching for.

In preparation for summer’s expected lower stock prices, I’ve been backing out of the market. I sold Sun and Maxtor last month. If you didn’t get around to reading your email or this page until now and therefore didn’t sell when I did, don’t worry, Maxtor is now slightly above my average sell price. The market is proving once again that it likes you more than it likes me. My average sale price was $5.35. Maxtor closed Friday at $5.40. I’ll take comfort in the old adage that you never go broke taking a profit (up 65%). You can take comfort in beating me at my own game.

I’m still itching to get out of Ultra Semi at a small profit, but the market is not helping. We had a nice gain mid-week, but then dropped again on Friday and are now down some 4.5%. Light a candle and hope semiconductors suddenly surge upward before tanking over the summer. If they keep creeping down, I’ll have to take the loss at around -9% or so.

How about that UTStarcom? It closed Friday at $10.92, nearly 28% below our Feb. 11 sell price and 70% below the price at which Kevin Landis of Firsthand Tech Value suggested buying it at the beginning of last year. Whew.

As usual, the pundits are evenly divided over whether we’ll see a rally or a crash in the near future. I’m on the side of caution, as you can see by my gradual backing away from the market. I think the bearish case was summed up nicely by Barry Ritholtz at TheStreet.com. If you have time, read his article. If not, just remember that the advance/decline line is softening, good news is being seen as bad, the economy is weakening from its previously-perceived position of strength, and…

Lastly, look at what’s been occurring in the dollar, gold and oil. The countertrend rallies in these areas are of a short-term, corrective nature. They can run long enough to sucker in traders, but once they resume their prior trends — dollar down, oil and gold up — many players will get caught leaning the wrong way. They will be desperate to stop the pain, and that will exacerbate the selling in equities.

This is not bad news for people who don’t own equities, or at least not too many shares. For those with cash, it’s going to be good news. And that’s why I’m backing away from stocks, into cash, same as last year and the year before.

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