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Do You Have the Guts to Make This Trade?

By Jeff Clark
Tuesday, March 18, 2008

A few weeks ago, I took a cue from commodity guru Matt Badiali, and held my own Growth Stock Wire Q&A session. I asked readers to submit questions for future essays, and we received a lot of positive feedback, but not too many questions.
I find that odd, especially since I've made a number of controversial calls since then... some that even had me questioning myself. Take a look...
Q: Dear Jeff, Nice timing, moron. One day after you write about a potential bottom in financial stocks, Bear Stearns collapses and the financial sector hits a new low. Clearly, you're wrong on this one. How about a retraction? Sincerely, Jeff.
A: Dear Jeff, Don't pass me the plate of crow just yet. Bottoms take time to form. And bottoms in the financial sector often coincide with a major bank or broker collapse.
I may have been early in calling a bottom last Thursday. But right now, I think the odds of a rebound significantly outweigh the odds of a complete breakdown of our financial system. The market seems to be pricing in a complete breakdown, so maybe it's time to take the other side of that trade and buy a few financial shares.
Q: Dear Jeff, Back on February 26, you suggested waiting for a pullback before buying into the PowerShares DB Agriculture ETF (DBA). After yesterday's shellacking, DBA is down about 11% from its high. Is that enough of a pullback, or should we wait for a bigger decline? Anxiously awaiting your response, Jeff.
A: Dear Jeff, Commodities are in a long-term bull market, so it makes sense to buy shares of DBA on a pullback. If you don't own any, then yesterday's decline provides a pretty good opportunity to start nibbling. However, the chart looks to me like there's another 5%-10% more downside, so I wouldn't commit 100% to the trade just yet.
Perhaps the best thing to do is buy a few shares now and wait for a lower price to commit the bulk of your investment.
Q: Dear Oil Idiot, On March 6, you showed your ignorance of the oil market by suggesting the current run higher might stop at $110. In fact, you wrote, "The real money... will be made by shorting oil when it gets to $110." I noticed it hit that level last Thursday. So how about it, dummy? Did you have the guts to make the trade? You probably don't even have the guts to print this letter, Jeff.
A: Dear Jeff, Honestly, I missed it. I hate to initiate positions right in front of a weekend, so my plan was to wait until Monday to execute a variety of short oil trades. Unfortunately, crude oil declined sharply just before the stock market opened Monday morning, and many of the trades I was looking at gapped away from my price range.
The good news, however, is I have another way to take advantage of falling oil prices, and I'll be recommending that trade to S&A Short Report subscribers this morning. 
Finally, I'm hoping to make this Q&A session a recurring monthly event... although I don't plan on talking to myself for all of the sessions. Please help prevent me from developing schizophrenia and send your questions here.
Best regards and good trading,
Jeff Clark

Recent Articles
Market Notes
Financials follow Bear Stearns... Goldman Sachs, Citigroup, Merrill Lynch, Morgan Stanley, and just about every asset manager you can name plunges to new lows.
Gold still rising... up more than 50% since August.
Dollar still falling... CurrencyShares Swiss Franc, CurrencyShares Japanese Yen, and CurrencyShares Euro at new highs.
Market Watch
Symbol Price
S&P 500 1221.53 +1.3% +10.1%
Oil 37.77 +1.5% -2.8%
Gold 135.20 -0.1% +13.4%
Silver 27.93 +0.4% +47.9%
US-Dollar 80.67 -0.8% +8.1%
Euro 1.32 +0.6% -12.1%
Volatility 19.39 -9.2% -8.2%
Gold Stocks 564.53 +1.3% +10.6%
10-Year Yield 3.00 +1.4% -9.6%

World ETFs
Symbol Price
USA 122.56 +1.3% +10.2%
Canada 30.44 +1.3% +13.8%
Russia 21.63 +2.3% +16.7%
India 37.73 +1.9% +20.0%
Israel 16.47 +0.9% +9.7%
Japan 10.58 +1.0% +7.4%
Singapore 13.88 +1.0% +19.2%
Taiwan 14.72 +1.6% +17.8%
S. Korea 56.56 +1.7% +22.8%
S. Africa 70.85 +3.9% +22.9%
China 45.06 +1.4% +0.1%
Lat.America 52.82 +1.4% +6.7%

Sector ETFs
Symbol Price
Oil Service 136.18 +1.5% +14.8%
Big Pharma 64.13 +0.6% -3.3%
Internet 72.13 +0.7% +22.3%
Semis 16.03 +2.1% +28.9%
Utilities 31.21 +0.3% +1.6%
Defense 18.51 +1.3% +10.1%
Nanotech 9.99 +1.3% +0.0%
Alt. Energy 9.95 +1.4% -4.4%
Water 18.31 +1.1% +12.2%
Insurance 16.07 +1.2% +18.3%
Biotech 20.58 +1.1% +27.1%
Retail 19.65 +0.1% +28.4%
Software 24.59 +0.9% +24.1%
Big Tech 53.73 +1.0% +21.9%
Construction 12.99 +2.1% +13.3%
Media 13.57 +1.1% +25.0%
Consumer Svcs 67.26 +0.8% +23.3%
Financials 54.87 +2.4% +5.2%
Health Care 64.22 +0.7% +1.3%
Industrials 63.25 +1.6% +19.7%
Basic Mat 73.57 +1.6% +21.6%
Real Estate 55.24 +1.4% +23.8%
Transportation 91.17 +1.4% +25.6%
Telecom 22.48 +1.1% +17.1%