Mercenary Trader | Oct 10, 2012 01:47PM ET
Bulls still have the ball, by dint of rising moving averages, the major indices within sprinting distance of new highs and constructive patterns still intact on the weekly charts.
But the quarterback got sacked on Tuesday as crude-oil's strong safety rushed in for a hit…
In contrast to the above favorables, multinational blue chips look overextended and vulnerable… if crude oil rises on geopolitical concern, higher fuel costs will act as a deflationary tax of involuntary nature. If the dollar rises on “risk off” correlation and/or global slowdown, multinational profits will be hurt (as overseas earnings power is boosted by a cheaper dollar). And of course, this “no brainer” area of the market may have become significantly overbought… and could thus be subject to significant capital withdrawal on a risk-off flowback to treasuries…
On the long side we have an attractive roster of oil and gas names, with almost all our bullishness concentrated in this space. On the short side we have REITs (another overdone ‘hiding place’), semiconductors, and multinational blue chips for reasons as outlined above…
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