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Here's your marching orders for right now, into the Christmas rally. While I never say you can't forget the fundamentals, hence
et al., I believe the first-quarter story will be the return of the gated sellers.
There were two stories all 2008 -- what will happen to the company you own, and what will happen to the stock you own. We know from the overreaction in stocks that the there was a total divergence beginning with the peak in commodities in July. Stocks that hedge funds owned -- all the natural gas stocks like
; and the oil service plays, specifically
National Oilwell Varco
; as well as infrastructure plays like
-- were just destroyed. Same with the steels, like
. Same with the ag stocks:
They all lifted at the exact same time, when the major hedge funds suspected withdrawals. Not when the fundamentals bottomed. You needed to know more about the
than about the stocks. Think of it like this. Goldman Sachs put out a list of stocks most vulnerable to hedge fund redemptions. At the top? National Oilwell Varco.
What has happened to the stock? It plummeted from $92 to $17. The stock bottomed while oil was in free fall, slicing through the $70s, $60s and $50s.
Then it began to rally, up more than 50% when oil went through the $40s! As it is a company that needs oil to go much higher to justify continuing to build expensive drilling platforms, it should have kept plummeting. But the big hedge fund owners stopped their selling because they decided not to return money to investors.
So far, the hedge funds have gotten away with it even though their charters don't allow this kind of behavior. I believe we will get lawsuits beginning in 2009 if the gating continues.
That means we will see a return to this selling beginning next year. How bad could it be? Take a look at the excellent piece written
on our flagship site today
, which is a total repository of hedge fund money where actual board members might have to sell. That's really not even supposed to happen. But it might have to. And if the hedge fund board members can't sell CSX, what will they sell? They are all
in the article
So what do you need to do? We are in the Santa-Claus-rally phase of stocks, where they go up on bad news. That lasts as long as there is no new news? When the quarters come out and the guidance is lowered again -- as I believe will happen in almost all cases -- you are going to get hammered again. So there is a window between when the next quarter is reported and when the hedge funds have to sell that gives you a tremendous opportunity to lighten up
you are a huge bull on 2009's economy.
So, read the CSX story. Extrapolate it to other hedge fund positions and take advantage of the kindness of this market, because beginning in 2009, the sellers -- the FORCED sellers -- will be back and the fundamentals will still be terrible.
The CSX story is the template, because the hedge funds actually joined the board! But it will extend to a ton of other stocks. So
heed this article
. It is the future, and you have a chance to change the future for yourself in the next 10 days.
: So much happening in the biotech space and some big wins every day, as there are always at year-end. I am using
to spot them. Are you?
At the time of publication, Cramer was long Foster Wheeler and Goldman Sachs.
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