Rediff.com - the next Google?

Today when I woke up and started my daily routine - watching CNBC - I was startled. I saw Rediff.com (Symbol REDF) shares up more than 20%. I hurriedly started my computer and checked what was going on. I know for sure there were no earnings cause they just reported last month. So there was something else. To my surprise it was Cramer! Yesterday Cramer highlighted the Indian web portal company. To quote Cramer - "(Rediff.com) may even be the Indian Google".

Now that is insane I thought. The guy has become so popluar that any stock that he recommends the day before goes up at least 5% easily the next day (take the case of ZOLT). That makes me feel uncomfortable. It means too many amatures are watching his show and blindly believing him. Not to say that Rediff has problems. Cramer has lot of people behind him doing good research. Only after a company passes that does Cramer comes and trumpets it on his show. But a stock jumping so much just because he called shots for it is discomforting. I feel all those people who do that are just plain foolish. They might get burnt hard.

A few things about Rediff. My opinion about Rediff is that this is a very good company. It has just turned profitable and it is poised for excellent growth. I don't think it is the Google of India as Cramer put it. I use the site. And it is not the best site that is out there. But it is used by a lot of Indians - most of my friends use it pretty regularly and from their feedback it is a really useful site. No doubt it is one of the most popular site in India. I had already mentioned the stock in one of my previous posts. My guess is the stock can easily hit $40 by the end of the year. But before it does that, it has to show good earnings.

So how should you play this one. I think if you are not into it already then better wait. Don't go with Cramer mania. The earnings are quite far and the stock may settle down a bit. I think 15-18 is a good range to enter the stock. But your best bet is to wait till the earnings. If the earnings are solid - buy it at whatever price you get. You will be in good shape.

Finally, the blow comes...

The market finally came to its senses today. Or so I feel. I thought this would happen way back but I think the year-end binge lasted a bit longer! Until yesterday the market tried to squeeze in good news out of whatever it can. But finally today it woke up. And not just woke up - it woke up screaming. I had thought that when oil rises above $66 a barrel it would be hard for the market to ignore. That's what you could see today. Suddenly all the fears came running. Earnings not good at Citigroup, GE. Apple, Yahoo, Ebay giving poor forcasts. All this finally took a toll on the market.

I should not be laughing today. I lost a chunk of money. I am in Google. And you know what happend to it today. Biggest percentage drop ever for the stock and that too on the biggest ever trading volume. But I was expecting it. So there was no panic. In fact, I took the opportunity to add some more to my position. I feel such a blow is good before earnings. It should temper the expectations a bit. That's what I am hoping for.

Optimism rages on...

Optimism in the markets is getting stronger and stronger. Things are improving for short sellers by the day. Although the markets have gone higher in very strong volume most of the week, I still am a bit skeptic about how long is going to last. Next week should clear up the clouds. Even when the jobs data has come out weak, the markets are looking for indications that that would make the Feds to stop raising interest rates. This is a typical optimistic view of bull markets, when the markets try to squeeze positive news out of anything. Keep in mind that oil is creeping up. When oil goes about $66-67 towards $70, would the markets still take it as positive? I doubt. The reality will sink in eventually and that I feel is not too far.

Potential industries for shorting:

Airlines
Freight
Techs

On a side note, Goldman Sachs has increased the price target on Google to $500 (they have done so for Yahoo as well with it's price target at $50 with about 20% upside potential). Watch out for their earnings out in a few weeks.

A start with a BANG

The stock markets started 2006 with a really big bang! All major indexes up more than 1%, with most up more than 1.5%. A sleepy start transformed into a solid cheer after the Fed meeting minutes were released and seemed to make clear that the central bank's 18-month campaign to raise interest rates will happen sooner rather than later, the markets went rampant. It was as though the market was waiting for some positive news to celebrate the New Year.

So should we open up the champagne bottles? We would be tempted to do that. If on the first day the markets jump more than 1.5% we are really looking for big gains for the year, isn't it?. Why not jump in with everything we have? Right! Are you kidding? Today is just the first day of the year. And more than anything I feel it may be a trap. Well, the feds policies have been predicted by many. And I would say they were anticipated and reflected in the markets already. So what was this enthusiasm about? I really don't know.

Maybe people got a little bit excited about Google's $600 price target by Piper Jaffray analyst Safa Rashtchy. Maybe they cheered about some rumour about a possible tie-up between Microsoft and Yahoo. Or maybe they just wanted to celebrate, a bit of a hangover after the holidays! Hey, but you need to wait. Google's price target is for the end of the year and there are 4 earnings calls inbetween. Last quarter earnings season is just round the corner and so is, historically, a weak period for the techs. And yes although there is nothing coming out yet to say things may be bad, I feel one should wait nevertheless. Visibility is good, impatience is bad. You have a whole year in front to use your discretion. And by the way this rally happened on the face of oil jumping more than $2 a barrel. I feel something is fishy around.

According to the Stock Traders Almanac, the last 35 times the first five days of January have been positive on the S&P 500, the index posted full-year gains 86% of those times. Let us see what the next 4 days have in plate for us.

So although I cheer today's BANG I will be watching for a THUD at least for a couple of weeks. If the market can maintain it's positive bias few weeks into the earnings season then I would change my bear stance. Let us see how long does the Bulls hangover last!

What to look for in 2006?

In 2005 the market barely moved. The S&P500 gained 3%, the Nasdaq a mere 1.37% while the Dow edged down 0.61%. As some analysts have already been saying the bull market that started in 2003 is aging. And I kind of agree. Although there is a lot of optimism for 2006, it may end up being no different than 2005 or even worse.

Heading into January I feel the market may become bearish. Right now all the major indexes have dipped to around their 50 day moving averages. That actually looks to be a good support if the market would bounce back (nonetheless, since volume was quite thin because of the holidays I don't think that such support is reliable). But I suspect that would happen. I don't see any major driver for the market on the positive side except that the Fed may stop raising interest rates. But that seems to have been already priced in. All eyes would be on Bernanke's policies and until the market clearly understands his stance it would be weary to make big moves on the upside. So far Bernanke has been perceived as all positive and there have been no jitters in the market. But the market has yet to see him in action. I am sure there will be surprises for the market and the switch from Greenspan to Bernanke may not be a very smooth ride.

So my take is before going up we are going to first go down. I would say we are looking at atleast a 5% correction. It is hard to predict how long this correciton may last, but it could go on for a few months. So if investors jump in too soon in January they may get burnt and may have to wait for a while till they can see some returns. Especially watch out the techs. The technicals on those stocks have gone a bit bad recently.

For me I am going to play safe. I have already got out of all of my speculative trades. I am only holding my longterm commitments. It is not that I am going to stop trading. But whatever I will do I will watch every move of mine very carefully and step back if things go wild.

Having said that I still do think that there are some industries and stocks that could make you money. Right now one industry high on my list is Natural Gas. Natural Gas has dipped in the end of December after making a record touching $15 per million BTUs. According to a report the U.S. National Weather Service had said for the last week of December that demand for heating fuels could be 25% below normal, with natural gas heating demand almost 28% below average, as most of the country will see unseasonably mild temperatures. That triggered a selloff and Natural Gas prices dipped to 4 month lows before recovering a bit at the end of the week. I feel this bearishness may last for sometime during which time there might be good opportunities to enter the Natural Gas plays. My favourites are

Chesapeake Energy (symbol:CHK)
X T O Energy Inc (symbol:XTO)
Canadian Natural Res Ltd (symbol:CNQ)
Devon Energy Corp (symbol:DVN)

You may see some of the small firms being bought out by the big oil companies like Exxon, BP, Shell etc., which are desperately looking out to increase their reserves. So potentially an investment early on may become quite rewarding. But a note of caution though is that these stocks tend to be very much news driven like the Biotechs and one needs to follow the stocks pretty carefully and do good research beforehand.

More to come later! Stay tuned!