Where is the Stock Market Going from Here?

Where is the Stock Market Going from Here?Where is the stock market going from here?  Last week was a crazy one to say the least.  As some of you know, I am teacher who is playing in the National Championship Stock Market Game with my students against almost 4,000 teams across the country.  We are currently in first place with about an $18,000 lead.  If my students can finish in the top 10, they win a free trip to Washington D.C. to meet quite a few people.  Keeping this in mind, you know I want to figure out exactly what the market is going to do in the next few weeks in order to help them the best I can.  With that being said, let’s take a look at what I believe will be the most realistic course for this market and how we should play it.  More importantly, how are WE going to be able to cash in during the next week?

Where is the Stock Market Going from Here?Let’s get one thing straight, the oil recovery is NOT in full swing.  Sure prices have bounced back quite a bit in the last few weeks.  These oil prices have reached a decade low a few weeks ago and not are starting to crush many short sellers who thought there was more room for falling.  One of the problems is that OPEC is trying to finalize an agreement to bring a stabilized price of $50 a barrel to the market.  But the real reason prices are increasing at such a fast clip is that short sellers are taking a bath and want out.  Just as you watched oil fall drastically over the last year, you have now watched oil rise by 50% in the last month.  This is just way to fast with no really good reason why, with the exception of the short sellers.  And this leads me to the answer of where is the stock market going from here, down!

Where is the Stock Market Going from Here?Why is the market going to drop?  Stocks are seeming correlated to the oil prices as of late.  When oil is going up, you see the market tagging along for the ride.  Check out the charts over the last five weeks and you will see what I mean.  The oil market is behaving just like all the penny stocks that I have traded over the years.  The more depreciated the price, the greater the comeback when the bounce hits.  The market is closing in on a barrier that I don’t see it breaking through, which is the 2100 mark for the S&P 500.  The United States economy is sputtering and not registering gains like it was during the thickness of this 7 year bull run.  Reports are not as glamorous as they once were a year ago.  We are staring down the barrel of a true long term correction and you will see this in the prices of stocks over the next few weeks, if not months.

We have also had the pleasure of watching the market increase for its fifth straight week.  I can tell you that when you have that many straight weeks in a row of gains, something has to give.  Many profit takers as well as short sellers get the itch to help bring the market back down to earth.  Fundamentally speaking as well, the market is still way over valued.  It is currently trading at a price to earnings level of 22.31.  Why is this price to earnings ratio important you may ask?  Well the mean ratio is 15.58 and that tells us that we are about 50% over priced based on the life of the market.  There is going to be a downward trend coming based on history and it could be starting right now.  When you are wondering where the market is going from here, this variable has to play into your decision making process.

Where is the Stock Market Going from Here?Now that we discussed what I feel is the most likely of outcomes for the foreseeable future, lets pick some stocks and take advantage of this.  I like to stick to the energy sector since it is the most volatile and thus gives us our biggest chance of large returns.  Remember that with bigger risk comes bigger rewards.  (Or losses if we play our cards wrong.)  My first short in the oil industry is Vanguard Natural Resources, LLC (VNRBP $3.23).  They are hurting right now to the point of possible bankruptcy restructuring if the cards don’t fall right for them.  They are facing a seriously real credit crunch coming in April and it is going to get ugly.  They have used about $1.69 billion of its $1.8 billion in borrowing power.  With oil prices looking to stay low for quite a while, they are going to need to borrow even more to stay in business.  In April, the banks will review their lending limits and they could easily cut it back to below their current outstanding balance possibly forcing the company to have to sell some of their assets at below market prices in order to become compliant.  The chart below gives you an idea of what has been happening over the last year and come April, you could see this stock sink to new lows.  Where is the stock market going from here for VNRBP?  Well it looks to be down and that means shorting this stock.

Where is the Stock Market Going from Here?

Where is the Stock Market Going from Here?The next stock on my shorting list is Seadrill Limited. ($3.97).  They are another energy company that depends on oil being at levels that can support their costs, which at current prices, they are in trouble.  The company is LOSING $1.49 a share with the stock priced at $3.97, this company’s stock could be pushed to new lows in the next couple of weeks.  If oil goes back down, this stock will get hit very hard.  If we take a look at their stock price chart down below, you will see that we are not the first investors to realize that this company is starting to look down the wrong end barrel.  When a stock loses over 90% of its price in under 12 months, you know they are in some deep trouble going forward.  We saw a small short covering last week and now I think you are going to see the continuation of this company’s collapse in the next few weeks.  I believe oil is priced way to low for this company to be able to pull through this downturn in the oil industry.  They build rigs and rigs are not being built like they used to be.  In other words, I think things will get worse for this company before things get better. Where is the stock market going from here for Seadrill?  My answer is very simple, can you say short!Where is the Stock Market Going from Here?

Now at this point, I have put out two different stocks that I think should be shorted in order to get the results you are looking for in terms of gain percentages.  These are high risk/high reward stocks and thus should not be invested in by those that can ill afford to lose their money.  Any upside ticks in the oil price will directly correlate to big gains for these stocks unless specific negative information is released by either of these companies.  If you are looking for some stocks to buy long, you will want to check out our article here for the best dividend stocks available.  Where is the stock market going from here?  Well if it goes down, it will be going the way I predicted and we will be making some serious cash.

Where is the Stock Market Going from Here?

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