Having a problem with this one too. The popular ones were commodities but if we're going to see deflation and not inflation it isn't clear to me why that would be the the best choice. Long bonds is the textbook answer in that case but with yields around 4% that doesn't look like a winner either. I think I'll play forex for now and follow the trend.
There are 9 sector spiders of the SPY. Lets break it down to the top holding of each of those sectors. Which one of these stocks do you believe will lead if there is a rally? MON JNJ PG MCD XOM BAC GE T EXC
Commodity producers, commodities, emerging markets, Japan. Basically the stuff that got hit hardest on the way down.
Here is my analysis of the top 9 stocks from the sector spyders: Monsanto- On the all data chart, this looks like it has more room to fall. I dont see the materials section in growth mode for the next few years at least especially with the housing market in such a slump and China is no longer in Olympic mode. JNJ- This one has more room to fall. PG- More room to fall... MCD- More room... XOM- More room... BAC- Right between 12 and 18 is that spot of support created by the 98 panic. If it can bounce off that support, then this might be a good bounce candidate. GE- Strong support at 18. If it holds, then this is a good bounce candidate. T- Looks like a little more room to fall before it finds support. EXC- Big room to fall I would look towards financials and industrials for a bounce if they can hold support. If they cant hold support, then they will visit disgusting lows. If this is so, then the SPY will probably trade lower then the 2002-2003 lows to about 50 or so. I would look towards technology stocks in a month or so as they all appear to be approaching some type of support. There are certain technology stocks, like AAPL, that look like bloated pigs and have a lot more room to fall.
What we are going to see in the near future is a flight to quality from investment funds and pension funds. Food services and phone/utility sectors are the two sectors I can think of that will be least affected by the credit crisis as they are 1) not capital intensive sectors and 2) service-oriented sectors that provide the basic necessities to consumers. We will definitely see these two sectors leading the recovery of our economy. PA
If XOM has a lot more room to fall, then I would look at the airlines. AMR, CAL, DAL, etc. Jim Rogers is long the airlines...
Utility sector is going back to 2000 lows. Kraft is looking good at these levels although a little nervous that it broke through years of support.