USO, X, NUE, SXCI and China Stimulus

Finally. A positive start for stocks finally finished that way. We’ve seen several rally attempts fizzle over the last couple of weeks. Once the S&P 500 hit 700, a lot of traders were looking for some upside. Let’s hope it sticks. 
Wednesday’s rally could have been stronger, though you can’t really be surprised that investors aren’t jumping head first back in the stock market. Volume appears to have been solid, but not outstanding. 
The most encouraging aspect to Wednesday’s rally was leadership. We got leadership from technology and oil. If investors are buying in anticipation of an economic recovery, then oil necessarily must trade higher. Because any uptick in economic activity means increased demand for oil.  
And with OPEC production cuts taking hold and recent reserve draw-downs, the oil market has to be tight.  
*****Jason Cimpl, analyst for TradeMaster Daily Stock Alerts, made 10% on the US Oil Trust ETF (USO) last week. And the USO position he recommended on Monday is up about 11% as of Wednesday’s close.  
Jason recommended two other trading positions Monday. One is flat and the other is up 7%. Here’s Jason’s chart from Tuesday. He bought right before the bullish reversal day.

*****I’m also encouraged that steel stocks were strong. Same theory here as with oil, except there’s a valuation angle here. Any uptick in economic activity will help steel companies. And when you’re trading with a trailing P/E of 1.05, like U.S. Steel (NYSE:X), or 5.81 in the case of Nucor (NYSE:NUE), even a small improvement in business can make for a nice move higher. These stocks jumped 9.9% and 8.1% on the day. 

Some of the smaller steel companies like Steel Dynamics (Nasdaq:STLD) and AK Steel Holdings (NYSE:AKS) made 15% jumps. When it comes to steel stocks, Nucor is the pick of the litter.  
 *****Another catalyst for the solid moves in oil and steel stocks is China’s stimulus plan. If we can believe China’s numbers, it’s the only country in the world that’s growing. And China wants to keep it that way. It plans to spend $585 billion in 2009 and 2010 on a host of projects, including highways, railroads, and the power grid.  
It’s reported that 20 million migrant Chinese workers have lost their jobs. Current growth of 6.7% is below the 8% China needs to protect jobs.  
*****By the time you read this, earnings will be out at SXC Health Solutions (Nasdaq:SXCI). SXC Health Solutions was the featured recommendation at SmallCapInvestor PRO on February 19. Click here for more about SmallCapInvestor PRO and how you can get my new report on SXCI and winning healthcare sector stocks. 
Given President Obama’s push for medical records top go digital, we really like the prospects for SXC Health Solutions. The company’s pharmacy benefit management solutions assisted in nearly 1 out of 4 of the 3.5 billion prescriptions processed in the U.S last year.  
That’s a strong market share, and earnings should reflect it. If Wednesday’s 10% rise is any indication, earnings should be good.  
*****The next Recovery Portfolio video conference is coming up on March 10, 2009 at 6 pm Eastern time. We’re entering a trade that offers is highly likely to net 24%, and gives you 17% downside protection. You can register HERE


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