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Understanding Sector Rotation

by: Brandon Matthews October 07, 2008 | about stocks: SIRI    

Brandon Matthews

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I was talking with a friend who works for Deutchse Bank (DB) and his wife this weekend. We were all in agreement regarding the overall market and economic conditions being nearly catastrophic. He mentioned to me that he just needed to figure out what to recommend to his clients, and we all got a little laugh (although a cynical one) out of it. That indeed is the problem, and I’ve spent days pondering the answer.

I revert back to my technical analysis and sector rotation. It is so imperative that anyone invested in any equity understand sector rotation. Imagine, if you will, a “football field,” with the end-zone on the left being the 0 yard line and the end-zone on the right being the 100 yard line. Stocks that are at the 0 - 20 yard represent sectors that have been oversold. Stocks in the 80 -100 area are stocks that have been overbought.

Over-sold<——————————–>Over-bought

0—10—20—30—40—50—60—70—80—90—100

Downside risk<————————–>Upside Potential

When a sector reaches those high 70,80 and 90% areas, its potential upside is diminished and downside risk becomes much greater. Conversely, when a sector hits those low numbers, its downside risk becomes minimal, and its upside potential becomes greater and more attractive.

Here’s the first problem. Nearly everything is oversold now, with the exception of commodities and perhaps gold stocks, although those seem well on their way to joining other sectors at the left end of the field. The question becomes, which sector or sectors will lead in the next market uptrend?

The government has yet to figure out that the way to spur the economy and end another depression before it begins is through job creation. When Reagan brought us out of a recession, it was through jobs that were created during the cold war in aerospace and defense. Hoover and FDR did it through construction in infrastructure and the Hoover Dam. The Clinton years brought us technology. The next Government funded projects for the sake of the country’s financial health will be, in my opinion, alternative energies, yet that scenario will take a year or more to begin to play out. No economy can prosper on Walmart (WMT) salaries.

So today, as I was driving home and listening to CNBC on Sirius (SIRI), a commercial caught my attention. It was a commercial for Advil. Immediately I recognized this as a new advertiser. I then recalled a statement by Mel Karmazin recently that mentioned his desire to offer a low priced solution to advertisers. Mel, you're a genius! You may not know crap about stocks but did you ever bowl me over today!

“That’s it!," I exclaimed to myself. MEDIA stocks will lead the next market! Allow me to be the first to call it. As companies look to lower costs they will seek out less expensive advertising solutions. A business without a sign, is a sign of no business! Consider help-wanted ads, for-sale ads and such. Companies that want to survive will be looking for low cost ad solutions, and companies that provide these solutions to corporate America on a national scale will benefit the most. Media such as Sirius XM will thrive, provided of course, that it can survive the current credit crisis.

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This article has 123 comments:

  •  
    Oct 07 08:30 AM
    IF they survive, SIRI will receive an ever larger share of radio advertising. It has started already with Advil, Harley-Davidson, Klondike, and more. I would guess that mainstream advertisers are more impressed with 20 million listeners than with 10. It also might help if they could drop some of the more "tasteless" advertisers. If I were a major company, I might not want my product ad coming after something like Ashleymadison.com, etc....
    Reply
  •  
    Oct 07 08:46 AM
    I have noticed the same trend. Clips for Sale porno site ads have been replaced with Harley Davidson and Klondike. Even the Ashley Madison ads are thinning ( thank God!!). I hope this is trend is an indication of pending success....
    Reply
  •  
    Oct 07 08:52 AM
    Sirius/XM has solid foundations and from this point on we'll see a different trend for the company, It is very unfortunate however we got cought into this subprime spiral and company suffered many uneccesary losses due to credit concerns. Corrupt mortgage dealers and corrupt Bank CEO's and managements ought to pay with jail time. Lehman Bros CEO must be throwned in Jail for life , what a Jocker this guy is.

    Sirius/XM has solid CEO and management team will pull though this,
    all they need is the right moves.
    Reply
  •  
    Oct 07 09:25 AM
    Blah Blah Blah-why dont they join with direct TV- They need help- Dont tell me Mel is Like the bozo from yahoo who turned down help from microsoft-Not another testosterone Jerry Wang story I hope.No brainer that XM is already part of Directs showcase and has alot more satellites.
    Reply
  •  
    Oct 07 09:28 AM
    So.....
    The Meadia market will be the next bubble....Again!
    Reply
  •  
    Oct 07 09:36 AM
    I like how the world markets suck yesterday....And people don't look at any other stock.... They see SIRI down %10 and are like Chapter 11!!!!
    There were only like 3 stocks that had positive gains on the NASDAQ yesterday???
    WTF??? SIRI is fine...
    Reply
  •  
    Oct 07 09:54 AM
    There is a flight to quality going on. Cramer told everyone to sell everything last night. SIRI will not have buyers, and the stock will not rise, until the financials are stratightened out and it shows a believable path to positive cash flow. This of course assumes no further dillution of the stock.

    Now more than ever SIRI should seek marketing partners like NetFlix or Best Buy to raise subscriptions.

    seekingalpha.com/artic...
    Reply
  •  
    Oct 07 10:05 AM
    Muley, people who listen to Cramer dont have enough money exposed to this market to make on lick of difference. Hes a justifier, and a pundint for the banks. Nearly mentioning him deems you are a sheeple.(no offense, most people are)
    Reply
  •  
    Oct 07 10:07 AM
    Netflix only has 8 million subs compared to SIRI's 18mil. And there is a good chance that 3/4 of those subs already have SIRIUS/XM Subscriptions.

    How many people do you think actually listen to Cramer after the bs he has preached in the past. He has been right 50/50. Midas well spin around and point to a stock and say buy/sell every other time.
    Reply
  •  
    Oct 07 10:09 AM
    He drives some money to be gobbled up, never gives good advice.
    Reply
  •  
    Oct 07 10:22 AM
    relmor...

    Good to see ya still posting here!

    I read your comment yesterday about the not going below .40 and I think I misenterpreted it...
    Reply
  •  
    Oct 07 10:39 AM
    Quick question.
    Mel spent 2 million and bought @ about 1.37 to averaged down.
    I believe he is now averaged at about 3.00 not sure.
    Why do you think he hasn't averaged down again at the current price ?
    Also do you think it is better for the shareholders if he doesn't ?
    Reply
  •  
    Oct 07 10:55 AM
    I personally think Cramer is a clown, but unfortunately he has a following that does listen and act on his advice. SIRI stockholders should know that by now.
    Reply
  •  
    Oct 07 11:08 AM
    FED to buy commercial papers for short term loans.

    Only and the only remaining issue with SIRI must be resolved by this.

    Any comments?
    Reply
  •  
    Oct 07 11:49 AM
    MEL, please come out of your shell and make some positive results with merger and get some good news on the financing!
    BRING THE SHARE PRICE UP!!!!
    Reply
  •  
    Oct 07 11:52 AM
    THERE IS COMPANY TRADING AT HIGHER PRICE THAT DON'T EVEN COME CLOSE TO SIRI EXPOSURE IN MAINSTREAM. THOSE COMPANY HAVE A VERY SMALL MARKET CAP BUT TRADING AT A HIGHER PRICE.
    PPS VALUE !!!!!
    Reply
  •  
    Oct 07 12:17 PM
    sirius guy...
    Thats because those companies dont have 3.4 billion share outstanding...
    Reply
  •  
    Oct 07 12:27 PM
    Cramer is dip. He's a court jester or an ADD kid who should be on Ritilin. Basically he's a clown who entertains the people. I feel sorry for people who trade or invest on (or even propogate at all) his advice (muley)... What he actually said yesterday, and finally went farther into the ridiculous than I thought even he could go, was that anyone with money in the market that they would need 5 years from now should take it out NOW. What a loser! As are the lemmings who do what he says. Mr. Cramer, here's my 5 stocks...am I diversified? Drivel...

    Whatever miniscule cred he had left, he lost yesterday. So while the market comes back this year and next and he'll be once again making money hand over fist for his "charitable trust", all the dopes who are now keeping money in their matress will miss out. I don't know who's worse, Jim Cramer or I'm Not Jim Cramer (lol)....
    Reply
  •  
    Oct 07 01:19 PM
    Quick question.
    Mel spent 2 million and bought @ about 1.37 to average down.
    I believe he is now averaged at about 3.00 not sure.
    Why do you think he hasn't averaged down again at the current price ?
    Also do you think it is better for the shareholders if he doesn't ?
    Reply
  •  
    Oct 07 01:32 PM
    wjdjfd...

    For the time being, he's blacked out b4/after end of Q. Will he in the future? Probably after earnings release sometime in Q4 is my guess. That will be a bullet for him to use to increase share price...I'm sure he's keeping that bullet dry for a rainy day. Some might argue it's raining now, but yes and no...
    Reply
  •  
    Oct 07 02:05 PM
    Look at SIRI compared to the NASDAQ.... We are doing fine.
    Reply
  •  
    Oct 07 02:43 PM
    I wish I had more cash on hand to purchase more Siri stock! I believe that the fact that the Feds are looking into credit crunch solutions means that things will turn around soon, at least for the short term. Could the next step after commercial paper buys be extending lines of credit for longer term debt? If so, I'm sure that Siri would benefit from it along with other companies.
    Reply
  •  
    Oct 07 02:57 PM
    Everytime Ben or Hank open their mouths the markets fall another %5,
    Hillarious!
    Reply
  •  
    Oct 07 02:58 PM
    If we wanna save the economy just tape their mouths shut!
    LoL
    Reply
  •  
    Oct 07 03:15 PM
    Who can tell me when the stock go into Chapter 11?
    Reply
  •  
    Oct 07 03:38 PM
    Pissin me off
    Reply
  •  
    Oct 07 04:29 PM
    Everyone who holds Siri shares... Buy a sub to sirius or xm. If you already have one extend the package and get their best of packages for like an extra 4 bucks. Now is the time, also buy more shares!
    Reply
  •  
    Oct 07 04:43 PM
    nice ad smart shops- you sound like Mr Cleaver on Leave it to....

    "OK boys, now you all be nice and get in the station wagon.And, when daddy takes you for ice cream, get out in an orderly exit fashion."

    What a load of crap.
    Reply
  •  
    Oct 07 06:28 PM
    smartstops...

    so.....uh, what's your point?

    Reply
  •  
    Oct 07 06:34 PM
    What is anybody's point? This stock has been on a one way ride to zero and for some reason I can't seem to get off the train!
    Reply
  •  
    Oct 07 06:43 PM
    OK...

    SIRI fans. The damn thing WANTED to go up today...i'll be damed if it didn't try. But not a bad stand today. This stock is just EXHAUSTED from going down. We are definitely building a bottom into this stock. First we thought .68 now here @ .50. Pretty much the same diff. Now we just need some good news from Mel and the boys and it's time to blast off... All this crazy negativity in the market is getting bothersome isn't it? 5th down day on a row. Nothing drops forever. I'm also sick of all these Wall Street cry babies--better named p#ssies. Ooooo, I'm so scared I think I'll just take all my money and go home and curl up in a ball--call me when it's over won't you? I just can't bare to even watch the tape anymore!!! We're only in the 5th inning! WHAT A BUNCH OF WIMPS. Ok, so we'll just wait a little longer until these p-waists grow a pair and get back in. In the meantime make them some warm milk and cookies and give them a little pat on the head. There, there....

    Oh yeah and J. Cramer is still a loser. He's the biggest p#ssy of 'em all.
    Reply
  •  
    Oct 07 06:44 PM
    don't jump bdp!!! Be here when....
    Reply
  •  
    Oct 07 06:48 PM
    Oh and just check out a SIRI 3 month chart. That AIN'T a one way ride to zero. I can show you what that looks like. This ain't it.
    Reply
  •  
    Oct 07 07:09 PM
    Working for myself I have only an IRA and I have boxed myself in with SIRI, 7500 shares. When the markets across the world get spanked, I have been getting a chuckle from the whiners about the trillions lost. whahhhh. Being invested in a good company with a shitty stock and getting pounded for years, we understand pain. Does that make me a bad person to laugh at other peoples misery? lol! I can not contribute until Jan 1, 2009..so I hope Mel continues his head in the sand technique a little longer. Dealer, 5000 coming in! Long live SIRI and Roethlisberger!
    Reply
  •  
    Oct 07 09:08 PM
    Big Ben...................... I'm kinda sorta in your camp on this one aspect. While I would prefer working the "siri channel" back and forth from around a buy at .50 or< , to a sell at 1.05 to 1.30 >,a few times at least between now and the first of 2009.................. I'm hedging my bet with the knowledge that if it stays near .50, I can afford to transfer all of my sep.ira, and my simple ira cash over to my Roth ira at greatly diminished income tax penalty. Over the coming years the tax rewards will be huge. HUGE!!!!!!!!!!!!!!!!! killer.
    Reply
  •  
    Oct 07 11:13 PM
    I subscribe to the Buffett mantra....don't buy any stock you aren't willing to hold for 10 years. I'm as upset as anyone about the price drops...but I'm not losing any sleep over it. In 10 years time I really believe I'll wish I'd had more money to buy SIRI at these prices. The market is reliable. It cycles up. It cycles down. Always. Unless you're a day trader, these prices right now are a golden opportunity for future wealth.

    Am I wrong?
    Reply
  •  
    Oct 08 12:09 AM
    Hey to those people that still think its a one way train to zero...
    Don't forget Weinkes said .50 and thats where it has been roughly for 4 days (+/-3 or 4). So until GS either gets their converts or the company refinances... I'm pretty sure that we will be here for a while.
    Reply
  •  
    Oct 08 12:43 AM
    when relmore say's sell, im convinced its time to buy,

    yet retain all his previous intellect.
    Reply
  •  
    Oct 08 06:36 AM
    If Mel were to make an additional huge purchase now, what would that say to investors. It would say at least one scary thing among others... That he believes his big purchase at 1.37 was a mistake and wants to cut his losses by dollar cost averaging down. CEO's, in my opinion, should never dollar cost average down, but continue to load up periodically, when it is not expected. A large purchase from Mel at about .95 would be huge. It would be hard for the MM's to hold us at .99999999999 with a buyer surge at .95. The short covering will not start until we eclipse the dollar mark. True, a purchase from Mel at .95 would technically be dollar cost averaging him down, but the purchase would be telling investors something else, that this stock will be moving over a dollar soon, and we will not be back in the pennies again any time soon. A purchase from Mel in the near term would be an obvious dollar costing move which may or may not cause a negative reaction.

    Furthermore, what we need are purchases that make headlines. We need Howard Stern to drop a cool 5 Mil, Oprah to slam a quick 10 Mil, etc. The problem is that Oprah and Howard an the likes are not investors, they are the talent. I am willing to bet that if you asked either one of these individuals what the share price of SiriusXM is, they would not have an answer, they pay people to worry about that stuff. We should research who Howard an Oprah have as financial advisors, and begin hammering them to encourage a repurchase in the Blue Dog.

    BosS
    Reply
  •  
    Oct 08 06:40 AM
    By encourage them to repurchase, I mean letting their financial advisors know about the huge discount in SIRI, and encouraging them to let Howard and Oprah know about the opportunity. After all, it still comes down to H. and O. to pull the trigger.
    Reply
  •  
    Oct 08 08:12 AM
    We SIRI longs do understand pain. Crammer is a idiot and has zero credibility. He is just entertainment and poor entertainment at that. His track record speaks for itself if you can follow all the flips and flops. I thought Flammer called a bottom two or three weeks ago. What happen Flammer. Was that the bottom of the first bottom but not the real bottom which has not occurred until we hit another bottom at the bottom. Something like that.
    Reply
  •  
    Oct 08 09:08 AM
    OK...

    Judging by this morning's premarket, it's clear what's going on on Wall Street--once again. Talk about manipulation. The people who control the big money know exactly what they are doing. Let's just take the Dow but each market follows the same. So overnight, the Dow futures were down 350. Then early this morning there was a global coordianted rate cut--which two days ago I heard at least 3 "pundits" say "that's what the market wants." So on that news, the futures go UP 212 (a 500 point swing). Then no less than 30 minutes later, Target and JC Penney announce lowered guidance (btw, which we know our Mel already took care of long ago) and the futures are down 130. Talk about stupid silly. But regardless of that, we're back in the same mentality we were in after 911. These pukes are once again colluding to take the market down as low as they can possibly go so they can then buy in at garage sale prices across the board. Nothing will satisfy them now because they don't want to be satisfied--and they can pick an choose on what moves the market. What they want is to just keep taking the prices lower so they can rebuy in and make the most money. THAT's HOW THEY'RE GOING TO MAKE THEIR YEARS THIS YEAR!! Tank the market and then all pile in at once so they instantly make huge cash. WHAT A SCAM!!! And of course Cramer is in on it--why else would he blatantly tell people ON THE AIR to take any money they might need in teh next 5 years OUT OF THE MARKET. Don't believe ANYTHING else. Great Depression my ass. And the banks are in on this little charade too. I have to go here, but my point is DO NOT BELIEVE any pundit explanations. This is pure collusion to allow max money making for fund managers who haven't made a dime this year or are in the red. It's all BS!!!

    To be continued...
    Reply
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