Trade in Groups

Whenever you hear statements about the economy as a whole, remember one thing: the whole economy is a collection of micro economies.

Macro economic data is helpful to get a big picture view and draw some conclusions about trends. Micro economies are where money is made. Even a ‘down’ economy has strong sectors.

First off, steer clear of financials. It remains unclear if they’ve bottomed out and much better opportunities exist. On Monday, U.S. Treasury Secretary Henry Paulson encouraged institutions to raise their own capital if needed. Plus it’s not a great sign when banks begin airing commercials asking people to save more; clearly financial institutions still need to increase bank reserves.

Look for global exposure, tech stocks, and oil services for trades in today’s economy. Three trades that will boost your portfolio are Wal*Mart (WMT), Research in Motion (RIMM), and Oil Services HOLDRS (OIH).

In mining good trades, be weary of the consumer; at least pick your spots wisely. The consumer is getting hammered with energy costs, $4+ gasoline, and escalating food costs. When budgets are tight the natural consumer play is to long Wal*Mart. Many of the stimulus checks will be spent at Wal*Mart and a vibrant international business with 25% of sales abroad bodes well. A bet on Wal*Mart is sensible with a continually slumping U.S. dollar and economic strength in other countries.

Get long Research in Motion, the maker of BlackBerry hand held devices. The tech sector has performed fabulously since the lows of mid-March. Research in Motion is no exception with a stock price up 60% since mid-January. Earnings were up 118% from the previous quarter in a company report from February 29. Consumers upgrade their hand helds religiously and a strong business segment should keep demand strong. Research in Motion’s newest creation, the BlackBerry Bold, will be released later this summer. The Bold will compete with the second generation Apple iPhone which Apple CEO Steve Jobs introduced Monday. BlackBerry remains number one in smart phone sales but has extended its reach past the business segment by adding music player and video camera features.

Some speculators are beginning to feel crude oil topping out after months of bullish futures buyers. Speculators are increasingly shorting oil waiting for it to retract from its meteoric rise. Crude oil has continued strong growth in the face of record prices and shorting in the options market. Goldman Sachs offered oil predictions of $150/barrel this summer as it hovers in the $130’s this week. All that being said, short-term volatility of oil is widely unknown. Therefore, play oil services instead. Buy and hold Oil Services HOLDRS (OIH), a basket of oil services stocks packaged in a trust similar to an ETF. This play is one step away from actual petroleum exploration and drilling. Instead, oil services include oilfield, seismic, transport, and directional services and should win regardless of short-term oil volatility.

by Ryan Swift