The Zacks Analyst Blog Highlights: Cummins, Suncor, Southern Copper, National Oilwell Varco and CVR Energy

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Sep 01, 2011, 09:30 ET

CHICAGO, Sept. 1, 2011 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include: Cummins (NYSE: CMI), Suncor (NYSE: SU), Southern Copper (NYSE: SCCO), National Oilwell Varco (NYSE: NOV) and CVR Energy (NYSE: CVI).

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Here are highlights from Wednesday's Analyst Blog:

Gray Skies = S&P 1,050 Bottom

The current relief rally in equities is a thing of beauty. I stayed short all my naked put positions in Cummins (NYSE: CMI), Suncor (NYSE: SU), Southern Copper (NYSE: SCCO), National Oilwell Varco (NYSE: NOV), and CVR Energy (NYSE: CVI) and took some profits today on three of them.

And I added some leverage to my prediction that the successful test of 1,120 on the S&P 500 would carry us up toward 1,225. I did that via buying an ETF intended to produce 3 times the returns of the index, the ProShares UltraPro S&P 500 (UPRO). I bought it at $49 the morning of the Jackson Hole speech and have traded the swings all the way up to $59.

Which Way Now?

Since it is highly likely that there isn't much more upside in this relief rally -- 1,250 is optimistic -- we should look at short-term scenarios while we trade in this range and play the "recession waiting game."

This is especially important since I don't think we can say the bottom is definitely in, though you will hear money managers start to say so, like Brian Belski of Oppenheimer on CNBC this morning.

Recall that on August 5 in "How Long Will the Correction Last?" I proposed that the market would trade sideways between 1,150 and 1,250 on swings of optimism and pessimism until more data was received and processed about the "probable recession."

I didn't foresee the extreme of pessimism taking us to 1,120, but the basic idea has held up for the past 3+ weeks. And even though we have had a good amount of data pointing in both directions from the consumer and manufacturing fronts, we still don't know if the third quarter's GDP result is more or less likely to register a dip into recession territory.

Since I believe that markets will always continue to fool people and overreact on emotional extremes of optimism and pessimism, below is my view of the S&P chart now. I see a good 30% chance that we can head down, break the 1,100 "extreme value area" as I've called it, and then put in a bottom at 1,050 in the next six weeks once we see that GDP won't slip much below the zero line.

Just because I see 1,050 as the bottom part of the major support "band" along with 1,150 as the top, it doesn't mean we can't overshoot and touch 1,000. But that line will definitely be make or break.

I've heard technical guys talk about 980 and I say, "Listen, if that's your extreme oversold/bottom level target, there will be plenty of guys like me -- and many with a few billion more dollars than I -- buying between 1,025 and 1,050."

In other words, while a spike below S&P 1,000 is certainly possible, buying good stocks anywhere within 50 points of it will a fantastic long-term opportunity. This is, of course, in the "gray skies" mild recession scenario.

But even in worse cases, I will still be buying there because I am definitely not in the Dow 5,000 camp of long-term doom.

Gray Skies and a 30% Chance of S&P 1,050

As we process the data, investors from the top research houses down to me are still handicapping the probable recession. In my "Just 2 Scenarios: Recession or Not," I highlighted the work of UBS. Here's a recap of their outlook...

No Recession, 60% chance: Earnings estimates of $95 to $100 for the S&P 500 stay intact even with 2% growth into 2012 and the index makes new recovery highs above 1,400 by the end of this year.

Gray Skies, 30% chance of mild recession: Here, corporate profits could fall 13% as GDP declines 2% over the next year, taking the S&P likely below 1,100 but finding its legs somewhere in the middle of that period above 1,000.

Black Skies, 10% chance of severe recession: In this ugly view, GDP would fall 4% over six quarters and take down earnings as much as 27%, knocking the index down to 900 for starters and likely bottoming near 775 one year from now.

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