Stick with Brazil, China, Gold, and Metal Miners

Volatility historically still high but coming down which is bullish.

The US Dollar has rallied off its lows and is consolidating at higher levels. The story for the past decade has been: lower dollar correlates with higher asset prices, and vice versa. If the US dollar does resumes its decline, asset prices would be expected to go up (inflate, lol).

The S&P 500 showing its plunge and recent 20% rally. Technically still in a downtrend. The Bull case is that the market averages are 50% off their peaks and are cheap, the Bear case is that the economy is horrible and will continue to be horrible for the foreseeable future.

The Nasdaq 100 has actually outperformed all the way through the bear market. Why? The Nasdaq 100 consists of the 100 largest stocks on the Nasdaq that are NOT financials! Also, no government interference in the tech companies, no TARP, no toxic assets, etc. Just the "normal" boom and bust cycle for tech, which people can handle. Tech has become "defensive!"

The Russell 2000 was crushed on the downside and has outperformed during the recovery rally. This in keeping for its reputation of being a higher beta play vis a vis the large cap averages such as the DJIA.

Goldman Sachs Commodity Index ETF, GSG. Mostly oil. I like it because it appears the bad news is all priced in. That is, the downside appears limited. Nice risk/reward.

WTI Crude oil. $50 per barrel is overpriced relative to demand and current inventories, but factors in things like potential increase in demand with improving economic activity, OPEC supply limitations, potential for supply disruptions, and the movement into hard assets vs. paper assets.

Brazil ETF (EWZ). A fabulous long term story, this ETF is heavily weighted in PBR (state oil company) and RIO (giant iron ore miner). But don't forget about the growing Brazilian banks.

Chinese ETF, FXI. How can you not have some portion of your portfolio in Chinese stocks? An alternative is investing in companies that sell a lot to China, such as BHP, RTP, FCX, etc. The raw material suppliers.

Gold has held up remarkably well during the commodity collapse in the past year. Obviously a flight to safety out of paper assets. The next leg up could be fueled by another round of financial panic, military conflict, or the coming surge in inflation.

Oil Services ETF. OIH took its lumps along with the market, but has since based and broken out, in advance of the price of oil. A very bullish sign as money looks for a safe home within the stock market, analogous to tech. Like tech, the fundamentals are currently shaky but the future is clearly bright and, of course, no toxic assets on the balance sheets and not under the thumb of the Government.

Metals and Miners ETF (XME). I like this because it has a lot of coal, some gold, etc. Pete Najarian has become very bullish on coal. Coal is evil in the US, but metallurgical coal is vital for steel production, which should turn up someday, and coal for energy is still a key component of US electricity production, as well as China and India.

Comments

[bluesmoke]

Good article. I agree with everything except China. From market manipulation, to inferior products, a fragile social structure and dwindling demand for manufacturing, even with their gigantic bag of money I'm not convinced they are out of the woods just yet.

2009 Apr 27 09:56 AM

[EUARTE]

Brasil has survived the worst of the world financial crisis. However, everyday that it goes on Brasil's economy gets closer to the edge. Brasil depends, like Germany, on exports. If China and USA, not to mention depression EU reduce spending on imports for much longer then the R$ starts to look like a weak sister. Brasil's use of the racial card about white blue eyes does not help. Brasil boasts about it's currency reserves. They are in dollars and euros. If they are declining in value so are Brasils reserves. It's oil is overpriced.

2009 Apr 27 10:14 AM

[Gravity404]

Great article. Pointed, without all the fluff. And the best thing is I agree with everything. Great minds think alike.

EWZ is a great long term bet and when it broke above $41, it showed the bottom. Instead of ETFs for the others why not buy the individual stocks like RIO, FCX, even Bucy or JOYG?? I would stay away from the large Miners like RTP and BHP, too big, too much debt and clumsy; other than that, its a firesale.

If you run the numbers on FCX proven reserves, at current market prices for Copper, Moly, etc they have almost a trillion dollars in real, tangible assets, of course minus the cost of gettng it out of the ground.

2009 Apr 27 10:25 AM

[kelm]

Technically RIO looks better than the other miners in here. I agree that the others will do well over time but right now I do not like the charts for them. I added new Rio positions last week. BHP probably looks best of the next lot. I'd wait on FCX and RTP.

Brazil is increasingly seeing large exports to the Middle East, India and Russia. The emerging - to- emerging market trade is growing at a pace that is far outstripping the growth in Brazil-to-developed country trade.

2009 Apr 27 10:52 AM

[Dr. O]

Hmmm....The article as I submitted it was titled "Weekly Summary with 2 Year Perspective" not what was published, lol. The editors like catchy titles with strong points of view.

Anyway, the charts are WEEKLY to filter out the noise of the dailys, and I used the 40 SMA and 150 SMA of the weekly charts, giving a somewhat different perspective than the daily charts.

There's not a whole lot of "horizontal" resistance in many of the above charts, that is, the plunge was so fast there isn't much in the way of overhead supply to plow through. There is significant resistance that many of these charts face in terms of bumping up against their downwardly trending moving averages. That's always a tough push.

Not to mention the swine flu scare.

2009 Apr 27 11:24 AM

[Dr. O]

Sadly, the combination of the swine flu scare, the generally overbought nature of the market, and the weak intermediate-term technicals (downwardly sloping moving averages) are knocking markets down world wide. Not to mention that the fundamentals haven't turned up yet. I'm configuring my portfolio accordingly.

2009 Apr 28 06:02 AM