As my longtime readers know, I follow the ZYX Change Method . Geopolitical conditions have always been a big part of our models for emerging markets. For the first time in the history of our model, political conditions in Washington carry the highest weight.
It is all about debt ceiling negotiations in Washington. August 2, 2011 is the deadline. In practice, the markets may react prior to August 2nd.
There is also the possibility that a downgrade of U.S. debt from AAA to AA may occur before August 2nd.
Not only is it important that an agreement be reached, but it is also important that the agreement be meaningful. An agreement that simply kicks the can down the road is likely to lead to downgrades of the U.S. debt.
It may seem that a good agreement should lead to higher stock prices, higher bond prices, higher commodity prices, and lower gold prices. It may also seem that no agreement or a bad agreement should lead to lower stock prices, lower bond prices, lower commodity prices, and higher gold prices.
The markets are perverse. They do not always act in a manner that seems logical to the less informed. The reality is that in the short-term the reaction of the markets is going to be determined by the gap between what actually happens and how the street is positioned.
"The street" is a Wall Street term that aggregates positions of the vast majority of the big players.
The reality is that no one knows for sure how the street is positioned relative to the debt negotiations. It used to be that those with inside information always had a huge advantage. But now, the gap between those with accurate inside information and those without inside information but armed with highly complex algorithms has narrowed.
The bottom line is to stay defensive, and put in limit orders to buy bargains on any big dip. Here is the list of the five bargains on any big dip that every investor should consider. Following are the common characteristics of these 10 stocks:
- They all have at least one catalyst for price appreciation in the near future even in a down market.
- They are all relatively inexpensive even at the present price
- They all can go on 20 - 40% sale in an overall market correction
- They all are likely to meet at least five of the six screens of the ZYX Change Method when the price moves to the Buy Zone
- They all are likely to move up sharply in the inevitable overall market recovery.
- They all allow for reasonable stop zones.
- They together form a diversified model portfolio
ARM HOLDINGS (ARMH)
This is a British company. It develops microprocessor architectures and designs. The company does not manufacturer but licenses its technologies to others. A majority of present day smart phones and tablets are utilizing ARMH architecture.
The catalysts behind the stock move will be the world going increasingly mobile and a potential buyout.
THE BABCOCK & WILCOCKS COMPANY (BWC)
The company provides clean energy technology and services for power generation.
The catalysts behind a stock move will be the world increasingly delivering energy using electricity such as in electric cars, more pollution controls, and replacement of aging power plants.
CENTERPOINT ENERGY (CNP)
The company is a utility operating primarily in Houston, Texas.
The company also provides a nice dividend.
The catalyst will be a buyout.
COMMUNITY HEALTH SYSTEMS (CYH)
This company is a large hospital operator. Recently the company tried to buy a competitor, Tenet Healthcare (NYSE:THC). Tenet sued the company with allegations of fraud. This has prompted a massive government investigation. There is a lot fear in this stock.
The catalyst will be a positive resolution of the government investigation.
COLDWATER CREEK (CWTR)
The company is primarily a retailer of women’s apparel, accessories, jewelry, and gift items in the U.S.
The catalysts will be management getting the fashion right, successful transition to younger demographics, or a buyout.
Disclosure: I am long CYH, CWTR.
Additional disclosure: Subscribers to ZYX Buy Change Alert may be long the stocks listed in this article and may have been provided additional information that is not provided in this article.