It turns out that Mario Draghi is Super Mario. Mario Draghi is an ex-central bank governor of Italy who just took over from Jean-Claude Trichet the presidency of the European Central Bank (ECB).
In a surprise bold move, Draghi announced that the ECB is lowering its main rate from 1.5% to 1.25%. This rate cut will either avert the looming recession from Europe, or make the recession milder.
This cut in interest rate came despite inflation in the eurozone at 3%, which is a three-year high. Draghi’s predecessor Trichet saw the ECB’s mandate as controlling inflation irrespective of the economic slump. Inference from the bold action by Draghi is that a major shift in policy in Europe is occurring. It appears that finally monetary authorities are about to give priority to growth.
Considering that eurozone is a major part of the world economy, Super Mario has changed the game for stocks, gold, silver, oil and currencies.
The following are the actions we are recommending:
- Take profits on a short silver position. Prior to the announcement, our models had just given a signal to add to the short silver position and were close to giving a short signal on gold.
- After plugging in the rate cut, we are no longer inclined to short sell silver and gold. If there is a big dip in silver and gold, and all six screens of the ZYX Change Method are met that may be a time to buy gold and silver.
- On market pull backs, take profits on partial hedges against our long positions that are still in place. This means that there is a lower probability of a deep correction in stocks.
- On market pull backs take profits on inverse ETFs. Here is a recommendation to our subscribers on October 4:
INVERSE ETFs IN OUR PORTFOLIO ARE DOING WELL
We sprinkled our portfolio with a small dose of inverse ETFs. The recent market drop has proven the wisdom of using inverse ETFs appropriately.
Those investors who do not have a large long portfolio that needs hedging should consider taking at least partial profits here.
SMN is at $32.09, BOS is $22.65, RXD $28.30, and EUO is $19.80.
Those who have held on to inverse ETF positions may take profits on SMN, and BOS. The average entry price for SMN is $16.19 and the average entry price for BOS is $17.81.
- Maintain inverse ETF positions in RXD and EUO.
The average entry price on RXD is $23.45 and the average entry price for EUO is $17.11.
Add to RXD on drops.
- We initiated positions in a number of European ETFs and stocks at the depth of the European crisis. We have already taken profits in some positions and other positions are now solidly profitable with the exception of STD.
- Our subscribers are already long OIH. We look forward to adding to or initiating new long oil related positions.
- Aggressively add or initiate positions in stocks of select companies that exhibit tax loss selling. We will be providing precise recommendations on the Real Time Feed as opportunities arise.
- Initiate or add positions in emerging market stocks.
- Short sell Japanese yen, healthcare stocks and consumer staples on any big bounces.
The readers may want to make the extreme volatility in the markets their friend by timing their purchases using a proven method such as ZYX Change Method to make profits.
Super Mario has changed the game, once in a life time opportunities await those investors who are willing to step up.
Disclosure: I am long OIH and have several long and short positions on the symbols mentioned in the article.