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The Bulls Continue to Ride On Out Led by Emerging Market

|Includes:HDB, NE, Petrobras - Petroleo Brasileiro S.A. (PBR), PTR, TTM, VALE, WIT, XOM

Who would have thought?

Since last July, the Dow Jones has regained more than 3000 points a whopping return of 37% in 9 short months.  Is it a sign that capitalism works or government intervention is necessary?  I think not, I believe it is another sign that technical indicators win again.  Follow along:

Back on July 13th, 2009 I wrote an article Bull Market Rally: The Golden Cross shows Bullish Technical IndicatorsBelow is what I said:


I am a firm supporter that long-term the markets will continue to follow this ongoing trend and will head upwards. Analysts all over have become very negative especially towards equities quoting that due to the fiscal deficits our economies currently hold history has a lesson to teach us. I say to them, yes history will repeat each for the better good of the equity markets. Deficits have always been preceded by significant rises in equity markets. Look back at the markets in 1949, 1975, 1982, 1992, or 2003. Those who were not scared off by the downfalls in the markets and maintained their equity positions welcomed in the gains. To add to this we see more bullish signals coming out. Most importantly the Golden Cross has come into play, which has been seen or is about to take place in many indexes across the world. What is the Golden Cross? The Golden Cross is a signal of bullish markets and occurs when the short-term moving average overtakes the long-term moving average. In this case we see that the 50-day moving average has overtaken the 200-day moving average in both the Dow Jones and the S&P 500. Look at the graphs for example. See the crossover of the 50-day moving average taking over the 200-day moving average.

Historically, the Golden Cross has been a reliable sign that equities are on the rise. Just as the Death Cross has been an effective indicator of downfall. The Golden Cross is a signal of a shift of power to the bulls in the market. You can date this all the way back to 1900. Since then all the net gains in the U.S. Stock Market have occurred when the 50-day moving average is above the 200-day. To support the Golden Cross we can look at other bullish indicators. Another is that volume is rising. This shows that the bulls have support of the market. For Investors, who are long equity markets, these indicators would suggest you should continue to buy and trade stocks now as its one of the best opportunities to benefit from the recovery. Short-term traders ride the Golden Cross as long as it is in play. Warren Buffet has supported this theory advising investors to continue to trade and buy stocks despite the Dow reaching 9,000. He sees the markets continuing to strengthen and grow leading towards a rally of some sort. As a result I will end with a quote of his relating to the way history plays within trading. “Chains of habit are too light to be felt until they are too strong to be broken.”

I believe that the markets won’t stop here.  We are in the middle of a bull market rally led by the resurgence in emerging markets, rising commodity prices, and optimistic earnings reports.  So where should you be investing?  Well first take a look at what have been the surging sectors since the collapse of Fannie Mae.

So where are the future growth markets?  I think China, Brazil, India, and Crude Oil are the bullish sectors. Lets analyze each one below:

My first favorite pick is Brazil, currently the world’s 8th largest economy.  As the U.S. sinks deeper into public-sector debt and federal bureaucracy, Brazil has had huge success in reducing public debt and the level of bureaucratic control.  Brazil restructured its finances years ago and is now in far better shape in terms of debt than the U.S., Japan and most of Europe.  Brazil also has huge oil reserves and a fast-growing domestic market – which means it’s less dependent on exports to declining markets in the U.S. and Europe.

Brazil ADR picks:  Petrobras (NYSE: PBR): Brazil’s largest oil and gas company.  Vale (NYSE: VALE): Brazilian metals & mining company, also a producer of iron ore.

India is Asia’s 3rd largest economy and has maintained strong economic growth through the global financial meltdown, managing to post an impressive growth of 6.7% in 2008-2009.  The IMF projects 2009-2010 growth at 6.75-7.5%%.  This is a fall from the 10% growth rates India enjoyed before the global financial meltdown, but India remains one of the fastest-growing economies in Asia.  Just compare this with estimates of 2010 U.S. GDP growth of only 1.5%.  The best way to capitalize on growth in India is by investing in Indian banks.  Although its economy doesn’t grow as fast as China’s, the banking system operates independently of the government so the loans are higher quality and there’s no forced lending.

India ADR picks: Tata Motors (NYSE: TTM): India’s biggest car manufacturer, maker of the Tata Nano, the cheapest car in the world.  HDFC Bank (NYSE:HDB): One of India’s better-managed banks, this stock’s enjoyed a tenfold gain since 2002.  Wipro (NYSE: WIT): leading tech services group with strong earnings surprise history, recently opened in Brazil.

I continue to be positive on China in spite of increasing talk of a jittery China bubble.  Many portfolios are now underweight on China.  China’s mid-to-long-term outlook is bright and it will enjoy higher growth than India, but expect more volatility, so you need to be very selective and/or perhaps more speculative with your picks.

China ADR picks: PetroChina (NYSE: PTR): China’s largest listed oil company, up 35% over past 12 months but growth to continue, benefiting from higher crude prices & rising energy demand.  Tencent Holding (HKSE:0700.HK): biggest Internet company most people outside China have never heard of, hundreds of millions users for its IM service, market cap of $38 billion bigger than Yahoo & twice the size of Baidu.  Likely to benefit from Google’s China departure, but beware:  This is a volatile speculative play.

I believe Crude Oil will only continue to rise. Climbing over $85 I believe it only up from here.  Recent OPEC reports stated that energy demand will continue to increase throughout 2010. Global oil consumption could possibly rise to as much as 1.4 millions barrels a day. Crude oil prices will rely heavily on the global economic situation however I am optimistic that we will continue to see improvements within the economy. We have yet to see the surge in oil prices yet I think its coming soon. I believe oil is undervalued and consumption will only continue to rise. I expect demand to greatly increase in BRIC countries around the world. I speculate we will see oil rise in the coming weeks being supported by strong economic data. I think this surge will help lead to higher oil prices throughout 2010.

Crude Oil picks: Noble (NYSE: NE) and Exxon Mobile (NYSE: XOM)

Overall let the bulls continue to ride out as we reap the gains.

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Disclosure: LONG PBR, NE