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5 Opportunities to Watch: From Oil to the Dollar

Mar. 25, 2011 8:31 AM ETIEZ, XHB, SLV, FCX, GLD, GDX, XRT, ORCL, ADBE
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Money flow has shifted as investors take money from the technology sector and put it to work in other areas driven by commodities’ prices rising again. The rotation is due to major world events, and the resulting speculation on the outcomes around the world. The following are five opportunities currently in motion for investors to consider.

The euro dropped on the inability of Portugal to come up with what amounts to a balanced budget. The prime minister resigned and a new bailout project is underway for the European Union. What does this mean for the euro? On the surface the reaction is negative as it puts pressure on the European Central Bank and the EU. However, we have to remember the ECB is ready to hike interest rates. This may actually cause the euro to rise in value or at least offset the negative from the Portugal situation. Thus, buying the euro could prove to be a profitable play short term. Maybe a test back near $1.39 on the euro and then a rise towards the $1.47 mark. The dollar could benefit from the current world events as well, as the greenback is oversold. Look for a bounce on the dollar index back towards the 78.50 mark.

Earnings are back in the headlines with warnings from Adobe (ADBE) relative to productivity from Japan. This morning we will hear from Best Buy (BBY) who has been struggling to keep pace and shares have dropped nearly 30% since their last earnings announcement. The data will give some insight into the consumer mindset on spending. Watch SPDRs S&P Retail ETF (XRT) for insight to the consumer. A break below support at $47.50 is a short term negative on the outlook. Oracle (ORCL) announces this afternoon and they will provide information on several fronts. First, the global economy and their exposure to Japan and second, corporate spending. Research in Motion (RIMM) announces after the bell tonight and could be the most watched data release as sales begin on their new tablet and insight into the telecom space. They have steadily lost market share to Apple and the iPhone and we will get the latest relative to the smart phone wars. The earnings information will set the tone for expectations in Q2 for earnings. I am expecting a decline in the earnings expectations overall.

Oil remains a primary concern as the price of crude moves toward $106. This issues relates to the earnings expectations above. The higher gasoline moves the less money the consumer has to spend in other areas. What is the tipping point for the consumer? Where does the economy demand destruction from gasoline? The answers are all speculation, but the reality is to be long crude at this point. USO, USL or one of the energy ETFs should be in our portfolio. I still like iShares Oil Equipment & Services ETF (IEZ) as a play in the sector overall.

The metals and mining sector popped to the upside in trading as investors put money back to work in the sector. The precious metals are leading the way as silver (SLV) hit a new high. Gold (GLD) moved back near the early March highs and looks ready to break to a new high as well. Owning both metals currently has been a plus for portfolios despite the recent volatility. The mining stocks have come back to life with the rise in prices. Market Vectors Gold Miners ETF (GDX) is up 18% in the last week. The base metals are picking up momentum as well with PowerShares Base Metals ETF (DBB) up 5% over the last week. Copper and steel moved higher on Wednesday giving some hope to stocks such as Freeport McMoran (FCX) up nearly 15% and breaking the short term downtrend line. The sector is one to watch short term and add as the opportunities unfold.

Economic data has taken a backseat to the major news headlines, but they are still important to the future outlook for stocks. The housing data this week confirms what everyone knows, housing stinks! New home sales fell 16.9% in February and existing home sales were down 9.6% for the month. Last week housing starts showed a decline of 22.5% for February. Taking the optimistic view, there is good news in the bad news. The big decline in new starts helps the inventory picture and the lower prices for houses will eventually help sales. The rental market has picked up as occupancy rates for rentals rise. This is also good news for the housing sector. If rents move higher they will indirectly impact the price of housing. First, they take houses off the market and reduce inventory and second, higher rents will create higher home prices based on a simple ROI calculation. We have owned and recommended SPDRs Homebuilders ETF (XHB) since last fall when the price broke above $16. It pays a small dividend of 2% currently and the outlook is positive for the sector which includes retail.

Bottom line, there is plenty of bad news, but if you spend time focusing on the bad you will miss out on the rising opportunities.



Disclosure: I am long XHB, IEZ.

Additional disclosure: Money Strategies, Inc. clients may or may not own some of the stocks or ETFs mentioned in the article.

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