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I’m going to cut right to the chase: There’s oodles of money to be made over the next few months … and I want you to have the early-bird’s advantage to cash in on the coming profits.
So right now I’m going to give you two areas to consider making some moves in. Let’s get started …
First, and on almost everyone’s mind, the broad stock markets. From the Dow Jones Industrial Average and the S&P 500 … to the Nasdaq … to Hong Kong, Shanghai, Japan’s Nikkei, Europe’s and Britain’s markets.
A powerful, multi-month rally is about to begin. A rally that could eventually see the Dow rise to over 10,000, a gain of almost 50 percent from current levels. Similar gains are in store for the other major indexes and overseas markets.
Why do I sound so confident given that the economic news streaming out is so darn gloomy? Have I lost my mind?
Quite to the contrary …
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A) Intermediate- and long-term trading cycles show a clear low is due to form this month. You can see it on this chart I have for you.
This cycle has tracked the Dow with uncanny accuracy. It’s one of the most accurate trading cycles I’ve ever studied for the Dow, and it’s clearly showing a low is set to occur this month, indicating the selling in the market will abate, and buyers will take control.
B) Bearish sentiment is at extreme record highs. When almost everyone who has panicked and sold stocks has done so, and when investor sentiment is so negative, as it is today, that’s the time to look at taking a long position.
For instance, the American Association of Individual Investors (AAII) Sentiment Survey recently hit a record high number of bears, at 70.27 percent, while another survey showed that out of every 100 traders, only two were bullish, another record of extreme bearishness and fear.
When fear is that high, when investors and traders are that bearish, it actually means that selling pressure is abating … the risk to taking a long position is lower … and the odds are far better stacked in favor of buying.
C) The dollar is topping out. Most disagree with me on this forecast as well. But the dollar has recently rallied only because other currencies have been weaker on a short-term basis, and not because the dollar is inherently strong.
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The long-term trend in the dollar remains bearish, as you can see from the chart at the left. Meanwhile, short-term, the dollar is also topping.
A weaker dollar is a net positive for stocks, just like a weaker dollar is a plus for many natural resources. It effectively puts stocks on sale in international terms, making them attractive to foreign investors.
Additionally, a lower dollar is considered bullish for stocks because it hints at inflation, which at this point in the macro-economic cycle would be positively greeted by investors, alleviating some of the deflation sentiment that seems to be almost pervasive at this time.
Moreover, I am seeing several technical indicators suggesting powerful moves to the upside looming ahead for Asian markets, especially Hong Kong and Shanghai. If these indicators are correct, and I believe they are, that will lend further support to a rally in U.S. stocks.
D) The upcoming G-20 Meeting in London on April 2 is going to be bullish for the markets. In addition to the very high possibility that G-20 participants will agree on a coordinated fiscal stimulus plan and issue a clear anti-protectionism statement on trade, I believe that progress will also be made on the meeting’s hidden agenda ― advancing the very real possibility of an upcoming forced devaluation of at least the dollar.
I’ll have more details on this as the world gets closer to the meeting, and will track it very closely. But the bottom line is that I expect this important G-20 meeting to be a net positive for the stock markets. So being aware of it NOW is an important step to position yourself to profit.
The Best Way To Play A Rally
In The Broad Stock Markets …
I like the Dow Jones Diamonds (DIA), one of the earliest ETFs to have started trading, it has plenty of liquidity, and tracks the 30 Dow blue chips to the penny.
It trades on the American Stock Exchange, and is equal to 1/10th the value of the Dow.
To take advantage of a rally in Asia, I like the iShares FTSE/Xinhua China 25 (FXI), which is a nice way to play China, giving you a stake in China’s 25 largest companies.
Mind you, while I expect a very powerful rally to start soon in virtually all stock markets, that does not preclude pullbacks, or even another new low in the Dow before the end of this month. So manage your risk appropriately. For more specific timing signals, see my Real Wealth Report.
Second, oil and energy. Stop and think about this for a minute: In spite of the worst financial crisis since the Great Depression, the price of oil is still more than twice what it was in 1999, and almost 3,500 percent higher than it was in 1929.
Now consider …
Worldwide, oil production has fallen an estimated 15 percent of daily global demand since the crisis began
OPEC has cut production by 4.2 million barrels per day, and will likely soon cut production again
Refining capacity has fallen to 82.7 percent, the lowest since February 1992
Moreover, some of the largest oil companies in the world, such as ConocoPhillips, TOTAL, and Schlumberger are forecasting $60 oil in the near future.
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Additionally, and despite some recent bearish oil reports from the International Energy Administration (IEA), oil has rebounded strongly from its low of $36 in the middle of February, and is showing a terrific basing pattern on the charts.
Looking even better: The share prices of many great oil companies, which are now trading at dirt-cheap levels. Consider …
Canadian Natural Resources, trading as if its oil were worth only $5.69 a barrel. Or …
Devon Energy, whose oil is valued currently by the market at just over $5.30 a barrel. Or …
Talisman Energy, whose market cap effectively values its nearly 2 billion barrels of oil and oil equivalents at just over $4 a barrel!
Cheap? You bet they are. They are also dirt-cheap in terms of book value ― trading at 1-to-2 times book ― and in their price-to-earnings multiples, at 5-to-6 times earnings.
My view: With the broad markets set to rally … with oil poised to move higher … and oil shares now trading at such low valuations, now is an excellent time to consider oil and energy shares for investment.
One of the simplest ways to play the oil and energy sector, and one of my favorites: The Energy Select Sector SPDR (XLE), an ETF that mimics the Energy Select Sector Index, or IXE, and whose top holdings include companies such as ExxonMobil … Chevron Corp … ConocoPhillips … Schlumberger … Hess Corp, and more.
Stay tuned!
Best wishes for your health and wealth,
Larry
About Uncommon Wisdom
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{ 2 comments… read them below or add one }
Seems that congress is holding a sugar coated carrot on a stick to wall street with their intent to modify or temporarily eliminate the mark to market accounting for banks. Their other carrot is the talk to re institute the uptick rule. Also with Uncle Ben’s comments on 60 minutes, the government seems to very thoughtfully be using a multi prong strategy to get the stock market moving back up (and retirement accounts) in order to bring back consumer “confidence”.
Larry i invested in the investment you recommended that are on fire,i put a tight stop on them,i have a broker,but i also trade on line myself,my DIA and FXI went down and hit my stop order,your recommendation at this time would help