CHART-NADO (SECTOR MODEL RECAP)

Several key things have been in play for months and I believe they will continue to be the leaders in this environment.  We'll update a few familiar charts, but also make sure to highlight the themes that will be the beneficiaries of the same sector rotation model we've based our analysis on for several years.

Let's dive in.

In my estimation we are now in the left middle 1/3 of this graph in that we have witnessed this crazy 4 year rally in stock markets, but just to throw a wrinkle at you, we have kind of limped along in the economic recovery marked with massive repression of interest rates causing some delayed impact within the normal rotation.

My thought is still that Technology, Industrials, Basic Industry, and even Energy are the key winners now and in the short to medium term.  However because of distortions related to interest rates, finance too will benefit from net interest margin spread growth, and they should continue to benefit.  (I'll hedge my bets here and suggest that regional banks and insurance companies will win, while large money center banks may lose as they are heavily dependent on mortgage activity for some of the success.)

I'll just post the charts with little comment.

COP

KMF

XLE

 MRK

PFE

IXN

SOCL

PNC

FITB

XLF

FCX

CAT

XLI

EWC

EEM:SPX

EEM

Emerging markets seemed to have bottomed relative to the SPX and may be the area to watch in terms of "better than" performance.  

SUMMARY

We've had a correction and despite all of the crazy geo-political issues, there are simply strong looking charts and reasons to watch for a good bounce.  Technology, Financials (especially regionals), Industrials, and yes, even cyclicals and emerging markets are the place to invest.  Many of the charts are at support so further weakness would take a prudent investor out of their positions.  This is a good time to re-evaluate all positions, commit to firm stops, or widen them out if you are willing to handle a bit more volatility to ensure you maintain positions.

WILD CARDS AND GEOPOLITICS

The wild card in the context of investing right now is determining a winning strategy in the midst of amateur hour at the White House.  The President is way over his head in the foreign policy arena and his adversaries (foreign and domestic political and national rivals) are circling like sharks.  His mis-steps related to Syria are serious and his weakness here has emboldened challenges from Assad, Iran, Russia, and China.  The correct thing to do for the President now is to simply state we don't know who used chemical weapons and then suggest that we'll wait for more evidence.  Meanwhile he should continue to arm and support the terrorist rebels and engage Assad to the point in which they begin to win.  At that time, our strategy should be to withdraw arms and support till they are weakened.  This approach assures no winner arises and continues to draw the evil black eyes of Iran, China, and Russia to this little spot of dirt in the Middle East. 

Our President must learn that there is no winning in winning and there is no losing if you support and are friends with the meanest and worst strong man as long as he wins and you are committed to giving him indefinite monetary support forever (where are you Mubarak, Obama didn't mean it!).  We've had our Utopian experiments by both Bushes and President Obama.  Clearly the people in this region do not have the same value system and cannot appreciate the same type of democratic approach our country actually used a long time ago.  In addition, we cannot pick winners and losers in the region as most of the time the new guy is a lot worse than the old guy.  

My point here is simply that Obama probably won't take my sage advice and I'm sure his arrogance will be more of a guide in his approach to use a "sterile" volley of tomahawk missiles to soothe his wounded pride.  An attack will result in increased oil and gas prices, refiner losses, gold and silver gains, and an uncontrollable situation.  Keep an eye on it!

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.com/

CYCLICALS CHART ROUND UP

Until the last week or so, you might have thought that gold, silver, and every metal on earth was worthless.  Chinese real data, or fake data was released and gave the shiny stuff and cyclical stuff a life saving does of drugs to perhaps stave off death for a month or two.  All intra-market analysis I do suggests that we are at extremes in terms of how far the US markets have gone relative to other markets.  It frankly may just be a cycle of cyclicals and emerging markets coming up a bit to bring things in line.  Here we go!

$GOLD

$1340 looks to be the magic number.  If I'd have to guess, I think we'll see a bit more upward momentum and then a slam down here for gold once again.  $1180 looks like support to keep loading up the truck for the zombie apocalypse.

$SILVER

Dare the shiny silver one get back into the channel of death?  Maybe.  If silver can climb just a bit further it has the possibility to go as high as $26, however if my hunch is correct, silver will fail and fall to the high $17 range.

$COPPER

China's latest doctored reports last week seems to be the saving grace for all cyclicals and copper.  JJC may be a nice option for the speculator looking to ride copper's recovery to $3.80.


FCX

I'd feel a bit more comfortable with a pound on the table buy for FCX if it were able to power convincingly over $32.  If it does, $39.00 is back in play.  Go long with a good surge higher.


DD

Nice breakout here for Dupont.  It's hard to buy more here and with any overall market weakness, it is probably time to finally harvest nice gains.

XLI

Wish I'd bought this rather than watching for literally the last 2 years.  There is probably room for this to come down to the $39 area, which at that point would be just another opportunity to buy the dip, until proven otherwise.


CAT

CAT has been the victim of a terrible global growth story.  It has still managed to fight back from the scary free-fall in the summer of 2012 and December of that year.  For all its scratching and clawing to stay above the $80 level it just seems as though a break lower is inevitable.


EEM

EEM, the emerging market ETF looked like someone was going to put it out of its misery once and for all.  The bounce off of $35 was very nice and I fully expect to see an attack on the upper boundary of $42.  Will it succeed in going higher?  If it does, it is game on for all emerging markets and we'll see massive out-performance of them relative to domestic equity markets.

EEM:SPX

Inter-market analysis of emerging markets (EEM) to the S&P500 is shown here.  Since 2011, emerging markets have been under-performing significantly and we've gotten to the point where there HAS to be some reversion to the mean where emerging markets actually post some gains on a relative basis against the US markets.  There really has only been two other times since 2007 that the EEM:SPX relationship has been this low, and in both instances, emerging markets posted monster gains.  Please note, this does not mean that the US markets will go down, it simply means that emerging markets could really outshine and US markets could be seen as fully valued while shoppers choose the potential up and coming asset class.

IDX

As much as I've been a fan of Indonesia for years, the recent beat down of IDX has been heart-breaking and wallet destroying.  There is not option here, if you are a supporter of IDX, it must hold a close over $27 this week; otherwise it is a sell or a short candidate down to $24.

EWM

$15 is a potential destination for EWM the Malaysian etf.  I would look for pretty strong lower support and if it does not bounce, it too is a sell.

EWS

Support for EWS is at $13.25.  A move below this level brings the lower channel into play, almost a full dollar lower.

EWC

EWC (Canada) just looks to be locked in a battle between levels of support.  I think this is a very nice range to trade, however the area where EWC sits now is simply in no-man's land.  Wait for a move lower to $26 or a break higher to short at $29.

EWA

As China goes, EWA goes.  If we see good news from the Asian tiger, EWA will resume its ascent.


EWJ

While not an emerging market, Japan certainly trades like it is.  Abe is showing the Fed its future, and while the threat of unlimited stimulus shocked the market for a time, we are finding that reality always comes back to bite you.  Sell Japan and anything not nailed down in Japan.  Toyota (TM) has had the mother of all moves, I think it is a fine time to sell.

GOATMUG

Goatmug is an investor that cares about you and your family. Goatmug's Blog - Financial Perspectives From The Mountain Top is a collection of thoughts on our economy and how it impacts the lives of investors and average people. While several specific investments are named in many of his posts, these articles are simply invitations for you to do your own research and reference to these securities does not constitute financial advice. Your situation is complex and unique and you should seek professional assistance with your trading and investing. Please visit Goatmug and share your comments at http://www.goatmug.com/