The last couple of weeks in global markets have been all about retrenchment as markets consolidate their gain from the remarkable run of early July. With markets down in Asia overnight, you can expect more of the same in today’s trading.
The Chinese market has taken a particular hit, and today’s headlines are screaming that its recent correction has taken it into bear market territory. That’s an overstatement. A 20% fall in a highly volatile market like Shanghai is hardly equivalent to a 20% drop in a broad U.S. index like the S&P 500. Think of it this way. If a highly volatile biotech stock drops 20%, it may be par for the course. But if Wal-Mart drops by that much in two weeks, it’s a different story.
The current negative mood-swing of the market notwithstanding, there are signs that markets want to go higher. Just a week ago, two of your positions in your Global Stock Investor portfolio — Freeport-McMoRan Copper & Gold Inc. (FCX) and the Market Vectors Indonesia ETF (IDX) — hit highs for the year.
The current moves in global markets also are taking place on low volumes. Volume on the New York Stock Exchange yesterday came in at an extremely light 991.1 million shares. Sitting here in London, I can confirm that all of Europe is on vacation. The point is that investors aren’t scrambling for the exits. Sharp movements like Monday’s 186-point slide in the Dow Jones industrials — the biggest drop in six weeks — are happening on low volumes and are overdone. Given the more than 40% climb in stocks since March, and particularly the sharp run up in July, some pullback is inevitable.
Overall, I have been pleasantly surprised by the markets’ resilience over the summer. Unless global markets suffer a (highly unlikely) collapse, the time-honored wisdom of “sell in May and go away” won’t hold this year. Yes, we may see weakness in the early fall. But, on the whole, I expect global markets to close the year with a traditionally strong Q4 rally.
Portfolio Update
The WisdomTree Dreyfus Chinese Yuan Fund (CYB) held up this week, even as the Shanghai stock exchange officially entered into bear market territory. The People’s Bank of China has set today’s central parity rate for the dollar-yuan pair at 6.8329. The yuan is allowed to strengthen or weaken 0.5% from the parity rate. CYB remains a defensive BUY.
iShares MSCI Taiwan Index Fund (EWT) dropped below the $11.00 level this week after Monday’s sharp correction. Although Taiwan is embroiled in some minor political scandals in connection with the government’s handling of the typhoon which has killed 500 people, EWT remains a long-term BUY.
iShares MSCI South Korea Index Fund (EWY) fell back slightly as markets across Asia corrected. With economic recovery now firmly entrenched throughout the region, you can expect the South Korean market to soar as soon as global markets settle. EWY remains a BUY.
Freeport-McMoRan Copper & Gold Inc. (FCX) hit a high of $66.06 for 2009 last Wednesday before correcting sharply. This is a volatile pick and not for the faint hearted. That said, with global recovery on the horizon, this bet on “Dr. Copper” remains a BUY.
ICICI Bank Ltd. (IBN) dropped below the $30 level again last week, as global markets re-trenched. This stock will always trade broadly in line with the Indian market and remains a long-term BUY.
Market Vectors Indonesia ETF (IDX) hit another record high of $56.23 last week before pulling back with the rest of global markets. With the government projecting a 4.5% expansion this year and 5.5% for 2010, Indonesia is the fastest-growing major economy in the world. The “new BRIC” remains a BUY.
Market Vectors Gold Miners ETF (GDX) pulled back this week below the $38 level, even as big hedge fund managers like John Paulson and David Einhorn appear to be adding to their bet on gold miners. GDX remains a long-term BUY.
Chemical & Mining Co. of Chile Inc. (SQM) ended the week flat as it continues to struggle to break out of a narrow trading range. SQM remains a BUY.
UltraShort 20+ Year Treasury ProShares (TBT) fell below the $50 level again this week. More due to technical considerations than anything else, I am keeping your bet against U.S. Treasuries at a HOLD.
P.S. For the first time ever, I’ve scheduled a special private meeting for my subscribers of Global Stock Investor and Global Bull Market Alert on Friday, Aug. 21, at this year’s MoneyShow in San Francisco. Think of this as a quick boot camp where I’ll reveal special techniques and "tricks of the trade" that I use in the markets. This is the kind of hands on training that I can only offer you in person. I’ll discuss my secret technique for choosing customized exit prices, an easy-to-implement formula on how much to buy of each pick to maximize your returns, and why I think the biggest returns for 2009 are still to come. I also will make myself available to answer any specific questions that you may have about any of my current recommendations. Please join me at the San Francisco Money Show, Pacific room C (4th floor), on Friday, Aug. 21, from 1:30 p.m. – 2:30 p.m. by sending an RSVP.
P.P.S. The constantly changing market environment continues to present investors with some of the most challenging times in recent history. Mark your calendar for Thursday, September 10, 2009, at 2 p.m. EDT for my first-ever LIVE teleconference when I will discuss “How to Profit in Global Markets During the 4th Quarter.” This is your chance to hear my predictions and learn how to profit in the next three months. This special, FREE event is for subscribers only.
