The last two weeks have seen big changes in your Global Stock Investor portfolio. The CurrencyShares Japanese Yen Trust (FXY) has pulled back sharply from its record high and is now flirting with its stop price of $104.00. The PowerShares DB Commodity Double Short ETN (DEE) has struggled as oil and other commodities have started to stage a comeback. You were also stopped out of the Rydex Managed Futures fund (RYMFX) on Dec. 31 at the stop price of $28 for a loss.
As unpleasant as these developments are in the short term, they actually signal good news for financial markets as a whole. Because your portfolio is in a defensive mode, the fact that the performance of these positions is fading confirms that — negative headlines in the financial media notwithstanding — the risk appetite in financial markets is growing.
It also means that the time has come to dip your financial toe back into more risky assets — specifically, stocks that you have on your Global Stock Investor “Watch List” that I’ve highlighted in preparation for just such an occasion.
I am recommending that you buy two of the stocks on your Global Stock Investor Watch List — Millicom International (MICC) and Nextel Holdings (NIHD). Millicom is a global cell phone play that focuses on fast-growth markets in Asia, Africa, and Latin America. And Nextel Holdings is a Reston, Va., company that is a leader in providing high-end corporate cell phone services in Latin America.
What these two picks have in common — as the charts below confirm — is that over the past few days they have “broken out” from their post-October crash trading ranges, and are in the process of establishing solid uptrends.
In my experience from the market crashes of 1994, 1998, and 2000, stocks like these tend to perform exceptionally well in the year following a market crash like the one you have just experienced. And although the final bottom is only evident in 20/20 hindsight, now is a good time to start investing a small amount of money in these stocks, in anticipation of a potentially strong and sustained bounce in the markets. Assuming that global markets settle, I believe that each of these stocks has the potential to gain upwards of 50% between now and the spring.
So my recommendation is that you re-enter these positions with a relatively small amount, say, half of your normal position size. Put another way, split what you’d invest in a single stock position two ways, and invest half in each of these stocks. As the upward trend is confirmed, you can add to your positions later.
Nevertheless, it is absolutely crucial that you stick to your stops for each of these positions. For Millicom International, place your initial stop at $32.50. For Nextel Holdings, place your stop at $15.50.
As a matter of full disclosure, I intend to add these positions to the portfolios of my clients at my investment firm, Global Guru Capital.
The WisdomTree Dreyfus Chinese Yuan Fund (CYB) kept within a relatively tight trading range over the past two weeks, as the dollar-yuan pair continues to trade between 6.83 and 6.86. I am keeping CYB at a HOLD.
PowerShares DB Commodity Double Short ETN (DEE) has had a rough couple of weeks as both the oil price and commodities have recovered over the past two weeks. I am moving DEE to a HOLD.
The CurrencyShares Japanese Yen Trust (FXY) has traded down sharply as risk appetite has returned to the markets. As the yen is approaching its stop price of $104.00, I am moving FXY to a HOLD.
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