The Money Map Advantage
Friday, January 6, 2006
By Horacio Marquez
Alert - #24
** The Bullish Forecast is Occurring Exactly as Expected – A Feeding Frenzy
In my last alert, I was adamantly bullish into year-end and looking for a strong January start. The year-end drifted sideways, but that just made the New Year start more explosive.
The premise was that institutional money, including that from large hedge funds, would have to put a large cash stash back to work in January. The market would realize that the Fed is almost done raising rates and the dollar would sell off. And there was a lot of skepticism in the market about the future…
After a celebratory November, many hedge funds just went neutral to lock in their returns for the year, and others took profits and thought about the winter break. Not me.
I was recommending keeping our cherry-picked stocks, including our last pick, BHP Billiton (NYSE: BHP). The stock was already starting to move along with the rest of the mining companies and commodities, all of which I expected would surprise strongly in January. And I added more firepower to the mix with the Brazil ETF (AMEX: EWZ), to be bought at the open December 23.
We are up almost 10% on that recommendation alone as investors reload, chasing offers up. In our BHP call option, we have more than doubled our money. And BHP will be running into resistance at $37, so take profits on the option and keep the stock, just like we did with Petrobras in December.
Although pleasant to see, this is not all she wrote for Brazil, nor for the market. Most of this year’s gains in Brazil will most probably occur well into the first half of the year. So hang on to your hats.
On the other hand, the S&P is almost at an intermediate resistance – of $128 in the S&P Depository Receipts (AMEX: SPY) – going all the way back to 2001. We need to do some work before we break this level, and the next target for SPY will be $133, on its way to the all-time high of just over $140. And believe me, the market was very, very skeptical about the possibility of breaking out to the upside of its seemingly eternal range.
It was skeptical because the Street, mutual funds and hedge funds needed to see it in explicit writing in the Fed’s minutes this week in order to start putting big money to work. It took the trifecta of low and descending inflation (which we saw in December), the Fed’s minutes and today’s employment numbers to convince people to renounce 4.25% returns in cash and venture into stocks.
The drop in the dollar also urged them to move. Therefore, they are playing catch-up, which is glorious for market action.
When “Bad” News is Good News
Today’s employment news was excellent. It not only showed that employment growth might be slowing down a bit, but, very importantly, that wages are growing in a non-inflationary manner . The latter is of tantamount importance to 1) compensate the loss of buying power due to the ongoing decline in regional real estate bubbly prices and 2) to prevent overextended consumer leverage from posing a serious problem for the economy. So help – and purchasing power – is on the way.
And the slowdown in employment growth, coupled with the tremendous productivity gains, will keep inflation well under control. This confirms in my mind – and in the minds of many market participants – that the Fed will be done with its interest-rate hiking cycle earlier than the consensus on the Street and in the market.
And this is very positive for global growth, which is making a strong showing. This is especially true with acceleration in Japan, Brazil, China, India and selectively in Europe and other emerging markets.
Banco Bradesco (NYSE: BBD), Petrobras (NYSE: PBR), along with the Brazil ETF are flying. And the rest of our picks are as well. The only exception is Mitsubishi UFJ Financial (NYSE: MTU), which is consolidating the $14 level before its next long leg up.
A Special Note With Respect to Energy
The unfortunate health situation of premier Ariel Sharon of Israel is a negative for stability. Sharon’s courageous stewardship in the peace process in the Middle East has greatly increased hopes for progress in this area, and his current grave health condition increases uncertainties just ahead of the Israeli elections.
An unstable Middle East increases the risk premium in oil prices, which in turn has helped Petrobras and Tenaris (NYSE: TS).
If you can, read the recent article from Simmons in Barron’s on the coming oil scarcity. I believe that despite the temporary abundance in oil inventories for a number of short-term and transitory reasons – including a warmer-than-expected winter – strong global growth will prove to be very supportive this year… with a strong possibility of some price spikes.
Action to take:
Sell our BHP January calls (BHP-AG) at $1.20 or better. Keep the stock.
Enjoy and profit,
Horacio Marquez
If you have any questions, feel free to call one of our VIP Trading Services representatives at 888.570.9830 (toll-free) or e-mail: viptrader@oxfordclub.com, or contact Pillar One Advisor Greg Galloway at 800.438.3040 or 407.667.4729.
Stock & Symbol
Current Price
Comments
IShares Brazil Fund (Amex: EWZ)
$36.63
Buy. Sell stop is $27.
BHP Billiton (NYSE: BHP)
$35.86
Buy. Sell stop is $24.
Banco Bradesco (NYSE: BBD)
$32.02
Buy. Sell stop is $21.50.
Petrobras (NYSE: PBR)
$78.71
Buy. Sell stop is $55.
Mitsubishi UFJ Finan. (NYSE: MTU)
$14.06
Buy. Sell stop is $10.20.
iShares Japan Fund (AMEX: EWJ)
$14.17
Buy. Sell stop is $10.
Tenaris (NYSE: TS)
$125.73
Buy. Sell stop is $95.
MSCI Austria Fund (AMEX: EWO)
$29.34
Buy. Sell stop is $20.90.
Market Watch
NASDAQ
1528.95
0.00
SP 500
813.88
0.00
DJIA
7749.81
+89.84
As Of 6:11AM 3/26/2009
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