SK: Time to Buy China, Copper, the Canadian Dollar and Oil
My last article featured continued caution on equities of all stripes, given the free fall in equity markets world wide for the past year or so. We've all been looking for "the bottom" or at least a tradeable bottom. Patience and cash has been well rewarded, and the US Dollar and US Treasuries have enjoyed striking rallies within the past year as equities both domestic and abroad have fallen historic amounts.
We have noted a recent gradual reversal of this flight to safety, as US interest rates have begun slowly upticking, gold has fallen 10% recently, and certain stock markets appear to have stabilized at lower levels, such as the Chinese market. Other markets such as those in Japan, the US, and many other Western Countries have continued to decline and sink to lows not seen in over a decade.
Certain disconnects seem to be emerging which need a catalyst to spark upward price movements. One clear catalyst this week has been the Chinese Government committing to further fiscal stimulus to stem the slowing of their domestic economy, regardless of export slowdowns to the weakened Western economies.
Indeed, word of such a new stimulus in the works Tuesday night sparked a huge 10% rally in the Shanghai Stock market, in oil, in copper, and lesser rallies in stock markets world wide today. The big winners were those companies and commodities most likely to benefit from increased Chinese demand: iron ore miners like BHP, and RIO, copper miners like FCX, oil and ETFs such as USO, and stock markets such as those in Brazil (EWZ), China (FXI), other BRIC countries, and other resource rich countries like Canada (EWC) and Australia (EWA).
The US Markets' reaction was more muted, weighed down by financial concerns and stocks that continue to deteriorate, and a lack of confidence in the current administration to stop making things worse with policies antithetical to the very investor class needed to resume spending and investment to stimulate US economic growth. Although I day traded SPY for a small gain given the highly oversold nature of the US equity markets, I felt no confidence in making it even an over night holding.
On the other hand, there is data to suggest copper inventories have been falling, as have oil inventories, which could be supportive of their prices, companies which produce them, and countries and currencies dependent on stable or rising commodity prices.
Therefore, yesterday I went long FCX, FXI, FXC, and USO. There are clear sell-stop levels on the charts that would indicate such new trades were in error. Other stocks I'm interested in include BHP, PCU, XLE, EWA, EWC, IFN, and especially EWZ. All are either commodity stocks or countries rich in commodities. I'm also interested in the Australian dollar FXA at these levels, although I'm concerned about its banking problems not shared by Canada or China.
Other than being oversold, it's hard to make the case for US equities in general given the overall state of the US economy, the lack of confidence in the US administration, and the lack of a cohesive plan to stabilize the banking sector.
I happened to watch Jim Rogers on Asia's Squawk Box on CNBC last night and he is very bullish on agriculture in the years to come. This keeps me looking at the various agriculture ETFs such as DBA, and companies such as MOS, etc.
