5 stocks with upside potential
A key question for global equity
markets is whether growth or higher rates will rule the direction of
markets ahead. This week, the growth side of the argument won out – as strong
growth in Asia and Europe in particular led to higher oil and metal prices,
while stronger rhetoric from central banks hit global prices not enough to
seriously impact stocks. Japanese stocks and metals broke out this week. Yet the
4.9% 10-year bond yield is very close at hand and investors must begin to watch
closely for concerted negative global equity reaction to yields beyond this
point. The EUR and Yen continue to oscillate in ranges, with big implications
upon an ultimate breakout.
On the long-side of global markets we like metals, Japan, industrials,
healthcare, networks, energy (bottom in natural gas stocks and trusts here?),
China, Indonesia, Telecoms, and Aerospace and (we suggest some hedging here for
those with close to normal exposure) we like on the short-side General
Merchandise, Publishers, as well as some interest-rate sensitive, and big-cap
growth. Aggressive traders could position with strong groups over weak ones, but
with more cautious allocation than normal.
We suspect the EWJ and Japanese stocks have broken out in response to
recognition that though the zero-interest rate policy is officially over, it
will be a while before rates actually rise substantially enough to effect the
recovery underway in Japan. The Nikkei looks set to test the 21,000-23,000
resistance level, which equates to around another 15%-25% in upside in the EWJ
before a more serious correction is likely in the absence of a negative global
equity environment. More cautious investors could buy
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which has also broken out on the upside. It will be helpful if
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Chinese indexes follow Japan to the upside and breakout soon.
I still strongly believe that the period directly ahead is one where it may be
ABSOLUTELY CRITICAL for investors to have a strong grasp and understanding of
the Big Picture Macro background of global markets and the huge vulnerabilities
of this environment. A potential MAJOR SHOCK to the markets is brewing and those
unaware could easily be sideswiped. That is why I wrote the “2006 Investment
Roadmap†(see below for details) which is my best effort at thoroughly
explaining the global macro picture and its precarious state as well as what to
watch closely to monitor how massive risks are developing.
Our model portfolio followed in TradingMarkets.com with specific entry/exit/ops
levels from 1999 through May of 2003 was up 41% in 1999, 82% in 2000, 16.5% in
2001, 7.58% in 2002, and we stopped specific recommendations up around 5% in May
2003 (strict following of our US only methodologies should have had portfolios
up 17% for the year 2003) — all on worst drawdown of under 7%. This did not
include our foreign stock recommendations that had spectacular performance in
2003.
Meanwhile in our US selection methods, our Top RS/EPS New Highs list published
on TradingMarkets.com, had readings of 51, 69, 84, 85 and 123 with 25 breakouts
of 4+ week ranges,
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DNR |
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BEAV |
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our bottom RS/EPS New Lows recorded readings of 8, 5, 6, 8 and 10 with 7
breakdowns of 4+ week ranges, no valid trades and no close calls. The “modelâ€
portfolio of trades meeting criteria is now long
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GG |
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RY |
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AXA |
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TS |
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and
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up trailing stops whenever possible on stocks with open profits and strive to
move stops to break-even or better as quickly as possible in new entrants.
Mark Boucher has been ranked #1 by
Nelson’s World’s Best Money Managers for his 5-year compounded annual rate of
return of 26.6%.
For those not familiar with our long/short
strategies, we suggest you review my book
The
Hedge Fund Edge, my course “The
Science of Trading,” my video seminar,
where I discuss many new techniques, and my latest educational product, the
interactive training module. Basically,
we have rigorous criteria for potential long stocks that we call “up-fuel,” as
well as rigorous criteria for potential short stocks that we call “down-fuel.”
We have made an exhaustive review of top themes and trends for the year and
tried to reveal the critical nature of the big picture macro environment in our
“2006 Investment Roadmap†which we hope every trader and investor can and should
benefit from (available at
www.midasresourcegroup.com). The environment is growing more and more
treacherous and understanding what is behind the forces that could lead to
shocks at any time is important for day-traders, swing-traders and investors
alike. I believe that those using our stock selection techniques, favoring our
top themes and understanding the global macro environment thoroughly can
experience strong gains while avoiding shocks in this likely volatile investment
year.