Minor Resistance… Major Gains

By December 17, 2010Weekly Writeup

Both the Nasdaq and the S&P 500 closed out the week at 2-year highs. In fact, the Nasdaq needs just 8% more to reach its previous bull market peak in 2007. (The S&P 500 still needs another 25% to get back to 1565 from 1243.)

There’s little reason to make a big fuss over stock market resistance. Yet I would be remiss if I didn’t point out the S&P 500’s inability to break through an intra-day high of 1246 on 3 separate occasions (12/13, 12/14 and 12/17).

If the S&P 500 can close above this level before year-end, even if it subsequently pulls back, there’d be a stronger indication of upward momentum in Janaury, 2011. If not, the market could be setting up for an earnings season showdown before deciding its direction.

For now, though, there’s every reason to celebrate. The CBOE Volatility Index (VIX) remains in a hush-hush state. Meanwhile, the prices on both the S&P 500 SPDR Trust (SPY) and Vanguard Emerging Markets (VWO) are above key trendlines.

VIX 50 200

SPY 50

VWO 50 200

Many of the major financial publications and news services are clamoring for 2011 predictions. I’ve already fielded requests from WSJ, Dow Jones and Investor’s Business Daily.

It doesn’t seem to matter that I am not, nor have I ever been, a “buy-hold-n-hoper.” The media have deadlines. They want my picks. And calendar-year prognosticating is a time-honored tradition for capturing more readers.

Okay… so I play the game. In fact, I played it so well in 2010, my “Lazy 7″ ETF Portfolio dramatically outperformed the S&P 500.

At this point, I’m ready to give a number of ETFs that should benefit from peering into my crystal ball. In fact, I’ll give 5 ETFs that I like quite a bit, stop-loss limit orders notwithstanding.

However, if you’re looking for the “Lazy 2011 Portfolio,” you’ll need to wait a few more weeks. A portfolio requires diversification through non-correlating assets, especially if it has to be held for 12 months. So for now, let me offer 5 ETFs that should benefit from a global macro-economic perspective… not as a portfolio, but as a list. (Note: In essence, this is the same list that I am providing to the financial journalists in the mainstream media.)

1. Market Vectors Coal (KOL)
2. SPDR Oil/Gas Equipment Services (XES)
3. iShares DJ Technology (IYW)
4. Global X China Consumer (CHIQ)
5. iShares Chile (ECH)

The sovereign debt crisis in Europe, Japanese deflation and pockets of economic uncertainty in the U.S. (e.g., housing, unemployment, etc.) will lead developed economy central banks to maintain “loose” monetary policies. In essence, this means the mature economies will continue endeavoring to “reflate” to support the global industrial cycle. As long as the Fed and others are reflating, early business cycle stock ETFs should be the biggest beneficiaries, from Market Vectors Coal (KOL) to SPDR Oil & Gas Equipment Services (XES) to iShares DJ Technology (IYW).

Of course, the real growth is in the emerging markets… and Chinese consumerism will carry the lion’s share of world GDP growth. Yet China has been tightening monetary/fiscal policy to keep inflation in check. I believe they will be successful, but in so doing, it will give fits and starts to emerging market equities. I still like Global X China Consumer (CHIQ) as a potential stock ETF for the theme.

Finally, while 2011 should be a strong year for the equity markets, nobody should expect a non-volatile ride. There are reasons to fret the debts of mature economies, and the possibility of rising bond yields to satisfy the increased risks associated with mature economy bond ownership. I intend to profit through lower-risk emerging markets like iShares Chile (ECH), just as I profited from ECH in 2010. The country has terrific growth prospects as well as a  superb status as a credtor nation. I like it again in 2011.

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