Stock Market Traders Take Note: These 'Risky' Stocks Are Dominating
Stock-Markets / Stock Index Trading Jun 01, 2009 - 01:58 PM GMTBy: DailyWealth
Tom Dyson writes: There's a runaway freight train in the markets. This group of stocks has the strongest uptrend anywhere in the world... and it's still getting stronger.
If there's one group of stocks you need to own right now, it's this group. Let me show you why...
Every month, analysts at the Conference Board survey 5,000 households and use the data to produce an index of consumer sentiment. This week, the reading for May came out. It jumped to its highest level since September 2008, when Lehman Brothers failed... and has now risen for three consecutive months.
As Steve wrote in Friday's edition of DailyWealth, "History shows stocks tend to keep rallying for many months after consumer confidence bottoms. It's true in every instance going back to the 1970s, when monthly consumer confidence data starts."
Consumer confidence bottomed in February... and the stock market began its rally in March. The S&P 500 is now up 36%. If consumer confidence history is any guide, this rally could easily continue into the fall and take the S&P 500 over 1,000...
When the stock market rallies, there's always one sector or group of stocks that leads the market higher. But it's never the same sector... and the leaders often rotate. It's like watching a horse race. The jockeys are jostling for position, and the leadership of the race is constantly changing...
To maximize the performance of your capital in stock market rallies, you always want to own these market leaders. They rise much higher than the market in general...
In the bull market in the late '90s, for example, Internet, communication, and tech stocks led the charge higher. Banks, real estate, infrastructure, and commodity stocks led the market from 2002-2007.
So which sectors are leading the current bull market higher?
I monitor a list of 86 exchange-traded funds (ETFs). These ETFs represent every major commodity, currency, country, and market sector in the world. Every week, I calculate the three-month performance of these funds to pinpoint the most powerful uptrends and downtrends in the world.
Today, emerging markets have seized the crown. Stocks in Russia, Brazil, and China embarked on huge rallies. And as of this week, even more emerging-market stocks have entered the fray...
Right now, eight out of the top 10 market sectors are foreign funds. They also dominate the top 20 market sectors, with 14 spots including the countries above along with India, Indonesia, Turkey, Ireland, Austria, Taiwan, South Korea, Singapore, Mexico, Canada, and Hong Kong.
These foreign funds are up a minimum of 47% since late February. The Russia fund has doubled, and India's not far behind.
Notice the troubled countries in this list. Ireland had a major banking breakdown. Russia is dependent on oil and has one of the world's most unstable economies. Austrian banks have the most exposure to the meltdown in Eastern Europe.
But when it comes to trading, I learned a long time ago you don't make money by predicting or trying to time the market. It's far better to let the market tell you what to do. If the market's rising, you buy. And if the market's falling, you sell. Right now, there's only one sensible position to have in the market, and that's to be long.
If you're looking to buy into the current stock market rally, as I am, I suggest you focus on emerging markets in general... or Russia and India in particular. These are the market's strongest uptrends. It's likely these stocks will continue to lead the market higher and show you the greatest profit...
Good investing,
Tom
The DailyWealth Investment Philosophy: In a nutshell, my investment philosophy is this: Buy things of extraordinary value at a time when nobody else wants them. Then sell when people are willing to pay any price. You see, at DailyWealth, we believe most investors take way too much risk. Our mission is to show you how to avoid risky investments, and how to avoid what the average investor is doing. I believe that you can make a lot of money – and do it safely – by simply doing the opposite of what is most popular.
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