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A Chart You Should Start Following ImmediatelyBy
Saturday, February 12, 2011
In an average week, my colleagues and I sift through more than 200 charts.
With some charts, we're looking for specific trading ideas... We're looking for extremes in the market that offer big "anti-consensus" opportunities. This is how we've found big winners for our readers in platinum, oil, uranium, offshore drilling, and overpriced growth stocks.
Some charts we follow are simply for "dashboard" purposes. We monitor charts just to gauge what the market is saying about the global economy and how it's affecting asset prices. Recently, lead Growth Stock Wire editor Jeff Clark highlighted how rising interest rates could cause a sharp correction in stock prices.
Today, I'll share another chart you should monitor right now. It's India's benchmark stock index, the Sensex. As you can see, it's plummeting right now...
 So why should we pay attention to what far-off India is doing? Because stocks aren't just plummeting in India. They're plummeting in most other "emerging markets" like Brazil, Indonesia, and Thailand.
Thirty years ago, investors and traders didn't have to worry about what was happening in India or China. These countries were light years behind the U.S. in economic development. They were just emerging from decades of disastrous collectivist policies, like the ones that brought down the Soviet Union.
Since then, these economies have mushroomed in power and importance. The world has become "globalized." These countries now compete for natural resources, banking deals, and investor funds. A big problem in one country, like India or China, can spill over into other countries... which can create a domino effect of falling commodity and stock prices around the world.
Right now, places like India are seeing surging inflation. India's central bank is jacking up interest rates to deal with inflation that is rising at more than 8% per year. Inflation in China is running at more than 5%. If these governments make a small misstep here, it could push stock prices down... and even drive inflation higher.
A seasoned investor is someone who spends a good deal of time studying the risks to his investments. The first thing he asks when sizing up an investment or a trade is, "how much can I lose?" When you take care of the risks, the rewards spring forth on their own.
That's why it's worth watching this emerging market situation. It's one of the biggest potential risks out there... but one that could lead to big opportunity.
You see, a big problem in the emerging markets could produce a domino effect that would hammer commodity prices... which would hammer emerging markets even further.
To protect yourself against this situation, remember your trailing stops. And if things get really bad, compile a list of "trophy assets" in commodities and emerging markets. If the domino effect gets bad, you'll have an amazing opportunity to buy trophies after the selloff.
Good trading
Brian Hunt
Further Reading:
Trophy assets "are elite businesses, resource deposits, and properties that come with labels like 'biggest' or 'most desirable' when discussed in the press," Brian writes. "They're the 'beachfront properties' of the investment world."
A few examples of "trophies" include the enormous oil reserves of Alberta, Canada... Freeport McMoRan's giant Grasberg mine... Miami condos... Hong Kong skyscrapers... and stocks in the booming city-state of Singapore.
Market NotesCHART OF THE WEEK: THIS "BOOM AND BUST" SECTOR IS BOOMING Our chart of the week tells us the world needs semiconductors... lots of them.
As we've highlighted in our Intel mentions over the past few years, semiconductors are the tiny engines that power computers, smartphones, and "tablets" like the iPad. And these days, powering computers is powering the world.
We like to follow the "semi" sector because it's one of the biggest "boom and bust" sectors in the market. The industry goes through huge cycles where excess capacity can push down sales, profit margins, and share prices. These down cycles are then followed by big upswings.
As you can see from our two-year chart of the PowerShares Semiconductor Fund (PSI), we're in an upswing right now. PSI is a diversified basket of semiconductor makers... Every kind of "engine" maker is represented here. The explosion of smartphones, Internet usage, and tablet computers has kicked this boom and bust sector into a big boom... and the trend is UP.
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Stat of the week
71%
Percent of homeowners with a mortgage in Clark County, Nevada (Las Vegas) that owe more than their house is worth, according to analytical firm CoreLogic. In The Daily Crux
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