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It's Not Too Late to Get Into This Huge 2012 TradeBy
Wednesday, February 8, 2012
It's not too late... but if you want to get on-board one of biggest money-making trades of 2012, you need to act soon.
If you don't take action, you could miss out on 50%-100% gains this year.
Over the past three months or so, my colleague Steve Sjuggerud and I have been writing about the "bad to less bad" opportunity setting up in natural resource stocks... the companies that mine things like copper, fertilizer, gold, silver, coal, and iron ore.
Regular DailyWealth readers know this sector of the market is capable of experiencing huge booms and busts. Stay out of the busts, get in early on the booms, and you can easily make 50%-100% in a year with these companies.
As I highlighted last month, resource stocks busted in 2011. They had enjoyed a big run higher in 2010. But when folks got scared of holding stocks and commodities last year (due to fears of the European debt crisis and the ripple effects it would have on the rest of the world), they dumped resource stocks... Major "trophy" stocks like Freeport-McMoRan (copper) and Vale (iron ore) lost 30%-50% of their values in just months. Smaller resource stocks lost even more.
As Steve and I expected, resource stocks have put in a bottom... and have staged a big rally. For example, Freeport is up 26% since Steve ran this essay.
 While resource stocks are likely to take a short-term breather after this big surge, there's good reason to expect them to keep rising over the course of 2012.
As my colleague Porter Stansberry recently noted, Europe is now printing money in order to stave off its debt crisis. The U.S. Federal Reserve has an ultra-stimulative interest rate policy in place right now. These efforts should "goose" the economy... which will drive up the prices of natural resources. That's a big tailwind for companies like Freeport.
Since Freeport and its sector colleagues have climbed so much in such a short time, it's only reasonable to expect a small correction. That's just how the market works. When that correction arrives, use it as a buying opportunity... and let the coming natural resource "boom" do the rest.
Good investing,
Matt Badiali
Further Reading:
In addition to Freeport and Vale, Matt believes two other resource stocks are headed higher. "These are among the world's greatest 'boom and bust' sectors," he writes. And shares "have the potential to rally 50% or 100% in the coming year." Read more here: How to Risk a Little and Potentially Win A LOT in the Resource Market.
But triple-digit gains are meaningless if you don't have an exit plan. To protect your returns as resource stocks rally, Matt suggests following a trailing stop loss strategy. Using this simple idea, Matt's readers rode one resource stock to 542% gains in just 10 months.
Market NotesA STOCK MARKET WARNING Today's message is for the traders out there. It's a warning.
Stocks in general have climbed 6.5% since December 31, 2011. This is an extraordinary gain in such a short time... one that has left the market badly "stretched" to the upside.
Our chart below displays the past 12 months of trading in the benchmark S&P 500. Note the extra "pane" at the bottom. This pane shows the market's "RSI"... an indicator that measures an asset's "overbought" or "oversold" status.
An RSI reading of more than 70 means a market is overbought and due for a correction. An RSI reading under 30 means a market is oversold and due for a natural rebound. In other words, a market with a high RSI reading is a rubber band stretched to the upside and ready to snap lower... A market with a low RSI reading is ready to snap higher. As you can see, we're back in "ready to snap lower" territory.
We frequently remind folks that markets are like runners. They can't sprint flat out for miles without taking a "breather." While we expect stocks to work higher in 2012, in the short term, the market is poised for a good "shakeout" correction.
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