Customer Service 1 (888) 261-2693
Please enter Search keyword. Advanced Search
Home About Us Resources Archive Free Reports Market Window

These "Boom and Bust" Assets Have Just Started Their Latest Boom

By Matt Badiali, editor, S&A Resource Report
Monday, October 11, 2010

In February 2010, I told my readers copper was doomed. I saw huge supplies of copper in China, waiting for demand to heat up again. Back then, the idea that China's manufacturers would get rolling again didn't seem likely.
 
I was right on the copper price... in the short run. The red metal fell 20% from April to June. But China's economy got on track, which caused the red metal to rally this summer. Today, it's at its highest price since July 2008.
 
This kind of "boom and bust" behavior is common for commodities...
 
Sometimes, high prices will spur producers to flood the market with supply. Sometimes, like we saw in 2008 and 2009, demand will simply dry up. Both situations cause commodity prices to fall.
 
On the other hand, sometimes we'll see demand for a commodity outpace production by a huge margin (like oil did through the last decade). Or sometimes a natural disaster will diminish supplies. Both situations will cause prices to soar.
 
As I mentioned, the Chinese economy looks healthy, which is great news for commodities. And I think we're seeing a legitimate uptrend. In a moment, I'll tell you my favorite spots to take advantage of what I think will be a long climb higher in commodities prices. But first, let me explain what I'm seeing right now...
 
To get a feel for commodity trends, I use the 200-day moving average. The 200-DMA simply takes the closing prices over the last 200 days and averages them together. That smoothes out the daily "noise" and shows us what's really happening. Analysts use the 200-DMA as a kind of "signpost" for bull and bear trends.
 
In short, when a commodity trades above its 200-DMA, it's in a bull market. When it drops below, it's in a bear market.
 
I don't use a lot of "technical analysis" or chart reading when I make my investment decisions. But buying into a commodity downtrend is a great way to lose money. Regardless of the quality of the stock, you'll get killed on the way down.
 
That's why I advised caution early this summer. The benchmark commodities index had dropped below its 200-DMA, and I figured we were in for a rough patch... particularly in oil stocks and base-metal stocks, which had been selling off heavily.
 
Both the giant oil producer ExxonMobil and the giant copper producer Freeport-McMoRan put in lower lows after my essay. But things have changed. Take a look...
 
 
As you can see, commodities broke out above their 200-DMA in September... and haven't looked back.
 
Commodities in general (and silver, gold, uranium, oil, and copper, in particular) are up big since July. And I think this trend is here to stay. As commodity guru Jim Rogers recently explained, if the economy slows and the government dumps more stimulus dollars on the market, "real stuff" – like commodities – will go up in value. If the economy recovers, increased demand will push commodity prices higher.
 
In other words, just about any commodity bets can look forward to a strong tailwind.
 
A word of caution, though... Many commodities have run up so far, so fast, a pullback is almost inevitable. Momentum traders can pile in here and try to catch another leg higher. But more cautious investors should consider waiting for a "relief" correction before getting in on the new commodities bull market.
 
Good investing,
 
Matt Badiali




Further Reading:

As regular DailyWealth readers know, one commodity that's not yet in boom mode is natural gas. That makes natural gas royalty trusts a great buy still... and they're still throwing off fat monthly cash distributions. "Owning income-producing trusts is the no-brainer move to make here," Matt explained in a recent essay. Get the full story here: Where to Find Safe Resource Income Right Now.
 
On the other end of the risk spectrum, you've got the junior miners, the "blood hounds of the gold business." As Steve pointed out, gold stock have had a heck of a run, and are probably due for a pullback. But when this sector is hot, the gains can be outrageous. Read more here: How to Make 120% in One Month Trading Gold Stocks.

Market Notes


NEW HIGHS OF NOTE LAST WEEK
Gold, Silver, Copper
Barrick Gold (ABX)... gold miner
Gold Fields (GFI)... African gold miner
Southern Copper (SCCO)... copper miner
Silver Wheaton (SLW)... silver royalties
Pan American Silver (PAAS)... silver mining
Caterpillar (CAT)... farm & mining machinery
Joy Global (JOYG)... mining equipment
Bucyrus (BUCY)... mining equipment
CNOOC (CEO)... giant Chinese oil company
Las Vegas Sands (LVS)... a big bet on Macau gambling
American Movil (AMX)... cell phones in Latin America
Anheuser-Busch (BUD)... global brewer
Coca-Cola (KO)... global beverage distributor
Philip Morris International (PM)... cigarette dividend machine
International Business Machines (IBM)... tech hardware
Oracle (ORCL)... tech software
Wipro (WIT)... Indian outsourcing
Tata Motors (TTM)... Indian carmaker
Washington Real Estate (WRE)... REIT
Indonesia Fund (IF)...
Taiwan Fund (EWT)...
Malaysia Fund (EWM)...
Singapore Fund (EWS)...
Hong Kong Fund (EWH)...
South Africa Fund (EZA)...
Cotton, Corn, Japanese Yen, Swiss Franc, Australian Dollar

NEW LOWS OF NOTE LAST WEEK
Not many... EVERYTHING is up!

In The Daily Crux



Recent Articles
Legal Notices: Stansberry Research LLC (Stansberry Research) is a publishing company and the indicators, strategies, reports, articles and all other features of our products are provided for informational and educational purposes only and should not be construed as personalized investment advice. Our recommendations and analysis are based on SEC filings, current events, interviews, corporate press releases, and what we've learned as financial journalists. It may contain errors and you shouldn't make any investment decision based solely on what you read here. It's your money and your responsibility.

 

Readers should be aware that trading stocks and all other financial instruments involves risk. Past performance is no guarantee of future results, and we make no representation that any customer will or is likely to achieve similar results.

 

Our testimonials are the words of real subscribers received in real letters, emails, and other feedback who have not been paid for their testimonials. Testimonials are printed under aliases to protect privacy, and edited for length. Their claims have not been independently verified or audited for accuracy. We do not know how much money was risked, what portion of their total portfolio was allocated, or how long they owned the security. We do not claim that the results experienced by such subscribers are typical and you will likely have different results.

 

Any performance results of our recommendations prepared by Stansberry Research are not based on actual trading of securities but are instead based on a hypothetical trading account. Hypothetical performance results have many inherent limitations. Your actual results may vary.

 

Stansberry Research expressly forbids its writers from having a financial interest in any security they recommend to our subscribers. And all Stansberry Research (and affiliated companies), employees, and agents must wait 24 hours after an initial trade recommendation is published on the Internet, or 72 hours after a direct mail publication is sent, before acting on that recommendation.

 

© 2024 Stansberry Research, LLC. | Privacy Policy| Customer Service
Stansberry Research. All Rights Reserved. Protected by copyright laws of the United States and international treaties. This website may only be used pursuant to the subscription agreement and any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), in whole or in part, is strictly prohibited without the express written permission of Stansberry Research, LLC. 1125 N Charles St. Suite 500, Baltimore MD 21202.