Today’s blog identifies two potentially attractive investment opportunities that you might want to consider for your own portfolio. Lets get at it:
In my October 31st blog, I noted the potential for a long bond rally coming soon to a theatre near you. Backing that outlook, I recently saw an endorsement of the potential play. As many of you know, one of the institutional research services ValueTrend employs is BearTraps. You will sometimes see me quote BearTrap’s Larry McDonald’s work. We tend to get most of our ideas from our sector rotation model, amongst other sources (to learn how to discover such ideas yourself, see my Online Technical Analysis Course). But we also apply our trend and fundamental analysis to names coming from BearTraps depressed equity research. Larry was the top ranked distressed debt trader in the world before he created his BearTraps research firm. He knows this arena – and he also sees opportunity in bonds. Larry was recently interviewed on Fox Business regarding his inflation and bond outlook. Here is the clip.
It should be noted: We have not yet bought into the long bond trade. But we are keeping an eye on the trade. Please read my October 31st blog to learn more.
One other idea that we are beginning to step into came from our sector rotation model. This idea ties into a question from a reader noted in the comments section. Is the recent rise by the transports negating the prior bearish signal noted in my last Bear-o-meter blog? That is: the industrials moved up without a confirming similar move by the transportation stocks in October. This, according to Dow Theory, is a bearish sign. That sign was reversed about a week after my Bear-o-meter reading. Transports took out their last peak, confirming the move by the industrials.
As such – we must “change our minds” regarding the outlook for the industrial sector. Here’s the chart, with my notations from two weeks ago, and now. Note how – in late October- the red line (industrials) surged to take out their early September peak. Meanwhile the black line (transports) had not. Now, the September peak has been taken out by both indices.
The broad industrial index – which includes transports – is reflected in the SPDR “XLI” ETF. Note how the downtrend has been broken and the 40 week SMA (red line) has been taken out. This is bullish. Cumulative moneyflow is flat, but possibly rising of late. This should be watched.
Ten of the industrials within the index are more “pure” industrial plays, with another 6 being more “pure” transport plays. Note that you could classify them differently as some overlap. Whatever the case – amongst the industrial plays, three sub-sectors appeal to me. They are: Heavy Construction, Defense, and Diversified Industrials. Here are the charts:
“He ain’t heavy, he’s my brother“…from The Hollies – which has nothing to do with anything I am here to talk about. Anyhow, this chart is breaking out. Nice!
I’m not sitting on de’ fence on this one. Now, don’t get defensive on me, I’m just the messenger. The chart is breaking out, and the pullback looks rather opportunistic. This chart looks like da’ bomb!
“First of all, young man, you’ve got industrial disease” – from Dire Straits – which again, has nothing to do with what I’m talking about here. If you can’t see the downtrend breakout and the breaking of the last peak on this chart, you may have industrial disease. Anyhow, its clear to most of us that this chart does not have industrial disease. Looks healthy to me!
As noted in my above mentioned blog, an opportunity is coming. Please read that blog to get the full story.
Regarding the industrials – If you subscribe to stockcharts.com, you can drill down through these three sub- sectors to look for ideas. I’ll leave that to you. I did this recently for our investment platform and added a couple of ideas to our buy list.
Finally: for a greater understanding of how to identify moneyflow rotation to pick the right sector, sub-sector, and individual stocks – please take my Online Technical Analysis Course. Subscribers to the VT Update Newsletter recently received a special 30% discount coupon on the course.
I recently published a couple of new videos. One covered global index ideas, and the other covered seasonal sector ideas. Click here to access them.
Hi Keith , whats the best way to invest in long bonds ? any tickers samples of ETFs for Canadian account ?
I never had any bonds in my portfolio .
Thanks , Mike
PS . Big fan of your blog .
XLB -Canada longer bonds
TLT- US 20 year bonds
Alright , thanks Keith …keep up the good work !