October 11th, 2005

Where to now that the market is in

Where to now that the market is in correction? Many analysts and talking heads (listen to Jack Stieman or Gary Kaltbaum) are talking now about the correction although its extent or what might follow are still unclear (Jack Stieman, for one, is calling for a major bull market towards the end of this year or beginning of next). So where can one go today to find a make some money?

Over the past several postings, I listed the industry sectors that appear to be improving and those moving down in the rankings. Often pictures tell a better story. Unlike the situation here in the US, Japanese stocks, as depicted by the Japanese ETF (EWJ), have broken through a nearly two year consolidation period and are moving higher quickly:

If you’re looking to invest in the companies directly, a number of Japanese stocks trade on the NYSE as ADR’s and have patterns similar to ETF, including: the auto manufactures Toyota (TM), Honda (HMC) and Nissan (NSANY); electronics manufacturers, Hitachi (HIT), Sony (SNE); Kirin Beer (KNBWY); Mitsushista Financial (MTU).

Another sector in which to go long are the gold and silver stocks as represented by the IBD-Metals-Gold/Silver industry group:

After a significant run-up after breaking out of a downward slopping channel, the sector as a whole is attempting to move beyond the resistance level established by the high in December, 2004. An increase in the price of gold and rising prices for gold shares is directly correlated with the oil prices and, according to Adam Hamilton, who writes the Zeal Intelligence reports (see the Contrarian View link on this page) has predicting this rise for over a year.

If shorting is what you’re looking for then consider stocks in any of the sectors involved in real estate. As contrasted with stocks or industries I mentioned in past postings that look like they’re ready to breakout through resistance levels, real estate related sectors that may possibly brake down through support levels including home builders; they include Real Estate Operations such as CB Richard Ellis (CBG), Jones Lang Lasalle (JLL) or Brookfield Properties (BPO):

Or Real Estate Development which includes such companies as: Consolidated-Tomoka Land (CTO), Tejon Ranch (TRC) or California Coastal Communities (CALC):

And, finally, the homebuilders. These appear to have peaked in August and, as a group, are approaching a major support level. If they are unable to bounce significantly above that level (through the August high), then the long bull market that’s carried most stocks in the group to a 6-10 fold increase since interest rates began to fall in 2000 (some going back to 1990) will come to a temporary, though sustained, halt.

IBD includes 21 stocks in the group and any look like possible shorts, although those who are more conservative may until the support is actually broken.

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