Market gains are just beginning
A better-than-expected deal out of the eagerly awaited eurozone summit has kicked off what could become a long rally.
Finally, Germany cedes a little, and markets go crazy. European leaders agreed to take steps toward closer budgetary controls and tighter political union. Moreover, in a victory for Europe's Latin Bloc, German Chancellor Angela Merkel opened to using bailout funds to directly recapitalize banks and to purchase sovereign bonds in the open market.
This is huge step forward, and markets are responding accordingly. By all indications, the gains are just getting started ahead of what could be a multimonth advance before worries over America's "fiscal cliff" -- tax hikes and spending cuts worth about 5% of GDP due to hit in early 2013 -- cause new weakness. Here's how to play it.
As I previewed in my column this week, Merkel realized that her constant recalcitrance against any fresh steps to ease the eurozone crisis (moves toward liability sharing via Eurobonds or a banking union) was quickly spiraling out of control. Spanish and Italian borrowing costs were reaching unsustainable levels. And political cohesion was beginning to fray, with Spanish and Italian leaders threatening to veto a new $150 billion growth package if there was a lack of progress on these issues.
So the outcome from the summit -- which was the 19th meeting in two years -- was very, very good. This follows a good outcome from the Greek election and fresh stimulus measures by the European Central Bank (relaxation of collateral requirements).
With investor sentiment so negative heading into this meeting, people have been taken by surprise. Friday's market action demonstrated this with huge, gapped moves higher in key assets. Small caps. Emerging-market stocks. Crude oil. Copper. Precious metals. They all moved by leaps and bounds.
Technically, it's all systems go for a fast-moving rally led by foreign stocks, financial issues and commodities. Breadth has been improving steadily as more and more stocks participate in the upside while fewer and fewer participate in the declines. Deflationary expectations are easing in the bond market, which is a good thing that will suck money out of Treasury bonds and put it into stocks and gold.
And the dollar -- on which so much of the market moves, as computer-trading algorithms use the euro-dollar exchange rate as a measure of risk appetites -- got absolutely pummeled, resulting in a cascade of short-euro, long-dollar trade covering. For the bears, it's a terrible day.
I'm looking for this advance to continue into August as eurozone progress and central bank stimulus fuel another ride higher, as I discussed in my column last week.
The leveraged ETF positions in the Edge Letter Sample Portfolio were well positioned for Friday's rise. Both the Direxion 3x Emerging Markets (EDC) and the Direxion 3x Semiconductor Bull (SOXL) are posting 10% gains. New position Synovus Financial (SNV) is also doing well, up 6% since I added it on Wednesday.
I found both SAN and SLT with the help of technical screens developed with Fidelity's Wealth Lab Pro back-testing tools, which you can find here. (Fidelity sponsors the Investor Pro section on MSN Money.)
Check out Anthony's investment advisory service The Edge. A two-week free trial has been extended to MSN Money readers. Click here to sign up. Contact Anthony at firstname.lastname@example.org and follow him on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
There has been hereby a certain number of frustated, annoyed and annoying posts about Anthony and his "flip-flopping" predictions.
First, Anthony is NOT a loser. His Edge Letter Portfolio had a return in June of +12% while the S&P500 did +4% only. Also the "Explore Part" (60% of Total Capital) did +18%. That is impressive.
Second, Anthony is an EDUCATED, SMART, and experienced guy, who has access and understands a broad range of surveys, polls, analysis ... and provide you FOR FREE his interpretations, analysis and recommendations in his Edge Letter Sample Portfolio. So he should have your respect for that. Disgruntled people are free to ignore Anthony's articles and vent their bile somewhere else.
As for his "flip-flopping", it can be seen as a manifestation of his intelligence, that is often defined as the ability to adapt to changing environments and circumstances. It is the market that flip-flops all the time. Anthony is acutely tuned to its changing trends and goes into details to document his technical analysis. How many other guys do that, for you, for free ? Most other guys would say "My guts tell me ....".
Who would you rather believe and look at ?
Be aware of which time horizon is refered to when you read his articles. A sector or stock may have a short term (a few weeks or less) uptrend, while its medium term (a few months) trend is downward, while its long term (years) trend is upward ... or vice versa, and to crown it all, the events that change those trends are more or less (un)predictable. So mind the time horizon. I like Anthony''s strategy to follow the short term trend closely while looking also longer term (but the longer the term, the more unpredictable it is, right?). His sale/buy recommendations last typically only a few weeks.
So give the guy a break ! and don't forget .. he is a winner. Don't be a whiner.
YEA KNOW, ITS BECOME A TOSS UP AS TO WITCH ONE OF YOU MORONS IS IS THE WORST AT THIS. YOU OR CRAMER?? THE GOOD NEWS IS IF I DO THE OPPOSITE OF WHATEVER YOU TWO IDIOTS SAY I MAKE MONEY!!!
Tony... you added a European lender to your portfolio? Banco Santander...
Isn't that like handing Europe a dollar and getting 79 cents in miscellaneous change, some coins not even being real, and being excited about it?
They can bail banks until the cows come home (from partying on your dollar) but without job recovery how c****nding bank lend? Valuation must be part of your equation. Extending money is just phony baloney if the borrower isn't working and because so many are NOT, collateral values keep sinking. The truth is, until we see valid job recovery, the only good bank has been closed, reconciled, current personnel let go and replaced by former (job recovery), and regulated with specific oversight. You could have donated that cash to your local small businesses in an effort to recover where you live from Wal-Mart dominance, and made a better return in many ways!
Message to all eternal doom & gloomists:
The bulls are back town....
The bulls are back, the bulls are back.
The bulls are back in toooo-ooo-oooo--ooown.
Yeah the bulls are back, the bulls are back.
It's not a rally, Tony. We entered a phase of over-printed money that will haunt us forever. There is too much unit currency outstanding, none flowing through the economy (so there isn't one), too much debt that has nothing to do with the economy and a global condition that literally clones ours. Like Andrew Dickson White pointed out in: Fiat Money Inflation in France... after a while, the Main Street economy dies, while stockjobbers (his word) inflate fake markets and count debt as profit as to not illuminate the fact that [banks] are fully detached and everyone else exists in a sub-economic condition.
I certainly wouldn't invest where I was last in line to recoop if something (and it will) went wrong. Are there any companies hiring back their OLD workforce? If not, they would be hiring ignorance on purpose. When 100% of all publicly traded companies are engaged in the exact same culture and survival mechanism... time to slip out the back door and find a safeharbor.
wow! I haven't heard that before, ur kiddin??? yea, right, rally, overwhelmings losses, rally!!! more losses, another rally!!!! euro bailout, rally!!!! oh please!!! next week it's gonna be another rally, except down again!!
“So the outcome from the summit -- which was the 19th meeting in two years -- was very, very good.”
How many times in the recent past have the media declared that Europe’s problems were finally being addressed, only to find out later that minimal or zero real progress had been made? And then there's the fact that Europe is still trying to make socialism work, and the fact that bailing out socialists just kicks the can down the road to an even bigger economic disaster. And just look how well the Federal Reserve’s manipulations of the American economy have worked!
It won’t be surprising if the market drops a few hundred points next week, and continues its zig-zag pattern of euphoria over Europe one day then gloom over Europe the next.
The 19th meeting in two years?! Gimme a break. A year from now they'll be on their 28th meeting in three years. Europe is the same socialist dump today as it was yesterday.
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