If the financial markets are a battle field, then the fog of war down on Wall Street is particularly thick these days.
Stocks and other risky assets are rising and falling based on every rumor, whisper and denial out of Europe. On Monday, it was all about China using its $3.2 trillion stash of currency reserves to support Italy's bond market. Tuesday, it's all about a Dutch finance minister saying that a Greek default is unavoidable -- a statement that was later retracted.
But all the while, just beneath the tumult and turmoil on the surface, Wall Street insiders are stealthily accumulating new stakes in super sensitive sectors like semiconductors and transports. That, along with a number of positive technical signals, suggest that despite the euro zone worries a new medium-term uptrend is being formed. Here's why.
While the broad market has been mired in a grinding consolidation range since the early August wipeout, there are plenty of signs of progress. This is a typical pattern: The market gods like to exhaust the speculators with alternating waves of fearful declines and greed-inducing rallies that dissolve just as the masses try to get on board. And just when everyone is ready to give up in disgust, that's when the big breakout happens.
So, why do I think the breakout will be to the upside?
For one, since the August low fewer and fewer stocks are participating in the selloffs while a broader swath participates in the up days. This is a sign that it's getting harder and harder to shake investors out of their stocks while bargain hunters are finding more and more value.
Two, the CBOE Volatilty Index ($VIX), Wall Street's "fear gauge," continues to trace out a pattern of lower highs and lower lows as options traders become less and less interested in purchasing protection against continued losses.
Three, economically sensitive cyclical stocks are stabilizing and demonstrating some relative strength against the broad market after reaching a relative low in late August. This is a sign of confidence. Specifically, I'm seeing strength develop amongst semiconductor and transportation stocks -- both of which tend to be first movers for any major market trend.
As a result, I've recommended my newsletter subscribers add exposure to chip stocks via the leveraged Direxion 3x Semiconductor (SOXL) as well as a collection of individual semiconductor names including Silicon Motion Technology (SIMO). I'm adding both SOXL and SIMO to the Edge Letter sample portfolio, which tracks my recommendations for MSN Money readers in real time.
For more conservative investors, I would recommend the non-leveraged Semiconductor Holders ETF (SMH). The 2x leveraged ProShares Ultra Semiconductor (USD) is also a candidate.
I found SIMO with the help of technical screens developed with Fidelity's Wealth Lab Pro back-testing tools, which you can find here. (Editor's note: Fidelity sponsors the Investor Pro section on MSN Money.)
Check out Anthony's new investment advisory service The Edge. A two-week free trial has been extended to MSN Money readers. Click here to sign up.
The author can be contacted at anthony@edgeletter.com and followed on Twitter at @EdgeLetter. You can view his current stock picks here. Feel free to comment below.
Anthony, why should we care what the money changers are doing to make the market go up and down? I'm sure with all that is happening in the world right now people are very concerned about semi-conductor stocks, or just maybe they are more concerned and aware that something is very wrong and hopefully are waking up to the corruption and fraud in America that is politics and Wall St. Maybe they are sick and tired of getting robbed and regulated to death...I do sincerely hope that they are because that is the only way things will ever change. This article like all of your articles is pure garbage and banker propaganda. In the words of the early American Indians .....Anthony Mirhayduri speak with forked tongue.
More debt = more financial troubles. Short term govt spending increases the debt, providing only temporary jobs at best, lessening the govt's ability to act in the future and increasing the inevitable sufferring.
Increased taxes reduce private sector money. Private sector money creates more jobs per dollar. One govt job costs our population @ 2 1/2 - 3 private sector jobs. Decrease govt jobs and govt benefits and salaries and you will increase prosperity.
Old adages grew from centuries of life experience. Admittedly they sometimes conflict, but, there is almost always some deep truth in them. One of my favorites is this one: “You get what you pay for”. In other words, when you pay nothing for something, it most probably has little value to you either. I paid nothing for this article.
Here’s another adage which I’ve derived from experience which I hope will become an old adage one day: “If you really know a guaranteed way to make money in the markets, the dumbest thing you can do is tell everyone else about it.”
Didn't even read the article... the title says it all. This guy is a perma-bull. I guess Europe imploding is bullish? Spain and Italy banned short selling yet stocks STILL got crushed in those countries is bullish (so much for the eeeeeevil short sellers causing all the problems thesis)? Liquidity in the market drying up is bullish? Will a negative 3rd quarter GDP print be bullish too you idiot?!
Maybe this guy thinks the Fed can solve all the world's problems by monetary manipulation. History has shown us the opposite is true.
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