Tuesday, March 6, 2012

Wen Changes his Mind

So we're finally getting a sell-off, even though the sell-off still remains fairly muted - seems like a healthy retracement in the current upswing, but the question is of magnitude - will we see 5%, 7% or 10%+ ? I think those are the 3 price scenarios that will see heavy buying of the dips.

Natural Gas Update
I called a bottom in natural gas a few weeks back, and got out of the trade at a scratch - the UNG etf proved to be a deadly combination of contango and volatile prices - and ultimately a reverse 4-1 split that saw it quickly fall from that price.

Two Winning Picks in AIG and WYNN
I had both of these stocks in my portfolio but sold AIG after some unfavourable price action after their earnings report came in half positive, and WYNN I sold off after their initial upswing from their corporate governance shakeout at a discount.  I still believe Australian equities will underperform in the coming quarter as they just can't seem to get their heads above 4300.  The political turmoils + revised downward growth and structural issues occuring in retail and the 2 speed economy is a perfect storm for a downturn in housing and along with it both global and local demand for risk assets in Australia.

As we see the usual China Growth fears last night...
Premier Wen announces that China has revised it's growth estimates with 7.5% instead of 8% - but many economist view this is as a floor rather than a specific target.
The cyclical players are getting hit harder in this sell-off namely commodity producers.

Iran War Fears
Anytime you see the words 'war + nuclear' - people freak out.  The world of media will distort the sense of these fears for their own benefit and twitchy fingered traders looking for any sign of potential collapse will head to the exit on any headline that they assume the common investor will act upon.  Is the current Iran fear warranted? I don't know; I wasn't old enough the last middle east tension and the Bush presidency entailed some war like developments - the Oil prices are reacting to the upside even on a risk off day like last night, so there is a legit premium that may continue for few weeks; it's just very hard to identify any risk/reward scenarios.
Economically, Iran is the second biggest producer in the OPEC, a fifth of the world's oil that will be unavailable if they shut it down or sanctions are imposed.  With China and US the biggest consumers of oil - at 32% who knows how high the oil prices can spike?

So which players should we be 'BUYING of the dip?'
Alternative Energy Players + Small Caps
- So far I've added ESI, CPST, CFU to my long term holdings on this theme, and looking to add a uranium producer to the mix.  Possibly PEN.
Gold Producers Globally
- This play is tricky, because the gold equity producers have underperformed the recent run-up in gold prices and now look ripe to fall just in line as the prices are topping out.  However, I will look to enter the trade through the GLD etf or a major producers in the US.
US housing Index
- Namely XHB which is the homebuilders ETF and KBH a good solid player in the US housing recovery.  The price point for entry is undefined, may need to keep a close eye on it as it trades near the top of it's 3 year range.