Market Update: 2008-07-24

The past few weeks have been a blast in the markets, and we have witnessed most of my recent sector picks catapulting higher.  Here is a quick summary of some recent performance:

1) Airline stocks.  On June 23 I bought my first airline stocks, and mentioned that they were risky but beaten so far down that I couldn’t help not to buy a little.  On that day I bought DAL (Delta) for $5.00 and UAUA (United) for $6.00.  As of yesterday afternoon's close, DAL was up 72% to $8.60, while UAUA was only up 56% to $9.35.  If the current correction in energy prices continues, I expect the airline stocks will continue to rapidly gain altitude.  But for the long term airlines are not great investments, because airlines tend to go in and out of bankruptcy every few years and really just don't make much money when they are in the black!  So, once I double my money in these two stocks, I will probably get out, or at least sell half of my shares to lock in some profit, and hold the remaining half in case they do return to their former glory levels.

2) Bank stocks.  So far so good for the BKX index.  It had its first successful test of 10-year support at 60.  As of last Tuesday, July 15, the BKX looked like it was ready to break down, and fell as low as 46.52 that morning.  But since then it has rocketed straight up, with the BKX hitting an intraday high of 71.53 during yesterday's trading.  That is a staggering 54% gain in only one short week!  So for now the banks are safely sitting above 60, but given the low they were able to hit last week, I anticipate that it will be a very bumpy ride for a while, and the BKX will continue to battle support around 60.  In the short term, I see resistance at 75-80, and don't expect the BKX will rise above that before turning back down for another test of support.

3) Homebuilders.  As I expected would be the case, ITB (the homebuilder ETF) had a wonderfully successful test of it January lows over the past few weeks and now the homebuilders are up 38% from their recent low.  ITB's support is around 13, and it opened this morning above 16, which gives us a comfortable cushion above support.  Once ITB gets into the $22-25 range, I plan to begin selling my position off, as I don't anticipate it will outperform the market after the said price level is met.

4) China.  FXI, a Chinese ETF, also had a successful test of its March low of 40 (note: to avoid any price confusion with my previous postings about FXI, this ETF just had a 3 for 1 share split this morning).  It recently fell back to 41, a level that when adjusted for recent gains in the RMB (China's currency) is about what 40 was worth back in March.  As of this morning FXI is up to 47, a nice 15% bounce up from its support level.  I do not anticipate new lows for China’s stock market.  I am 90% confident that China's market has bottomed, and long term we will be up, WAY UP!  Remember, long term is 5-10+ years.  If you don't have any exposure to Chinese shares, I think that right now is the best chance you will ever have in your life to buy them this cheap.  If you don't start accumulating Chinese shares now, I bet that 10 years from now you will look back and say, "What was I thinking back then?  I was stupid for not listening to that guy on SinoCentury.com!"

I expect the market to remain turbulent through the rest of the summer and into the fall.  Looking forward, I will continue to seek an opportunity to buy more oil and gas services shares, but we are there yet.  The one other ETF I would be buying right now if I didn't already own too much is EWJ, the iShares Japan fund.  It is dirt cheap and I expect Japanese shares to outperform U.S. shares over the next 5-10 years.  I also think now is a time to start accumulating tech shares via XLK, a technology sector ETF.

We will know more later.  Until then, Happy Investing!

Gregory