From the man who told the BBC that “Goldman Sachs rules the world”…
My favourite three markets right now all fit a certain pattern: They are all hated, they are undervalued and they are (with one exception) in an uptrend.
Let’s take a look at each one.
1. Russian Stocks (RSX)
The recent crisis in Ukraine and the new sanctions placed on Russia have sent Russian stocks tanking (no pun intended). The Russian stock market ETF (RSX) is down 21% this year.
This makes Russian stocks even cheaper and more undervalued than they were this time last year. Take a look at this chart:
RSX is obviously NOT in an uptrend. But it is hated and there will be more “blood on the streets” as investors exit this market.
I am shorting RSX at a pullback to the 21 EMA (blue line) and resistance at $23.20. So far those levels have held and I am now looking for a test of the next support levels at $20 and $17.50.
But mark my words: at some point in 2014, Russian stocks will be a huge “buy”…
2. Retail Stocks: Pricesmart (PSMT)
After the disappointing sales results at Christmas, retail stocks like Pricesmart (PSMT) and Best Buy got clobbered! See this chart:
We can see that the bearish pro divergence signal back in December was a warning signal of a price drop. PSMT fell by 25% and then formed a “head and shoulders” reversal in February.
Last month I recommended buying PSMT when the pulse fires long on this stock. So far we are up 10% on PSMT.
The good news is that retail stocks are still hated, undervalued AND in an uptrend. I love the fact that the public are ignoring quality retail stocks like Pricesmart and Best Buy. I will continue to buy more into any weakness.
3. Gold mining stocks: GDX
If you’re looking for a sector that has been hated and ignored by investors, then look no further than gold mining stocks.
Gold stocks went into a major downtrend in 2011. But in December 2013, we finally saw two leading signals that things may be about to change. The big gold stock fund (GDX) signalled a reversal in its downtrend. The bullish pro divergence combined with the pulse signal in January was a leading signal which we used to start buying quality gold and silver stocks.
However, the recent surge in the US Dollar has put downward pressure on gold and consequently gold mining stocks. If the US Dollar continues to strengthen we could see GDX retrace back to support at the 50 MA and $22.50 January lows (blue line).
I expect GDX to hold this level and continue the uptrend. But if it cannot, then look for a retest of the previous lows at $20. This could give investors who missed their chance to buy gold stocks in January a second chance.
Alessio Rastani is a stock market trader at LeadingTrader.com. He is the self-proclaimed trader who shocked the world by declaring live on BBC News that he goes to bed “every night dreaming of the next recession” and that “Goldman Sachs, not the governments, rule the world”. He’s a controversial figure, not least because he’s a self-taught non-institutional trader with no FSA license. But he certainly isn’t shy about sharing his views. Do you agree with his words? (His words are his own and not endorsed by LondonlovesBusiness.com)