Published on May 26, 2017 @ 8:06am
Good Friday and good long weekend everyone. I hope you find some time to enjoy what you love to do most with the people you love most. This week's horrific event over in Manchester clearly proves life is precious - and can often be short - so we should always make the most of it.
The markets are a bit mixed this morning, which is probably to be expected since they've done nothing but rally sharply off of last week's lows. The rally for the most part has been pretty broad based - ex a few sectors that have pretty much lagged all along. More on that in a second.
First, we got the break down in oil yesterday we've been anticipating since last week, so all good there for those who picked up a bearish leveraged oil ETF following our short call. You're likely not all that far in the money on the trade, however, based on yesterday's sharp reversal, we do expect oil to continue lower from here - albeit not without some volatility.
At this point, it's probably a pretty good idea to use yesterday's high as a backstop. In other words, if for some reason oil reverses itself sharply back to the upside, and more importantly convincingly breaches $52 per barrel, you'll probably have to post the loss. If, however, it continues to move lower from here, you can use either $45 and change, or better yet $42 and change as your end goal targets - with the latter making the most technical sense right now.
Gold is surprisingly staging some strength this morning, something we really weren't expecting. However, there's no question on an extremely long-term basis the price of gold isn't going to continue stick around the lows we've seen in recent years. It's more a matter of how it behaves on a short-term basis, with a very clear bullish bias over the next few years.
We're still convinced we're in the early stages of a reflationary economy, one that should continue to create opportunities in commodities on a very long-term basis, hence all of our recent commentary regarding copper and other industrial based commodities. Even steel should do well, along with coal and any other high demand type commodities.
A few sectors we continue to find attractive in terms of value and opportunity over the next few years are the pharma and healthcare space. At some point likely sooner, rather than later, these sectors will get a substantial lift. However, this is precisely the type of thing that can drive contrarian investors absolutely crazy in the interim.
We have what many might consider to be a bit of an odd analysis when it comes to the space. Basically, a fund manager asked us what we thought about Gilead Sciences, Inc. (GILD) several months ago. We told him the stock still had much more downside ahead, and that when it hit a certain level, it could coincide with a potential long-term reversal in the space.
Why? Because Gilead is one of those hundred pound gorillas that tends to help or hurt a specific sector. Well, provided below is a long-term monthly chart of the stock, and we've been saying for a long time - pay attention to a break below $60 per share. When that happens, not only will Gilead be another excellent long-term buy, so will the entire pharma and healthcare space.
That's very leading in nature, and although we haven't mentioned it here, now's probably the time for everyone to put GILD on their watch list, and look for that break below $60, because if and when we can get it, we're probably going to lean on the space a heck of a lot more than we have in recent years.
Even biotech is starting to look pretty attractive again, evidenced in this monthly chart of BIB below, the primary ETF tracking the entire biotech space. It too could be trying to develop a bottom right now. Sell side volumes appear to be drying up, which you can see here, and considering there's got to be other sectors to eventually take these markets higher, maybe it's going to be all of the above.
Still a little too soon to tell, but that's what we do here - provide you with as much accurate leading analysis as we possibly can. So keep the above in the back of your mind - as we look to try and take advantage of some sectors Wall Street has probably been working to accumulate for a while now.
It's a classic scenario - they tell you they hate something until they're done buying it all up. Then, they'll come up with upgrade after upgrade. The same thing is going to happen with energy stocks at some point too. Give it some time, every sector eventually comes roaring back.
If there's one thing stock market history has proven, it's that. However, buying low and selling high can often test one's patience to no end.
We want to wish all of you a very safe and fun long weekend. We're so grateful for all those who've given their lives to give us the lives we all probably tend to take for granted sometimes. They are the true heroes and will always be remembered.