A Resilient Market Demands Your Attention

Markets worldwide have looked fatigued since mid-October. Some bourses have made marginal new highs and the American Dow has actually fared the best, posting its best November since the 1930’s. But leadership has thinned along with the new highs list and the markets have been susceptible to selling on bad news.

But if buyers can gain little traction neither can sellers. The Dubai default last week was tailor made to trigger a significant correction in tired indices that have achieved outsized gains, giving nervous investors an excuse to lock in gains. Markets around the globe scored significant losses on Thursday. The Shanghai Composite suffered two sessions of heavy losses in three days on huge volume, disturbing its resumed uptrend. And yet by Friday the selling had been arrested. And today it has been reversed.

Don’t let the fact that Dubai is a rather small place deceive you into thinking this incident was much ado about nothing. International crises have been triggered by seemingly minor incidents because of the mind set of investors. Clearly, even in a world where a subset of investors is sufficiently nerve wracked to invest money in 3 month T bills yielding 0% there is far more resolve in the minds of many investors than we may have given credit.

The market’s “rest” these last six weeks coupled with the reaction to the Dubai World default leads us to the conclusion that we are set up for a break out move higher, probably sooner than later.

Where do you look for investment ideas? We’ll try to cover some on our sister blog, but the market clearly favors three sectors that we have long suggested. Big cap stocks with plenty of international exposure. Commodity related stocks and their pick and shovel brethren. And BRIC stocks of all shapes and sizes, particularly of a Chinese flavor.

We continue to believe that China is heading for a significant hiccough, but we play the market that is in front of us. And the trends that have been in place since the uptrend began in March should continue to extend themselves for the duration.