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(The FRED Report ) -- Here at The FRED Report (
), we have been watching events in Egypt and around the world with interest. Egypt and the geopolitical implications were dealt with in
, and a couple of the trends mentioned in that article are strengthening in such a way that there are some more ideas that we can exploit.
It was mentioned that, because of the turbulence in Egypt, money was flowing out of emerging markets and into the U.S. This accentuates a trend that has, in fact, been in effect since November.
we talked about money flowing from EEM (Emerging Markets Index ETF) to SPY (SPDR S&P 500 Trust): see charts below.
However, an even better way to take advantage of this trend may be to buy either the DIA (Diamonds Trust Series), a proxy for the Dow Industrials, or alternatively stocks in the XMI (Major Markets Index). Many XMI stocks are in the Dow Industrials as well, but some are not. These are all mega-cap multinational names. Note that all of the stocks listed in the XMI and DIA are also in the SPY -- this is simply a way to make sure you are choosing the largest capitalized names. When looking at the DIA, note that strong sectors are energy, materials, staples and industrials. Large-cap stocks in strong sectors have the potential to be strong investments for 2011. Weaker sectors continue to be financials, and health care: invest accordingly.
Next, we are starting to see clarity of the Middle East situation and this may be creating an opportunity for investors. While the fundamentals for emerging markets appear to be strong, in fact the EEM has continued to underperform since last November -- and the market is usually right! Now, however, EEM looks to be completing a successful test of support. See the chart of the EEM, and note that support in the $44 - 45 area is being tested. If this test is successful, a rally could start in this ETF, which could take it to the $47 - 48 area. Many advisors are asking for an exit strategy, and this would represent a selling opportunity for readers over weighted in this ETF if $44-45 cannot hold.
Fred Meissner is founder and publisher of
. Fred is a CMT and past President of the Market Technicians Association (MTA). He recently left Merrill Lynch's Market Analysis Department and Sector Strategy Department to form The Fred Report. A detailed bio is here: