Breaking It All Down — the Dow, China, Mining and Technology

“Ahead of the Street” Column, by Mitchell Clark, B. Comm.

With the broader market ticking higher, the number of new companies to hit the market is increasing. There have been a lot of initial public offering (IPO) deals sitting on the shelves waiting for better stock market conditions. Now those conditions are here and, while companies aren’t able to sell their shares at the top end of the price range, new listings are hitting the market quite frequently now.

A number of these new listings are U.S.-listed Chinese stocks and small- and mid-cap domestic technology companies. For quite some time, I’ve been advocating that risk-capital investors concentrate on U.S.-listed Chinese stocks and the mining industry. I would add technology opportunities to this list and, for non-speculative investors, you can just own the market now. In fact, you might as well consider just owning the Dow, because the biggest companies stand to gain the most from economic recovery.

The price of oil is still strong in this market and it’s a sign that speculators believe that the economy will be stronger in six months’ time. In my view, oil over $80.00 a barrel is a definite bullish call. And gold, too. The spot price of gold hasn’t been doing much lately, because investors have been focused on monetary policy. Just like oil over $80.00 a barrel, as long as gold stays over $1,000, then mining investments make sense.

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Again, I think the single biggest story this year will be corporate earnings and the performance of the Dow. There’s still the possibility that the current trading action in stocks represents a right shoulder formation to the market’s recent high set in 2007. Only the economy will be able to determine where the Industrial Average goes. I would say, however, that the Dow Transports are confirming the market’s strength and that index moved strongly higher over the last four weeks.

So, we’re back in the peculiar situation where we have another stealth rally. We are getting better economic news that is confirming the stock market’s optimism. With first-quarter earnings season just around the corner, you might have noticed that there have been virtually no earnings preannouncements from companies. This is a very positive signal for stocks overall.