A Definite Sense of Renewed Optimism

by Mitchell Clark, B. Comm.

There is growing optimism among investors and this is creating a lot of wealth in the stock market right now. There’s good short-term momentum in individual stocks and the major indices and traders are doing well at this time.

For long-term investors, there are a lot of bargains still available in the marketplace. Many individual investors, however, are still pretty gun shy about stocks and the majority of people I know with big portfolios just don’t want to participate. People are still in shock about their losses over the last year. This, of course, means that a lot of investors have missed some great trades since March.

One of the best trades that I’ve seen was the basket of large-cap Chinese stocks that was written up in this column many times over the last few months. The iShares FTSE/Xinhua China 25 Index (NYSE/FXI) is now up over $10.00 per share since March. I think it has far further to move over the next few months.

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There is a definite sense of renewed optimism in Chinese stocks. Even small-cap, U.S.-listed Chinese stocks are rallying right now. There’s a lot of investment risk associated with Chinese stocks, but, then again, there’s a lot of reward potential. You just can’t find the growth anywhere else.

Part of the reason why the price of a barrel of oil is going up is the upswing in Chinese and U.S. equities. Traders are betting that the global economy won’t get any worse and that means that demand for oil will slowly increase over the coming quarters. Oil traders are more focused on the demand side for oil, knowing full well that the world is awash in the commodity at this time. I think that $75.00 oil is a real possibility in the near term so consumers will feel it at the pump.

I’m not much of a stock market technician, but I do like to follow the Dow Jones Transportation Average as an indicator for the broader market. This index has moved about 1,000 points higher from its March low. I wouldn’t be surprised if there’s a period of consolidation in this index over the next month or two. If it breaks 3,500 and stays above this level, I think that will be a clear signal for another major upward move in the broader market.