Shares ended lower Tuesday – continuing for a fifth straight day the market’s losing streak. Now, with investor sentiment so sour but the economy showing signs of life, stocks and other risky assets are poised for a rebound rally. And a strong one at that. That is good news for the U.S. market and for emerging markets. At this time however, it may be best to stick with emerging markets as the lumbering U.S. gets up to speed. Let’s briefly recap the good news and then look at some ETF investing ideas.
First, we know the U.S. economy doesn’t look good with first quarter GDP growth of just 1.8% while the unemployment rate moved back over 9%. But the economy is already on the mend. That should translate into higher stock prices and a recovery reacceleration — enough to send GDP growth as high as 4.3% in the fourth quarter, according to Deutsche Bank.
The key is that the short-term negative catalysts — including auto production shutdowns on a lack of parts from Japan and a spike in gas prices — are beginning to diminish. And for U.S. workers, incomes continue to rise as more and more workers are working longer hours at higher wages. Hours worked over the first quarter are rising at a very strong 3.7% annual pace — the best growth rate of the recovery to date.
Meanwhile, investors are feeling very, very bearish according to Jason Goepfert at SentimenTrader. The number of newsletter writers looking for a short-term correction has surged to a 25-year high. Protective put option buying has surged to a 10-month high. And individual investors are showing some of the lowest bullish options investments in years.
This, combined with a collection of oversold technical indicators has me on the prowl for new opportunities on the long side.
Here are two emerging market ETFs that I’ve recently recommended to my newsletter subscribers. Both are benefiting from a renewed slide in the U.S. dollar and a reacceleration of global growth prospects.
Market Vectors Russia (NYSE: RSX) provides exposure to Russian equities including Gazprom, Norilsk Nickel, and Lukoil. Shares have broken up and out of an inverse head-and-shoulders reversal pattern as they round out of an oversold condition. A 10%-plus up move here would test its April highs.
iShares Turkey (NYSE: TUR) holds Turkish equities including Akbank, mobile phone provider Turkcell Iletisim Hizmetleri AS, and telecommunications outfit Turk Telekomunikasyon. Shares just made an upward cross of their 20-day moving average — the first such move since the initiation of its March uptrend.
I previously recommended the Global X FTSE Colombia ETF (NYSE: GXG). It invests in 20 of the most liquid Colombian stocks including Ecopetrol, BanColombia, and Energy Company of Parana. Shares have shrugged off the five-month trading range that have plagued U.S. equities and have instead traded with a strong positive bias. The GXG looks ready to move up and out of overhead resistance and make a run on its old highs from last November. That would require an 8% move from here.
Disclosure: Anthony has recommended RSX, TUR, and GXG to his newsletter subscribers.
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