There is unnoticed opportunity in some big caps, as well as commodities futures, particularly grains, says noted technical trader and author Linda Bradford Raschke. But she cautions that some asset classes that have notched strong rallies, such as gold, may be due for a pullback.
Kate Stalter: Today we’re speaking with an advisor who is well known to many in the MoneyShow community, Linda Bradford Raschke, of LBR Group. She’s spoken at many of the MoneyShow events. In addition to being a well-known technical trader, she’s also an author on trading psychology, and we’ll talk a bit about that with her today.
Give us your take on where the strength is in the current market, and what you think individual investors need to be doing in the face of what has been going on recently.
Linda Bradford Raschke: Well, two things. I think first of all, don’t jump to conclusions that we’re in a huge bear market or huge bull market. Put things into perspective, and look where your support levels are.
We obviously just went through an extreme period, that I think we have some good selling climax in. Bearish sentiment got extremely high.
What I like to do is: When you get some type of bottom like that, look for the relative strength leaders off of those lows. If you look at the relative strength leaders coming off of that last sentiment extreme, you’ll see that there are still a lot of big-cap blue chips that really are not that far away from making new highs.
You really want to stick with relative strength in this type of market. You know, wait until there’s a washout, and then don’t try to bottom-fish the dogs, because the dogs will stay dogs.
So, I really like stocks like IBM (IBM) and Boeing (BA), and if you look at things like Amazon (AMZN), they’re really not so far away from their highs.
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I think there are a lot of stocks that are attractive, in terms of their dividend yields, relative to what you’re going to make on the ten-year notes right now. So, just factor that into you valuation model. Really, with interest rates at zero, if you’re getting a 3% dividend somewhere, hey, that’s not so bad.
The drug stocks are doing just fine here. I like the charts on those.
So, it’s not all doom and gloom. September historically is not known for being the greatest month, and we’ve already had a good pop up off of these lows. So, you don’t want to go chasing anything either.
But just keep in mind: if you are an investor, always have a shopping list. Always have a shopping list of stocks that you’re eyeballing, but maybe the prices aren’t attractive. Then when you do get a washout like we had, bring out your shopping list and see what is actually holding okay. So, that’s my advice.
I think that the Fed saying that we’ve got interest rates low for the next two years definitely puts a floor underneath the market. I know everybody is looking at an economic slowdown, or whatever. But, you know, statistics are statistics.
A lot of people held back from making decisions over the last two, three months, obviously for political purposes, deficit purposes, and all this stuff going on, and it keeps turning from day to day. So, temper the anxiety, number one.
Number two, stick with a methodology, which is looking for where the relative strength is. When you measure relative strength, you want to measure it from the most recent lows. See what actually starts to get lifted best off of those lows.
Then just take it one time horizon at a time. In other words, don’t try and figure out where we’re going to be a year from now. Just see what we can do for the next couple weeks.
The Nasdaq is actually right back into the middle of its trading range that it had all summer before we had that big breakdown. Definitely technology; there are some good pockets of strength there. And, like I said, the [drugmakers].
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It’s really pretty interesting because we still have stocks making all-time new highs. McDonalds (MCD) is up there at all-time new highs. Coca-Cola (KO) is up there at all-time new highs.
So, just stay away from the dogs. Stay away from the stuff that’s beaten down, because it really doesn’t come back as quickly as the stuff where the real demand is.
|pagebreak|Kate Stalter: Well, I wanted to follow up on that just for a moment, Linda. Are there any particular industries, sectors, asset classes, global regions, that you really do see as being some of the dogs right now, that people should avoid?
Linda Bradford Raschke: Well, I have to say this. In terms of global indices, actually the US has been outperforming. So, hey, hey, rah, rah, go USA!
Seriously, though, for an investor it’s really easy for them just to pull up some of the world ETFs and look at new emerging ETFs, there’s a billion symbols. Germany has been underperforming. Obviously, Europe has been underperforming.
It’s just nice to see the US taking the lead a little bit—and obviously the cheap dollar, relative to some other currencies, might be having something to do with that.
Other countries have cash reserves, and their currencies are relatively strong. Their purchasing power goes a lot further when they’re buying stocks, and they could see US companies as relatively cheap, just because of the currency that they’re purchasing them in, relative to a US investor, who might think, “Well, perhaps they’re still too high.” So, there are always two sides of the coin.
In terms of other asset classes, I would just say to stay away from the stuff that’s had recent runs and markups. There was a lot of fear, and anti-risk trades were put on: Gold, silver, bonds, ten-year notes. It’s hard to see squeezing a whole lot more out of those. Maybe they’re not going to fall back huge amounts, but I think the main upside is over there for now.
In terms of futures, look at the relative strengths and the charts. It’s kind of funny, because in terms of psychology, as Americans, 90% of people are sort of ingrained, brainwashed, to only by things when they’re on sale. So, it’s more difficult to buy something when you feel that you’re paying up for something, but truly that’s where the demand is, and that’s where you want to be, riding those waves of demand.
So right now in the futures, we’re seeing really nice moves in these grains. I don’t think they’ve made anything near a top. They’re just breaking out of these charts, these soybeans, and these wheats, and corn are all pretty lovely.
Natgas just had a really nice bounce off of a low, so if you are into that mentality of feeling like something is discounted, there’s a market for you. It’s probably at the lower end of its range, but I’m not sure how much upside it has. It might just be going back to the upper end of its range.
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But in general, I think the play has been over, obviously in these notes and bonds, and bond funds for that matter. It’s kind of hard. Where are you going to put your money?
So, grains are good. Copper has been coming to life again. I would far rather be putting monies into copper than gold or silver at this point.
And then just use some common sense too. Really, common sense will tell you just to look at the sentiment readings. I don’t see people catching on to this move in the grains yet, but I think it’s good and for real. So, there are some ideas in the futures market.
Don’t miss next Tuesday, when MoneyShow.com will run Part 2 of the interview with Linda Bradford Raschke. She offers some tips and recommendations while compiling a shopping list for possible buys, and discusses the importance of maintaining a consistent trading or investing methodology.