Its worse in Europe than here in the U.S. Industrial production dropped 1.9% in a particularly cruel April, nearly double the 1% drop that was expected. First quarter GDP was also down 2.5% for the 16 Euro-zone countries.
The recession there seems far from over, and Europe’s weakness might be contagious because it should act as a stark reminder just how tenuous global economic recovery is.
*****Oil prices may have just hit their blow-off highs above $72 yesterday. As you know, I was early to the oil stock party. My SmallCapInvestor PRO readers took a 142% gain on one stock, Gulfport Energy (Nasdaq:GPOR), and we’re holding +60% on another. And of course, if you’ve been following closely over the past six months you know that I’ve been in and out of Graham (AMEX:GHM) several times.
Now, it’s getting late and I suspect the party might be ending, at least for a brief pause. I’m not calling for oil prices to crash. And the $33 a barrel price we saw back in February may never be seen again. But oil stocks, and stocks in general, are due for a pullback.
The 2nd Quarter ends June 30. And it would be reasonable to expect institutional investors to lock in some gains. I’m sure they are using put options to do some hedging, which helps explain the recent rise in volatility. But I also won’t be surprised to see some outright selling. And it might have started with yesterday’s afternoon drop for the indices.
The Dow Industrials were up well over 100 points in the early afternoon, but couldn’t hold it as a late wave of selling left it with a gain of just 30. That’s the opposite pattern of what we’ve seen for much of this rally. Institutional investors have been buying late in the day, supporting prices and leaving stocks with daily gains.
Institutional activity usually occurs at the beginning and end of the trading day, so this is something to keep an eye on.
*****Brazil, Russia, China and India contribute 15% to global GDP, but they have 42% of the world’s currency reserves. And they may be on the verge of throwing their liquidity weight around.
Bloomberg reports that these countries will hold their first summit next week, and it’s widely expected that they will announce that they are increasing their holdings of IMF bonds. Yes, that comes at the expense of U.S. bond holdings.
Apparently, fears of rising deficits and the potential inflation from an expanded money supply in the U.S. are driving them to diversify a bit.
Investors should take note. While the U.S. muddles through, and Europe continues to be mired in recession, the BRIC countries (Brazil, Russia, India and China) are the only countries in the world that can support their economies without taking on debt.
Chinese stocks are the ones I’m bullish on right now. If there is a slight pullback later this month, then Chinese stocks will suffer the least and more importantly, present great buying opportunities before the next leg up. To get my top Chinese selections, click HERE.
*****Finally, as I announced yesterday, TradeMaster Daily Stock Alerts technical analyst Jason Cimpl has graciously agreed to give us a weekly forecast for the stock market. You can access his video analysis and commentary HERE.