Wednesday, January 14, 2009
(Cont'd from above)...

Jim (cont'd):   

Okay, first the technicals… pointed out this market is the best in the book… Dan Fitzpatrick, has pointed this out… that’s my technical guy… he is a guy who analysis charts everyday… and he is also my colleague at TheStreet.com, where I am chairman… he has done a bang up job helping us with the technical analysis to compliment my non Jerry Fallwell style of fundamentalism… I went to Dan and I said could you tell me what is the strongest country chart in the book… my friend, Rick Benzier, who used to do technical analysis for Morgan Stanley… I went to him… he said Brazil too… so I have got a consensus of what the technicians like.

So I want you to take a look at the chart of EWZ… this is supposed to be the best on in the book… of the countries… this is a proxy for the stock market of Brazil… according to Dan Fitzpatrick, our go to technician… this is a decent looking chart, okay… you may not think so cause you see all this stuff, and then down there… but he says this is a good chart… so let’s explore why… you can see that the highest volume for this Brazil ETF didn’t occur at the ultimate low…. the selling climax where everyone pretty much who wanted to get out, got out… happened in October…happened right here… that was high volume… well the proxy declined to 30.

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Now EWZ’s actual mid November low happened on what is known as light volume… remember I never talk about volume on the show, but this is very important for technicians…. so the reason for the decline for October to November wasn’t that the selling action picked up… it actually dropped off… while you are buying… but because the buying intensity didn’t pick up right here…. now, every since that November low things have changed… the buyers have been increasingly higher to own the stock… they are paying higher prices rather than waiting for stock to pull back to where it last bottomed… you can see that because the lows are higher… see that low is higher… that low is higher…that low is higher… again, this is what they look at.

I ’m not derogative… I am saying that this is what you need to know… you might want to write this down… higher lows equals eager buyers and less aggressive sellers, in fact, this volume factor indicates that sellers are pretty much exhausted… they’re done, they’re caput… now this Brazilian ETF is what we call… man this is a rigorous show…reverting to the mean… where the gap between it’s current price and the average price over the last 200 days which is much higher is narrowing… I cannot believe that I just used reverting to the mean on T.V… I would most likely have cut a class that used that term… and know I am trying to explain it on a prime time audience… I have obviously a Mad Money death wish.

Once the price approaches this keen moving action, okay… then we should see some profit taking… which should happen, get this, this is where Dan thinks it can go… $50... the profit won’t happen until $50... up 16 points from the current price… if you were a technician you would feel more confident about EWZ if you saw increasing prices on increasing volume… which would indicate that there are more interest in the stock… the volume extension tells you whether the price action is telling the truth. Now this chart for this Brazilian chart may look good… but we are fundamentalists… not in the tradition of Torko Madda in the Spanish inquisition… but in the vein of Warren Buffet, Benjamin Graham, and everyone else we revere and respect and try to look up to.

Brazil historically has been a natural resource driven economy… it sells ores, grains to the rest of the world… hey that was a great scenario when commodities were booming… but every since commodity collapsed, and world wide deflation took over, Brazil has been in much worse shape… iron, ore prices plummeting… weak demand for steel… China the engine of the worlds’ growth… or lack their of… is still trying to complete it’s iron ore inventories… how about soybeans, big Brazilian thing… soybean prices are down 23%… just look what happened to Bunge today… down 14% off their negative preannouncement… South America’s Bunge’s bail way… the company talked about credit constraints in the farm sector effecting the business in Brazil… so we got ag bad, minerals bad… wait a second , that means Brazil not good.

Plus Brazil’s overall economic activity is weakening… trade surplus for 2008 down to 24.7 billion from 40 billion… I know these are still great numbers… but that is a 38% decline… export growth slowed to 23%… import growth accelerated… we can expect exports, many of which are commodities, to continue to fall… Brazilian government finances… it’s a shame… they can start running a deficit 4.3 billion Reals… compared to a surplus of 4.8 Reals the previous year… we don’t want to see that either… the chart… the chart says that the EWZ, the Brazilian ETF, is a buy… you have to remember that two of my favorite technicians said it is a buy… but tonight we are betting against the charts… that’s right we are not going with Dan Fitzpatrick, TheStreet.com’s guy, even though I am chairman… we are not going with him.

I think it is not a buy… I think the fundamentals ain’t pretty… or remember Predators, we aren’t aliens… to paraphrase Arnold in Predator, you are one ugly fundamental macro economic buy… now, as opposed to Billy, who in his cryptical all knowing way said, in Predator… somewhat prophetically… we’re all going to die…only somewhat but because, of course, Dutch lives and later becomes the governor of California. So, if we don’t like Brazil for international diversification…what do we like… I say we like China… China is up 6% for the year… it is the strongest market in the world… a much better bet than Brazil… even if they don’t have carnival… or Jezel for the matter… now I have been buying a Chinese ETF for the ActionAlertsPlus.com, my charitable trust… because I don’t think the Chinese will have any debate about their stimulus package… and they have these huge gains in U.S. Treasuries to fund it… the Chinese communists can put a trillion dollars to work in no time… and believe me, they have the projects that are needed… nothing just make worker environmentally driven.. .with oil at $37 and natural gas at $5... if only Obama thought like the Chinese Polit Bureau.

Now, the Brazilian could ignite inflation if they even tried to do something like China’s stimulus package… and since they are natural resource based… they can’t recover until China gets its butt into gear… so essentially a bet on Brazil is really a bet on China‘s recovery… I would rather bet on Chinese recovery… without the positives that come with one party communist rule… I love that , I need one party communist rule… I mean, I am trying to make money…

...that is why I favor the China Xinhua 25 Index (FXI)… frank x-ray Indiana for all you home gamers… over anything Brazilian.

The key to China turnaround… frankly, and we are going to get this really straight… the key to the turnaround… is that they have in place… what I call a please put it in my backyard mentality… given the states dictatorship… the excuse, the dictator ship of the pollataries, excuse me… the Chinese have rights to build coal plants in play grounds… and by golly they will use it… particularly at the middle school level… certainly at nurse’s school province wide… they can move whole cities out of the way of highways and then build them all over again somewhere else… they can let a 1000 airports bloom… and they can have an agriculture revolution… augment the cultural revolution… money supplies exploding… the people united will never be defeated… or allow earnings estimates to be cut… that is why the Chinese market is strong… and in this case, as goes January so goes the rest of the year… plus, Baltic freight rates are up 50% in the last 2 months… and that is the best future indicator of Chinese growth… I wonder what happens in China if the charts are bearish… do they jail stock traders… why ban short selling when you can just imprison the short seller… or throw them in front of an Eighth Army firing squad… hey that outta make the charts look better.

The Chinese can cause stock sellers to perform remunerations from work camps if necessary… I gotta tell you if Henry Ford were to suddenly reappear he would be working closely with the communist in distaining U.S. republican-led socialism… and he was our most ruthless capitalist… who also, by the way, paid his workers an unheard of $5 a day.. you know what that can do… that could buy a lot of Colonel Sander’s and General Tsao’s chicken in the great U.S. China food army coalition…

Here is the bottom line…

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The Bottom Line!:     The Brazilian ETF… it may have a nice chart, but it is China that has the best fundamentals… which is why I think China Xinhua 25 Index (FXI) is your play....

Chart week is back… iShares MSCI Brazil Index (EWZ)… they may love it, the technicians may love it… but the fundamentals… the fundamentals… I say stick with General Tso… stick with the China Xinhua 25 Index (FXI).


[verbatim recap]

Read Jim's next Segment here  

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Jim went on after this segment to take questions from callers, and responded with his comments...

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Q:     China Xinhua 25 Index (FXI), as a China play, you are recommending that, but what scares me is that it is heavily weighted in financials, and I already hold in my portfolio, iShares Hong Kong Index (EWH), and took a hit on that as my China play. Because that is fairly heavily weighted in financials. Can you compare the two, or give me some perspective.

Jim:      Well, look I think you are absolutely right… it is heavily weighted in the financials.. but it is a good proxy… it does it’s job… it worked really well last year, when the market was down it went down a lot… now I want to explain something to you… I really like it because all the U.S. banks and European banks that have Chinese stakes… are furiously selling them… so you are getting them at a really good price at $25... they are really knocking it down… probably goes down a little more tonight… everybody is worried about the markets world wide… but this indeed is the best acting stock market… and just like we are the worst start of ever for our stock market… they are on one of the greatest starts… and I gotta tell you… they are in much better shape than we are… I go to where the money goes.

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Q:     Is with the rally we have had in the emerging markets, is it time to take some profits in the Indian Fund, the IFN, or is it a
good fund to hold?

Jim:      No, I don’t want to be in India… I think India is trying to recover from Satyam Computer Services (SAY)… from the fiasco that was that outsourcing company… and I think that people are now starting to question the Indian financials… that is a shame… the Indian people, I think, the Indian stock market could be good… I say why be in India… when you can be in China, one is just so much better than the other… India - bear… China -bull.

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[verbatim recap]

[end of segment]

Read Jim's next Segment here