Stocks Article

Breaking the BRIC?

BrandonWendell
Brandon Wendell
Instructor, CMT

It was interesting to watch the trading activity on the back of Apple’s earnings release. Many pundits on TV were claiming that with the positive results, the markets were about to usher in another magnificent bull run. On the same day, the Core Durable Goods Orders number was released. The number was expected to be a positive 0.6% but was instead signaling economic weakness at a negative 1.1%

It is interesting how bearish news can be overlooked just before a large turndown. Only time will tell if we will indeed move higher in the markets or sell off drastically in response to global economic weakness. Most investors and traders are aware of the BRIC nations. Brazil, Russia, India and China were the hot emerging economies for investing.

Caterpillar (CAT) was one of the DOW components to weigh down the index on Wednesday. They did beat their earnings estimates, but in their statement, the company warned of slowdown concerns in China and Brazil.

Another news item that was not readily reported in the US news was the S&P’s change of India’s outlook to negative. Currently, India enjoys a BBB- which is the lowest investment grade. In previous articles, I had already mentioned the actions of the Indian government to try and lure in foreign investors. They opened up their equity markets in January to foreign individuals.  This was done to stem the slide in the Indian equity markets.

Let’s look at the numbers:

  1. Brazil’s GDP Growth has dramatically dropped from 9.3% in 2010 to a measly 1.4% in 2012
  2. Russia’s GDP growth dropped from 5% (12/11) to 4.8% (3/12)
  3. India has also seen their growth drop from 9.4% in 2010 to 6.1% in 2012
  4. China is still the strongest GDP at 8.1% but that is way down from the 2010 high of 11.9%

So where does that leave us?  The Euro Zone releases bad news nearly every day and in the US we are biding our time printing money and giving encouraging talks about the economy until after the election.  We have not been able to break the weekly supply zone in the S&P and that may be a technical warning for us.  Perhaps it is time to sell in May and go away.

Disclaimer
This newsletter is written for educational purposes only. By no means do any of its contents recommend, advocate or urge the buying, selling or holding of any financial instrument whatsoever. Trading and Investing involves high levels of risk. The author expresses personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The author may or may not have positions in Financial Instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future results. Reprints allowed for private reading only, for all else, please obtain permission.