This post was recently published on ZYX Global Multi Asset Allocation Alert.
Overnight Bank of Japan (BOJ) acted decisively. BOJ will accelerate purchases of government bonds to increase at an annual rate of 80 trillion yen which computes to about $725 billion. This is the Japanese version of QE.
BOJ will also triple its purchases of ETFs and REITs.
Japanese government pension fund will increase its allocation to Japanese equities.
Nikkei Index jumped about 5%.
Our very, very short-term early market indicator is strong positive.
On more money printing, gold should have gone up but instead gold is falling and has now decisively broken the key support at $1182.
Oil is again under $80.
Interest rates are rising but they should have fallen on more money printing.
Removing Palladium (PALL)
Palladium is hereby removed from the portfolio. We have been very positive on palladium for the long-term but a new technological development may make palladium obsolete in catalytic converters for automotive applications. Catalytic converters are the main use of palladium.
Clean Diesel Technologies, Inc. (CDTI) has been awarded two new patents using its Spinel technology to eliminate precious metals from catalytic converters. Our review shows that this technology has the potential to be disruptive.
Adding Oil Service Stocks (OIH)
Adding oil service stocks using the ETF OIH for a 7% allocation in both models. It is important that subscribers pay careful attention to the following to properly enter this investment.
West Texas Intermediate oil has fallen from $108 to $80 in a very short time. We have been telling our subscribers for a while that the world was awash in oil but its prices were kept artificially high because of geopolitical concerns. Geopolitical concerns have not gone away, in fact they have increased.
According to our analysis, based on pure supply and demand without taking into account geopolitical concerns, the fair value of oil is around $65. This does not mean that oil will fall from $80 to $65. The reason is that although the market is not paying attention to geopolitical issues at this time, such inattention is not going to last forever.
It is also important to understand that commodities often overshoot in both directions. In simpler words, it means that oil can temporarily fall under $65.
The low oil prices are not going to last forever and provide an opportunity for the long-term investor. The best way to capture this opportunity is through oil and gas service stocks. The ETF of choice is OIH. The recent high of OIH has been about $58. As of this writing, OIH is trading at $44.53.
OIH is a highly volatile ETF. For this reason it is important to scale in over a wide zone. Those with large portfolios and can handle complexity should study Trade Management Guidelines and accumulate OIH in small tranches.
Those who have a small portfolio and or prefer a simpler approach may consider looking at the suggested buy points as a guideline. The buy zone is $35. to $42.32. Suggested buy points are: $35.52, $36.32, $38.27, and $40.57.
As the events progress, we will continue to provide you with more guidance on buy points in OIH.
Very long-term target is $90 to $100. Due to volatility it is best not to use stops but scale in with small quantities.
