Navarro's Big Economic Picture
Earnings Engine

This is not your father's bull market. Daddy's bull was driven by a strong domestic economy. This bull market appears now to be driven by three factors, two of which are related to the falling dollar: 

First, dollar-speculating investors are piling into multinationals listed on the US exchanges. The play here is based on these multinationals generating large earnings abroad with strong currencies. As the dollar is falling, this boosts stated profits denominated in US dollars.

Second, companies which are primarily export driven are likewise benefiting from bullish sentiment as a weak dollar is giving a big boost to US exports.

The other major driver of this market are those companies selling oil and a variety of other commodities, the prices of which are enjoying a sustained boost from the robust global economy.

The obvious point to take away from these observations is that you must take special care in the sectors that you invest in. Leverage exports and leverage the weak dollar.

This Week's Big Market Movers

This is the "earnings season" so much of the market action will be driven by the release of earnings reports. So far, the pattern appears to be fairly bullish.

That said, there are some reports this week that will be of significant interest. One is the trade report -- as the above Big Picture segment argues, much of the market movement today is being driven by weak dollar dynamics; and the trade report is critical in parsing the dollar. It would be nice to see the trade imbalance reduced, but even as US exports are rising, the US oil bill continues to rise as well.

One other report of particular interest will be retail sales. There are now the usual concerns about if and when the consumer will falter. It will also be interesting to see if the epidemic of contaminated an effective goods from China begins to have any dampening effect on sales.

Trade of the Week - Japan (EWJ)

Technical indications suggest that Japan’s ETF may be a good buy now. As long as China booms, Japa will ride that big red wagon.

The International Scene - Technical Take

From a few weeks ago, our regional and global ETF trackers have a really revved up in the bullish territory. Emerging markets are particularly strong, almost all of Asia is on a roll, and even Japan is showing signs of going long from a technical perspective.

“Any trader or investor who ignores the power of macroeconomics over the world’s
financial markets will, sooner or later, lose more than they should—and if they are
trading on margin, perhaps more than they have.”
 -- If It's Raining in Brazil, Buy Starbucks

The Market Edge Market Summary from www.marketedge.com 

CONTACT INFORMATION
Peter Navarro
Irvine, California USA
Email  |  Website

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 authors express personal opinions and will not assume any responsibility whatsoever for the actions of the reader. The authors may or may not have positions in the financial instruments discussed in this newsletter. Future results can be dramatically different from the opinions expressed herein. Past performance does not guarantee future performance.