It's Time to Bet Against One of Last Year's Big Winners

 
2016 was a surprising year…
 
It was the eighth year of this bull market. But that didn't slow things down.
 
U.S. stocks jumped 12%. Oil prices soared by 45%. And gold had a wild ride, eventually ending the year up 9%.
 
With all that happening, you might have missed the major boom that happened in our neighbor to the north… Canada.
 
Canadian stocks had a fantastic 2016… rising 22%. But history says that boom has gotten out of hand. Double-digit losses are likely this year. And that means now is time to bet against one of 2016's big winners.
 
Let me explain…
 
Canadian stocks were a stealth winner last year. The iShares MSCI Canada Fund (EWC) went up 22%… And it soared an incredible 40% from its January low to the end of 2016.
 
The problem is that Canada's stock market is now incredibly overbought… And that means lower prices are likely.
 
The idea of a market being "overbought" is simple. It happens when investments get ahead of themselves… when they move too far, too fast.
 
In this case, I'm talking about EWC's relative strength index (RSI).
 
The RSI is a measure of an investment's recent gains compared with its recent losses. It turns the market action into a 0-to-100 reading… with 0 being oversold and 100 being overbought.
 
When the RSI hits overbought conditions – usually more than 70 – it's generally a bad thing going forward. And that's what happened in Canadian stocks recently.
 
EWC hit an extreme overbought level last month – an RSI of 80. That has only happened one other time in the past decade, in 2014. And it coincided with a major top in Canadian stocks. Take a look…
 
Canadian stocks staged a major crash the last time they were this overbought. Shares of EWC fell 41% over the next 19 months.
 
That was only one instance. But if we look at less extreme examples, we still see the same thing.
 
I checked every RSI reading of 75 or more over the last decade for shares of EWC. It turns out that Canadian stocks consistently fall after the RSI rises above and then falls below 75. This table has the full returns…
 
 
6-Month
1-Year
After Extreme
-7.0%
-9.5%
All Periods
0.3%
0.6%
Canadian stocks haven't performed well over the past decade. But after hitting an overbought extreme, they perform even worse. Similar overbought extremes led to 7% losses in six months and 9.5% losses over the following year.
 
Canadian stocks were a big winner last year. But if history is any indication, shares of EWC are due for a correction. And double-digit losses in 2017 are possible.
 
If you're interested in shorting stocks, history says now is the time to bet against Canadian stocks. Shorting shares of EWC is the simplest way to benefit from a likely correction.
 
Good investing,
 
Brett Eversole
 
Editor's note: While Canadian stocks look poised for a tough year ahead, Steve Sjuggerud recently identified six huge investment opportunities in the coming year. You can gain instant access to Steve's "2017 blueprint" with a risk-free trial to True Wealth – at half the usual price. Click here to learn more.

Source: DailyWealth

Four Signs That China's Economy Is Doing Just Fine

 
If you're worried about China's economy, consider this… One rare constant in global markets is China's never-ending stream of contradictory signals.
 
By some measures, you might think the picture looks grim. China's Shanghai Composite Index fell 11% in 2016… Last month, the renminbi, China's currency, reached its lowest levels versus the U.S. dollar since June 2008… And China's hot housing market is in bubble territory.
 
But the key to interpreting what's really going on with China's economy rests with four main indicators. And the latest numbers suggest that China's economy is humming along…
 
1.  China's manufacturing industry is expanding.
The first key figure is the Purchasing Managers' Index (PMI). This reflects the health of China's manufacturing sector. A PMI reading above 50 means the manufacturing sector is expanding. Anything under 50 means it's shrinking.
 
China is trying to shift its economy to be more consumer-driven… But China is still the world's biggest manufacturing center. So a strong manufacturing PMI number means an important driver for China's economy is healthy.
 
Take a look at this chart…
 
The PMI reading for November 2016 was 51.7, the highest reading since July 2014. This means that the manufacturing sector is expanding. And after struggling in 2015, the PMI was at or above 50 for most of last year, and it has been climbing higher since July.
 
2.  Industrial production is holding steady.
China's industrial production measures the performance of the manufacturing, mining, and utilities sectors by looking at changes in the value of their products.
 
China's industrial-production growth fell by more than half between 2011 and 2015, as shown in the chart below. But over last year, growth leveled out…
 
After years of declining growth rates, if industrial-production growth holds steady, that's a good sign for China's economy.
 
3.  Exports and imports are growing.
When China's October trade data were released a month ago, they showed that the total value of China's exports and imports had increased compared with the year before. It was the first time both imports and exports had increased since October 2014.
 
Exports saw their first year-over-year increase since June 2015. And imports from other countries grew more than exports. The value of goods imported in October was up 6.7% compared with a year earlier. That's the fastest growth since September 2014.
 
Imports grew despite continued weakness in the renminbi. When a currency is weakening, imports become more expensive. This growth suggests that Chinese consumers, led by the growing middle class, are spending more of their rising incomes on more imported goods.
 
4.  The Baltic Dry Index is climbing, too.
The Baltic Dry Index (BDI) tracks the daily pricing of shipping dry cargo raw materials (like metals and grains, but not oil) by sea. It's often used to measure the health of the global economy, since global supply and demand for materials drive shipping prices.
 
It's also a great way to get an idea of what's happening in China. That's because China is the world's biggest consumer of raw materials. It needs these raw materials to feed its huge manufacturing sector.
 
So when the BDI is climbing, it can be a good indicator that China's manufacturing is ramping up. Take a look at the chart below:
 
As you can see, the index has rebounded off its February 2016 bottom. It's now 225% higher than its February lows. It may never again reach the heights of May 2008, or even May 2010. Regardless, the upward trend is a good sign that the economies of China and the rest of the world are set to grow.
 
An expanding manufacturing sector, stable industrial production, growing exports and imports, and a climbing Baltic Dry Index all point to one thing: China's economy is improving or, at a minimum, stabilizing.
 
If these fundamentals continue to improve, it will be a good foundation for China's economy to grow on. And it will bolster the case for investing in China.
 
Good investing,
 
Kim Iskyan
 
Editor's note: Kim and his team in Singapore have uncovered a "hidden" way to invest in one of the world's cheapest stock markets. Learn more about this opportunity – which he's calling "Project H" – right here.

Source: DailyWealth

Don't Wait Another Second… Buy!

 
Get to Florida and buy a house. Now.
 
I'm not kidding. If you wait any longer, you might miss this opportunity. And believe me, you don't want to miss it.
 
I've personally been buying real estate for years… But the opportunity isn't over. Not even close.
 
I know what you're thinking…
 
"Steve, real estate prices have skyrocketed since 2011… Can prices really keep climbing higher?"
 
The answer is yes. In fact, where I live in northern Florida, houses are downright cheap. And that makes this an opportunity you do not want to miss.
 
Let me explain…
 
The median home value in Orlando, Florida is around $161,000, according to Zillow.com. And the median home value in Jacksonville, Florida is $144,000.
 
I can't tell you that the median home in either of these places is the right home for you, but my point is that Florida real estate is still CHEAP. When I travel the world, I'm stunned by housing prices…
 
When I was in Shanghai and Beijing last year, I learned that a small apartment – one you wouldn't even want to live in – costs more than $1 million.
 
And when in Vancouver over the summer, I learned that nearly all houses in the city cost more than $1 million (in Canadian dollars). Compared with Shanghai and Vancouver, they're practically giving away houses in Florida.
 
Meanwhile, there's no new supply of homes in Florida…
 
Homebuilding in Florida has been incredibly slow for a very long time now. Take a look…
 
One of the most basic rules of economics is that prices rise when there's a lot of demand and not enough supply. So without enough supply, house prices should rise in Florida.
 
Florida real estate has so many things going for it: a warm climate, no state income taxes, and typically lots of elbow room (compared with a cramped Manhattan apartment, for example).
 
Meanwhile, because prices are so low, you can still earn a good yield by renting out a property.
 
And think about this…
 
You can bet that a new White House administration – run by real estate mogul Donald Trump – will be extremely friendly to real estate owners and investors. Plus, mortgage rates are still not far from all-time lows. It's a perfect setup.
 
I'm practicing what I preach here…
 
With my own money, my largest asset class is Florida real estate – not stocks, bonds, or anything else. (And that excludes my own home.)
 
Florida is just one example… Much of America's real estate is CHEAP.
 
But it won't stay this way forever. You should make owning real estate a top priority in 2017.
 
Good investing,
 
Steve
 

Source: DailyWealth