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These three graphs will tell you when to strike

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In today’s Money Morning … panic caused by the central bank … hints that inflation is falling … my game plan … and more …

Fear in the markets is palpable.

Investors sell first and then ask questions.

For me, that means opportunity.

If I’m right in the way this is going, the second half of this year will be a good time to upload a bunch of fantastic promotions.

A chance to acquire profitable basements that will define the world in which we live for the next decade.

But now they are being sold off.

Do they fall further?

Could, perhaps even a lot further.

But the deeper they fall, the better you will be able to achieve in the years to come.

So when are you on strike?

That’s what I want to talk about today…

Panic caused by the Central Bank

First summary…

As you probably know, the impetus for the current panic is the belated actions of central bankers.

They have finally started raising interest rates to fight sky-high inflation.

The market is worried …

How high will the bets be?

How long will they last?

Will it even work to reduce inflation?

These topics are now in everyone’s head.

And while they pondered the answers, many fell aside.

Speculative sectors such as technology, biotechnology and cryptocurrencies have suffered the most. The technical reason is that the present value of future cash flows falls as interest rates rise.

But in reality it is just an unstable market that goes from greed to fear.

No sense in telling you now – I don’t wanna ruin the suprise. This is just how human nature works.

But you can use it to your advantage.

Just as some stocks have been inflated on the way up, there will also be some big deals on the way down.

At some point, the Fed will slow the rate hike.

And as my colleague Greg Canavan noted in our Insider service for paid subscribers last week:

Because as soon as the Fed realizes that inflation is under control, it will stop getting worse. Bond yields will fall sharply, and asset prices will rise again.

I don’t know when that will happen. But paradoxically, the more the Fed raises, the closer it gets to cutting and opening money taps again.

Forget all the talk about seven more raises, I feel like this will happen after two more half-percent raises (up 1%).

The truth is that nowadays there are too many debts to return to the “normal” level. Bond markets will collapse if the Fed becomes too aggressive.

I think they are trying to scare the markets to slow down, tough talks without having to follow. This is a game with high stakes in chicken.

This is my thesis and it may be wrong.

To confirm this, we need to first see that inflation has fallen.

But as Greg says, once the market feels this, you can be sure that some downed stocks will very quickly return to fashion.

My strategy is to keep a close eye on these three charts to tell me when to strike …

Hints that inflation is declining

Okay, chart number one …

Oil:

Energy costs are a big contribution to almost everything. And despite the push for renewables, oil still dominates.

While the Russian-Ukrainian situation complicates the situation when the price of oil begins to fall, it will be a good lead indicator to follow.

A fall below this support level of $ 86 will be a sign that demand is slowing.

Next…

copper:

“Dr. Copper” has historically been a good indicator of the health of the economy.

It is used in a variety of industries, including construction.

And it’s actually a key component in the push for electric vehicles (EVs). Electric machines use four times more copper than conventional internal combustion machines.

By the way, one issue we recently pondered in the office is that the transition to green energy is actually a very material-intensive process.

How CIM Magazine reported:

A the strong end of the year and accelerated prices in January led to higher forecasts for commodities, and metals such as copper, nickel and lithium are benefiting from the “hot EV market”.

Now this may not be very good for inflation, but it may be good for some of the “battery material” miners listed on the ASX.

So when they get involved in inflationary worries with the sell-off, I think there’s a possibility at some point.

But right now copper is definitely coming out of the boil, and the unexpectedly big drop in orders at German factories last week has certainly caused some excitement.

According to Yahoo! News:

“If you’re looking for bad news, just look at the German macro data,” said Carsten Brzeski, head of global macro research at ING. “We continue to expect the German economy to fall in the second quarter.”

Finally, a little unusual …

wheat:

Like gasoline prices, food prices are a big topic of conversation around kitchen tables.

And wheat is one of the most important materials in the world. It is used to make bread, noodles, pasta, cereals, crackers and many other products.

It is also used in non-food productions such as lotions, lip glosses and baby powders.

But food is of great concern, especially in countries like India.

With rising wheat prices last week, India has taken a major step by banning exports to make sure domestic consumers have supplies in the first place.

An indication of the high price of wheat is that it may raise prices for other products.

As noted by Dr. Wafa Hakim Orman, Associate Professor of Economics at Huntsville University:

If this is not resolved quickly enough, one can expect food prices to rise as well. ‘

This will certainly add inflation.

However, current high prices are already pushing some customers to switch to cheaper alternatives such as rice, maniac flour and sorghum.

In short, market forces will eventually work. Some demand will subside and I expect supply to increase to take advantage of high prices as soon as farmers are able to do so.

That’s why wheat futures are a key point to look at …

My game plan

Look, no one knows the future.

Perhaps inflation remains stubbornly high and central banks are tightening than I think.

Perhaps we will finally get the great catastrophe that the prophets have long warned us about?

Everything is possible in the markets, and only a fool invests with confidence.

So my game plan now is to be patient.

First, I create a list of exponential stocks with great growth prospects. I’m trying to look two or three years ahead to see which areas will destroy entire industries.

I’m talking about industries like robotics, artificial intelligence, web 3.0, synthetic biology, quantum computing, renewable energy and the like.

I am also considering mining stocks looking for materials needed by these industries.

One big warning:

An important criterion in bad times is that I want to find a company with a healthy cash balance.

Fortunately, many speculative companies have used the bull market to raise money.

For example, I like calling the synthetic biology company in the US Ginkgo Bioworks [NASDAQ:DNA] is currently valued at $ 4.22 billion and has about $ 1.5 billion in the bank.

That’s enough of the runway to see if they can implement their plans in the next year or two. A large market decline may even give cash-strapped companies cheap acquisition opportunities as investors ’capital becomes smaller.

And as soon as there are signs that the central banks are going to slow down the tightening, I will strike a hard blow at selected companies.

When will it be?

Who knows?

Perhaps there will be “blood on the streets” first. In a sense, this will mean even more opportunities if you stick to it.

Now I suggest you take a close look at these three charts …

Good investment,

Ryan Deans,
Editor, Morning money

Ryan is also an editor Investor of new money, a monthly recommendation aimed at helping investors reap the benefits of early movement when decentralized finance and digital money take over the world. For information on how to subscribe and see what Ryan is telling his subscribers right now, Click here.

https://www.moneymorning.com.au/20220516/these-three-charts-will-tell-you-when-to-strike.html

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