Stansberry Research

The 'Backbone of Industry' Is Valued Again

Corey McLaughlinStansberry Digest

More on the 'half and half' market... Look at the cup... The 'backbone of industry' is valued again... Greg Diamond's event tomorrow morning... Hello, emerging markets... More airline troubles...


Let's talk more about the 'half and half' market...

In Monday's Digest, I (Corey McLaughlin) talked about how I see a "half and half" market today. Roughly half of U.S.-traded stocks are above their long-term trend lines... and the other half are below.

And as we noted, we're seeing "divergences" between individual stocks, sectors, and even the major U.S. indexes...

The tech-heavy Nasdaq Composite Index is still down nearly 30% over the past year and is trading near recent lows, while the Dow Jones Industrial Average is above its 200-day moving average. And some of the Dow's 30 stocks are at or near new highs...

So I can expand on Monday's coffee analogy, I'll recap how I described it then...

If we think of the markets as a cup of coffee, we see today what might be an hours-old pour, resting near room temperature, and filled with half-and-half. It won't kill you, but it's not a great or satisfying drink.

There's a bit more to the story...

It's worth looking closely at the cup before you drink it...

Just to make sure nothing harmful is there... or that you're drinking what you want to.

Here's a chart that illustrates some detail about what I mean, courtesy of our Stansberry NewsWire team and editor C. Scott Garliss...

You can see how the major indexes tracked each other for most of last year... then went their own ways...

The Nasdaq is basically flat since October, and down slightly since June.

Meanwhile, the Dow is now off less than 10% over the past 12 months and is actually up 17% since its mid-October low.

And the benchmark S&P 500 Index is somewhere between – up since the June and October 2022 lows, but not by much.

By a slim margin, the Dow also briefly hit its highest level since the summer during a late-2022 rally.

The point is, when you look beyond the S&P 500 or whatever index you prefer, you can see not all stocks are created equal. It pays to "look under the hood" of this market.

Right now, quality 'backbone of industry' stocks are in vogue again...

The Dow includes 30 of these quality stocks, like insurance company Travelers (TRV), American staples like Procter & Gamble (PG) and Coca-Cola (KO), and home-improvement retailer Home Depot (HD).

At the same time, a lot of tech stocks are still treading water or worse, even after losing big in 2022. For example, Microsoft (MSFT) – a heavily weighted stock in the Nasdaq – is down 11% since its most recent high on December 14.

This isn't to suggest you should sell shares of MSFT if you own them. If anything, this might be a good time to buy more if you believe in the business over the long term. I'm using it to illustrate the "divergence" of flashy tech names and "boring" manufacturers and other Dow stocks.

If you want to hear some more about this idea – and how to act on it and trade these trends for the benefit of your portfolio – our colleague and Ten Stock Trader editor Greg Diamond plans to include this topic in his latest market outlook video for 2023. It goes live at 10 a.m. Eastern time tomorrow (Thursday) morning.

If you haven't already, sign up for Greg's free event now...

The event is totally free, and Greg will share all the details about how he plans to attack the market in 2023 – including a free trade recommendation.

Remember, this is from the guy who called "the top" at this time last year, so you might want to give his message a listen. He says a rare event is likely to occur in 2023 that could help some people enjoy big returns... and cause others to unexpectedly lose a lot of money.

Plus, you'll learn all about why Greg is a big believer in the power of cycles. It informs a trading strategy that could have doubled your money six different times in 2022 – during a bear market.

So tune in tomorrow. We just ask that you register in advance so you don't miss a minute. You can do that right here.

(A quick note for existing Ten Stock Trader subscribers and our Stansberry Alliance members: You have access to all of Greg's work already, but you are more than welcome to check out this video event, too.)

Moving on, there's another important concept to keep in mind...

Home-country bias.

When most of us think about investing or trading, we automatically begin with what we know. In other words, Americans buy mostly U.S. stocks. Canadians focus on Canadian stocks... and so on.

We do recommend investments that you're familiar with, but home-country bias can also increase your risk.

First, folks might diversify their portfolio across different sectors and risk categories... but only with stocks from the same country. That's less diversification than they might expect, because events in that country can hit all those stocks at once.

Second, home-country bias can prevent you from seeing big opportunities, stories, or truths occurring beyond the borders where you pay taxes.

According to our DailyWealth Trader editor Chris Igou, one of these opportunities is presenting itself right now...

Hello, emerging market stocks...

Near the end of last year, we talked about a few "cheap and hated" sectors that could make for possible generous returns in the year ahead – if they began a new uptrend. One of those was emerging market stocks, which includes leading businesses from countries like Taiwan and China...

These markets have been rallying lately as the Chinese government has loosened COVID-19 restrictions in recent weeks.

As Chris told DailyWealth Trader subscribers on Friday, just recently, these stocks as a group, as measured by the iShares MSCI Emerging Markets Fund (EEM), have hit a key level – its 200-day moving average (200-DMA) – that could portend a new uptrend...

Chris first talked to subscribers about the importance of a stock or sector's 200-DMA. You've probably heard this before, but it's timeless advice...

This indicator is just what it sounds like – an average of an asset's last 200 days of prices. It removes the "noise" of one-day moves to show us what an asset is doing in broad strokes.

In other words, the 200-DMA is the trend. When it goes up, the underlying asset is in an uptrend. And when it falls, the asset is trending downward.

But the 200-DMA serves another function. It also acts as a "resistance" or "support" level for prices. Support is a price level where folks step in to buy an asset, stopping a falling price. And resistance is a level where folks tend to sell, stopping a rising price.

Right now, there's a battle around the 200-DMA when it comes to emerging market stocks, as measured by the EEM fund. As Chris shared with subscribers on Friday...

This exchange-traded fund contains a broad basket of emerging market companies listed in the U.S. It reflects the emerging market sector as a whole.

Right now, emerging market stocks have pierced their 200-DMA to the upside. Take a look...

Now, a break above the 200-DMA is a good sign. But EEM isn't out of the woods yet.

The 200-DMA is still trending down. And EEM barely broke above that trend line. This isn't enough to clearly mark a new uptrend.

But this is price behavior to watch, especially if you're looking to take advantage of a short-term move or want exposure to emerging market names and a geographically diversified portfolio.

Lastly, since we've talked about the airlines lately...

We will again today...

This morning, the airline industry – already under scrutiny via the Southwest Airlines (LUV) holiday-season debacle – and thousands of airline passengers endured another unexpected tribulation.

A critical part of the Federal Aviation Administration ("FAA") apparatus that keeps commercial airlines flying safely went down for an unknown reason this morning.

According to the Associated Press...

Before commencing a flight, pilots are required to consult NOTAMs, or Notices to Air Missions, which list potential adverse impacts on flights, from runway construction to the potential for icing. The system used to be telephone-based, with pilots calling dedicated flight service stations for the information, but has now moved online.

While the White House initially said that there is no evidence of a cyberattack, President Joe Biden said "we don't know" and told reporters that he's directed the Department of Transportation to investigate the cause of the disruption.

All departing commercial flights, including shippers as well as passenger jets, in the U.S. were grounded early this morning until around 9 a.m. when the FAA apparently hit the "reboot" button on the system and got it back up and running. By then, though, more than 4,300 flights had been delayed and at least 800 canceled.

The Associated Press interviewed a former airline pilot and aviation safety expert, John Cox, about the fiasco...

There has been talk in the aviation industry for years about trying to modernize the NOTAM system, but [Cox] did not know the age of the servers that the FAA uses.

He couldn't say whether a cyberattack was possible.

"I've been flying 53 years. I've never heard the system go down like this," Cox said. "So something unusual happened."

It's troubling that an issue with the government's computers could ground all airlines for any amount of time.

Also, if anyone has firsthand knowledge about how Southwest is handling this one, let us know. Early reports aren't promising for the beleaguered airline...

As one example, local media in Las Vegas were reporting that Southwest had canceled 39 flights departing the city's Harry Reid International Airport and delayed another 171 flights. Those totals represented 37% of Southwest's Las Vegas flights... and more than half of all that airport's affected flights. No other single airline canceled more than four Las Vegas flights or had more than 52 delays.

But it turns out Southwest isn't alone in needing to modernize its logistical operations. The entire FAA could use an upgrade, too. This shouldn't really make anyone feel better about the infrastructure of the largest economy in the world.

This 'Chartmaster' Says Gold Is Set to Soar

"Gold miners are up four months in a row, and no other aggregate of any kind has matched that," says Carter Braxton Worth, founder and CEO of Worth Charting. And he tells our editor-at-large Daniela Cambone that the gold price is likely to soar...

Click here to listen to this episode of The Daniela Cambone Show right now. And to catch all of the podcasts and videos from the Stansberry Research team, be sure to visit our Stansberry Investor platform anytime.

New 52-week highs (as of 1/10/23): Aehr Test Systems (AEHR), Alamos Gold (AGI), Hologic (HOLX), RenaissanceRe (RNR), and SLB (SLB).

In today's mailbag, feedback on yesterday's Digest in which we questioned why Federal Reserve officials talk so much... Do you have a comment or question? As always, e-mail us at [email protected].

"The Fed talks because they have PhDs and their job is to inform stupid people like us of how smart they are. They are the smartest guys (or gals) in the room. Just ask them." – Paid-up subscriber Tim P.

"In response to Corey's question: Deliciously harsh. But with the Fed, never harsh enough. If the miracle of the Fed being put out to pasture ever arrives, let a rollicking Dixie Land band play 'Taps'." – Paid-up subscriber Gary S.

Corey McLaughlin comment: I get your point, Gary, but when I think of playing taps for the theoretical end of the Fed, I think it would be disrespectful to all those who have served in our military and paid the ultimate price... as well as their families and friends.

All the best,

Corey McLaughlin
Baltimore, Maryland
January 11, 2023