By Christopher Diodato
I was speaking to an elderly woman the other day. She had had over sixty years of investing experience; a fundamental analyst at heart. She said one thing that struck me. "I love my inflationary stocks. Sure, they do nothing for three years, but on that fourth year, they make up for everything!" She was referring, subtly, to the four year inventory cycle. Yes, I talk about it all the time. Every four years, there is an inflationary period, an economic expansion, and at least a mild recession.
Yes, we are approaching that fourth year, where inflation (especially food inflation) is starting to become a problem. Besides my opinion, any other indications that inflation is about to rise? Take a look at this ratio chart of the TIPS ETF versus to 10 year treasury ETF, IEF.
Just look at what happened to Exxon (XOM) and Monsanto (MON) when inflation started jumping in 2007. Yes, Over 50% gains for each in under a year. Both of these stocks, on a weekly and daily basis, are beginning to show a lot of strength.
Notice the RSI, which is climbing with Exxon's stock price. Good news for energy bugs. On a shorter term, Friday's price action confirmed a breakout from a pennant formation, which gives a price target of $93.
Monsanto's chart shows similar strength. Keep watching these rallies. Which sectors are leading? Materials and energy. Maybe it's time for all the Apple lovers to move their money to where it can appreciate, instead of inside the technology sector bull trap.