Iran continues to get closer to possessing a nuclear weapon.
That appeared to be the verdict by the end of Secretary of State John Kerry’s first overseas trip on the job.
Kerry conceded what most of us already knew: “…the region will be far less stable and far more threatened if Iran were to have a nuclear weapon.”
He’s talking about a nuclear arms race that could ensue across the Middle East. He’s talking about terrorists having an additional source of distribution for a nuclear bomb or components. But those threats pale in comparison to the one that scares the region the most – Iran actually using a nuclear weapon on its neighbors.
And Israel is most certainly right in the crosshairs…
But how real is this threat? Interestingly, markets are telling us not to worry about it…
It’s taken as fact nowadays that stock markets are discounting mechanisms which anticipate events of all kinds far better than most of the world’s smartest individuals.
And the Israeli equity market, as represented by the Tel Aviv TA-100 index, is not only telling us not to worry about imminent nuclear threat, but to actually consider additional investment in Israeli stocks…
Investor Playbook is no stranger to investing in the region in recent months. We generated a 42% return in just under two months’ time with our recommendation late in 2012 of Partner Communications (NASDAQ: PTNR), the Israeli cellular telecom company.
And from a technical perspective, there appears to be many attractive Israeli-based equities at the moment.
In terms of the Tel Aviv TA-100 index in particular, the larger trend is our friend – and the timing here could not be better for the bulls. In the chart below, we can see the tremendous surge that took place prior to the global meltdown in many equity markets around the world in 2008. Despite panic selling during that volatile period, the overall trend higher continued as new highs were established in early 2011.
The Israeli Market is Shrugging Off Iran’s Nuclear Threats
A head-and-shoulders pattern can be seen between 2010 and 2012. As the name suggests, the visual appearance is one of two shoulders with a larger middle section (the 2011 peak) representing the head.
Now, one of two things can happen: The TA-100 could collapse below the red support line – fulfilling a bearish scenario. Or this “neckline” can act as the last line of defense and serve as a rally point for bulls to collect new momentum. Today, we are looking at the latter as prices are refusing to make lower lows.
Thus, we should remain cautious but hopeful of positive signs pointing to solid gains ahead for Israeli equities. The test to come is whether or not new highs can be set to help overtake resistance where prices peaked in early 2011. If the TA-100 can accomplish this goal, a significant breakout will have occurred and should set the stage for a much larger move up – one that could dwarf the run seen during the 2000s.
A way for investors to invest in Israeli equities is with the iShares MSCI Israel Capped ETF (NYSE: EIS). It’s made up of Israeli’s best public companies, including Teva Pharmaceutical and Israel Chemicals Ltd.
P.S. Check out our comprehensive financial newsletter, Investor Playbook. It uncovers “under the radar” investment opportunities often spared by problems in overall markets.