While most of the focus has been on the market making new highs and how long it will last, Gold and US Real Estate (REITs) have been quietly breaking down. A chart of the Streettracks Gold Trust (GLD) ETF which seeks to track the price of gold bullion illustrates the emerging breakdown .  You can see it’s broken through an 8 month trendline with a drop to the next level of support around the 50 day moving average likely. Charts of the two major US real estate ETF’s I track - the Ishares Real Estate Index (IYR) and the Ishares Cohen & Steers Realty Index (ICF) show a breach of a 4 year trendline.  It should be noted that the International real estate market as tracked by the SPDR International Real Estate index, is holding up well. In fact, it recently broke out of a decent looking base.  See more about the breakdown in gold and real estate (complete with charts) over at SelfInvestors.com

With World Water Week in Stockholm, Sweden upon us, it’s no wonder there are many news stories cropping up detailing the looming water crisis around the world.

It was reported in a recent Reuters news story that a third of the world is facing water shortages because of poor management of water resources  and soaring usage driven mainly by agriculture.

Said Frank Rijsberman, the Director of the International Water Management Institute, "Without improvements in water productivity … the consequences of this will be even more widespread water scarcity and rapidly increasing water prices." He went on to say, "The water is there, the rainfall is there, but the infrastructure isn’t there."

The BBC reports that the world’s supply of fresh water is running out.  Already, one in five people have no access to safe drinking water.

China is beginning to recognize its own water problem .. we all know what happens to a commodity when China gets thirsty (see oil, steel, precious metals).  In a story out just hours ago, China admits its at a crossroads in dealing with its urban water problems which continues to worsen.  It expects to spend 125 billion over the next 5 years to improve sewage works, pipes, add desalination plants and projects like the massive South - North water diversion scheme.

Closer to home comes a story out of Central Washington regarding a Northwest water crises, the rapid depletion of the Odessa Aquifer.  As the underground water resource gets overused, farmers are having to drill deeper wells in order to keep their crops alive.  Says Craig Smith of the Northwest Food Processors Association, "Not only are we going to lose agricultural operations and family farms but we’re going to lose food processors and a large number of family wage jobs.  The bottom line here is that this area is a huge production area not only for potatoes but sweet corn and many other crops that are essential to the economy of the State of Washington."

Heck, even world renowned rapper Jay-Z is sounding the horn about the world water crisis by spreading awareness through a seven week world tour beginning September 9th in Krakow, Poland which will be taped for an MTV documentary.

I could probably go on for an hour with blurbs and news links regarding world water shortages, but you get the idea about increasing public awareness of this growing problem.  It’s important we all do our small part by helping to conserve water.. at the same time we can profit from the companies helping to improve infracture, provide distribution, desalination products/facilities.  There is no better diversified way that I know of then the Powershares Water Resources ETF (PHO).   

During the recent market correction, PHO underwent a correction of its own.  With corrections, comes opportunities.. and that is no exception here in the Water Resources ETF (PHO).  In the past few weeks, the ETF has put in what appears to be a bottom as demand has picked up considerably and the stock clears key resistance of the 50 day moving average to begin a new uptrend.  Given the steep sell off during the correction, it may need to spend more time basing, but if you’re a long term holder, the time is absolutely right to consider shares of the PowerShares Water Resources ETF (PHO).  

This is a well diversifed ETF with no holding more than 4% of the fund.  The largest holding is currently Watts Water Technologies (WTS) which happens to be near a break out.  The stock recently gapped up more than 20% on strong earnings results and subsequent upgrades.  There are several individual high quality stocks that profit in the water industry, but another one I like is Consolidated Water (CWCO) which has more of a global presence by providing water services and products to the Bahamas, Barbados, Belize and Cayman Islands.  It too has formed a base and is near a break out above the top of its handle at 28.28.  

Hearing stories of suicides among Indian traders and the government watching over places of potential suicide, you’d think that the Bombay exchange had completely collapsed, but when you take a look at the chart you’ll see it’s a very normal, albeit swiftO correction of about 20%. 

With India’s Bombay stock exchange nearly tripling over the past 2 years, a significant correction was a matter of time.  Of course hindsight is 20/20 but to be betting your livelihood up at those levels is insanity.  You would have hoped that given the lessons of the US stock market collapse of 2000 that lessons would have been learned but greed is a powerful emotion and will continue to get the best of traders.  So what happens now.. where to next?  The charts can provide some clues.

Here’s a long term chart of the Bombay India stock exchange, showing the tripling of the market in the past 2 years.  Could you call this a crash?  With support of the 200 day moving average, the one year trend line and the two trend line still intact… hardly.  An important piece of this chart is the parabolic rise above the upper channel of the 2 year trend line with what I would call non existent buy volume.  This 20% drop is merely a return to normalcy and nothing more .. or least for now.  Considering where it came from, a 30% drop from the highs to the 2 year trend line wouldn’t be out of the ordinary.  So the most likely scenario is another 10% drop or so from current levels.

The Bombay doesn’t provide us with any volume level clues, but the closed end India funds (IIF) and (IFN) can provide us with those clues.  What stands out is the severity of the decline and the intensity of the sell volume.  Both would indicate that India is far from a bottom.  Presumably, a considerable amount of fear will need to be worked through in the coming months before the Bombay can rally gain.  I don’t think we’ve seen the lows just yet.

Of the two closed end funds, Morgan Stanley’s India Fund (IIF) is in the worst shape having violated the 2 year (approx.) trend line.  While it currently has support of the 200 day moving average, the severity of the decline would have me believe that it won’t hold there.  I’m not seeing any definitive support areas below the 200DMA, so no telling where it goes from there.  

The India Fund (IFN) is better diversified than IIF (which is heavily weighted towards industrials) and more representative of the overall Bombay Exchange, but having the advantage of volume clues.  Focusing on this closed end fund will provide us with the best clues.  Let’s have a look.

IFN too had jumped ahead of itself at the beginning of May when it surged above the upper channel of a one year trend and is returning to a more reasonable level.  It should test the bottom of that trend in the coming weeks in the 44-45 range.  Look for a continuation of the bounce followed by a testing of that support.  So.. another 10% or so in the IFN.  Let’s see how it does there.