What to do in a declining market

S&P has broken out down through its 2 year trend line. When this happens, more downside is expected. Its next stop will be the Dec low at around 1972. If this support cannot hold, then the Oct low of 1862 comes into play. So be prepared for this correction ongoing.

Buying some SDS may help you to hedge against this downturn but a better way to profit from a declining market is to short a stock which is also in the downtrend.  Keurig Green Mountain (GMCR), the famous manufacture of coffeemakers such as K-Cup, Vue, Rivo, K-Carafe used to be the Wall Street darling. It had enjoyed almost always a sharp moonshot of its stock prices after each earning report in the past couple of years. As such, it is supper expensive in terms of its valuation. But finally the Wall Street has lost its patience, sort of speaking. It failed to shot up after its last earning report and has since then moved down. Given its ridiculous valuation, the change of the mood of the Street, and the overall weak market at the moment, I think it is a safe bet that GMCR will further go down quickly. Short GMCR via its put options is will likely make you some good money.

Microsoft is on sale

It was a mind-boggling few days for Microsoft (MSFT): It got crashed by 10% on Wed due to its earnings that did not meet the Street’s expectation. It continued to go down on Thu to as low as below $41 at some point. For the long-term readers, you must have known me that this is exactly the moment that excites me. Needless to say, I traded a lot, trying to catch as much  free money as possible from who-knows who wanted to send me.  I was asked if I dared to catch the falling knife. I chuckled. A knife for MSFT for me? It is my baby, whom I have adopted since almost 10 years ago! As I said I started to buy MSFT around $20 when everyone called it a dead money. But MSFT has almost been like an ATM/bank for me, from which I literally have extracted at least over $10K between dividends and short-term income trading, while I'm also seeing it growing. I'm amazed MSFT is still so cheap and I want to buy more whenever there is a "crash". If you ask me which stock to buy if you can only buy one stock for your retirement, MSFT is definitely the one coming to my mind. MSFT is widely oversold at the moment and currently sitting on a very strong support line technically (see below) and I will be very surprised it will continue to decline significantly from here. Of course I could be wrong. But I know this is only me, not you and I know many of you who have MSFT are very nervous about it. I recommend you check this blog I just saw, which may comfort you a bit.

Euro may likely bounce from here

For those who have followed my blogs, you must know how negative I’m regarding the prospect of Euro. As I said repeatedly, Euro will collapse within 5 years. The current way that sets up Euro is to guarantee that Euro will not survive long. However, I don’t see the point that any major currency will collapse overnight. It will take time and back and forth for quite some time before it finally runs its course. Same for Euro. In the past half a year or so, Euro has been in a free fall and it has got to the point of extreme that almost everyone thinks Euro will simply continue to go down. The major banks like JP Morgan etc has a huge short position for Euro. Yes, it looks very ominous for Euro. But the thing is if everyone stands on one side of a boat, it will capsize. I think we are currently at this moment and yesterday we got  the first concrete sign that Euro may have reached a short-term bottom. How so? Well,  Greece got a new election done over the weekend and they elected a left wing leader, Alexis Tsipras, for the government. It is very well known that this party promised to fight against the International pressure and wanted to renegotiate the country’s bailout package and also threatened to leave the European Monetary Union. Needless to say, this is very bad news for Euro and should have dampen Euro further. Yes, the initial reaction for Euro was very volatile to the downside, however, it recovered overnight and today Euro was even going up. When the significant bad news could not let a stock or currency go down further, it usually means very bullish for it. This is also consistent with the technical setup for Euro as it is currently very oversold for quite a long time. I think Euro is due for a dead cat bounce, potentially quite strong one. I won’t be surprised to see it go up to test $1.20 again. If you also believe so, it is time to buy FXE or more aggressively EUO put options. Of course, this is a short term speculation, may be just for a couple of months.

Invest in emerging Internet companies even before IPOs

I guess everyone knows the huge success of Alibaba (BABA) and understand how powerfully Internet has changed our life forever! I’m also sure everyone, including myself would wish if we could ride this megatrend as far as we can and could even invest in those burgeoning early stage Internet companies before their IPOs. Well, there is a possibility for you to do so, if you are brave enough. I found a new ETF, which is focusing on just such Internet companies, also including many early stage ones that may turn out to be super stars like Alibaba later. The ETF is called Emerging Markets Internet & Ecommerce (EMQQ). As you can see below, it has put money mostly in the emerging countries and overwhelmingly in the sector of Internet services. Guess what is its largest holding? Alibaba! Other major holdings include Baidu (China’s Google) and Tencent (social media) from China, Mercardolibre (Argentina’s Ebay), Yandex (Russia’s Google), and Flipkart (India’s Alibaba, which is pre-IPO and EMQQ invests in it indirectly through other holdings).

While I’m very interested in this opportunity, keep in mind that this is not something for faint heart. It will be very volatile and you may lose money if you are only looking for some short-term profit. If you want to put money into it, try to establish your position over time via dollar averaging (i.e. buy some now and buy more if it declines) and also for long-term only. Never consider this as a short-term speculation. Over time, however, this may potentially make you really big money some years from now! 

How will the markets react to the EU QE announcement tomorrow?

Tomorrow is the due date that it is widely expected that the EU Central Bank Chairman, Mr. Draghi, will announce an QE program for the Eurozone. That is, the money-printing bond buying program will start as well in EU. So how will the markets react to this announcement? It is anyone's guess but I bet the markets will likely react negatively to the announcement and will go down potentially hard tomorrow. You see, if Draghi meets the expectation to start the QE with the reasonable size, the markets will take profit by selling, i.e. buying the rumors and selling the news. If Draghi cannot meet the expectation for whatever reasons, the market will be disappointed and sell. So I think the odds is much in favor of a declining market. Buying SDS today is a good bet for tomorrow.

The “black swan” suggests it’s time to buy gold

Last Thursday a “black swan” flew out. If you don’t know what “black swan” means, it is an analog that an unimaginable thing happens because in the real animal world black swans are rarely seen. This time, the “black swan” , something 100% unexpected, came out and shaked global finance. The Swiss National Bank (SNB) announced an immediate end to the Swiss franc’s artificial “peg” to the Euro.

About a year ago, SNB decided to peg the Swiss Franc against the Euro at a fixed exchange rate of 1.20, since Swiss Franc kept becoming stronger and stronger when Euro’s mess got bigger and bigger. What the peg means is basically the SNB has to print unlimited amount of Swiss Franc to buy Euro to artificially weaken Swiss Franc. They were successfullbut at the expense of accumulating an enormous amount of toxic currency, Euro. What they have now of Euro is equivalent to the amount of their GDP, which is obviously not sustainable. So finally they have to slap their own face by giving up the peg. As a reust the Swiss Franc got appreciated by 20% overnight. You may ask, what all about this has anything to do with the precious metals? Well, there are at least 3 main reasons why this SNB action suggests a bullish trend that may be starting:

·       This is clearly an indication that SNB is very pessimistic about the Eurozone and its currency Euro. In other words, the EU crisis will only continue, which is very positive for gold and silver.

·         It is becoming much more clear that we are in a world that there is a strong competition for currency depreciation among central banks. No one wants to have a strong currency. In the end, the only real strong currency left will be gold and its brother silver.

·         SNB’s action reminds everyone that there is no credibility anymore for central banks around the world. Ironically only about one month ago when asked about the peg, the SNB responded that the peg would continue forever as long as it was needed. What a shame! If SNB that is considered relatively more credible in the world cannot be trusted, who else can be? The paper fiat money can be easily printed any time at any amount as they wish. But the real money, gold and silver, cannot be printed. This is a huge plus for the precious metals.

I may be too early as usual but I truly believe that now is a great time to start accumulate gold/silver stocks again. It seems the uptrend has already started. There is a new ETF, SGDM, which focuses on the 25 top quality gold and silver companies. I think this is a good place to start.

 

The flying KITE

Have you bought Kite? I hope you did as you should be seeing a 300% increase as of now since I first talked about it back in Sep 2014. If you haven't read the blog, please do so to understand why it is so hot now. Just within 6 months, Kite jumped from below $30 to near $90. I was predicting Novartis could buy Kite. This has not yet happened but it dose not mean it won't ever happen. If not Novartis, it may be someone else. But regardless, Kite is clearly in a very strong bullish uptrend. I don't think it has run its course. The CAR T cell immunotherapies are still at their infancy. There is a long long way to go. If you are not of batophobia (fear of height), you should fly with Kite. The sky is the limit!

Ultimate bearishness for Alcoa

Last night, Alcoa (AA) reported great earnings and beat all the estimates of analysts. Its shares shot up immediately in the after-hour trading to as high as +3%. You would think AA would be a clear winner today, right? Wrong! It did shot up higher at the opening but almost immediately it started its downward journey throughout the day. It ended up being down over 2% by closing today. What a terrible day for Alcoa! If you listened to me, this should not be a surprise to you. Just a week ago, I advised to get out of Alcoa if you held AA or short AA if you knew how to do. I did short AA and definitely happy to be in such a position. When a stock cannot go up even at the time of great news, it has reached its top and will be nowhere to go but down.  AA may go all the way down towards $10 some day.

Volatility: Traders' dreamland

It has been just 12 days since we entered 2015 and in terms of trading days, we have only got 7 days. In this extremely short period of time, we have gone through a lot if you are watching the markets. The stock market is extremely volatile; it has been swinging 3-4% within days (see below). Think about it: in the past 5 years, the stock market has rarely corrected by over 5%. This is kind of volatility people have forgot about but it is really traders' dreamland.

 

I'm not a trader as my daily job does not allow me to watch the market closely and act timely which is the essence of a trader. But I still can use the evenings to do some research and make some orders to try to catch some short-term opportunities. Indeed, I was luck enough to make some trades successfully in the past 7 trading days and have made some quick profits. Basically, I used SDS, VXX, or VIX to trade the extremes of the market. As I said many times before, you have to bet against the herd: when they are extremely bullish, you have to be short betting for the market to go down. Conversely, if they are extremely bearish, you have to be long betting for the market to go up. This is how the small number of successful traders make money from the large herd of so-called investors who mostly just lose money. Don't be part of the herd!

Microsoft may double from here

I just came cross a blog regarding Microsoft (MSFT). It talked about the following 3 prospects for MSFT and even predict MSFT will double from the current price. I highly recommend that you also read it if you are also interested in investing in MSFT.

·         Microsoft Stock Forecast 2015: Windows 10 Makes Amends

·         Microsoft Stock Forecast 2015: Capitalizing on the Cloud

·         Microsoft Stock Forecast 2015: Mobile, Wearable Tech, and More

The long time readers know how much I like MSFT. This is not only a great investment you can make by buying and holding and sleeping well at night, it is also a growth stock that may go substantially up and higher. While as a long-term investor, I actually hope MSFT price would not go higher from here since it will bring me much more wealth over long run, but I know it is just a wishful thinking. I have no double it will double and even a lot more. It is not if but when! MSFT has over 15 businesses that generate over billion dollars of revenues every year and is a money gushing machine. As I explained here, you can be rich if you simply buy and hold for long-term with dividend reinvested. But for those who know how to extract “income” beyond dividends, you can also generate substantial amount of extra income from it. This is what I’m doing that I not only have quite a big position in MSFT, I also frequently use options to generate income. Below is what I did in 2014 by trading MSFT options and got over $4000 extra income. Think about it: this is among a few safest stocks in the world you can buy and at the same time you can constantly get a lot of income from it. What a beauty! I love Microsoft!!

EU stocks may become a star performer in 2015

EU is in a total mess and Greece is on the verge of collapse again. So why I'm becoming bullish for the EU stocks now? Well, this is one of the secrets of successful investing: the stock market is a forward discounting machine. It usually predicts what is going to happen in the next 6-12 months and then factor in all the known positives or negatives for stocks. As such, the stock market has likely already discounted the messy situation in EU and if there are any positive factors emerging, the stock market will respond very positively as well. There are at least three factors that will support the region: the ECB, a cheap euro currency and low oil prices.

• ECB President Mario Draghi has hinted many times that the central bank could introduce further stimulus in early 2015 and even start a bond purchasing program. There is only one critical obstacle for Draghi to start the QE: Germany. But I think there is no way that EU can avoid the QE. It is not if but just when. The mantra is ‘Don’t fight the ECB’. It is likely the ECB will inject €1,000 billion and to add sovereign bonds to its buying program. If this happens, there will be so-called asset bubble as what has happened in the US when the FED started QEs. Stocks will typically be doing very well during QEs.
• One thing for sure will happen with QEs is the weakening currency; in this case it is Euro. The long-term readers should know my stance on Euro very well. The most recent prediction I made in Aug 2014 was that Euro could decline to 1.20 in exchange to the US$. Well we have got that by now in just 4 months. When the EU QE starts, Euro will likely go down further. A weakening Euro will be great for their exports, which can support their economy.
• The last but not least is the sharp decline of the oil prices. Needless to say, a cheap oil is good in many ways for the economy: lower energy prices will immediately bring more cash for consumers, allowing them to buy more goods to spur growth. In addition, companies can substantially reduce their cost, which will increase their profit margins and improve their earnings.

These to me are very bullish factors for the EU stocks which are much cheaper than those in the US. If you also believe so, two things you may consider: buy EUO if it comes down in the next few weeks or months. This will make you money for further weakening Euro. Buy HEDJ, an EU stock ETF which also hedges against the risk of weakening Euro. If I'm right, these two will be doing great in 2015.

Time to be bearish for Alcoa

Alcoa (AA) was one of the hottest and most chased stocks in 2014. I was interested in AA when it was below $10 but never pulled the trigger to get in. So I totally missed this trade. But I think another great opportunity to trade AA is coming but in the opposite direction. I think 2015 will turn out to be a very depressing year for AA. Fundamentally AA is facing a lot of headwind moving forward: its leading market for aluminum, China, is significantly slowing down, especially in the sectors using a lot of aluminum such as housing. You cannot expect AA continuing to profit as much as it did in 2014. But I'm more bearish with it technically. As you can see its long-term chart below, AA is hitting its 8 year trend line and turning back (the dot line). More worrisome is that it was facing a 20 year resistance line (the solid line). In the past 8 years, it has tried 3 times to challenge the resistance but just could not get over it. So technically AA can move back all the way down to the level around $10.

If you hold AA, it is the time to take your profit and get out of it ASAP. If you are more aggressive, then buying some AA put options will likely make you some money. This is what I'm going to do to not to lose the money-making opportunity!