Is the November bloodshed over?

First of all, my condolence to all the victims in the Paris terrorist attack yesterday. Let's all pray for them?

Here is what I warned my friends last Wed on Nov 11: "The market is poised for a big downside move in the near term. In the past week, the tone for it has apparently changed, often opening high but closing low, a quite bearish sign. Then the technical setup for VIX suggests it may likely go up sharply towards 20. The lagging small caps plus declining junk bonds only add more bearish indicators.  Buying some TZA or SDS is a good idea to trade the trend." Luckily the timing seems almost perfect as the market immediately started relentless decline for 2 days, pushing S&P into the negative territory again. So the obvious question is whether this bloodshed is over by now? Here is what I'm thinking for the next one and a half months for this year.

Currently the market is quite oversold and we are moving into the seasonal bullish time, the Thanksgiving. But due to the terrible Paris terrorist attack, early next week may be tough for the market and some further selloffs may be possible. However, I don't think it will last long and likely it will quickly recover and start a very short-term bounce back, given how oversold it is now. Having said that, it is premature to say that this round of correction is finally over. I think a new selloff may likely recur again towards the end of November. This may create some real panic moods, which could become the final blow to the market. This may push S&P below 2000, possibly even around 1950.  After that, a year end rally may finally start into the new year.

Of course, it is all speculation at the moment and the market rarely follows exactly what people think. Just keep in mind, there is still risk if you want to buy stocks now for longer term, unless you are a nimble trader.

Buy RGLD either as long term investment or short term trading

Royal Gold (RGLD) is a unique gold mining company that does not mine any gold. You may see details about RGLD here.  In the past 2 days, RGLD got killed by dropping about 30% due to a significant miss of its earnings expectation. But I think this is a huge mistake by selling that much of RGLD and way too much overreaction. RGLD has a large pile of trophy gold assets that generate gold for it at an average cost of $400/oz. In other words, it will continue to sell a lot of gold at much higher prices even in such a depression state for precious metals. Yes, I know RGLD's revenue and incomes will continue to suffer due to the low gold prices but it is still a very profitable company. So, if you still believe gold for its long-term prospects, buying RGLD at this depressed prices around $35 will be a great bargain for long-term investment. It is also paying you increasing dividends by waiting for the eventual recovery of the precious metals. Even if you do not believe gold at all, RGLD is technically very oversold and is due for a strong bounce near term. It is not unthinkable to see it quickly rebound to around $45 soon.

I like RGLD as always either as long-term investment or short-term trading for now.

This depressed stock may be poised for a big run

In the past few years, commodities in general have been decimated, including almost everything. Aluminium (alu) is certainly one of them. China is the largest country demanding aluminium but its economy has greatly slowed down in the past year. This alone has caused a drastic decline of the aluminium price. No need to say, alu producers have all suffered. Among them the largest alu manufacture, Alcoa (AA) has seen its price tanked by 40% in the past year and is at around all time low at the moment. While it is definitely scary to think about put money into AA right now, there may be some good opportunity to bet for AA's turnaround. Three major catalysts may serve as its tailwind to push it higher in the next few years:

• As mentioned, Chinese economy has significantly slowed down in the past year or so but I think the worst case scenario may have already been priced in for AA regarding the very depressed demand for alu from China. Any pickup of the Chinese economic activities will certainly increase the demand of resources including alu. There is another new trend which should also be quite positive for AA. China has just announced to abandon its one child policy and is moving to 2 children policy. This will mean tens of millions of additional babies will be added every year in China. One significant impact of this additional population will be an increase of its demand for all kinds of resources with alu among them. For sure the positive impact won't be imminent but will be felt and reflected by the AA's stock as well moving forward. 
• Alcoa is developing a new process to produce a new type of alu (micromill), which is called "Miracle Materials". Basically this new alu material will be much lighter and stronger. This new feature of alu is certainly great news for car and aircraft sectors as they may largely benefit from this critical miracle material to increase the safety and fuel economy of their products. No wonder AA has just announced a $1 billion contract from Airbus. More such deals will certainly come in the next few years.
• Last but not least is a catalyst that may make AA soaring more quickly than the above more macro factors. Alcoa has just announced a spin-off that will be done next year. Studies have shown that spin-off is usually very positive for the company and therefore greatly welcome by the Street. This is because the spin-off will generally make the company more focused and efficient and is also easier for the Street to analyse its business for the underlying values. The direct benefit for shareholders will be that they will get the shares of the spin-off company for free. Of course the initial value of both stocks will be largely equal to the value of the mother company prior to the spin-off. But over time their share prices may significantly increase as long as they manage their business well. I have had the first hand experience on this. I got free shares of Philip Morris (PM) in 2008 when it was split off from Altria (MO). Now after 7 years, not only PM's share price has almost doubled, MO has "recovered" as well, as its current share price is much higher than its adjusted price at the spin-off. More recent example is HP that has just closed the spin-off a few days ago. Its share price surged 13% on the day when the new stock started to be traded. I expect something similar to AA may also occur.

Of course, please do understand this is not a short-term trading idea but rather for a longer-term investment. Regardless how bright AA prospects look like in the next few years, it will be a quite volatile stock for sure as for any commodity stocks. But I think the potential reward outweighs the risk, especially if you have a good exit strategy in place, e.g. a stop loss to protect your capital. 

This dead money is reviving

For those who know me, it's no secret that I love Microsoft (MSFT) and I have started to accumulate its shares since prior to the financial crisis in 2008. Over these years,  I have regularly talked about MSFT (for example, here, here, and here), including early this year that I was pudding the table urging to buy MSFT. But I know my talking about MSFT usually goes into the dead ear as no one is interested in the dead money like MSFT. Most people are only interested in sexy high profiled stocks like AMZN, TSLA etc. But for me, long-term investing in the dead money like MSFT is one of the most unknown or misunderstood secrets of wealth building techniques, which can truly allow you to amass an enormous amount of money but with very little risks involved. Basically you can sleep soundly with money in stocks like MSFT as it is almost like saving your money in the bank but you can enjoy high-growth of dividends which can be compounded via DRIP. But today, I must say the dead money hat for MSFT should be tossed off. Under the leadership of the new CEO Nadella, MSFT has successfully transitioned from a PC business-focused company to the front lines of the mobile revolution. It now has 2 new smartphone models,the 950 and the 950X, and both run on the company’s new main operating system, Windows 10. More impressively, both phones carry advanced technology called Continuum, which will allow the phone to be easily connected to a PC monitor that essentially turns the phone to a PC. In addition, MSFT also rolls out a new laptop computer, the Surface Book on Windows 10. Therefore, Microsoft now offers smartphones, laptops and tablets that all run off Windows 10. This has virtually established its own  “ecosystem,” a core business moat for Apple's success. Moreover, MSFT's cloud business is also thriving and starts to add significantly to its bottom line. All in all, MSFT has been beautifully transformed, which is translated into a great earnings report that has surprised everyone. MSFT jumped 10% after the ER, reaching multiyear high close to $55. I'm sure it will very soon challenge its all time high around $58 reached at the dot.com bubble time 15 years ago.  Not long ago, I was thinking MSFT may soon become next Apple. This seems more and more a reality.

You may think I must be happy with a fast advancing of the stock prices for MSFT. Not really. As I said, I love MSFT for its stable multi-streams of income that allows it to pay increasing dividends over long period of time. I actually wish it could stay low that will allow me to accumulate as many shares as possible. This will eventually make me much richer than what its share price gain will bring. Looking at its increasing share prices will certainly make one happy at the moment, it actually hurts in the long run. But of course, I cannot stop MSFT from becoming a high growth stock again.

So is it a good time to buy MSFT now? Not really. While MSFT is still having a very good valuation even near the historical high due to its high stockpile of cash, very near term it is quite overbought after a 10% jump. I think MSFT may likely come down to test its support around $48, about 5-10% correction. When that happens, it will be a great buy to me for long-term.