A 20% jump in 2019

It is the year end, the final day of 2018, a year with full of crazes in the market. The intensity and duration of the market volatility has not been seen since the last Great Recession a decade ago of 2008. It is the first time in the past 10 years that we have a seen the stock market for a loss (-6% for S&P). The market has touched the fur of the bear and it is still chased by the bear. Everywhere you see and listen to, it is pessimistic!  This past week, the percentage of bears among individual investors in the weekly AAII survey exceeded more than 50%, a record negative reading. It is coupled by the extreme negative mood as well reported for the newsletter writers per the prestige Hulbert Financial Digest. If you turn on your TV, all you are hearing is that the market is in deep trouble and there is no hope to see in the foreseeable future!   

But believe or not, this is kind of setup that historically almost always leads to a big jump in the next 12 months. And I’m willing to bet that we will probably see a 20% jump for S&P in 2019. With S&P closed around 2500 today, it means we may see 3000 in 2019. Call me crazy but I’m bullish for the new year as I have been talking about this for some time by now. Of course I’m not just blindly making a bullish prediction. Instead, I feel bullish with two major reasons that I think, while being viewed as very negative and the culprit for the market downtrend for now, could become a tailwind for the market in 2019.

• The famous US-China “trade war”. As I have said since the very beginning, I really don’t think we will see a full blown trade war between the two world powers and I think there is a high chance that we will see a good deal worked by the two sides soon. I’m not sure we will necessarily see it done by the current deadline of Mar 1 but even if not,  I think there will likely be some serious progression made to please Trump to extend the deadline. If that happens, watch the positive reaction from the market!
• Then the seemingly hawkish Powell for further rate hikes. But I think the FED may likely yield to the market pressure and may not raise rates at all in 2019. You see, the market has already given Fed “some color to see see” in the past couple of weeks. Believe or not, the Fed is very sensitive to the market. If the market becomes angry, the Fed will likely give in. This has been the case since the Greenspan time till now and I don’t think it will be anything different for Powell. He may talk hawkish to show his strength but in reality he may easily back down to clam down the market if needed. This is what the bond market is telling us right now and it is usually more accurate than what you will hear otherwise. Per the last week data, the Fed funds futures market is pricing in zero rate hikes for the next few years. Simply put, the market has told Powell plain and clear that “you dare not to raise rates further”! If that happens, watch again how the market will react. It will be a very strong propellant for market! The first Fed meeting is in January, followed by March, with the Fed funds market pricing in no rate hikes. I wouldn't be surprised to see a reversal in tone from the Fed during these meetings.

But let me be clear. This is my long term bullish call, nothing to do with near term volatility, which will still be very choppy with ups and downs in a wide range. Such kind of near term high volatility will actually be more of acting as a catalyst for both Trump and Powell to move in the direction as the market wants to see eventually.  So my high level theme for 2019 will be: high volatility for the first few weeks or months that may result in a retest of recent lows around low 2300, followed by strong bullish uptrend triggered by the US-China trade war resolution and clear signal for no rate hikes from the Fed.
STAY POSITIVE FOR 2019!!  👆👊👌

If you were dozing off for a week.......

Supposed you fell asleep for a week, or let's say a bit longer from the noon of the famous Wed (Dec 19) a week ago just prior to the last Fed rate announcement and suddenly woke up around 3 PM yesterday. What do you think you would feel about the market in the past 10 days? Absolutely nothing, you must claimed! Indeed, S&P was about 2530 prior to the Fed announcement and it was about 2520 around 3 pm yesterday. What all about the FUSS in the past week or so about the stock market, you must be wondering when you opening your dozing eyes and saw all the scary headlines like that:

Well, the market didn't do anything major if you just counted the two time points but in reality, it has gone through 3 major swings all breaking the historical records within the very short few days: On Monday, we suffered the worst Christmas Eve session ever. On Wednesday, we saw the largest single-day point gain in history. And then on Thursday, we had the largest intraday reversal in nearly a decade...  Honestly I was kind of speechless when seeing this kind of crazy gigantic gyrations never seen before. And all FA and TA are really looking stupid in trying to make sense what was happening during these days. But one thing I do know is that the world, which seemed to be ending, will never end as I was writing on Dec 24. Buying into this kind of horrific depression is never a fun and enjoyable but is often very profitable! As I put it: we may see a "rip your face off rally" that can often comes out of blue and we are seeing it now. But I'm pretty sure 99% or even more of people were running away not buying when the world is felt like falling apart. 


So now you have awaken up fresh and haven't felt anything ill and terrified and you are seeing the market is just trading around the level when you were dosing off. What would you do with all the cash you have now? While the market has indeed ripped everyone's face off by fighting back viciously in the past 2 trading days, we are in a tricky situation right now. On one hand, I'm convinced that we will still see some good days ahead with an ongoing uptrend for a few days at leas or even couple of weeks if lucky enough. I feel S&P 2600 is a very reasonable next target to reach or if the momentum is strong enough, we may even see 2700 soon! HOWEVER, and this is an important however, S&P has broken all the major and long term support lines in the past week or so and it has shifted its near term overall trend to the downside. Technically it has been damaged tremendously and it will require a lot of energy and more importantly time to recover. In other words, regardless how bullish it may look like at the moment and how high it may go in the next days or weeks, it may still be a "dead cat" bounce for the near term. We may still see a waterfall type of free fall at some point or Tsunami selloffs, especially when we start to see some overly bullish sentiment along with the up days. Right now I cannot tell you exactly when but I have no doubt that it will come pretty soon again. 


Don't get me wrong. I'm not in the camp of Bear Market at all, thinking we will see a full blown recession moving forward. A recession, which may be a prolonged one as I have said before, will come later but not so soon. I'm still very optimistic for the next year or two for the economy and the stock market overall. And I'm still looking for a "Melt Up" phase to come before we are finally hit by a true bear market with prolonged recession. This will be another topic for later. So how to manage the stock trading in such a super high volatile market? For the vast majority of investors, volatility is no fun and they are seeking stability and predictability. I certainly agree to try all your best to avoid risks in this high risk environment. Some people say cash is the king and you should go all cash now. It could be one easy risk free strategy but you may also miss some fantastic opportunity if the market is indeed entering into its final inning of the bull run. If I'm right, it could be very powerful with moonshot upside when it comes. Of course I cannot tell you exactly when this moment will come. It could be just a few weeks away or months away to start the journey. So we need to be a bit innovative with out of box thinking to find some way to invest while also with appropriate risk minimization strategy in place. I can offer you one way of doing so. What do you think if you can invest in S&P with knowing  that your downsize risk can be protected to a predefined level and in return you can enjoy a pretty good upside also to a predefined maximum? This to me sounds a very good deal for a vast majority of people who are so scared about the market at the moment. If you are one of them, then there is good news that you can easily do so via just one click of your mouse to let the strategy work for you without much risk involved. A brand new type of ETFs have recently been created which are truly very innovative in just doing that:

Innovator S&P 500 Defined Outcome ETFs – July Series:

• Innovator S&P 500 Buffer ETF (CBOE: BJUL): Designed to track the return of the S&P 500 (up to a predetermined Cap) while buffering investors against the first 9% of losses over the Outcome Period, before fees and expenses.
• Innovator S&P 500 Power Buffer ETF (CBOE: PJUL): Designed to track the return of the S&P 500 (up to a predetermined Cap) while buffering investors against the first 15% of losses over the Outcome Period, before fees and expenses.
• Innovator S&P 500 Ultra Buffer ETF (CBOE: UJUL): Designed to track the return of the S&P 500 (up to a predetermined Cap) while buffering investors against a decline of 30% of losses over the Outcome Period, from -5% to -35%, before fees and expenses. Investors are exposed to loss between 0% and 5% and over 35% over the Outcome Period, before fees and expenses.

These ETFs are designed to let you invest in the stock market without incurring too much risk for you as long as you also give up some profit potential. I think it is a very fair deal and a great strategy in the current crazy volatile market! On caution though. This is a very new type of ETFs created just in August this year. While till now it seems performing exactly as advertised, I cannot guarantee if they will meet up to their goal by performing exactly as it is supposed to be in the longer run. I'm just offering you an idea but you need to do your own research to decide if it is suitable for you. After all, your money, you call!! 

   
 

World will not end

It feels like the wheel is falling apart and the end of world is approaching. Given the uncertainty all around with no buying from big guys from the Street (most of them are already off for X'mas), the market can only sell. But don't be surprised for a "rip your face off" kind of rally in the final days of the year. There are two forces that can potentially trigger it. The market is so oversold right now, it may be just one headline away for a revenge rally.   There is also year-end rebalancing among pension funds, which should be in the billions of dollars. Any further selling to start the week could be buoyed with the anticipation of pension funds buying into year-end. Of course nothing is guaranteed as bears simply have the strongest hand at the moment. But one thing I'm pretty sure is that the world will not end!👼💃


One observation is that EWH (HK stocks) are continuously outperforming S&P each and everyday as I described in my last blog. Pretty amazing! Anyway, wish Santa Clause bringing good luck to all of us in the new year! For now, just forget about stocks and enjoy the holiday break, folks!!

Follow the trend

First of all, wish all the friends a very

 

🎈🎄Merry Christmas!🎆🎇

I will be brief but you may want to pay attention to this idea as it may allow you to make some money when the general market is keeping going down. Can you see the pattern below? I'm sure you can as it is clear there has been a divergence with one trending up and the other trending down since October. Can you guess which are the two here? I assume many of you can guess the trending down one (upper line) is S&P as it started to tumble exactly from Oct. So what is the other one (yellow line) which can beat the US market?



Quite amazing, isn't it but I'm sure rarely anyone could guess it right. It is HongKong stock market (EWH)! With the "trade war" (although I never believe it is a real one) actively ongoing between US and China, who would have thought about a strong uptrend emerging from the HK market which includes a significant portion of stocks from Mainland China. Seems against the logic but this is a true reality at the moment. When those doomsayers want to let you believe that there will be a disaster brewing in anything related to China due to the "trade war", the market is quietly signaling that there is no need to be worried too much about. If a trade deal is actually worked out in a few months time, which I believe is very likely, just watch how high EWH will go! If you are so panicky about the US stock market, then the HK stocks may be worth looking into!

I was thinking a Santa rally here since Oct but it didn't materialize. Maybe this can be a Christmas gift idea for you! 🎉🎃

What is working nowadays?

The market is in turmoil with increasing end of the world kind of feeling hitting everyone in the market. We are currently in a situation when emotion conquering logic, or an emotion-driven market. Forget about the two months relentless nonstop selloff. Just ask yourself if the fundamentals have suddenly dramatically changed overnight purely because Fed chair Powell didn't send a comforting message that Street wanted to hear? I bet no one would believe that logically. Nevertheless everyone still just wanted to sell amass in the last two days! Right now it is a rare time when there seems nothing is working if you are long anything.  
TA is useless at the moment as no logic one can follow anymore. Yesterday, put/call ratio reached 1.83, the highest reading since it was tracked back in 1995. Today's another hash selloff would likely push it even higher. So the pessimism has made an extreme history now in terms of this indicator. I'm pretty sure hardly anyone would consider buying right now. That's the time, as a contrarian, I'm actively buying for short term trading purposes with average down. Even though buying during panic is never a comfortable thing and actually more like "pinching your nose, closing your eyes and just buying it" kind of effort, I think this is the moment a small risk may be rewarded enormously with a snap back that may occur at any moment and if so, will be very violent and powerful. 

Of course, I don’t want to be surge-coating the terrible market reality at the moment.  

As of mid-October, in the S&P 500...

• 250 stocks were down 20% or more from their all-time closing highs (adjusted for splits and spinoffs).
• 162 were down at least 30% from their all-time highs.
• 113 were down at least 40% from their all-time highs.
• 69 were down at least 50% from their all-time highs.

You may hardly think there will be anything that can make money right now but believe or not, there is. Per some work I have seen from my sources, there is an elite group of stocks - each also a member of the S&P 500 - that is up more than 5% in 2018. I’m sure you want to know what stocks that are so strong to go up against the bearish overall market. It should not be a big surprise to you if you follow my blog closely. I’m talking about the so-called Dividend Aristocrats! These are the stocks that have really great fundamentals and have paid dividends nonstop for over 25 years or longer. These are the ones that will usually shine during bear markets and they can make you rich, really rich without much of your efforts! If you want to know why, it is worth rereading my blogs here and here.  

You may not believe but two years ago, Fidelity did a study and they found a theme. The people who didn’t touch their portfolios did the best; those with the owners who were either dead or unaware they had an account.  This is very similar to what a DRIP is supposed to do: you just buy those quality dividend stocks (better dividend growth stocks) and then forget about it. Of course I’m not really telling you to totally forget about your stocks as you still need to pay attention to see if there is a big change in the fundamentals of your companies. But generally speaking, if your long term dividend stocks have no problems in its fundamentals and are still churning out dividends year after year, then leaving your positions alone and buying more when they are down or simply via DRIP is the best way to accumulate wealth over time. Here are a few stocks worth considered although please don’t just take it as my recommendations. Do your homework and make up your own mind what to buy!

One of the best

The market is extremely volatile and confusing. That has helped to make a widespread depressing mood in the market. It is almost like following a clueless bear wandering into deep woods and then totally lost! But at least you may find me waiting for you in the woods and point a pathway out for you😅😅


So is there anything tradable in this toxic environment? Sure of course! Apple is the one, for which I have traded in and out several times already in the past few weeks with good profits. Closing down to $165 again Friday has made it another great opportunity for trading. Another one that has treated me extremely well over the past decade and never let me down is my beloved stock, Microsoft (MSFT)! For those who know me, MSFT is a quality dividend growth stock that I have highly recommended since its $30s. After having tripled over these years, it is not really cheap anymore these days. So I don't add new money into it for long term holding. But MSFT is still often a great stock for trading purpose. It is even more attractive these days when nearly everything is falling apart but MSFT is so resilient that it stands up firmly without faltering much. In the past two months when the current correction started, most of tech stocks have fallen over 20% or more deeply into the bear market territory. MSFT is one rare exception. Yes, it has also come down a bit initially but quickly it has started an upward trend supported by its momentum trend. Most importantly it has never violated its 200 DMA, suggesting its long term uptrend is still firmly intact. Right now, it is trading in a very clear range between $105-113ish. Friday's rough selloff has also knocked it down to its lower channel band. Will it bounce from this base? I bet it will and I put my money where my mouth is. Of course, trading will never have 100% certainty with assurance but I think the odds is high for MSFT to march upstairs from here! 

It's even worse

AAII latest sentiment survey result just came in: by Wed investors' sentiment is 48% bearish vs 21% bullish. Sounds familiar? Yes, I posted the result of the same survey a few weeks ago and recalled what was the result? 47% vs 25% (see here). So it is even worse than the last one. Actually it is not only the worst sentiment reading for the year, it is the worst in the past two years, I believe. No wonder we couldn't see any sustainable rally this week as each early morning highs were ended up with late day selloffs. Today. it reaches the climax by cutting 50 more points from S&P.  I'm pretty sure it is a sickening feeling for most people out there! But believe or not, technically it is a bullish move as the market is just cleaning the dead woods now and set up a clean launch board for a rally. You see for all the weeks, the market couldn't hold any gains but also didn't crash much, often just closed around where it was. With today's hard selloff, S&P daily chart has created a beautiful positive divergence, an important technical strength to support a more sustainable rally. Together with the extremely depressing sentiment with an extremely oversold condition by virtually all the indicators, this will be the perfect time to trade for long at least for the next two weeks or so. Maybe the market is just doing everything it can to mask its true intention but stealthily setting up for the year end rally.  


Last time after I posted the depressing sentiment result, S&P jumped 90 points almost immediately thereafter. Will the history repeat itself? I don't know but I bet it's intending to do so!


By the way, someone posted the following to vividly describe what people usually behavior when the market reaches the bottom:
 
《怎样识别股市底部特征》


股票群中：
特征一：群没人爱说话了。
特征二：说话的人言语中带有暴力倾向。比如我这种准绅士开始骂娘。
特征三：说话的人什么都谈，就是不谈股票。
特征四：没人看A股，都在看A片。
特征五：群主失踪。
如果出现上述3个以上的特征，可以大胆买进；如果以上5个特征同时出现，可以满仓操作。


Sounds joking but I think we start to see a lot similarity nowadays as far as I can see. I'm in many investment chat groups and indeed many groups are virtually dead as if no one is interested in talking about stocks anymore. This is a sharp difference from just a few months ago when people were very active in such groups about markets and stocks. Feels like we are indeed in a desperate depression state which is typically seen at the market bottom, not top.😀😀