Diversification is one of the keys in successful investment. Internationalization will further enhance the scope of diversification. Whenever possible, you should consider to do so. If you have cash and don't know where to put it, there is an opportunity.
Stanley Gibbons is the UK biggest stamp collecting and trading company with over 100 years of history. It is a publicly traded company. A few years ago, I happened to become aware of SG, which offered a 5-year stamps investment program with a guaranteed minimal capital gain of 5% annually and unlimited upside. Sounded too good to be true but it was indeed a great investment product. I did invest some money in this program and so far my stamps have increased in value by about 10% per year. Not too shabby given what's going on around the world. I just feel better with something unrelated to the stock market and commodities as well as being appreciating in value over time and in a foreign country.
Today I just received a final notification about a SG's new program, which will be closed in 3 days. See some details here and you can ask for more information. It is a program with principal guaranteed in investing in stamps. While personally I do have had a good experience with SG with respect to the one I invested in, I'm not an expert in stamp collection and therefore cannot say too much about it. I just thought to pass it on for your information as one consideration of assets diversification. Check it out yourself.
Wednesday, December 28, 2011
Thursday, December 22, 2011
Santa Claus rally ongoing
As expected & discussed yesterday, today is an up and good day for the overall market. While the trading volume is very small understandably, the general market sentiment is quite upbeat. The last two weeks are generally good ones for the stock market. At this time period, fundamentals usually don't count and cannot be relied on. The fund managers who are still working usually want to see a higher stock market so that their results can look nice at the year end. With the very light trading volume, the market can easily be "manipulated" to trend high. Unless there is really terrible news coming in the remaining days, there is a good chance that the overall market will continue with the upward trend. Pay attention to the resistance level of 1260 for S&P500. If this level is pierced through, technically there is nothing in the way for S&P500 to jump to 1300. Again this will be much easier to be done with light volumes.
By the way, these days a climbing stock market is usually accompanied by a declining US$.
By the way, these days a climbing stock market is usually accompanied by a declining US$.
Wednesday, December 21, 2011
The market behavored very bullishly today
I said yesterday that I was still betting for a year-end rally. Well I'm a bit more confident for it after seeing what the market was doing today. Dow Jones opened lower over -70 and further dropped to over 100 at one point. However, it fought back strongly and closed actually +4 points positive. Similarly for S&P. Technically speaking, this is a very bullish price action, suggesting a good day tomorrow, barring terrible news coming in overnight. We will see how it pans out.
Extracting income from gold & silver
What a nonsense, you may claim! Is it notorious that gold and silver do not pay anything if you hold them? I don't blame you and actually this is one of the important reasons for many people who don't like precious metals because they can at least get interest from paper money, although almost nothing as well. But still better than nothing, isn't it? Well, if you take into consideration your real purchasing power, i.e. the negative impact from inflation, you are actually losing money by holding your cash since what you get from your saving interest is not enough to offset the much higher inflation. From this perspective, holding gold and silver will actually "pay" you money since they will keep your purchasing power over time against inflation. This is one of the two key factors, based on which someone calls a $10,000 gold as its intrinsic value (see the article in Forbes).
Of course I'm not predicting this much of gold value, at least not yet, although the rationale presented are very sound and reasonable. While I'm super bullish for gold and silver long term, I must say the technical damage has been done for them in the short term. In other words, it is not impossible that gold and silver may further decline in the next few weeks. If that happens, I will be more than happy to buy more.
What I mean here about income is the real money you may extract from your gold or silver positions, while you are waiting for the significant appreciation of them in the future. Of course you will need to work a bit to make it happen. For those who understand options, it is the technique so-called covered call options. In principle, if you have positions for gold, silver or mining companies, you can sell cover calls against them. If you do it right, the chances are high that you will make money and continuously to do so to generate income from them. Keep in mind that over 70-80% of options will expire worthless. Therefore the statistic probability is in favor of you to make money. That is what has been happening during my working vacation in the past week. Just show you a few examples below. The green numbers are the net profit I made from them. I have talked all of them in the past, GDX is the ETF for mining companies, SLV is for silver and SLW is the best silver royalty company. You may notice that for SLV and SLW, the holding period was just one or 2 days. That's what I meant to get paid from the market volatility.
Of course I'm not predicting this much of gold value, at least not yet, although the rationale presented are very sound and reasonable. While I'm super bullish for gold and silver long term, I must say the technical damage has been done for them in the short term. In other words, it is not impossible that gold and silver may further decline in the next few weeks. If that happens, I will be more than happy to buy more.
What I mean here about income is the real money you may extract from your gold or silver positions, while you are waiting for the significant appreciation of them in the future. Of course you will need to work a bit to make it happen. For those who understand options, it is the technique so-called covered call options. In principle, if you have positions for gold, silver or mining companies, you can sell cover calls against them. If you do it right, the chances are high that you will make money and continuously to do so to generate income from them. Keep in mind that over 70-80% of options will expire worthless. Therefore the statistic probability is in favor of you to make money. That is what has been happening during my working vacation in the past week. Just show you a few examples below. The green numbers are the net profit I made from them. I have talked all of them in the past, GDX is the ETF for mining companies, SLV is for silver and SLW is the best silver royalty company. You may notice that for SLV and SLW, the holding period was just one or 2 days. That's what I meant to get paid from the market volatility.
| Symbol | Quantity | Opening Transaction | Closing Transaction | Gain (Loss) | |||||
| -5 | 11/30/2011 | 3.91 | 1951.78 | BC | 12/12/2011 | 0.86 | 436.31 | 1515 |
| -10 | 12/09/2011 | 1.58 | 1567.35 | BC | 12/13/2011 | 0.49 | 502.61 | 1065 |
| -15 | 12/13/2011 | 0.70 | 1033.56 | BC | 12/14/2011 | 0.10 | 166.42 | 867 |
Tuesday, December 20, 2011
The market may catch up with the Santa Claus rally
Two blogs for a day is a bit exceptional but as I said I'm on vacation, although still working a bit. You know that I have been betting for a year-end rally for a few weeks now. However, the European striking debt mess has derailed the market quite significantly in the past week or so. Apparently I'm not so certain now as I was a couple of weeks ago but I'm still betting for that. We still have about 10 days to go to close this year. My gut feeling is that the overall market in the remaining days will be largely bullish, although I do understand this market is very much driven by the headlines, especially those related to the EU debt problems. The risk is quite high. However, the extreme bearishness last week just didn't sound right for me and I'd like to add more bullish positions from a lower level. So I bought more SSO calls yesterday as shown below (upper portion). Not a bad timing as it jumped up over 40% just one day. Plus my previous SSO calls in late Nov (lower portion), not a shabby profit for just a few weeks I guess.
| 5.85 | 1.85 | 46.25% | $555.00 | 3 | $4.00 | $539.97 | 44.44% | $1,755.00 | |||||
| 12/19/2011 | 5.85 | 1.85 | 46.25% | $555.00 | 3 | $4.00 | $539.97 | 44.44% | $1,755.00 |
| 7.80 | 0.70 | 9.86% | $1,075.00* | 5 | $5.75 | $1,361.44* | 47.13%* | $4,250.00* | ||||
| 11/23/2011 | 7.80 | 0.70 | 9.86% | $1,075.00* | 5 | $5.75 | $1,361.44* | 47.13%* | $4,250.00* |
Euro dead cat bouncing is likely starting
I'm on a working vacation now. I have 10 days of vacation still left for this year and I'm taking them now. But due to the nature of my job, I still have to deal with urgent issues when arising or review documents due now. So I'm staying home these 2 weeks, casually working while enjoying my less stressful time. Of course my most enjoyable stuff is reading financial news and watching the stock market. I can act quickly when opportunities present themselves, which gives me a lot of joys. I cashed in a lot of quick money last week, taking the advantage of the extreme market volatility. What a great working vacation for me!
Early this year on Apr 18, I said we should bet for an appreciation of US$ when the mood for US$ was extremely bearish. Last Friday I said I thought Euro could turn around but US$ should drop and I was actually exiting some of my short positions for Euro. Of course neither of these calls were based on fundamentals. On the contrary, both were simply technical calls and speculative. Fundamentally both currencies are toilet papers and are racing to the bottom. I'm not interested in holding either of them for long-term at all. However, from time to time you may find some good trading opportunities from them when extreme conditions arise, if you can spot them. Right now I think it is an extreme condition set up for a tradable opportunity. See the chart below regarding Euro via its EFT, FXE. This chart displays a very technical indicator, the Bollinger Band (the two yellowish lines around the stock price curve). Bollinger Band (BB) defines the boundary of a stock price action, which tells the most probable price movement range of the shares. When it is at the upper boundary, the stock is likely overbought; similarly if it is at the low boundary, the stock is likely oversold. When the stock price is at these two limits, its next move would likely reverse. As you can see, FXE is at its low boundary around $130 (accordingly you will find the opposite pattern for US$ at its upper boundary). This means the trend for Euro is likely to change upwards. Or the US$ will likely decline in the next few weeks or months.
With this technical indicator flashing the turning point, I made a call to be short-term bullish for Euro. One way to bet for it is to buy its leverage ETF, ULE (2 x bullish for Euro vs US$). Given this is likely a short-term trend and for a better profit margin, I even took a more leverage action to buy ULE's call options yesterday. See below the calls I got in yesterday. Luckily a perfect timing for me. Today Euro appreciated around 1% vs US$ and my call options went up about 15% in one day. I think this is just the beginning of the Euro bouncing upwards, although I will call it as a dead cat bounce. When FXE comes up towards its upper BB boundary, I will get out of this position and start to short more of Euro.
Early this year on Apr 18, I said we should bet for an appreciation of US$ when the mood for US$ was extremely bearish. Last Friday I said I thought Euro could turn around but US$ should drop and I was actually exiting some of my short positions for Euro. Of course neither of these calls were based on fundamentals. On the contrary, both were simply technical calls and speculative. Fundamentally both currencies are toilet papers and are racing to the bottom. I'm not interested in holding either of them for long-term at all. However, from time to time you may find some good trading opportunities from them when extreme conditions arise, if you can spot them. Right now I think it is an extreme condition set up for a tradable opportunity. See the chart below regarding Euro via its EFT, FXE. This chart displays a very technical indicator, the Bollinger Band (the two yellowish lines around the stock price curve). Bollinger Band (BB) defines the boundary of a stock price action, which tells the most probable price movement range of the shares. When it is at the upper boundary, the stock is likely overbought; similarly if it is at the low boundary, the stock is likely oversold. When the stock price is at these two limits, its next move would likely reverse. As you can see, FXE is at its low boundary around $130 (accordingly you will find the opposite pattern for US$ at its upper boundary). This means the trend for Euro is likely to change upwards. Or the US$ will likely decline in the next few weeks or months.
With this technical indicator flashing the turning point, I made a call to be short-term bullish for Euro. One way to bet for it is to buy its leverage ETF, ULE (2 x bullish for Euro vs US$). Given this is likely a short-term trend and for a better profit margin, I even took a more leverage action to buy ULE's call options yesterday. See below the calls I got in yesterday. Luckily a perfect timing for me. Today Euro appreciated around 1% vs US$ and my call options went up about 15% in one day. I think this is just the beginning of the Euro bouncing upwards, although I will call it as a dead cat bounce. When FXE comes up towards its upper BB boundary, I will get out of this position and start to short more of Euro.
| Trade | 0.70 | 0.10 | 16.67% | $150.00 | 15 | $0.60 | $133.58 | 14.58% | $1,050.00 | ||||
| 12/19/2011 | 0.70 | 0.10 | 16.67% | $150.00 | 15 | $0.60 | $133.58 | 14.58% | $1,050.00 |
Sunday, December 18, 2011
Status of Research in Motion
Research in Motion (RIMM) plunged another 11% on Friday. I guess I definitely feel what it means for trying to catch the falling knife. I wrote about RIMM in Sep (see here) when it was around $24. Of course I was way too early. But as I said, I left a huge margin of safety and I'm only underwater when it is below $15. Yes, I am in the water now but not too much so far and I still have time to wait for its turnaround. I still believe and even think at this level of its share price below $14, the chance for a positive surprise is much bigger for RIMM. This is not a company for which you will need to worry about its bankruptcy since it has no debt but a large chunk of cash. I think it has some great value embedded in it but one needs to bear with some substantial risks for some time before it truly turns around. Although it is very difficult to find anyone who is interested in RIMM (which is not a bad sign for betting a turnaround), obviously I'm not alone. Someone shares my view of RIMM as well. I intend to hold up with my RIMM positions.
Saturday, December 17, 2011
Turnaround opportunity for Dendreon (DNDN)?
For those who follow the biotechs, they probably know very well about Dendreon (DNDN), the only company which has successfully made an oncology vaccine that can prolong life for prostate cancer patients. Two years ago when DNDN was submitting the indication for approval, I actually watched the discussion of the ODAC, a FDA advisory board for oncology products where external experts provide their opinions and recommendations. The debate and vote were not straightforwardly positive for DNDN. I bet DNDN could not win an approval immediately, so I shorted DNDN. Of course I was wrong. It got the approval and the stock went wild. See the chart below. DNDN jumped from around $7-8 pre-approval to mid $20s instantly. I heard a biostats guy in BMS bet with over $100k for its approval and instantly became a millionaire. Given the high expectations for the success of the company, the stock went up further to its peak of over $50. Unfortunately everything is history now. In less than 2 years, its stock plunged over 70% to $7 or so, back to its pre-approval level! I wish the BMS guy already cashed in the huge profits before the plunge.
What went wrong with DNDN? The poor judgement and execution by the top management of the company is the key factor for its failure. The prostate vaccine is extremely expensive, something like $90K for a course. The problem is that physicians or patients will need to pay first from their own pocket while waiting for reimbursement that may or may not be approved. Of course there is a huge reluctance for anyone who has to pay such kind of money without knowing if they will get it back. So the sales of the vaccine, its only product, fall hugely short of expectation. Given the very high expectation already priced in the stock price, of course investors are extremely nervous and upset. So they simply run.
When everyone runs away, I start to become interested actually. Heck, this is a company with a still promising oncology product which has shown life-saving benefits. Does it make any sense that its share price is at its pre-approval level, almost like it hadn't got the product approved? I have a hard time to believe it. More importantly it seems the company management has realized where the problems are and are make great efforts to tackle them. Based on the latest earning call, significant improvement has been made in this front and likely sales will get much improved moving forward. I think there is a good opportunity here, especially when the sentiment for the company is extremely pessimistic. Any improvement in revenues will likely beat the very low earning expectation, which will trigger another run-up of the stock price. I think this is a good speculative opportunity for a positive turnaround for Dendreon.
What went wrong with DNDN? The poor judgement and execution by the top management of the company is the key factor for its failure. The prostate vaccine is extremely expensive, something like $90K for a course. The problem is that physicians or patients will need to pay first from their own pocket while waiting for reimbursement that may or may not be approved. Of course there is a huge reluctance for anyone who has to pay such kind of money without knowing if they will get it back. So the sales of the vaccine, its only product, fall hugely short of expectation. Given the very high expectation already priced in the stock price, of course investors are extremely nervous and upset. So they simply run.
When everyone runs away, I start to become interested actually. Heck, this is a company with a still promising oncology product which has shown life-saving benefits. Does it make any sense that its share price is at its pre-approval level, almost like it hadn't got the product approved? I have a hard time to believe it. More importantly it seems the company management has realized where the problems are and are make great efforts to tackle them. Based on the latest earning call, significant improvement has been made in this front and likely sales will get much improved moving forward. I think there is a good opportunity here, especially when the sentiment for the company is extremely pessimistic. Any improvement in revenues will likely beat the very low earning expectation, which will trigger another run-up of the stock price. I think this is a good speculative opportunity for a positive turnaround for Dendreon.
Friday, December 16, 2011
Will Euro continue to decline from here?
I started to short Euro probably 2 years ago when it was close to $1.50. Along the way, Euro significantly plunged but bounced back strongly as well. I discussed Euro several times in my blogs, e.g. here and here. More recently I was even questioning why Euro was still relatively so strong above $1.40. For me, Euro is a doomed currency and eventually will die and disappear or significantly altered. I stick to my timeframe that I think Euro will not be existing anymore in the current form within 5 years.
But today I exited some of my Euro short positions, of course with good profits. Why? As much as I even more convincingly believe that Eurozone cannot resolve their problems with the current structure and form in place and Euro will for sure fail, in the near term, I'm afraid Euro may bounce back. I was almost like the only person to be bearish on Euro several months ago, but all the sudden it seems everyone is bearish now and Euro dropped below $1.30 yesterday. As I have said from time to time, when something becomes too much focused and everyone believes the same thing, it is the time to be cautious and probably need to take an opposite action. I think the US$ is becoming too strong too fast lately and is susceptible to reverting its trend. If this happens, Euro will appreciate against the US$. I will jump in again to short more Euro at that time as ultimately Euro is a dead money.
But today I exited some of my Euro short positions, of course with good profits. Why? As much as I even more convincingly believe that Eurozone cannot resolve their problems with the current structure and form in place and Euro will for sure fail, in the near term, I'm afraid Euro may bounce back. I was almost like the only person to be bearish on Euro several months ago, but all the sudden it seems everyone is bearish now and Euro dropped below $1.30 yesterday. As I have said from time to time, when something becomes too much focused and everyone believes the same thing, it is the time to be cautious and probably need to take an opposite action. I think the US$ is becoming too strong too fast lately and is susceptible to reverting its trend. If this happens, Euro will appreciate against the US$. I will jump in again to short more Euro at that time as ultimately Euro is a dead money.
Tuesday, December 13, 2011
Am I worried about dipping gold price?
These days, I must look like stupid! Whenever there is a big dip, I buy a little bit gold or silver. But they keep dipping. Today gold dropped to low $1600s. Each time my wife sees the gold price, she asks me why I buy gold at higher price; why not wait and buy at lower prices. Can I or anyone really know when is the best time to buy without looking at the rearview mirror? Obviously no one can! Even not the greatest investor, Warren Buffett!! If you always look back to pinpoint the best time and price, yes, everyone can be the trading & investment genius. But obviously majority of people lose money in the markets. No one has a crystal ball ahead of time, period.
Nowadays remind me of the time when I first bough gold coins about 5-6 years ago, when the gold price was at about $700-800 range. As soon as I bought the coins, gold prices were up and down but mostly were lower than the strike price for my gold coins. I was certainly upset and kicked myself why I did not wait for a lower price. Then looking back after a few years, I'm kicking myself again now why I did not buy all the gold coins I wanted at that time. Lesson? For a secular bull market like gold and silver, simply buy them at the best price you can at that time and stick to them. Don't look back and care about short term day to day price volatility. Gold and silver are just money for me. Just like I don't worry the exchange rate for my dollars, I don't care of the daily price of gold and silver. I only check their price because I want to buy more when they dip. Can gold and silver go further down in their price? Absolutely! And I would be happy to see that because I will buy more.
Nowadays remind me of the time when I first bough gold coins about 5-6 years ago, when the gold price was at about $700-800 range. As soon as I bought the coins, gold prices were up and down but mostly were lower than the strike price for my gold coins. I was certainly upset and kicked myself why I did not wait for a lower price. Then looking back after a few years, I'm kicking myself again now why I did not buy all the gold coins I wanted at that time. Lesson? For a secular bull market like gold and silver, simply buy them at the best price you can at that time and stick to them. Don't look back and care about short term day to day price volatility. Gold and silver are just money for me. Just like I don't worry the exchange rate for my dollars, I don't care of the daily price of gold and silver. I only check their price because I want to buy more when they dip. Can gold and silver go further down in their price? Absolutely! And I would be happy to see that because I will buy more.
Saturday, December 10, 2011
Where to save your cash
The market is too fluid and fast-moving. I wish it was a down day on Friday so that I could get my UPRO positions at a lower entry price. I did not get the chance. After it was down over 2% on Thu, the marketed was just fighting back strongly and roaring high all the day on Fri. The bullishness underneath is just too strong at the moment and you don't want to get in the way to fight against it. I set an open order for UPRO and did get it, although not the perfect price as I wanted. Will see how it turns out in a few weeks.
If you have a lot of cash, where to put it? Save in the bank, I guess most people would say so. Definitely for the money you need for daily living and expenses. Currently the US government will guarantee saving's deposits up to $250K for each person (the FDIC coverage). Technically speaking, your money within $250K should be safe even if your bank goes belly up. If your cash amount goes way beyond $250K, I'm not so sure that you can simply put them in the bank. With all the turmoils going on in the US, as well as in Europe that may certainly bring financial disasters to the US if the crisis explodes, we may see more banks bankrupted in the next few years. Ironically the large the banks are, the more danger they are given their higher exposure to bad debts both domestically or internationally. In this kind of case, I won't feel comfortable to "save" my money in a bank's saving account. Rather I will buy short-term Treasury Bills (often called T-Bill). Why so? T-Bills are a short-term debt obligation backed by the U.S. government with a maturity of less than one year. While in reality the US government is already broke, it is considered ironically as the safest government bond. You may notice, people worldwide often rush into the T-bills or other long-term US government bonds as the safe haven. Given the US government is the only one in the world which can print with no limit the world reserve currency, the US$, currently there is no worry for anyone that the US government will default. So T-Bills are simply the cash for US$. As the holders of the T-bills, you are guaranteed to get them back regardless of amount. I can guarantee you that we will see more turmoils in the years ahead and people will continue to rush to the T-bills as the safe haven. To me, gold and silver are much more valuable than cash or T-bills, but for most people they simply believe paper money or cash. If so, buying T-bills is more reasonable. I must warn you though that I emphasize "short-term" bills. Don't buy long-term (10 years or 30 years) government bonds as they are the biggest bubble brewing right now, which will burst eventually. When it happens, it will be a catastrophe if you hold them.
If you have a lot of cash, where to put it? Save in the bank, I guess most people would say so. Definitely for the money you need for daily living and expenses. Currently the US government will guarantee saving's deposits up to $250K for each person (the FDIC coverage). Technically speaking, your money within $250K should be safe even if your bank goes belly up. If your cash amount goes way beyond $250K, I'm not so sure that you can simply put them in the bank. With all the turmoils going on in the US, as well as in Europe that may certainly bring financial disasters to the US if the crisis explodes, we may see more banks bankrupted in the next few years. Ironically the large the banks are, the more danger they are given their higher exposure to bad debts both domestically or internationally. In this kind of case, I won't feel comfortable to "save" my money in a bank's saving account. Rather I will buy short-term Treasury Bills (often called T-Bill). Why so? T-Bills are a short-term debt obligation backed by the U.S. government with a maturity of less than one year. While in reality the US government is already broke, it is considered ironically as the safest government bond. You may notice, people worldwide often rush into the T-bills or other long-term US government bonds as the safe haven. Given the US government is the only one in the world which can print with no limit the world reserve currency, the US$, currently there is no worry for anyone that the US government will default. So T-Bills are simply the cash for US$. As the holders of the T-bills, you are guaranteed to get them back regardless of amount. I can guarantee you that we will see more turmoils in the years ahead and people will continue to rush to the T-bills as the safe haven. To me, gold and silver are much more valuable than cash or T-bills, but for most people they simply believe paper money or cash. If so, buying T-bills is more reasonable. I must warn you though that I emphasize "short-term" bills. Don't buy long-term (10 years or 30 years) government bonds as they are the biggest bubble brewing right now, which will burst eventually. When it happens, it will be a catastrophe if you hold them.
Thursday, December 8, 2011
My next speculation for the year-end rally
As I expected, the stock markets plummeted quite severely today, over 2% for S&P500. This has instantly relieved its overbought condition. I think there is a good chance that stocks in generally will shoot up high in the next 2 weeks towards the year end. I plan to take the opportunity for a speculation for this year-end rally. I hope tomorrow is still a down day so that I may get a better entry price.
There are a few ways to bet on the rally. The mining stocks for gold and silver are probably the most undervalued ones at the moment. I think this is the least risky sector to take a ride. GDX or GDXJ are good ones for gold miners. If you can bear more risks, SSO, a 2 x bull for S&P500, is a good choice. Two weeks ago when the market plunged I got in both and am still hanging on with them. This time I'm thinking for a more risky one, a 3x bull for S&P500, UPRO. Hope I'm right for a quick short-term profit.
There are a few ways to bet on the rally. The mining stocks for gold and silver are probably the most undervalued ones at the moment. I think this is the least risky sector to take a ride. GDX or GDXJ are good ones for gold miners. If you can bear more risks, SSO, a 2 x bull for S&P500, is a good choice. Two weeks ago when the market plunged I got in both and am still hanging on with them. This time I'm thinking for a more risky one, a 3x bull for S&P500, UPRO. Hope I'm right for a quick short-term profit.
Monday, December 5, 2011
Home depot: A diamond in the rough?
The overall market is rather bullish at the moment and I'm still positive that it is on its way up towards the year end. However, it has been a bit overbought in the immediate term and today's price action (opened high but closed low) indicates some bearishness. A quick downturn is likely before its shooting significantly higher thereafter. If you want to catch up with the year-end rally, take the opportunity if it indeed comes down within the next few days.
With respect to specific stocks, I think Home Depot (HD) may be a good candidate to move forward. Fundamentally HD has reported a great third-quarter result, beating the analysts' estimates. It also raised its full-year earnings outlook as well as increasing its dividend by 16% to around 3% yield. Recognizing HD's improving financial status, the rating agency, Fitch, upgraded its rating on HD to an A- last week. You may ask, isn't the housing sector in terrible shape right now? Yes, I agree. I don't believe the housing bubble has completed its full course in its downturn. We may still see some price drop in the housing market. Having said that, I would think the housing market is very close to its bottom, if not yet at the bottom. The main customers for HD are the home owners who still need to spend money to maintain their homes including more discretionary items such as kitchen cabinets etc. As the HD CFO, Carol Tome, said: "We see the core repair projects remain strong. We do see some movement in big-ticket items."Given the much down-beaten expectations for HD in the past 2-3 years, a slight improvement will be great news for it.
Technically speaking, HD has moved up beyond its 200 day moving average (MA), an indicator often used for a long-term trend. It is actually right at its 5 year peak around $40. If it breaks through this level, it is a strong momentum to move higher. Of course, if the overall market "corrects" in the next few days, HD may also drop. I think it would be a good buy, more so if it drops to its 200 day MA at around $35. This is often its strong support level to launch its next upward movement.
With respect to specific stocks, I think Home Depot (HD) may be a good candidate to move forward. Fundamentally HD has reported a great third-quarter result, beating the analysts' estimates. It also raised its full-year earnings outlook as well as increasing its dividend by 16% to around 3% yield. Recognizing HD's improving financial status, the rating agency, Fitch, upgraded its rating on HD to an A- last week. You may ask, isn't the housing sector in terrible shape right now? Yes, I agree. I don't believe the housing bubble has completed its full course in its downturn. We may still see some price drop in the housing market. Having said that, I would think the housing market is very close to its bottom, if not yet at the bottom. The main customers for HD are the home owners who still need to spend money to maintain their homes including more discretionary items such as kitchen cabinets etc. As the HD CFO, Carol Tome, said: "We see the core repair projects remain strong. We do see some movement in big-ticket items."Given the much down-beaten expectations for HD in the past 2-3 years, a slight improvement will be great news for it.
Technically speaking, HD has moved up beyond its 200 day moving average (MA), an indicator often used for a long-term trend. It is actually right at its 5 year peak around $40. If it breaks through this level, it is a strong momentum to move higher. Of course, if the overall market "corrects" in the next few days, HD may also drop. I think it would be a good buy, more so if it drops to its 200 day MA at around $35. This is often its strong support level to launch its next upward movement.
. Saturday, December 3, 2011
Bet on a year-end rally now!
It's great to be back. Unfortunately it turned out that I could not get to my blogs while I was away in the past 2 weeks. Retrospectively what a dramatic 2 weeks it was! Two days (Nov 15) before I left, I predicted that both stock markets and oil would decline severely in the near term. Almost like I could manipulate the markets, it turned out exactly as what I had expected. See below that both stocks and oil dropped over 5% immediately within a week (blue for oil & yellow for S&P500).
I also said that it would be a good opportunity to buy stocks if they indeed declined, since I expected that the stock market would be doing well in the next few months. While the blog pages were blocked so that I could not log in, I could still get into my trading account with no problems. When people were panic and scared in the week of Nov 21, I was happy and bought quite a lot of mining companies and good companies like Coca Cola (KO) etc. I hope you did so as well. If you wanted to be a successful investor, you simply can not follow what a general trader or investor do. Otherwise you are doomed to fail! With respect to oil, I got out ERY as well with a good short-term profit. Although I had expected oil to plummet more, I took a quick profit when the overall market sentiment was too bearish, which often indicates a quick turnaround. I was happy that I was not too greedy to hang on with ERY.
I expect we are now on a safe way for a year-end rally. Technically and seasonally it is just a good time for stocks, regardless how dire the overall economic and debt situations are worldwide. The market is not always rational. If it wants to go up, it will regardless. I think this is such a time to safely bet for a uptrend, at least towards the year-end.
I also said that it would be a good opportunity to buy stocks if they indeed declined, since I expected that the stock market would be doing well in the next few months. While the blog pages were blocked so that I could not log in, I could still get into my trading account with no problems. When people were panic and scared in the week of Nov 21, I was happy and bought quite a lot of mining companies and good companies like Coca Cola (KO) etc. I hope you did so as well. If you wanted to be a successful investor, you simply can not follow what a general trader or investor do. Otherwise you are doomed to fail! With respect to oil, I got out ERY as well with a good short-term profit. Although I had expected oil to plummet more, I took a quick profit when the overall market sentiment was too bearish, which often indicates a quick turnaround. I was happy that I was not too greedy to hang on with ERY.
I expect we are now on a safe way for a year-end rally. Technically and seasonally it is just a good time for stocks, regardless how dire the overall economic and debt situations are worldwide. The market is not always rational. If it wants to go up, it will regardless. I think this is such a time to safely bet for a uptrend, at least towards the year-end.
Tuesday, November 15, 2011
Stocks and Oil
Are stocks in general cheap? I don't believe so. Of course stocks have come back to more reasonable prices but they are by no means really cheap for most of them. However, relatively speaking, stocks are indeed cheap historically. Why so? Right now, the dividend yield for S&P 500 is exceeding the 10-year treasury bond yield. This is a very rare phenomenon, which only occurred once or twice in the past 40 years or so. When investing in bonds, people are only looking for the fixed income, not capital gain or growth. For stocks, people are more interested in growth and gains. That's why usually bond yields are much higher than that of stock dividends. But now it is inverse. It means, comparing to bonds, stocks are historically cheap. This means, investing in stocks in general will be a good choice for the mid-term. However, with one caution. At the moment, it is rather uncertain in terms of the stock market direction. While either way is possible, I think the chance is more for a short term decline, potentially severe. The investors' sentiment is just too much bullish right now, which is usually not good. I expect a quick sharp dip of the stock market. If it happens, it is likely a good opportunity to get in for the next 6 months at least.
About three weeks ago I turned to be bullish on oil, when it was $91. I said it could reach $100 in the next few months. I was wrong. It has almost reached this $100 level in less than one month. It is just too far too fast. I think this kind of fast price appreciation is mostly related to the headline bullishness. If the headline news changes, oil will likely drop, also fast. I'm more bearish about oil now and actually I bought ERY, a leverage inverse ETF fund to bet against the oil sector. Of course it is a risky speculation.
By the way, I will be away for 2 and a half weeks. I'm not sure if I will have time or easy access to Internet to write blogs. If I cannot, talk to you again when I'm back early December. Early greetings to all of the friends for the Thanksgiving!
About three weeks ago I turned to be bullish on oil, when it was $91. I said it could reach $100 in the next few months. I was wrong. It has almost reached this $100 level in less than one month. It is just too far too fast. I think this kind of fast price appreciation is mostly related to the headline bullishness. If the headline news changes, oil will likely drop, also fast. I'm more bearish about oil now and actually I bought ERY, a leverage inverse ETF fund to bet against the oil sector. Of course it is a risky speculation.
By the way, I will be away for 2 and a half weeks. I'm not sure if I will have time or easy access to Internet to write blogs. If I cannot, talk to you again when I'm back early December. Early greetings to all of the friends for the Thanksgiving!
Monday, November 14, 2011
Make money from water
No one pays attention to water. It seems abundant and it is cheap. People get water for granted. When people talk about commodities, they are referring to gold and oil. Rarely anyone is serious about water as a commodity. I think this will change in a big way, probably not obviously at first but will be more and more so eventually.
Yes, water covers nearly 3/4 of the Earth’s surface, but over 97% it is seawater which is undrinkable. Actually the world is becoming more and more short of fresh drinkable water for the world’s 7 billion people. The shortage of fresh water becomes more severe when taking into consideration climate change, pollution and mismanagement of water resources. I won’t be surprised that in 5 years or so, people will talk about water like what they are talking about gold and oil today. After all, it is one commodity that human beings cannot live without. We are actually facing a very dire situation with respect to the clean water resources.
Yes, water covers nearly 3/4 of the Earth’s surface, but over 97% it is seawater which is undrinkable. Actually the world is becoming more and more short of fresh drinkable water for the world’s 7 billion people. The shortage of fresh water becomes more severe when taking into consideration climate change, pollution and mismanagement of water resources. I won’t be surprised that in 5 years or so, people will talk about water like what they are talking about gold and oil today. After all, it is one commodity that human beings cannot live without. We are actually facing a very dire situation with respect to the clean water resources.
I think it is the time to start to build up the water portfolio, slowly but surely. I bought American States Water (AWR) about 5 years ago, a company that serves approximately 15 million people with drinking water, waste-water, and other water-related services in approximately 30 states and 2 Canadian provinces. While it is certainly not a super star in terms of its performance, it is very stable with an upward trend. It has been certainly doing much better than the general performance of S&P (see below the comparison). More beautifully, it is paying a respectful dividend, over 3% at of now. So you are getting paid for waiting for other people to wake up about water companies. Of course, there are more such water utility companies, which are also paying very good dividends, such as Aqua America (WTR) and American States Water (AWR). Do your home work and act accordingly. I think you will not regret over time.
Sunday, November 13, 2011
Cuba: An unheard opportunity?
Probably not many people may notice anything happening in Cuba. Under the strict long term economic sanctions imposed by the US as well as due to its own problems in its economic structure and policies, Cuba is no doubt a very poor and underdeveloped country in the world. However, you may have heard that Cuba has started its economic reform. A recently announced reform, I think, is revolutionary and may potentially make some smart early investors a lot of money.
On Nov 10, the Cuba government announced that effective immediately, Cuban citizens could buy and sell real estate on the open market. Do you know what this means? It is for the first time in 50 years! Simply think about what has happened in China with respect to the impact of housing on its whole economy. If you participated in this trend in China early enough, you would probably have had made many times of your money before it went into bubble. Eventually I also think Cuba will go into the bubble state as China, but this will be years later.
I don’t know there is any pure play specific to the Cuba companies. But there is an alternative, the Herzfeld Caribbean Basin Fund (Nasdaq: CUBA), a closed-ended fund loaded with tourism-oriented firms. This fund has its portfolio of travel, cruise, banking and telecom companies will benefit from any jump in Cuban tourism. Probably seeing the upcoming opportunities, it is also adding a small number of companies which are highly speculative in a pure Cuba business plan.
Monday, November 7, 2011
A laughable prediction for gold
Gold and silver are on fire again lately. Today gold jumped $40 to close just a hair under $1800. Honestly I hope it wouldn't be too hyped. If too much attention is given to it, the uptrend won't last for long. Two weeks ago, I took profits from shorting Royal Gold (RGLD) when it plummeted to low $60s and I said it would a good buy if below $60. It didn't. On the contrary, it has bounced back strongly and it has come back to above $80 again today. I'm worried short-term as it is too far too fast. Technically speaking it has reached its strong resistance and has a high risk of reversing back. If so, it will create a double top, a bearish setup. If it breaks through this resistance level, then it is very bullish. I have already got in to some extent. Either way, it is fine with me. I will only add more if it drops again.
I happened to see some prediction about the gold future on Bloomberg today. According to some "experts", the gold price will be around $1812 by end of 2012, around $1830 by 2013 and it will plummet to low $1500s in 2014. I cannot help but laugh when I see this experts' opinion. I hope this is kind of widely held opinion so that no euphoria will be created for gold and silver. As I said the gold bull does not like spotlight. It wants to move up silently without public attention. The lower public expectation, the better for its uptrend!
I happened to see some prediction about the gold future on Bloomberg today. According to some "experts", the gold price will be around $1812 by end of 2012, around $1830 by 2013 and it will plummet to low $1500s in 2014. I cannot help but laugh when I see this experts' opinion. I hope this is kind of widely held opinion so that no euphoria will be created for gold and silver. As I said the gold bull does not like spotlight. It wants to move up silently without public attention. The lower public expectation, the better for its uptrend!
Sunday, November 6, 2011
Platinum: A rare opportunity emerging
While not as famous as gold and silver, platinum is also a key family member of the precious metals. The primary utility of platinum is for the car industry; therefore it is highly sensitive to the overall economy. Platinum is quite rare and it is usually more expensive than gold. During the last decade, platinum has averaged a 64% premium over gold. And in the past 2 decades, platinum was traded below gold only once, which happened in Nov 2008 when everything was sold off during the overall market panic and crash. It was a historic meltdown for platinum when the auto industry, actually the whole world, was almost felt like coming to the end. It tumbled from over $2000/oz all the way down to less than $800. But you know what, in the next 2 years, platinum jumped back almost 150%.
Now we have got the second opportunity that platinum is currently cheaper than gold. Gold is trading over $1750/oz at the moment but platinum is in $1600s. If the history is any guide, this won’t last for long and I bet platinum will bounce back in the near future to cost more than gold.
If you want to invest in platinum, there are 2 ways: one is to go with the platinum ETF, symbol PPLT. PPLT should more closely reflect the price of physical platinum. The other way to trade platinum is to invest in the platinum mining company, Stillwater Mining (SWC). Of course, as with any mining companies, SWC is more volatile and risky but potentially it may be much more profitable when the platinum’s price appreciates.
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