Commercial real estate play

If you haven't bought a house or played with some housing-related stocks, you likely have missed the bottom of the housing market. It has jumped significantly higher in the past 18 months or so. See the performance of US housing construction stocks via the ETF ITB. It bottomed around Oct 2011 and has since tripled. But it seems it is cooling down right now and likely it will come down much furthter in the next few months.

So have you totally missed the recovery of the housing market? Not really. You see, the fast initial recovering has solely taken place in the residential part of the housing market. The commercial real estate is still very depressed, which tends to lag behind the residential housing by about a year. If this pattern holds true, then the recovery of the commercial real estate may start very soon. The biggest profit is usually made during the very first stage of an recovery, when a condition is becoming less bad from bad. Commercial real estate may be one area you can make some big money if you play right in terms of timing.

One company that may be worth noting to play with this trend is HD Supply (HDS). It used to be the commercial construction supply division of Home Depot and was spun off in 2007. It provides everything required by the commercial constructions as well as infrastructure needs. While it does not have a long history yet in terms of its stock performance, in the last 3 months, HDS has substantively outperformed ITB. Maybe this is an early sign that the commercial real estate recovery has really started.

Don’t chase gold/silver stocks

Gold/silver and their mining stocks have being doing extremely well in the past 2 weeks. I said precious metals have likely bottomed and I’m even more convinced now. But if you haven’t established any position yet but consider to do so or are considering to add new positions, don’t do it now. Gold/silver stocks have gone too fast too soon. The amazing over 30% advance within 2 weeks will likely run into some resistance. In the very near term, they will have to come down first to take a breath before running further higher. Today's jumping high at opening but closing in red is a warning sign that bad days are coming for precious metal stocks.  I expect it will happen sooner rather than later, likely within a week or two. So you will get a much better chance to buy (more) gold or silver stocks at a better price. Be patient!

Onyx's deal is done; so what to do now?

If you bought the Onyx shares 10 days ago to take the advantage of the arbitrage trade I talked about, then you should be happy to have made about $10 per share or so by now. Amgen announced on Sunday that they will buy Onyx for $10.4 billion, equivalent to $125 per share. This is kind of money at the corner type of opportunity and it is just a matter of whether you have the courage to go there to pick it up or not. I hope you did!

Onyx has jumped to $124 by now. Is it worth to hold the shares at this price for the remaining $1 or so? I would not. While it is extremely unlikely, it is not yet 100% sure that the deal will go through. There are still some hurdles to overcome including regulatory antitrust review etc. Since you have already made 99% of the targeted profit, why still hanging in there? Take the profit and look for other better opportunities. Leave the opportunity to those greedy guys to make the remaining $1.

It is time to bet on Australia stocks

For years, Australia was doing very well, primarily due to the benefits she got with the booming economy of China. After all, Australia is a resource-rich country with commodities as her most important economy pillar. If China is doing great, so does Australia. Not sure if you know that all the natural resources such as mines etc belong to the government in Australia, not privately own. So the Australian government is really rich backed up the hard assets. As a side note, I think the Australian dollar will become a very strong currency in the long run due to this reason.

 With the Chinese economy slowing down significantly in the past half a year, people were running away from the Australia stocks as well. As you can see from the chart below, the Australia stock market peaked in May and has plummeted over 20% since then. But now it looks like the Australia market has stabilized and is moving up. Fundamentally it is relatively cheap with a P/E around 18, similar to the US stocks but considering the average dividend yield for the Australian stocks at 4%, twice as high as the US stocks, they are much more attractive. I think this is also a good alternative and indirect way to bet on the recovery of the Chinese economy, which appears to be ongoing. EWA is an ETF for the Australia stocks, which currently pays a 6% dividend. I bought some for my Roth account to enjoy the high dividend with a great capital gain potential. Also, I use the options to set up a combo position in such a way that I don’t pay for anything but actually get paid in the first place. Let’s see how it goes.

 

 

We are witnessing a historical gigantic turning point

It is amazing to watch that the world is turning upside down but silently without general people even knowing it! I bet the majority of you probably don't know that the yield for the 10 year Treasury is almost reaching 3%. This is gigantic jump for the long-term government bond, which will have huge and long lasting impact on almost all aspects of our life. We are truly witnessing a mammoth turning point in history. Please remember and mark the days of now!

The long-term government bond had experienced a 30 year uninterrupted bull run, which has just finished. See the chart below. Please note, the bond price is directly inverse to the yield (or interest rate), i.e. higher bond price means lower yield rate and vice verse. As shown in the chart below, since early 1980s, the Treasury yield had come down nonstop till recently, representing the bond price had relentless moved higher and higher for a total of 30 years without a pause. But now it has stopped and ended. Two months ago, I started to notice the fast appreciation of the long-term interest rate and was wondering if the bond market was telling us something big. Yes, now I'm pretty sure what the bond market is telling us: it is tired of moving in one direction and wants to turn around to move down! In other words, the long-term interest rate will start to move up substantially and dramatically in the following years, probably also in terms of decades. You know what it means to you and me? Almost everything! Yes, directly or indirectly our life is controlled by the interest rate: the costs for goods and services will be higher and much higher but the immediate impact will be the mortgage rate that will be proportionally moving high. A 3% Treasury yield will mean a 5% rate for the 30 year mortgage loan. This kind of fast increase of mortgage rate won't bode well with the recovering of the housing market. It will also negatively impact on the overall economy in a big way. We are truly entering into the era of a huge bearish run for the Treasury. In the short term it could be very volatile. If indeed the 10 year Treasury moves up to 3%, Bernanke will be scared to death and likely the Fed will do something to calm down the market. But in the long run, it does not matter anymore. After all, it is a $10 trillion market, for which no one can really manipulate if it wants to move its own direction. We have already seen the early sign that the biggest buyers of the US Treasury such as China and Japan are downsizing their holding or cutting down their buying. I think this trend will only accelerate as the US debt burden becomes more and more severe. So we are talking about a decades long bearish megatrend for the US Treasury. Please note, this is a uncharted water that not many people understand it. If a bond investor started his/her career 30 years ago, he/she would only know a bullish bond market and would have no idea how the bearish bond market looks like. Very interesting!

Be aware and be prepared and better to start hedge yourself against it. You can directly short the government long-term bond (TLT) or buy the inverse bond ETF such as TBF or inverse stock funds (RXURX). In addition, it becomes even more critical to buy gold and silver, which will benefit hugely from the rising interests (meaning inflation or hyperinflation).

Precious metals have changed their behaviors: bottom is likely in

It has been brutal in the past few months on precious metals, especially the metal stocks. But I think the bottom appears to be reached. In addition to the contrarian’s indicator regarding extremely depressed sentiment for precious metals, the most powerful signs are the behaviors of the metal stocks in the past few weeks:

• Barrick Gold (ABX), the largest gold company in the world reported very poor earning results 2 weeks ago. In addition, it reported over $8 billion write-off for the loss they had incurred from their non-performing projects. Even more, they announced to cut their dividends. All these were extremely bearish news for any company and would have triggered a huge sell-off normally. But what happened? ABX shares did not budge much on the very bad news and are even heading up now significantly since then. When a stock did not go down with bad news, this is a strong signal that no one is left to sell anymore and the bottom is likely in. This phenomenon has occurred to other major gold companies as well in the past 2-3 weeks.
• Another strong signal is the relative strength in terms of the price action for gold vs S&P index and for silver vs gold. In the past 2 years, the general trend is that gold goes down while stocks go up. Also, silver goes down more than gold. But this pattern has changed lately. See the chart below: gold (GLD) is going up when S&P index goes down and silver (SLV) goes up more than gold. This is likely an early sign of the trend change for gold and silver.

Together with the very bullish technical indicator that both gold and silver have broken out to upside over their 50 moving average, I think we have seen the bottom for this 2 year long correction for bold and silver. I keep my fingers crossed! Gold and silver will likely come down a bit in the near future but if this change of trend is true, then any weakness will be the great buying opportunity.

 

 

 

 

 

 

An arbitrage trade for Onyx

Recently Amgen announced to buy Onyx (ONXX) for $120 per share, which Onyx refused. Days ago Amgen raised its price to $130, which was reportedly agreed upon by Onyx for a deal. But yesterday, Onyx shares plunged almost 10% due to a report that the deal may be delayed since Onyx refused to provide immediately to Amgen the data of an ongoing phase 3 study, because it is still blinded. Well, the deal may be delayed, but I think it will finally go through since the price is very attractive for Onyx and Amgen is very eager to get new drugs to replenish its scanty portfolio. It is just a matter of time.

This has created a so-called arbitrage trade: the current price is much less than the final price if you are confident that a deal will go through. Depending on what price you can get in, potentially you may make $10-15 per share if you take the opportunity and buy ONXX now. If you know how to play options, then the risk benefit will be even more attractive. You may risk $2000 or so to bet for a profit of over $5000.

Apple is on fire already

Just a few days after I talked about Apple for a potential explosive moving up, Apple is already on fire now. It has jumped up over $50 just within a few days. Honestly I did not expect that. I thought this kind of move would more likely happen late this year. So what happened? Well, the billionaire activist investor, Carl Icahn said he believed Apple shares were extremely undervalued and the company should execute a larger buyback.  He disclosed that he had bought a large position of Apple, reportedly worth around $1 Billion. By the way, if you don't know Icahn, you really need to know him, a extremely successful investor who can move the market. Just google to know him.

So should you chase it now, if you have not bought any of Apple? Well, I think Apple is very likely to pull back a bit in the next few days, given how overbought it is right now. It is even jumping over its Bollinger Bands today, which is kind of extreme. The RSI is also over 80, an indicator of overbought. I think it will come down towards $450 as the next move. If so, it will be another great buying opportunity. Don't miss it!

The market smells more and more like topping

If you pay attention to the market, you must know Tesla (TSLA). It shot up over 300% this year. Because it is making big money? Nope! Tesla is the developer and manufacture of electric vehicles (EV). While EV is quite a fashion concept, it is far from economic and can make any real money. But regardless, people just love the concept and chase it to sky. On today's CNBC's "Fast Money," one host explained how investors should view Tesla stock.  "The big mistake that people make is they trade it off of fundamentals. This is a premise. This is an idea," he said.  This really scares me. Nowadays it becomes more and more like late 1990s before the crash of the tech bubble. People just chased behind any concepts and ideas regardless of fundamentals and reality. When the whole market is full of such kind of euphoria, it is very near the top, if not yet at the top. Look out below!

Now if you look at the chart of S&P 500 (SPY), do you notice the decreasing trading volume (the lower panel) with up moving of the index? This is another indicator that less and less people join the parade with one after another historical high of the stock market. A very bearish sign, at least for the immediate future!! I'm buying more and more VXX as my insurance to be prepared for a quick, swift and severe plunge of the market. It is not if but just when.

An indirect play on EU rebound

Believe or not, there are signs that Europe may be turning a corner after years of economic and financial turmoil:
- German business index was promising
- the key Euribor bank-to-bank lending rate was solid
- unemployment started to falls in Spain
- positive EU GDP last quarter for the first time in years

Given the depressing economy status for so many years, the stock prices have plunged substantially in EU and they are actually attractive in terms of value. The upcoming winding-down of QE bond purchasing by the US Fed may create another unexpected boost for the EU stocks: the EU central bank may start its own QE in order to prevent the negative impact form the Fed action. Taking all this factors together, now appears to be a good time to buy the EU stocks.

You may directly invest in the EU stocks via EU focused ETF. But I think a better way is to play this indirectly, i.e. via the stock of a US company that has substantial business in the EU and makes big money in the EU market. I think  TAL International Group (TAL) qualifies for this.  TAL is a leading company in leasing container storage for global transportation. It controls about 13% of the global market share in its sector. The majority of its business is from Europe (44%) and Asia (43%) with the United States accounting for the remainder of sales. With the EU expected to break out of recession in the second part of this year, global shipping demand will greatly increases. This will boost TAL's bottom line.

Even better, you can enjoy a hefty 6.2% dividend yield with TAL. Since its IPO in 2005, it has increased its dividend by an annualized 19% for the straight 7 years. Even the global financial crisis in 2008 did not stop it. I think you can count it to continue to increase its dividend for years to come.

Easy and safer way to trade IPOs

I assume everyone who trades stocks know what is an IPO: An initial public offering (IPO) is a type of public offering where shares of stock in a company are sold to the general public, on a securities exchange, for the first time. In theory, everyone has the same chance to buy an IPO stock but in reality you rarely have the chance to buy an IPO at a reasonable price, unless it is a stock that no one wants. It is almost always the case that an IPO will be traded 25%-50% or even higher than its offering price on the first day. If you chased the stock and got in with an elevated price, you would likely lose money. So as an individual investors, it is difficult to trade individual IPO stocks. But now there is an easy way to trade IPOs via the First Trust IPOX-100 Index Fund (NYSE: FPX) that is an ETF focused on IPOs. This is a great way to profit from the IPO market. No need to chase any IPO, no emotion to be involved and no need to try to get any insider information. One simply step and you get a basket of IPOs, screened and selected via its value-based methodology. FPX has a rather diversified portfolio including a wide range of sectors including positions in finance, auto, retail, heavy industry, energy and  metals.

It has a great track record in its performance: in the past 2 years, it has outperformed S&P 500 in a wide margin, roughly double the return of the broad market index!

Apple is poised for a potential explosive move

After reaching its peak at $700 late last year, Apple has plunged over 40% in the past 7-8 months to as low as $385. Judging by its price action in the past few months, I think Apple has seen its bottom and is accumulating energy for its next move. And I think Apple is ready for a potential explosive move to the upside in the later part of this year into next year. There is quite a strong bullish momentum behind Apple. I just list a few of them:

- Apple will soon introduce a cheaper model of iPhone for China and Indian. This will crash the competition from other smartphone companies and re-establish its dominating position in these two biggest smartphone markets.
- As indicated by Apple's CEO, Tim Cook at the latest earning call, a series of new products will be introduced later this year into next year. This may include iWatch, iTV, and iCAR.
- The sentiment for Apple has never been so depressed at the moment. This often occurs at the bottom for a stock.
- Technically though the price action of Apple stock is bullish and start to show an upward trend.
- Apple has an extremely cheap valuation, with a huge cash hoard.
- You can bet that Apple will grow its dividends substantially in the years to come

All these are bullish factors for Apple and I think the introduction of a new product will likely to be a catalyst for an explosive move. Take the opportunity to accumulate Apple shares and you won't be disappointed if you have a long-term investment timeframe for Apple.

Follow the lead of insiders

With so much downside already played out and so depressed sentiment resulted in, I’m wondering if now is a good time to start accumulate shares of mREITs such as NLY or AGNC. Well we have got some good indicator that indeed now it is the time. No one knows in advance when is the absolute bottom for any stock but there are some people who can very accurately tell whether a stock is at a good price to buy. Who has such kind of magic power? The insiders, especially those who really know the business insider and out!  These are the people at the top of the company such as CEO or board directors etc. Of course, they dare not tell anyone external when to buy their stocks but their behaviors sometimes may give you a pretty good idea what they are thinking now. Whey they sell their stocks, it’s not necessarily a sign that the stock share is too high. There are too good reasons that they may want to sell their shares: maybe they simply want to diversify or they urgently need money etc. But there is only one reason when they buy, especially when buy big: they are bullish about their business and stocks and think the stock is a good buy at that price. While there is no 100% sure thing and they also don’t know if it is the actual bottom, following their lead can substantially increase your chance of making money.  

Well, the President and CIO of AGNC just bought 25,000 shares at $22.44 (total value of $561K) (see here). This is not a small amount of money and I think it really tells you that he thinks the worst is likely over for their stocks and at this price, AGNC is cheap. Actually in the same link you will see the CEO of Hatteras (another mREIT) has also bought 12K shares of their stocks. I’m not sure we can get a better indicator than that and I think the worst for this sector is probably has been over. I will follow their lead and slowly accumulate the stock to enjoy an almost 20% yield.

For those who know options and don’t what to take much risks, there is a way to almost completely minimize your downside risk.  If you sell deep in the money calls for AGNC, you virtually lock in the 20% yield and at the same time being protected against the price decline of the stock. Of course, this way you are only getting the income from the 20% yield (not bad at all in any sense) but you will not get any capital gain if the stock starts to move up in price. Personally I would not do so at the moment, considering this is likely at the bottom of the stock. I hope to enjoy both the 20% income and the capital gain as well by taking some risks.

Another winning income trade with IBM

First of all, thanks those who wrote to me with the interest of learning the powerful income trading strategy. Regardless of whether you know options or not, you certainly can master the technique as long as you want to learn. We are already well on the way in the learning process for some and I'm sure very soon they will see the fruits! Sorry for those I cannot immediately start to work with due to my limited capacity but we will get there. I simply put you on the waiting list for now. Thanks for your understanding!

The IBM trade I talked about 10 days ago come to the end today. Interestingly IBM followed exactly the footsteps of MSFT to close above the strike price of $195 at the very last second! IBM actually plunged during the day to as low as $193.22 but again people saw the value of it and had bidden it up. Simply amazing! So all the 3 tradings I wrote about within the last 10 days were winners and if you had got in as I suggested, you would have made quick money 100% for all the three. That's the power of this technique!