Why Google trends may tell you the status of stock markets

Bull markets are born on pessimism, grow on skepticism, mature on optimism, and die on euphoria.
By Sir John Templeton

As you can see from the quote, the bull market will usually end up with bubbles. Many of us are likely still remembering the crazy time periods in late 90s when the huge tech bubble was blown up or mid 2000s when the housing bubble reached its climax. We all know what ensued after the bubbles burst and how painful it was!! So after 6 years of non-stop run of the overall markets in the US, the logic question is if we are at the end of this historical bull run. Well, there are many factors that one can use to evaluate and come to a conclusion, one thing one can quickly judge is via the factor how much interest people have got in the stock market by now. It is almost always the case when a bubble really shows up that there should be a huge public interest in it and you will be getting stock tips from almost anyone you met like friends in the party, your neighbors, or even taxi drivers.  I bet none of them has happened yet. Actually you can now even check the public interest on some specific topic via Google Trends. As you can see below, there was a huge public interest in Google search on stocks back in 2007/2008 immediately prior to the market crash but we haven’t see this crazy interests yet even after 6 years of bull market. This is a good indicator that we are still not close to top yet with a huge bubble blown up in the US stock markets. That’s why I’m still bullish for stocks.

Back in late 2012 I started to become interested in the Chinesestock market and started to actively buy about one year ago.  It was a good call as it has since gone up over 40%. So is it too much and a bubble is presented in the Chinese stocks? Let’s see the Google trends. Well, do you see the difference between 2007/2008 and now? There is a long way to go for the Chinese stock to reach the previous top level, isn’t it?

Of course, don't use this as a foolproof indicator and consider it as 100% reliable. More importantly, even in a gigantic bull market, it can still correct significantly along the way. Don't be surprised by the market fluctuations.
 

Now I’m starting to get bullish on the Indian stocks. You see, the new Indian government has just aggressively engaged in the QE policy as well by cutting interest rates. The Modi government has also cut the corporate taxes from 30% to 25%, for which the investors and business confidence is improving. Together with infrastructure improvements and low oil prices, the Indian economy will likely recover in a fast pace that will be very positive to the stock market. You can buy Indian stock ETFs such as INDA or more aggressively SCIF for small caps, if you want to play with this trend.

Why do I like Apple even better

I have been talking about Apple (APPL) for a few years now including both long-term investment vs short term trading. If you want to know how I did in the past for “timing” the investing/trading opportunities for AAPL, here are some examples: I got in close to the long-term bottom around $400 (pre-split) back in 2013. Since then I have also pinpointed almost each major highs and lows for trading opportunities (see here and here). The most recent one is still happening now: when AAPL reached all time high at $133, I called the short-term top and advised to sell covered calls to protect. As I said, it could dropped to $120 level. Indeed, AAPL did plummet quickly to about $122 and stabilized. As I said, I think AAPL is likely having bottomed for this time and is poised for the next bull run.  Apple for me is certainly a great company for long-term investment that you can hold for long long time. So some people are puzzled and questioning why I’d bother to trade for AAPL if I think it is a good long-term stock. Well, by now hope you all know that I’m not only a value investor, but also a very active short-term trader. For my long-term AAPL positions, I simply keep and don’t touch them. Dividend reinvestment for good stocks including AAPL is the way to go for long-term wealth building. But this does not mean we cannot also make some good short-term incomes by trading. For many people, trading is simply gambling. They blindly follow the talking heads or tips from others and get in or out of stocks, thinking they can make good money. But believe me, for most traders, they will end up losing money. For myself, I don’t do trading based on hope; rather I call myself as an informed speculator for trading opportunities based on sound technical analysis. I hope my track record for AAPL has demonstrated that.

 Well my today topic is not about short-term trading for AAPL. Rather I’m adding one more piece of evidence why AAPL is a great company for long-term investment. I’d think everyone will think about AAPL as a great company on mobile devices such as iPhone, iPad, iWatch etc. Indeed Apple has revolutionized the way people communicating with each other and has since then being leading the trend. In the foreseeable future I don’t see anything will change on Apple’s super leading position in this area but as a long-term investor, I’d be nervous if Apple were solely relying on one set of electronic products. As we all know, people’s taste on electronics can change very quickly. Just think about it who was interested in Apple 5 years ago when Blackberry was dominating the mobile phone sector? If Apple were simply working on updating the models of iPhone and iPAD etc, I’m not sure I’d feel comfortable to stick to Apple for long-term. Fortunately Apple is not disappointing me and has been working very hard to lead the world by creating a whole new ecosystem that can touch almost all aspects of our life. Pretty soon, your iPhone will not be just for communicating purpose, it can help control a lot of things for you in your life and virtually all the electronic devices or appliances at your home can be remotely controlled or monitored via your iPhone. Now you can also use iPhone to pay for your shopping with AppPay. This is another huge market to be realized by Apple. Now Apple is moving towards another enormous market, health care and drug development. See the report here. I‘m so excited to see this new move by Apple, which will further strengthen its long-lasting profitability potential. I like Apple for my retirement portfolio but of course I will continue to trade for income for Apple when the opportunity presents itself.

Retirement Heaven: Panama

While it is still too early for my wife and I for a physical retirement, we have been thinking about where to retire for some time already. About 10 years ago, I first heard about Panama as one of the retirement heavens but I did not take it seriously. After all, it is in Central America which seemed too strange to us and I doubted about the quality of life there which might not be matched to our expectations. A big mistake at the hindsight! Since then, I have kept hearing about Panama from various sources and it has always been among the top 3 of best retirement places in the world per International Living. Since we are much closer to the retirement age now and since our son has grown up who can speak fluent Spanish and he is greatly interested in Latin America, we finally decided to go to visit Panama 2 years ago for a family vacation. Everything has changed since then almost immediately with respect to how we look at Panama. We fell in love with Panama instantly and the vacation trip was quickly turned to be a house hunting venture. In a nutshell, you can find almost everything you can find here in the US but with much lower costs. The infrastructure and the overall quality of life are nothing inferior to the standards here and the weather is great for elderly people. With what many of us can earn here, we can really live like a king there. The life is simply so easy and convenient in Panama. Since we loved what we had seen so much, we decided to buy a high-rise condo apartment on our second trip last year. It is located in a great area with all the convenience and amenities around: minutes of walking to one of the largest shopping malls in Panama City or to a newly built large and very modern hospital affiliated with Johns Hopkins Medical School, or to the shoreline with a great view to ocean and city. In other words, this is a property that has all the features you can find in Manhattan here but with a fraction of the cost you would need to buy such an apartment in Manhattan. In addition, the property has a 20 years of property tax abatement, for which we still got 18 years remained when we bought. I cannot say we would simply move there in just a few years but I'm pretty sure we will keep going back to visit and eventually will consider to move there for long-term. In addition to the good life aspects, the potential of business opportunities appear to be enormous as well in Panama. Contrast to what is happening here that it becomes increasingly difficult to start small business, the Panamania government is quite friendly to business activities. The country is apparently booming at the moment as you can see constructions everywhere. This is much like what we had seen probably 15-20 years ago in Pudong Shanghai, when the new economic zone was started. In the most recent trip, I was told that many Chinese companies are starting to come in to set up offices, even though currently there is still no diplomatic relation between the 2 countries. Think about what will happen when the diplomatic relation is established, which to me is just a matter of time. Panama to us is going to be HongKong or Singpore in Latin America!

Of course, I don't want sound like I'm selling you the idea based on my personal taste and favor. So I posted a writing below I saw from the International Living. You may also be interested to read a publication from the New York Times on Rising Panama. Most importantly, if you are also becoming interested in this idea, go there to see for yourself!! Panama is at least a great place to visit and enjoy your vacation. From NY to Panama is just a 5 hour flight with no time difference (or one hour difference during the summer time).

For further information on Panama, I suggest you start with International Living on Panama. It has abundant information in almost all the aspects.

Retired and Bored: Panama May Not Meet Your Expectations
By Jessica Ramesch

As International Living's Panama Editor, I travel several times a year to speak at conferences. Often the image people have is of a country with pretty beaches, plenty of palm trees...and not much else. One of the questions I get most is: "Will I be bored there?"
       
If you're expecting to take it easy and have a quiet retirement, you may want to think again. Bluntly speaking, it's nearly impossible to be bored or even inactive here.

Near-constant sunshine and the world's most modern conveniences make Panama a social and happening kind of place. Retiree expats tend to be busier here than they were back home. There's something about Panama that makes residents—retired or otherwise—want to get out there. The difference is, we're all busy doing things we want to do—not competing in the proverbial rat race.
When the roads are excellent and distances small, it's hard to turn down fun invitations. And in parts of Panama City, the sleek metro line can have you there in minutes. Even if you're new, it's easy to sign up for events and make friends. Getting on mailing lists online or at museums and the like is easy. Now I get up to a dozen notifications a week. They arrive to my email inbox courtesy of Panama's excellent telecommunications coverage (and that includes cell phone signals).
       
Free gallery openings, restaurant inaugurations, irreverent plays, beach parties, sporting events... There's so much going on, I'm hard-pressed to choose. I've been to see everything from Mixed Martial Arts (MMA) to Madame Butterfly. Outside of the city the options are no less varied, though more centered on the great outdoors. Take your pick: there's rock climbing in Boquete, hiking in El Valle, white-water rafting, surfing, birding, tennis, biking, golf...everything imaginable. Oh, and over 700 fairs and festivals a year. If you're interested in folklore, local art, traditional music and dance, or even eating your way through Panama (my personal favorite), the fiestas and carnivals are the places to do it!

To me, it's no wonder Panama currently ranks number one on International Living's annual Global Retirement Index. Sure, it comes as a surprise to many to learn that a place this safe, modern, and inexpensive exists...just a three-hour flight from Miami. But I've been living in and writing about Panama for over eight years now and I've seen the truth first-hand.
Not only is Panama close to home for many potential expats, but it's also a major flight hub. If you have a hankering to see the world—or need to travel for business—there's no better base. I've flown direct to Chicago, Las Vegas, Los Angeles, New York, and Quito. What I'm really itching to do is try direct flights to Boston, Paris, Amsterdam, Madrid, Toronto, Montreal, Buenos Aires, and more. I'll get around to them all...eventually.
       
For every trip I buy excellent travel insurance from a local provider. Insurance plans here—for travel, health, home, auto, and more—are high quality, and can cost 50% less than what you'd pay in the U.S. If you're a resident under the age of 65, health insurance can cost you as little as $80 a month. And I'm talking a good plan, with immediate discounts on already inexpensive consults, procedures, medication, lab work, and more. I use my plan to get 20% off every time I buy medication. I simply make sure to go to a participating pharmacy (they're quite conveniently located).

As for doctors, I've been able to find general practitioners and specialists I really like—for myself and for family members, too. We've seen allergy specialists, dermatologists, ear-nose-and-throat doctors, even neurosurgeons at Panama's top hospitals. With an insurance co-pay, I've shelled out just $10 to $17 for these visits. I'm fluent in Spanish by now, but many of the doctors I've met speak English. That means I've been able to recommend them to not-so-fluent friends.

If you have a pension, you can save even more than I do in Panama. Simply apply for your Panama residence via the famed Pensionado Program. It's easy to qualify if you receive a pension of at least $1,000 a month. Once you're a resident member, you will have instant access to the same discounts Panamanian pensioners enjoy.

Transportation, dining, lodging, entertainment, health care...Panama's retiree discounts cover every area imaginable. Get 20% off medical consults, 25% off your monthly power bill, 25% off restaurant meals, and 50% off movie tickets. If you spend a lot on these things (and most of us do), it's not hard to imagine how these savings could add up.

So what will you occupy your mind with when you no longer have to worry about being able to afford health care and other needs and wants? Do as we do: throw yourself into Panama's rich social and cultural life. You'll find that here it's easy to gravitate toward other, more enjoyable pursuits.

Those of us who live here full-time are involved in every kind of activity imaginable. Charitable organizations, national or religious societies, game and sports clubs...you name it, you can find it here. I divide my time between my Boozy Book Club, my Professional Women's Group, and a new interest: watching futbol (formerly known to me as soccer) with a few die-hard fans.

Sure, if you want to be retired and bored, you can do that here...or anywhere, really. But I'm warning you, Panama is full of temptations. And most of us who live here ended up giving in without a fight.

Buy this biotech when it is in trouble

Acadia (ACDA) used to be a Wall Street darling not long ago but it got decimated lately due to significant in house problems with the share prices dropping from $46 to $34. People got euphoric about its leading drug, Nuplazid (pimavanserin) for the indication for Parkinson’s disease psychosis (PDP), an indication that is currently having no good drug available and is poorly treated by off-label use of antipsychotics that cause a host of unwanted side effects. Obviously this is a significant unmet medical need and will be very profitable (estimated to reach $1B sales in a few years), especially considering there is not much competition in the foreseeable future in the horizon. Most importantly, they have successfully completed a phase 3 study for this indication. So why is the Street suddenly losing the interest on Acadia and running away emass? It appears it is due to the 2 major concerns: they have to delay the submission because of housekeeping issues related to the chemistry, manufacturing and controls (CMC) section of the NDA for Nuplazid and then the sudden resignation of its CEO that was most likely related to the submission issues. This turmoil for Acadia is certainly painful for those who have already got in, especially those who entered when the euphoria reached its climax with a high share price. But for those who have stayed on the sidelines like myself, this is a great tradable opportunity with a very successful odds of winning. One thing we have to learn in the stock market is to find good companies which are facing significant short-term but resolvable problems. We all want to buy good stocks at good prices but no one is stupid to sell you good stocks with discount without specific concerns. But crisis and challenges are always associated with opportunities as long as we are clear what and how we want to play with them. I think the market is offering you a great opportunity at the moment. I don’t know how soon they will overcome their challenges but to me it is just a matter of time and when the initial shock goes away, the renewed interest will come back to bid up its price. There is also the possibility some big companies may even become interested in acquiring Acadia. Of course, this is a high risk speculation, especially in the short term. I don't know if it has already bottomed and it may continue to go down from here. Just be prepared for the volatility and mind your position size. Using dollar averaging may be a good way to initiate your position for it.

Yellen has opened the spigot for bulls

What a few days can change the investors’ mood from extremely depressing to quite euphoric now! As I said last week when the marketed dropped down for a few days and got the market rather depressed, it was clearly very much oversold. I suggested to buy, buy, buy. Of course, I know not many people would have the nerve to do so when there was panic and blood in the streets. You can count on me to take the advantage to aggressively buy. When the market is in this kind of depressing mood and being extremely oversold, you basically can buy almost everything for short-term to expect some quick profits. That’s exactly what I did that I bought not only individual stocks such as ABBV, INTC, MSFT, PM etc, I also bought SSO and XIV for the broad market. Well, it was a great call and move for me. Just in a few days, all of them have gone up significantly. Although such an oversold trading will likely be successful regardless with enough time, I have to thanks the Fed Chairwoman Yellen, as she is clearly a catalyst for triggering the change of the mood so powerfully and imminently. Without her, the current euphoria and rally might need more time to materialize.
So where the market will go from here? Well I think this bull run has more legs in it. Actually even after such a strong bounce back in the past 2-3 days, S&P is still nowhere near the overbought territory. We are also entering one of the most bullish seasons of the year. As a whole, I think the market will continue to go up at least till end of April. How high it can go? S&P will first get over its all time high at 2119 and will then challenge the next resistance around 2130. I will monitor these 2 important levels first before assessing whether S&P can go even higher. Of course, it won’t be a straight up even in a bull run and a lot of fluctuations will occur in between. Since I have so many short trading positions entered last week, I’m trimming a bit to take some chips off the table. I don’t want to be too complacent and greedy by expecting to get every penny. So I have sold some of my XIV positions to partially lock in my profits. For my other trading positions, I will likely close some of them in the next few sessions based on their technical setup when short-term overbought shows up. It is very likely the market will become too euphoric again. This is the time you want to take profits when the market makes you and everyone feel happy. As a rule of thumb for trading, don’t try to catch the exact top before taking profits. No one has a crystal ball and knows that in advance.

Treatments for NASH may finallly come

I’m pretty sure not many people without medical training have heard the term of nonalcoholic steatohepatitis (NASH), In layman’s language, it is a gradual accumulation of fat in the liver not due to drinking of alcohol. NASH will significantly damage the liver function and eventually lead to life threatening liver failure. This is the disease often associated with obesity and diabetes. With the alarming worsening trend of obesity and diabetes prevalence, you can imagine how lucrative this market is. Currently there are no available therapies to treat this devastating disease, however, the treatment landscape is likely to undergo a dramatic transformation over the next five to 10 years as new therapies enter the market.

Right now, the most advanced NASH therapy in development is coming from the Wall Street darling, Intercept's (ICPT). It has already started a phase 3 study for the drug, obeticholic acid. The data up to now has demonstrated promising efficacy, however the drug seems to have some problems regarding its lipid profile and cardiovascular risk. In addition, the drug also cause pruritus, an itching side effect which could reduce patient adherence.

There is another drug in a bit earlier stage of development but also very promising. In Phase II studies to date, GFT505 from Genfit (GNFTF) has consistently demonstrated to be able to reduce markers of liver injury and inflammation and also improve the whole-body insulin sensitivity. More interesting and attractive lies in the fact that, unlike Intercept's obeticholic acid, GFT505 appears to improve the lipid profile by significantly reducing LDL-C and triglycerides. In other words, if proved in phase 3, this drug will not only great specifically for NASH but its therapeutic potential may go beyond to other non-hepatic pathologies and put itself in a strong position in terms of the prevention of cardiovascular events in prediabetic and diabetic patients. 

As with any speculation in the biotech field, uncertainty is extremely high with no any guarantee that you will win. But on the flipside, the profit potential is equally high and great. It is just the matter of the balance between the risk and reward. As long as you don’t go crazy to put yourself into an unduly high risk, betting for either of them is worthwhile. Personally I like GNFTF better.

Put your money in emerging markets now

It is a contrarian call and right now people are running away from other countries’ stocks but only interested in the US stocks. There is a good reason of course that in the current global landscape, it seems only the US is expanding economically and all the others are contracting. But that’s really where the value comes in. You won’t find good values when there is euphoria and everything looks rosy. You will only find good values when there is depression and blood in the streets. Think about early 2009 when it seems the world was falling apart and the end of world was coming. I can bet 99% of people would not even want to talk about stocks at that time, not to mention putting money into it. But that was exactly the best time to buy stocks! We are now approaching this moment for the emerging markets. When you look all the metrics of valuation for stocks, it is simply much cheaper all around in the emerging markets: PE, price-to-book-values, and dividend yields. Of course I cannot tell you now we are seeing the absolute bottom but there no such thing that you can be absolute sure to pick up the real bottom in advance. It will only become clear after it has happened. My gut feeling is that we are very close to the bottom of the abysm if not yet there. If you are taking a long-term approach, I think now is the time to start to pick up shares of the emerging markets with the understanding that it will be volatile. It is always more risky to try to only focus on one or a few specific countries. It would be much easier and safer to invest in the overall emerging market ETF. Just simply one click via EEM can do it!

A potentially 1:12 risk/reward trade

Last week, I briefly mentioned a trade that I made that has a potential to risk $1 to win up to $12. So what is this all about? Well, it is purely a speculation based on the technical setup but I believe the substantially greater reward potential over the limited risk is worth the try. The stock I'm talking about is CBOE, a well known company in Wall Street that provides marketplaces for trading options on various market indexes; futures on the VIX Index and other products; options on the stocks of individual corporations comprising equity options; and options on other exchange-traded products that include ETP options, such as exchange-traded funds and exchange-traded notes.

So here is the chart of CBOE. As you can see, it recently broke out its resistance around $58 (red line) and since then has tried twice to test this line, now its support (the 2 yellow arrows). Usually it will hold and if so, how high will it go? Technically its next height will usually mirror how much it recovered from its recent low, which was about $12 from roughly $46 to $58. In other words, we can expect CBOE may go up to around $70 as its next uptrend. Interestingly, CBOE has very recently just finished this course as shown in the left side of the chart. Can you follow the pattern? Now adding the positive news for CBOE from the job reports on Friday with the expectation of increasing interests soon, CBOE may very well follow the same path and materialize the pattern again. I'm happy that I have made the trade. So how do I calculate the risk/reward ratio? As you know, for any speculative trading, you first have to define what is your exit strategy. For me, if CBOE cannot hold at its support around $58 and drops to $57, I will be out. Since it was right at around $58 when I made the trade, I will risk about $1 for trying to gain about $12, a 1:12 risk/reward ratio. Right now as I'm writing, CBOE has gone up a bit close to $60. So the risk reward ratio is not so excellent but still fairly good at 1:5. I still like the odds!

How to play with the coming increasing interests

 I assume it is no news anymore that interest rates will go up in the near future. The Fed has already had a road map to do so and it is just a matter of time. The earliest possible rate hike may be in Jun this year. Today’s unexpectedly strong job report further convinced the market about this prospect.  Increasing interest rates are generally perceived negative to economy as it will increase the borrowing costs for companies to do business. But there are some businesses love the rate hike as they can make more money. One is the banking industry and the other is the related business: brokerage companies. You see, brokers have a lot of traders who use margins by which they borrow money to trade. When the interest rate goes up, brokers can ask for a higher interest to be paid by the margin takers. This will directly strengthen their bottom line and increase their profitability. So buying the brokerage stocks may fare well in this environment. Just look at what the banking and broker stocks were doing today when there was a huge sell off overall in the market. They were all going up when S&P (bottom red) crashed by 1.4%.

 

There are many banking and brokerage stocks. I find one stock which is quite interesting: Interactive Brokers (IBKR), which is currently trading around $32. I recently opened an account at IB and it has a very sophisticated trading platform. To be honest, I cannot say I like it very much as to me it is way too much complicated and not so user-friendly. However, I must say its fee structure is very competitive and attractive. I heard professional traders often use it. So its business is apparently doing very well. IB has a lot of cash in hands, over $24 B with minimal debt around $4 B. Basically one third of its share price is cash. So there is very little credit risk for bankruptcy. The stock is rather stable with a beta of 0.8, meaning it is 20% less volatile than the market. The stock is not particularly cheap at the moment, but with the interest rate hike coming soon, IBKR should be doing quite well I think. You may use it as a hedge against the negative impact of the increasing interests.

How to make a wining trade as a free trade?

For long-term investment you don't need to care too much about the price movement of the stocks as long as the underlying companies' fundamentals are still sound and they are still paying you increasing dividends. But for short-term trading, the price movements are critically important, especially for those who are trading options. How many times have you seen your winning positions quickly slipper away and even made you lose money? I'm sure many of you, if not all, have such very frustrating and depressing experiences, including myself. Oftentimes we are too greedy, trying to extract each penny from the winners but in the end we become losers! Try to avoid this. Trailing stop is one effective way to help you get out if the trend turns against you. But you can also use another strategy to make a doubled or close to doubled winning position as a free trade. It is very simple but you have to be willing to do so: Sell half of your position to recoup your cost and let the other half to run as high as possible. Below is one example I just did for my option trade for AVGO. I went in a few weeks ago with 5 contracts for April calls for AVGO. It did not disappoint me as it went up with a double last week. Now AVGO was scheduled to report earnings on Thu this week. While it is widely expected that AVGO would be reporting good earnings, there is no guarantee. If it missed, all the gains I got from AVGO would evaporate immediately. Instead of trying to maximize the potential gain from it, I sold 3 contracts to guarantee that I would gain something regardless. On Thu, AVGO did report a fantastic earning report and its stock price shot up 10%. My call options went up as high as over 600%! Since I still have over a month time for the calls and there is a good chance that AVGO may continue to go up with the strong results, I could keep the 2 contracts for longer. But it would be too greedy for me and it is more prudent to take some profits from the table. So I sold another 1 contract and I intend to keep the last 1 contract as long as possible as I have got really great gain already. This is really a sound strategy to manage your winning stocks but believe me it is easy said than done. Try to overcome your greediness and get yourself paid first!