Bearish now?

Surprised for the big two days selloff? If you took my words seriously, you should not. As I said yesterday before opening, the market was looking for an excuse to sell and it seems it has finally got the excuse whatever it may be.  Actually 2% selloff really is nothing for the market that has been up double digits within a few weeks but it may feels quite painful when people are so used to only up days without any meaningful down days, especially for those who are chasing highs in the euphoric mood. Friends are asking me if I'm bearish for stocks now. No, I'm not and actually I think this bull market has a good leg up in the months ahead. But that's a long term view. In the very near term, I do think the market has gone too much ahead of itself and is doing the best it can to fool the herd into believing that it will never go down big time. Whenever I see some folks telling people to just buy and buy almost anything, I know some painful selling is coming. That's why I sent out my warning early Monday morning. So now what?


Although we may see more painful days ahead in the next few weeks, the market hardly goes down straight line and you can bet the bulls will try every down day to step in, especially at the technical support level. After a 50 points decline in 2 days, S&P is right at about its 9 DMA, a short-term support. I think this is a very tempting support for bulls to come in for a "dead cat bounce".  The odds is much stronger for a solid rally in the next few days and S&P may likely go all the way up towards its recent high around 2870. If that happens, it will create a technical bearish double top with negative momentum. At that point, we may start to see an even more painful short-term crash to get the bulls some panic. With this consideration in mind, I have taken off my days-old shorting profits and actually more aggressively I opened some long positions betting that we will see some decent market rally at least for a few days. Let's see how this will play out.

Certainty of uncertainties

Can you understand what I mean? Sounds very confusing, isn’t! Actually this is very simple fact especially important for investing: no one knows for sure what will happen for any given stock, regardless how much research one has done. It is a certainty that there are always uncertainties out there in dealing with stocks.  Got it?! I guess no one will probably argue with me on this statement but in reality, not necessarily many people will count this much in their investing and trading. People tend to believe what they are convinced about and don’t want to easily change their mind even if the uncertain/unknown fact may have proven that their belief may not be so right. I’m talking about the exist strategy for trading.  As a general rule that I’m trying to follow (not really easy to strictly stick to it honestly), for each position I entered, I should have a clear mind predefined when I want to exist from it, since I know I may be wrong about the stock even if I have done great research and totally convinced about it. For stocks that I have bought for trading, I use a stop loss (e.g. 5% below the top or below my entry) to determine when I need to get out as the worst case scenario.  For options, I usually use spread to hedge my positions which will predetermine my potential loss already.

 

You may ask why I suddenly want to talk about the uncertainty in the stock market.  Well, I think there is a very relevant  real life example about the GE stock I recently talked about.  As you know back to end of Dec last year, I had a bullish call for GE, thinkingthat its bottom was likely reached around $17 and was poised for a big move up. I had done my home work with quite a conviction that I was right. As such, I opened three types of trade on GE. Since then, GE has gone through a roller coaster journey in the past few weeks with some quite surprising negative news that has proven how uncertainty we could run into. I thought it may be a good idea to share how I’m handling my trades with GE.

• I bought short-term calls for GE, aiming for a quick win if GE moved up soon as expected. Lucky me as GE indeed did exactly as expected in the following 2 weeks.  My calls jumped very fast and I ended up with an almost 200% gain within a couple of weeks.  So my short term call was correct without any surprise.
• Per my research, I thought GE has reached its ultimate bottom and could be starting a long term uptrend and I like its dividend as a value investment. So I also opened a stock position with an intention for holding it long term with dividend reinvestment.  This one has caught up with really unexpected bad news! GE surprisingly announced a week ago about a massive loss in its legacy insurance business that was a shock to the market and its stock of course got sold off en mass immediately.  Then their CEO talked about a potential breakup, for which it was too early to judge whether it could be beneficial to the shareholders.  For long term value investment, the last thing I’d like to see is the apparent uncertainty and I decided to get out for now. Thanks to its initial run-up, I got out with a tiny gain from this stock position.
• Then I have another intermediate term play for GE with put selling (using a spread to minimize the downside risk). This is low risk trade as all I’m betting is that GE won’t decline below $17 by Mar 16. Since my potential loss was predefined, I decided to hold this on after its initial surprise with the insurance loss. Actually I was thinking GE could be reacting well to its earnings a few days later due to how pessimistic the market was for it. I was half right as GE indeed responded quite well with a 6% jump immediately following its earning and then another bombshell was dropped: GE announced that it is facing a SEC investigation into its accounting practices and may need to re-report its 2016/17 earnings.

It is just like an unbelievable drama unfolded with my GE trades! Are there other uncertainties with GE? I really don’t know but I hope that’s it. With so much bad news for GE, I must say its technicals are not really too bad. I think there is a good chance this plunge is indeed its last shore drop and it may find its final bottom around the $15-16 level.  Even though my put selling position is showing some loss at the moment, I’m still holding it as I know how much downside risk it has, especially my profitable call trade can very well cover my potential loss if it turns out to be so. But again, for anyone else still holding GE, it is important to make up your own mind how to handle the risk. Holding it for long term may turn out to be a good call but there is certainly no guarantee, especially with potential uncertainties still possible for this 100+ year old American icon!

Popularity is never a good thing

I have started to turned bearish for US$ since early 2017 (you can see here and here). But a dollar downtrend is not a straight line and it will try to do a dead cat bounce from time to time. We got such a rebound last September as I suggested. Turned out to be a spot on call. After a month or so, US$ started its next leg down again and here we are, it has reached its 3 years’ low below $90 of the dollar index. Is it done for the dollar’s downtrend? I don’t think so but here is the thing, it is never a good idea to go with popularity in trading. After a waterfall type of down drafting in the past 2 months, it has become a very popular idea to short US$. This has been especially intensified by Treasury Secretary Steven Mnuchin’s comment that a weak US$ could be good for the US. Even though rarely any governments would openly talk down their own currency, in reality, almost everyone government is doing what they can to debase their currency as a weak currency is definitely good for their exports. Regardless you believe Mnuchin or not, the long term trend for US$ will continue to be down. But at the moment, the public sentiment is too bearish and shorting US$ has become a very popular trade. In the trading world, popularity is hardly a great thing and it often leads to a turning point short- or long-term. I think we are at this turning point now for US$ although it will be another short-term dead cat bounce!

 Here is what I'm thinking: US$ index will likely move up towards its resistance around $91 in the following weeks ahead! If you are shorting US$, better take your profit off the table now before everyone else wants to exit!!

Can this be another buyout target?

Over 4 months ago, Intercept Pharma (ICPT) got decimated by half from its peak of over $120 to about $60 due to safety concerns with its leading drug, Ocaliva. At that time, while it was quite tempting to jump in, I thought it was too early to do so. Here was what I said then: In short, it is still too early to tell whether ICPT has already priced in all the potential risks. It is not a good idea to catch the falling knife even though it could turn out to be a good entry point. Better to let the dust settle before jumping in. My primary concern was about the scope of the safety concern as there was a chance that the FDA could mandate a very strict REMS in place to limit the use of Ocaliva, if the fatality concern was considered severe enough. Well, ICPT didn’t bottom at $60 but continued to draft lower towards low $50s in the following months. However, I think the worst for ICPT is probably over. Let me explain.


 For one, the safety crisis appears to have been addressed successfully with the FDA and no restrictive REMS is needed. That’s a big relief for the company. Its technical pattern in both the daily and weekly charting is also suggesting a bottom is in for ICPT. That’s why I told my friends that low $50s was attractive last week. Luckily almost immediately after I went in, ICPT started to move up and now over $60 as I’m writing. But the biggest question for ICPT is if its phase 3 studies (one ongoing and the other to be initiated this quarter) on nonalcoholic steatohepatitis (NASH) can confirm its dazzling phase 2 results. While there is no guarantee how the phase 3 studies will turn out, we can make a calculated guess based on the phase 2 study. Actually the result was quite promising. In that trial, the NAFLD Activity Score improved by at least two points with no worsening in fibrosis for 46% of Ocaliva patients compared to only 21% treated with the placebo. Similarly, 35% of Ocaliva patients demonstrated an improvement in fibrosis, along with 22% that had NASH resolution. Comparatively, 19% of the placebo group demonstrated fibrosis improvement, and just 13% had NASH resolution. The safety profile for Ocaliva was also very comparable to the placebo arm. If the phase 3 result can replicate the phase 2 result, ICPT will be on fire and a double or even triple is not out of question. Since NASH is a huge market with no approved drug yet, I will even think ICPT may very well be the next acquisition target if some big boy with deep pocket can take the risk and wants to secure their NASH leading position. The opportunity is much better at the moment when ICPT is very depressed but the cost will be much higher if and after ICPT indeed gets great result from the phase 3 studies. Who knows maybe a deal is brewing now for ICPT. I’m long ICPT at this level for sure! Of course, trading for biotech is always very risky as there is no guarantee. So don't bet the farm!

What the smart money is telling us now

I have been bearish for the past 2 years for crude oil but we may have finally seen the true bottoming for oil this time. There are a few macro catalysts that serve good tailwind for oil moving forward:

• After a few years of brutal correction for oil, many oil companies could not survive or have to reduce oil production due to lower prices. That has helped cut down the overall supplies of crude oil.
• OPAC has finally given in to cut their share of oil production more seriously.
• More importantly, after years of aggressive QE all over the world to stimulate the economy, at least in the near future the worldwide economy appears to be recovering. The Trump’s tax cut law is very pro-business that could trigger a faster economic growth in the US. This is obviously very positive for the oil demand.

For me,  when the fact changes, I change my mind accordingly. I think oil is entering an uptrend that may last. For how long, I don’t know as it all depends on the underlying supply demand equation but I believe at least for a year or two.  The market is apparently thinking so as well as oil has been broken out the strong 3 year resistance level around $58 and maintained above it for a few weeks now. The question is whether it is safe to jump in now to ride the trend?  Well the smart money is telling us: not too fast!

 

As I have talked a few times before about the smart vs dump money via the COT report, those traders from the commercial end are the ones really knowing the fundamentals and they are the smart money that often provide a good signal when a trend may be changing in the near term. Conversely the dump money refers to those speculative traders who are typically chasing the prices and often a good contrarian indicator when their sentiment reaches the extremes. Right now, the smart money is extremely bearish with a record high of shot bets for oil while the dump money is extremely bullish for oil with historical high of long bets. When these two go to the extreme pole in the opposite direction, you better go with the smart money. I think there is a good chance the oil will come down first before its next leg up. Technically, the most likelihood first stop will be the support level around $58 and if the correction is more severe, it could go down as far as to its 200 DMA around $52. If you are thinking to jump into the energy sector now, think twice and better wait!

A laughable crypto that is doomed to go down to the toilet

 You may recall that I told you that bitcoin has become a life saving vehicle in Venezuela when its economy has collapsed and its fiat money is evenworse than the toilet paper. Now their President Nicolas Maduro has got a wild idea to cope with the disaster of its economy under his watch by  announcing  two weeks ago the launch of their blockchain cryptocurrency called “petro” which is backed by oil reserves. I must applaud for Maduro for his “vision” and nerve to get into the crypto world when most of the other governments are scared to death and don’t know what to do for the fast invasion of this burgeoning new technology into our life.  But I must say this Venezuelan government “Petro” crypto is doomed to go into the toilet very soon.  On a small scale, who dare to trust this socialist president and government that has turned the once among richest countries in Latin America into one of the poorest by “robbing from the rich to give to the poor”? There is no such thing as free lunch by simply redistributing wealth without personal responsibility and efforts and expecting the whole society will survive long with prosperity. Petro will just be another toy for Maduro to play with, hoping to continue and prolong his extreme idealism.  It will fail miserably as well with certainty before long!!

On a big scale, what’s the fundamental difference between a cryptocurrency represented by bitcoin vs the fiat money? It is not physical paper money vs digital money or even the technology behind the currency. The fundamental difference is the trust on the centralized fiat currency that can be manipulated by government and can be created out of thin air and debased without controlled vs decentralized currency that cannot be manipulated and created willingly just by someone. Just think about how much purchasing power your money (any fiat money you may hold) can maintain over time. US dollar, the world reserved currency has lost 99% of its purchasing power in the past century but no other currency is better off in reality. It has become a worldwide epidemic that every government in the world is freely printing their own money without any control. It is just a matter of time that the fiat money experiment will bring unprecedented financial disaster eventually if we simply let it continue as it is. The blockchain (BC) based bitcoin or something in the same nature is the first hope we are seeing now that may save the world in this sense! But don’t get it wrong that anything based on BC is created equally. Actually we have started to hear a few governments like Singapore, Canada and Sweden that are thinking to create their government-backed BC-based cryptocurrency. The question is what’s the difference between the current fiat paper money vs such crypto in terms of centralization and expansion control? Not a bit! The government can create and expand their fiat crypto reserve at their wish at any time without any control, just like what they are doing for the fiat paper money. The purchasing power of such fiat crypto will go down to the toilet in the same fashion for sure. So don’t get excited and believe that the government issued fiat crypto will be safer and more valuable. They will be inflated to nothing eventually as well! It is just a matter of time!!

JUNO could be the next MA target?

This was topic that I was thinking about a week ago when I saw a report that GSK had openly announced that they were looking into making a deal in the oncology cell therapy area. I thought Juno should be one of the best candidates for GSK. But I was apparently too late to make the call as I didn't write the blog right away, thinking this was not imminent. Well, it was reported yesterday that Celgene is negotiating with Juno to buy it now. While such rumors often prove to be true, it is still too early to be sure. Even the true negotiation may also fall apart due to various reasons. So be prepared to jump in if the Celgene/Juno deal does not go through and Juno plummets due to the failed MA discussion. If that happens, GSK or some other big boys may be the next bidder to come in. Sooner or later, Juno will likely be bought out.  See here why I'm very positive for Juno.

Believe the Chinese government this time

As a general rule, don’t simply trust what a government is telling you for granted but always with a grain of salt. It is especially true for the Chinese government for many people given the dis-transparency of the government for what they are doing. But this time you better believe the Chinese government for what they are saying. I’m talking about their reported intention of reducing their holding of the US Treasury. If you still don’t know what it means, it is a big deal for the US government bonds and also the US dollar, which in term will have a huge impact on the US economy down the road.  You see, China is the biggest US Treasury holding country in the world, having $1.2 trillion of the US government debt that is almost 20% of the total debt held by foreign countries. What’s the main concern for a county holding such a big amount of debt? Its value, right?! The bond market as a whole has enjoyed a 3 decades of uninterrupted gigantic bull run and the past few years of worldwide QE lead by the US Fed has significantly prolonged this bull life. But finally this has come to its end. The US Fed has stopped the QE and has already started to raise the interest rates, which is triggering the start of a bond bearish trend that is likely continue for decades as well. Yes, buying bonds with increasing interest rates sounds great to get more income, but the fixed gain cannot be compensated with the fast uncapped loss of the principal bond values. That’s why shrewd investors will be much less willing to buy bonds. You can bet the Chinese government is thinking something similar in order not to be hurt too much when the Treasuries lose values over time. "If China stops buying Treasuries, the market could suffer," strategists at Jefferies said.

I have warned about the possible turning point for the bond market several times in the past and I have also said the 10 year Treasury rate of 2.65% is likely the threshold to trigger a long lasting bear run for bonds. Now we are seeing the 10 year rate of 2.6% already and it is almost a certainty that we will see 3% this year.  There are a few implications that will directly impact us without your active participating in the bond market:

• The mortgage rates, which are closely tied to the long term Treasury rates, will increase moving forward. Initially it may not be much as the long term rates are still extremely low historically but it will move up faster down the road. If you don’t lock your mortgage rates or only lock for a short period of time, you may want to think twice.
• Some friends asked me if they should buy bonds now. As a general rule, you don’t want to buy bonds, especially long term bonds just for higher interest income as you will be hurt more when the underlying bond values decline. Of course, as part of asset allocation for your whole portfolio, bonds should always be part of it and for that reason, buying some bonds is reasonable. Personally I don’t want too much of it.
• For very shrewd professional bond investors, they could be doing well with increasing interest rates (decreasing bond values). Insurance companies are typically doing well in this kind of environment as they have the money power with sophisticated techniques to enjoy higher interest rates but without being hurt much with the bond value decline. Just give you one example, investing in short term bonds, especially those corporate bonds that are on sales but with good fundamentals can often be very lucrative. This often leads to equity type of return with a lot more safety than stocks. That’s why I told my friends that buying the special type of Whole Life (WL)  is a great idea in this environment because  the cost for this type of WL is substantially (over 50%) lower than the traditional whole life but it may pay a lot higher dividends when the interest rates start to move up. When the long term interest rates were in double digits last time (in the 90s), the WL policy I’m holding now was paying a dividend as high as 10% on top of the guaranteed 4% interest rate to the policy holders. I expect we are going to see something similar in the years ahead. So what I’m getting is a minimal 4% interest income that cannot be reduced regardless what happens in the market and additional 1% floating dividend that has been paid by the company for over 150 years that has a potential to go up toward 10% if the long term interest rates shoot up. Over 70% of the fast accumulated cash value in my WL policy can be used for any purpose at any time during my life with a de facto zero loan rate (i.e. net cost free). This has especially satisfied me and family for the potential need for the long term care that is almost inevitable and will be very expensive during our senior life time. If we are lucky enough that we won’t need much for the long term care, then the big trunk of money (millions of dollars) accumulated in my policy will be safely passed to our kids tax-free. And the beauty of this type of life insurance is that it won’t be impacted whatsoever by how the stock market is doing. It’s supper safe and legally bonded under the strict government regulations. You may see more details about this type of Whole Life I talked about before.

Apart from the above, if you are interested in shorting the bond market, one easy way to do so is to buy the inverse ETF such as TBF or more risky TBT.

Is Target a target?

I have talked about Target (TGT) quite a few times as I like Target as a value stock. So whenever there was a big selloff for TGT, I was a buyer and so far I have been always a happier buyer since TGT has not let me down.  As you can see here, even the panic selloffof TGT due to graved concerns on its future due to Amazon’s competition has not deterred me from buying it. And again, TGT has come back big time from below $50 to now over $70. As I said, don’t just believe Amazon will kill all the retailers. Good retailers will find their way to survive. TGT is among them! Now I start to see rumors that Target may be a MA target and Amazon is most likely the one which wants to buy TGT. I also believe there is a reasonable possibility that TGT may be acquired some day but I doubt Amazon will be the one to do so. It could be more likely the hunter if Amazon had not already bought Whole Food. If Target is truly a target for MA, I think the buyer may be more likely someone that could surprise most of the people out there.

 

I think Ali Baba (BABA) is the one that may be more eager to buy TGT now. Why so? There are a few reasons:

• No double Baba is one of the most successful companies in China and is already among the top 6 companies in the world. But its great success so far is largely confined in the Chinese market where Amazon is almost nothing in terms of competition. Outside of China, it is totally a different story. Maybe just in India and Russia where Baba is doing better than Amazon, but in the world largest market, the US, Baba is nothing till now.  Like or not, I think Jack Ma is one of the greatest businessmen in terms of strategic visions. I have no doubt to believe that going out of China and successfully competing with Amazon is one of the top priorities for Ma, especially how to establish itself here in the US.  Baba certainly has its financial muscle to try from scratch but it is not only extremely costly but it will take a long time before it can meaningfully compete with Amazon. That’s why I think Baba may more likely take a shortcut by acquiring some well established retailer to jump start. I think  Target is a reasonable target for Baba due to its size, customers (relatively more affluent than Walmart’s customers) and widespread locations across the US. Honestly I was wondering why Amazon did not take out TGT but Whole Food in the first place. Target has already trying very hard for its online business that can be easily integrated into Baba’s very successful business model and at the same time, it can more effectively compete with Amazon for the future e-retailing that must be very cost efficient in terms of fast delivery. TGT’s locations everywhere in the US may become a great advantage for Baba by using drone delivery.
• You may not know that actually Target has already partnered with Alibaba's Tmall to sell in China. On top of that, BABA recently hired Former Target HR Chief to be their head of Global Expansion. So the connection between the two is not something trivial. Years ago, Jack Ma has started to talk about “new retail” and in his vision he defines it as “the integration of online, offline, logistics and data across a single value chain.”  Over the past decade, Baba has successfully established its own ecosystem and by leveraging it, they could provide companies with cheaper ecommerce and inventory management services. On top of that, Alibaba can provide even more cost savings via its financial, inventory, marketing, and data services. I think Target can be a great asset for Baba to use to realize its dream of this “new retail” in the US.  

I like Target as a value stock with high dividend growth regardless if it can be acquired or not. But if my wild speculation becomes true, it will be a great extra boost for my TGT position! Be aware though TGT has gone up quite a lot lately and it may be due for a pullback. If you want to buy, buy gradually or better buy when it is pulled back.

Another hated stock, another win

What a few weeks can make for changing traders sentiment! Just 3 weeks ago, Teva was not a stock that many people would even look at. It was extremely hated then but I wasarguing that it could be a good turnaround stock for the year. Well, lucky me for the good timing and similarly to my GE contrarian call, TEVA has started a great short-term up-run for over 15% gain in 3 weeks. It is nothing shabby for such a gain within weeks by simply buying the stock but for me with options, it has tripled already for my money. At a price over $21 now, I think TEVA still has much more room to go up and I won’t be surprised to see it challenge $30 in 2018. After all it is extremely cheap by all means for a company that is still quite profitable. Having said that, Teva is bumping up against its resistance and is very overbought short term with clear negative divergence in many technical indicators. A pause or even retreat from this level is quite possible near term. For this reason, I’m taking off my nice option gains for now and I will be happy to get in again if it indeed comes down again in the weeks ahead. If you are holding stock for long term, there is no need to worry for the possible short term weakness.

If you ask me to choose.....

I'm talking about two Street darlings, Nvidia (NVDA) vs Tesla (TSLA). The question is which one I like. Well, it all depends as the Street cliché goes. Both are dearly loved by a vast amount of people for their own strong reasons but to me there is no comparison between the two if we are talking about the fundamentals. You see, Nvidia is already a very profitable company and is leading in many ways in the hot areas like AI, autonomous robots, drones and cars, and yes, cryptos. For Tesla, it is still yet to make a penny and is mostly living on its CEO's visions, although many very bold visions indeed that attract so many people who would like to believe and put big money in,  regardless even the chance for Tesla to make money seems extremely remote based on the current status.  So you can easily see where my money will be tied to when talking about long term, and yes, I'm long with NVDA.


Then I have a very different view if you ask me for the near term, the next few weeks. It's purely technical. Yes, NVDA is breaking out to its all time high today, a very impressive move indeed. While its daily momentum is supper strong now, its is stretched to the overbought territory.  Its weekly momentum, which is also approaching the overbought range, is not showing obvious positive divergence yet. Maybe the technicals are cautioning us for the possible weakness in the weeks ahead for NVDA. On the other hand, it is a bit more positive for Tesla technically. Its daily momentum is in a clear uptrend and is far from overbought, meaning it has more room for further going up. Its weekly momentum is more positive than NVDA per my eyes and again has more room for the upside. 


With this kind of different technical setup, definitely I'm not interested to chase up NVDA now but rather I'd be betting for a short term strong up move for TSLA. That's is exactly what I'm doing with my money.         

Why cryptos are not for everyone

It’s not a thing under the radar anymore for bitcoin or other cryptos that hardly anyone knew it. Cryptos are one of the mostly talked about topics these days in the media and you would be a being from the Mars if you haven’t heard of bitcoin by now. Naturally the interests in cryptos have skyrocketed in the past year. That’s the nature of human beings that we just feel more comfortable with something when people surrounding us are generally like it or in it. I get the sense that more and more used-to-be strong crypto doomsayers are gradually converted to start to become more interested in cryptos and may even want to get their feet wet now. The question is whether cryptos are really something suitable for everyone if they are interested? A big NOPE for me!!

 

By now you must know that I’m a strong believer in bitcoin and the whole crypto future due to my faith in their underlying technology, blockchain (BC). As I said before, BC will be part of our daily life much sooner than we may realize. So why I’m sounding a bit “negative” about it and I’m quite hesitated to make general recommendations on specific cryptos, especially these days? There are a few strong reasons:

• While bitcoin has been around for a decade, there are over a thousand of other cryptocoins out there that are created fairly recently and actually dozens of new cryptos are created each day. So cryptos as a whole are still in the very early stage of its infancy. We probably can only say that BC is still at its concept stage and it may take much longer time to start to see its real life application and utility. Per experts’ estimate, over 90% of various cryptos are likely just junk and will go to zero overtime. Just think about what happened to a vast majority of the dot.com companies at the early time of the Internet back in 1990s. Inevitable, the majority of cryptos won’t survive long. Unless you are just a short-term gambler, for serious money investment in the cryptos market, you got to first well educate yourself  and know what they are and what you are doing. I was first introduced by my connection about bitcoin and other cryptos about 3 years ago when bitcoin was around $200-$500. I wish I took it seriously by then and learned about this field as quickly as possible but stupid me, I didn’t do my homework but simply thought this was something not real and wouldn’t survive long.  It took me almost two years to educate myself well enough to really understand what BC is about and how it may shape up our future. Without such a strong knowledge and understanding, there is no way for anyone to handle the extreme volatility born with cryptos.
• In the past few months, mostly people have heard about is probably how much bitcoin has gained since its birth, cumulatively over 2 million times in the past 10 years and over 10 times even just last year. That’s why it may really sound easy money to make that seduces more and more people into it.  But most people don’t know or haven’t got a real life experience is its volatility, which can be extremely high. I jokingly tell my friends that compared with cryptos, trading stocks  is just like a kindergarten play in terms of the upside potential but equally its downside risk. I showed a crypto that has shot up 30 times since I got it just 3 months ago but has swung widely, 40% down initially and up and down crazily all along depending on the moods of the traders. Without good faith in it, I wouldn’t be able to stick to it when it dropped by 40% when I first got in.  Even for more matured cryptos like bitcoin and ethereum that I have got in for just about one year time, I have personally experienced them crashed by over 50% a few times. A vast number of people will likely not make much from cryptos due to the common herd nature in them: feeling well and comfortably chasing/buying high when everyone is buying during good times but getting panic and selling low when others are dumping during bad times. We have recently got a taste of this kind of moment  about 3-4 weeks ago when bitcoin tanked from $20000 to nearly $10000 within a day. For well prepared traders, this is actually the best time to buy when there is a huge run that almost everyone is dumping with a widespread feeling like the end of the world. I indeed happily picked up more ETH and LTC to increase my positions. So before jumping into cryptos, it is better to honestly ask yourself if you are ready to handle the volatility. If you think the stock market is already too risky and volatile for you, then it may be the best idea not to touch cryptos, especially the individual ones. You may better just wait for the crypto ETFs that may likely be approved and available this year.
• Last but not least, it is quite challenging to buy/sell cryptos compared with stocks. There is no one or two exchanges that have all the cryptos listed. You may have to open many different accounts for different cryptos. Then except a very few that can be directly bought with dollar, the vast majority must be bought via exchanging with bitcoin or ethereum. More headache is the tax consequence for each transaction. Each buying of a crypto via bitcoin will be a taxable transaction as it will be treated as you’re buying and selling bitcoin each time. Don’t expect the exchange will send you a 1099 form for transaction records. It is all up to yourself to make detailed tracking records for the tax filing. I must say it is very cumbersome and a headache and I’m still struggling with it. This is probably one of the reasons why I tend not to actively trade for cryptos but stick to them when I got them unless something terribly wrong with them.

In a nutshell, although I’m a big believer in the crypto field, I won’t generally recommend to people at this stage, especially when I personally believe there is too much froth built up already and it is very much vulnerable to some serious correction at any moment.  

Beauty is still beautiful

Ulta Beauty (ULTA), a beauty products company, has enjoyed a great up run in the past 10 years as I presented early last year. Here is what I said in Mar 2017: Of course I’m not saying Ulta around $285 is cheap but you rarely get a cheap price for a great stock. Maybe just put Ulta on your radar screen and jump in if someday it gets sold, especially with the overall market selloff. It is definitely a momentum stock that may continue its uptrend for long time! In the following 3 months  ULTA continued to march up to its all time high of $310, then something dramatic happened in the rest of the year.  It got haircut for over 30%, largely due to increasing concerns of the Amazon effect that has almost universally occurred to all the retailers.  While we cannot underestimate Amazon’s disruptive power that can indeed destroy many weak retailers, it is a bit overreaction to the impact on many strong retailers as they won’t simply sit on their hands to do nothing. As we have seen what happened to Walmart, Target, and Costco, they are working very hard as well to effectively enhance their online sales to compete with Amazon.  Same to Ulta Beauty. Per their latest earning report, sales up 19%. same-store sales up 10.3% and more importantly,  e-commerce up 63%. I think Ulta will be doing fine moving forward, even with Amazon’s competition. 

While I was waiting for a better entry point for Ulta since my blog in Mar last year, I certainly did not expect it would have crashed so much in the following months. When it finally dropped below $200 briefly and started to show positive divergence with MACD in Oct/Nov last year, I figured its bottom has been hit and would likely start its new uptrend. I’m happy that I took the opportunity to buy when everyone was selling, a clear contrarian move. It is a bit surprising how fast it has recovered from its low in the past few weeks. It seems it has broken out from its immediate resistance around $230ish, reaching its recent high of $245. Technically it is very likely that ULTA may check back to test this breakout line (now its support). If so, buying ULTA around 230 is not a bad idea for its next leg up. Ultimately it may likely to break out its all time high and go much further up from there.

 

This has  very much reminded me of my Boeing contrarian call a couple of years ago when it got crashed due to overreacted concerns. Since then, Boeing has been more than doubled! I think ULTA has a similar potential moving forward!!

Seemingly no-brainer may not be so so at moment

Fed has come out of QE and has started to raise interests. The tax cut and Trump's other pro-business policies may likely stimulate the economy, which has at least been widely considered in the business world. The revived economy in the US may start to move muted inflation up, which in turn may further trigger Fed to accelerate the rate hike. Which sector should be the most benefited one in this kind of increasing interest environment? It is almost a no-brainer that the banking industry should be the most beneficial sector. I agree and also believe banking should be doing well in 2018. But is it a no-brainer at the moment to buy bank stocks? I'm not so sure. At least the sector's technical is suggesting to be cautious at least in the near term.


Below is the one year chart for the bank sector index BKX. Following the positive news of the tax cut becoming effective in Dec, BKX has moved up nicely in the month. The problem is that its momentum indicators like MACD and RSI do not show the same positive trend. Rather they are moving down, creating a negative divergence. This kind of negative divergence is often a precursor to a change of the trend direction. You can also see two previous times in the past year how BKX did when a clear negative divergence developed. Each time, it experienced a mini crash in the scale of 5% or more decline before resuming its next leg up. Are we going to see a similar "crash" for the bank sector in the near term? I think it is highly likely! If you are thinking to buy bank stocks, better to hold off for now and you may likely get a much better price in a few weeks from now. Remember, individual stocks may be much more volatile than the index itself and we may see a 10% correction for a bank stock easily if the overall index drops by 5%. Be cautious for this no-brainer!!