You can be both exotic and making money

I must say I’m a lucky one as in my early years I got some chance to spend significant time in many different countries across continents. It is life enriching experiences I deeply benefited from and has helped me to open up my mind and shape up my views from a wide perspective. One of the areas is the Middle East, the Arabic world. 🌍It was really an exotic area, totally different from what I was used to in terms of culture, religion, convention and anything else. For example, back then about 30 years ago it was the first time I ever heard and witnessed a sacred Islamic season, Ramadan.  During the entire month of Ramadan, Muslims are obligated to fast. every day from dawn to sunset. Fasting requires the abstinence from food, drink or even smoking..... So during the day time, my Islamic friends were basically dozing without eating and drinking anything as they didn’t sleep much during the night in order to get enough food and drinks before dawn. I knew a friend from Iran, who was an easy-going, sturdy but simple-minded man. He smoked a lot and apparently very much addicted to it. But amazingly during the Ramadan, he just stopped smoking during the day. Since we got along very well, I sometimes made escapade to tease him. One day, I shook him awake and said: Hi buddy, wake up and it’s time to take a cigarette! He opened his puffy dozing eyes but then answered firmly: No! I said, “But who would know you take a cigarette as there is no one around and I’d not tell anyone!” He replied “Allah is watching me!” That’s the religious power as I clearly saw he was struggling a lot from the nicotine addiction but he was sticking to his principle!

So why I’m talking about this here? Well, I have got a unique investment idea that is quite exotic but will likely make you some money from it, if you can go out of your limb and be open-minded a bit! I’m talking about buying stocks from the Arabic world, more specifically the Saudi Arabia market! I’m pretty sure everyone has heard SA and many have gone there although I personally haven’t yet been there. It is a very closed traditional Islamic country, the biggest oil exporting country and also the leader of the oil exporting organization, OPEC. So why it is exotic as it seems everyone knows about it. Well I don’t think many of you really know that not a long ago no one except SA citizens could buy and own SA stocks. Actually it was only less 3 years ago (Jun 2015) that SA decided to open its market for foreigners to buy and trade. So buying SA stocks is not something as easy and granted as for others. But merely opening its stock market is not necessarily a good reason to buy their stocks, Actually there are two major catalysts that I believe will drive SA stocks much higher in the future. For one, probably most of you don’t know that SA has a plan called Vision 2030. It aims to transform the country into a global investment hub. To meet its ambitious objectives, the SA government is implementing policies to empower the private sector, introduce fiscal reforms, encourage foreign investment and boost non-oil revenues. After all, solely relying on oil as its major source of revenues is not sustainable anymore. They understand this and wants to fundamentally change its course. This has set up a fundamentally bullish ground that should boost its stock market as a whole. Then more directly to the stock market, half a year ago, MSCI granted Saudi Arabia Emerging Market status as a reward for its efforts to modernize its economy. This will become effective in mid-2019. What does this mean? It means SA stocks will be added into the MSCI Emerging Markets Index and will become the third-largest MSCI country following the Europe, Middle East and Africa (EMEA) region. This could be a tsunami effect for SA stocks, folks! If you still don’t understand what will be coming for SA stocks, here is the takeaway. It basically means that every MSCI index tracking fund on this globe will have to invest in SA stocks (of course limited to those invested by the MSCI index). There is a Middle East investment banking, called EFG Hermes.  According to its estimate, there could be as much as $30 billion to $45 billion flown into such SA stocks within the next two years due to this MSCI EEI effect! Last week, I was talking about the bullish trend for Emerging Markets and this is part of my overall theme on this front. So if there is an easy way to buy SA stocks? You bet! Nowadays, ETFs can do virtually anything you can think about. There is one specific to the SA market, iShares MSCI Saudi Arabia ETF (KSA). You don’t need to take an exotic trip to go SA to buy their stocks. Actually KSA has already significantly outperformed the US stocks in the past year, many times better more precisely as shown in the chart below. KSA is trading all time highs while S&P is still struggling in the water at the moment. But always remember, doing things more exotic is often associated with more unexpected risks. Same here and don't blame me for not warning you upfront!😎
 

My crystal ball

Of course, I don’t have a crystal ball. No one has! But people are always trying to imagine to get something out of a crystal ball and that’s really why the market becomes so exciting everyday with so many traders are betting based on their “manufactured” (a fancy word nowadays!) crystal ball. I must admit I’m one of those constantly betting based on my MCB! So what my ball is telling me right now? It is whispering to me that we are going to see a repeat of what we experienced back in Feb/Mar last year. But before getting into what I mean, first let me share a wisdom from a very successful trader, which I got from a friend today:

“But really, technical analysis is much more of an art than a science… That is, if you try to force it to conform to strict rules and formulas, it’s likely to be wrong almost every time. Try thinking of it the way I do… A chart of a stock (or index) is simply an emotional picture of the stock at a specific moment in time. Stock charts tell me how traders/investors are responding emotionally at any given point in time. Human emotions are remarkably consistent. We tend to respond the same way, over and over again, to the same circumstances. So, if I look at a chart, find a time where the conditions were similar to where they are today, and note how the chart behaved afterwards… it can provide strong clues for what to expect in the future. But technical analysis is emotional. It evolves over time. So, conditions that used to provide a catalyst for a big move may need to get more extreme to cause a similar movement the next time.”

So what I’m going to share with you is exactly what I’m thinking based on the past similar setup and what happened afterwards. Remember, while history does not always repeat, it often rhymes. So don’t take my words for a scientific precision. Rather a general roadmap that I think we are going to witness. With this precaution out, see the one year S&P chart. Do you see how the market behaved in trying to challenge its 50 DMA back in Feb/Mar (green box)? Pretty clear, right? It tried first with a fake breakthrough and fell back, followed by another attempt that formed a bearish double top (DT). That bearish DT triggered a much powerful next leg down to test its previous lows. I think we are going to see something very similar, if not exact. S&P has just made an attempt to challenge its 50 DMA but didn’t hold up. It dropped down to 2610ish and today wanted to try to make another challenge again to breakthrough its recent high of 2670 but failed. If successful in the next few sessions, it has an important overhead downtrend line to break at 2700. But I highly doubt it can make it. If I’m right, it is basically following the same pathway to form a bearish double top while alluring majority traders into the trap. And then an end-of-world type of attack may follow to kill as many dumb traders as possible as a punishment for their FOMO in chasing highs.

But again, you don’t need to take my words seriously and you can just take it as a weekend fun reading. After all, I don’t have a real crystal ball!! For myself, I'm following my fake ball and will only go really long if it can decisively break out above its downtrend line, especially above 2800! I think it is at least many weeks, if not months, away!!  

 

BUY this instead

I sound very bearish at the moment as I have just "talked down" the US market, arguing for a severe correction potentially in the magnitude of 200+ points for S&P. So you may think I must be bearish for everything about stocks, right? Wrong! Actually I think there is a good place to put for your money if you are itching to buy stocks now. See the chart below.


It is the emerging market (EEM) I’m talking about. It may sound risky for emerging market stocks but I think it is in a much better and safer position than the US stocks. First of all, it is much cheaper than the US market for sure. The P/E for Emerging Markets is only 10.5 vs US 14.6. While it was a brutal year for EM last year due to strong US$ and ongoing trade issues etc, all the major risks have already been priced in I think. That’s why it is so cheap after it has plunged nearly 30% last year. But what makes me more interesting is its TA. As you can see, it has clearly broken out through its downward trend line. This is a bullish move technically speaking and more importantly it is supported by its bullish momentum on its daily or weekly chart. We saw a similar setup last time two years ago when EEM plunged nearly 40% and bottomed in Jan 2016. Two years later, it shot up 84%, topped in Jan 2018. I think we may see a similar scale of uptrend for EEM. As I said, it is a lot easier to buy lows when no one is interested in it. Of course, it is still a risky speculation and you better have a clear exist strategy with a stop loss in place. More importantly, it won’t be a straight line up. Do expect some volatility! I personally have been playing with the Brazil market via EWZ for a while. It could be more risky but so far so good!

A 200+ plunge is looming

The market is up and up and the sentiment is quite euphoric. It seems everyone is happy right now and nothing can stop the uptrend at the moment! What a drastic mood change can occur in 2-3 weeks time. Back then in late Dec, it seemed everyone was depressing and no one dared to buy. So each up day at opening was brought down to lows at closing. Nothing could stop the downtrend at that time. Did I say the market mood could change at a blink of eyes and we should not be so scared and depressing back then? If you have forgot, then read here! Now it is just the mirror image and exactly the opposite!! Each weakness at opening will be met with eager buyers to step in and the market is so that floating higher and higher. What to be scared about, you may ask! Probably the majority of people have missed the boat and dared not to buy when the market was at abysmal bottom 2-3 weeks ago and now they must catch up. “OMG, how can I be left behind?” I’m hearing many whispering to themselves. As always, they could be right and I could be wrong but I think they are making a suicidal move at the moment to chase highs now. Remember my suicidal kiss talks back in Feb/Mar time last year? (see here and here). The market now is eerily resembling the makeup back in Feb/Mar time when it made several times of suicidal kiss before finally coming out the woods. We are approaching this point now and the most likely line in the sand is probably the 50 DMA for S&P and as of today, it is sitting around 2630ish. If we indeed see another suicidal kiss, then we can easily see a 200+ points plunge for S&P! “I cannot believe this could happen”, you may despise and you indeed could be right as I have already claimed!!😋 Two weeks ago I also heard similar contempt when I said S&P could bounce back towards 2600, a 200+ points jump. Of course not many people could believe either. We may not at that exact point yet and people may still enjoy a few days of happiness. But reckoning day is approaching fast. One caution to note though. Don’t take the 2630 as the exact point for the direction change. Actually back in Feb/Mar, S&P made twice fake breakouts through its 50 DMA and then back down soon after. So when the market is in the mood to move, it often overshoots a bit before changing its direction. Therefore never never take any TA as a rocket science for precision.😏   

As I said before, I used to be also a FOMO guy, chasing highs or lows, following whatever the crowd was doing. It didn’t work out well as you can imagine as I usually bought highs and sold lows. Now I have been transformed and become a contrarian against the herd. It is not an easy thing to do to be very honest with you. It really has to take some gut and courage to do so to buy when everyone is selling and to sell when everyone is buying. I tend to be early and my timing is not always great, but the ultimate ending is often quite enjoyable by being a contrarian! I’m not asking anyone to follow me of course and it is often an unpleasant experience at that moment but at least I can share my experience here from time to time. So I’m still grateful for you to at least read what I’m writing here. In the past week or so, I have been persistently “talking down” the market to my friends and advised them not to chase. Apparently I’m too early this time as well. So if you are one of those “victims” following my advice to either sell a bit earlier or not buying in the past week, I feel your “pain”! But I have to say this: it is much better to miss a bit than being caught up in a big move at the wrong time. The pain for the latter will be several times more intensive. It is a lot easier to sell when it is moving up and buy when it is moving down as a general rule. One thing with certainty is that no one can consistently pinpoint the exact top or bottom. If someone tells you that he or she can do that, then he/she is either a big liar or schizophrenic! 🙈

Since we are talking about timing, let me just update you about the natural gas status. I posted my blog on NG just a few days ago regarding its coming fast plummet in the past few weeks but I thought NG could be due for a dead cat bounce at least. More specifically regarding the leveraged ETF for NG, BOIL that I thought it would move up to $30 soon (see here). What a timing and I'm too conservative! NG shot up 15% on Monday and BOIL up 25% to $32 immediately on the next trading day after my posting. While the exact timing is a pure luck for sure, one good lesson we can all learn is to NOT CHASE at either extreme end: either short at lows or buying at highs. This is especially important for something as volatile as NG or other commodities. The volatility is so high for NG, I call it the mother of craziness or at least one of them!

My experience about schizophrenia

First just be clear that I’m not schizophrenic at all and you can feel safe to listen to me about my ideas posted in my blogs.😘😎 But I grew up with a schizophrenic, who was the mother of my immediate neighbor classmate. Her schizophrenia was really severe and had never been in remission. So long before I went to medical college, I had been very knowledgeable already about what schizophrenia was and how it looked like. In a nutshell, it is an alternate between two extreme moods, euphoria and depression. And importantly, such actions and feelings are withdrawal from reality and are more associated with fantasy and delusion. Almost everyday, I could see her laughing all the way to wherever she was wandering to. Then without any reason after a while, she could quickly become depressed and crying all the way back. Of course the sequence could be different but you get the point. So why I’m suddenly talking about schizophrenia here?
 

Well, since I’m not interested to practice medicine, I thought I would not be seeing schizophrenia anymore, at least on a daily basis. But I was totally wrong. Actually I have thrown myself into a world in which I’m seeing it again almost every day! If you still haven’t figured out what I mean and you still haven’t noticed yet, don’t you think the market is just like a schizophrenic? Its mood is constantly changing from one extreme to the other, often far from reality to support it. The mood swing could be huge and frequency of such swings could be relatively long in days or weeks but lately it has become extremely short. The market can be very happy and euphoric for a few days, and out of blue, it will suddenly become extremely depressing. This could even alternate within a day and we have seen such kind of intraday extreme mood changes quite often in the past few weeks, right? Below is the graph that can let you see vividly how the market mood can change from one extreme to the other. This is called Nasdaq McClellan Oscillator (NAMO). Without getting into any technical details, the indicator ranges from -100 to 100, with +60 or above to indicate an overbought condition and below -60 as oversold condition for Nasdaq. Most of the time, it alternates between -60 to +60 obviously. But from time to time it can go to extreme to either side, signaling an extreme mood status for the market. As you can imagine, since it is capped at ±100, anything beyond ±90 should not be seen often. Two to three weeks ago, the market decided to be depressing that brought down everything to the levels not seen in a decade. When S&P came down to 2480ish, I thought it was a good time to get in due the extreme depressing mood of the schizophrenia I was seeing. Apparently I was wrong and too early to think it would change the mood soon. It went down all the way to about 2350 just within days with NAMO dipping to -90, which scared most of people to death as far as I could see. That’s when I wrote “The world will not end” and we would likely see a “rip your face off rally”. Almost immediately we started to see the change of the schizophrenic mood, from extremely depressing shifting to increasingly euphoric without anything materially changed!  And now just a couple of weeks later, we are seeing S&P shot up to almost 2600 (my baseline target for the bounce) and it seems everyone is happy with NAMO to the highest level we rarely see (94.64 yesterday to be exact). This is the time I would ask my friends to cash out any meaningful gains from short-term trading as this is the time to be wise with extra caution. I personally even started to place some short positions to anticipate a mini crash at least lasting for a few days.

Don’t get me wrong, I’m not saying the strong rally I was expecting two weeks has run its course. Likely not yet,  as typically a strong “dead cat” bounce will challenge its major resistance, which should be around 2615 for S&P and if a bit overstretched, it can even run up to 2700 before exhaustion. But given how fast the schizophrenia type of mood change has been in the past two weeks or so, some sort of mood swing should be expected. In this environment, dancing with schizophrenia must be extremely cautious as it can coax you into a trap in one extreme and then suddenly changes to the next extreme at a blink of eyes. My life-long experience with schizophrenia has taught me enough lesson on this and I’m doing all my best to try to counteract against the hoax by the schizophrenia. I hope you will do so also!!   

I hope no one has been badly burned by this BOIL

There is an ETF for the gas sector called “BOIL” (how  metaphorically it is!) Its price action in the past month was also parabolic in line with the gas prices. It has already been cooling down a bit but I think it will tank if what I outlined above materializes. That’s why anyone who was chasing BOIL to the moon will likely be boiled to death or at least badly burned in the near future, if not immediately! Hope you are not one of those!!


This was the warning I sent out just about one month ago about the parabolic move of natural gas.  At that time, it seemed to me a no brainer to expect a crash of it. Well we got it and the crash has happened much faster than I thought. Here is the updated chart of BOIL which was around $60 when I sent the warning. Now it is low $20s. Ouch! So we are talking about 2-3 times decline within a month time. Rarely you will see this kind of fast downward move unless a burst of a gigantic bubble! I sincerely hope no one got burned by BOIL or anything from the NG bubble. The million dollar question is whether the worst is already over with NG? I'm not so sure yet but for those who is betting on the downside of NG (BOIL or anything else), it may be a good idea to take the profit for now. Even if NG has not reached to its ultimate bottom, it may start with a violent dead cat bounce at any time now. This is especially true if we get a severe cold weather warning which may come easily now. For BOIL, I won't be surprised to see it bounce back towards $30ish within a very short period of time. That will be a 25% jump from the current level. For aggressive trader, betting for this bounce may also be an idea. Of course, nothing is guaranteed but I think this is a likely next move for NG.

A Buffett’s day

Per the latest disclosure, Berkshire Hathaway bought millions of Apple shares worth $10 Billion following the Apple stock nosedive by 9% on Jan 3, CNBC reported today (Jan 5). Where have I seen the news, you may ask as no one probably has seen it? Well, don’t try to look for it as it is indeed fake news fabricated by me!  😛😎

Of course, there's no sugarcoating it. AAPL shares were down about 10% following a rare earnings warning from CEO Tim Cook. How rare? The last one was issued by Steve Jobs – in 2002. The Apple stock price is now down about 40% from its all-time high of $233.47 reached on Oct. 3. The steep decline has Apple investors worried for sure. The culprit? The weak sales in China due to worsening economy there and the continuing unresolving trade tension between US and China is a major factor. We have heard similar warning from FedEx just a few weeks ago when it also reported disappointed earnings that haircut its share price by 12% in one day again due to softening economy prospects. FedEx is operating in over 200 countries and reported "significant weakness in business conditions," particularly in Europe, and reduced guidance for the second half of fiscal 2019. And we start to hear more and more such kind of warnings from other companies. The trade conflict with China and hawkish Fed tone for further hiking rates are the two major headwinds that have made the market knee-jerking. But as I have said, the exact these two headwinds may very well be turned around to be the tailwinds for the market down the road. You can read my reasoning here but in a nutshell, the actual negative impact seen by more and more businesses due to the trade tension will put more pressure for both sides to make a concrete deal sooner rather than later. The universal softening economy in the world will make it less and less likely for the Fed to increase the rates. The huge rally yesterday was the first taste you can take to see how the market will respond to the more dovish Fed, if it continues to behavior as such, which I do believe it will!

Now back to Apple. It is certainly very painful to see a holding stock crashed by 40% in such a short period of time but for value investors for long term, you really should not feel that way. There are no fundamental issues with Apple and it is still doing great as a cash cow.  Per Cook, Apple will be reporting a new all-time record for earnings per share with great gross margins at about 40%. Despite the issues in China, record revenues are expected in many other countries, including the United States, Germany, Korea, Mexico, and Malaysia. Non-iPhone revenue grew almost 19% year over year, as Cook said, with wearables (the Apple Watch and AirPods) growing by an impressive 50%. And more importantly, Apple is transitioning from a hardware business to a services business, which means setback in quarterly iPhone sales will matter less and less in years to come, as services becomes the more meaningful source of revenue. You can see more data here in my recent blog.
So for value investors, the sky is not in fact falling for Apple…People are worried that Cook is not as visionary as Jobs in terms of innovation and that why it may not be a high flying growth stock as it is used to be. This is a legitimate concern as I also think Cook is the best COO, not the best CEO in terms of innovations. The current snafu actually reminds me of Ballmer time for Microsoft. No innovation whatsoever and MSFT was kept in $20-30s for a decade, a dead money period for many. But during his tenure, MSFT has increased its revenues tremendously with consistently improving margins. And it had increased its dividends in an annual rate 15-20%. So it was a dreamland period for value investors, especially those with dividend reinvestment. Then BOOM, it was suddenly exploding after a new visionary CEO came on board. So my earlier days of MSFT shares bought at $30s (either via active buying or via DRIP) are paying me about 10% dividends nowadays. That's why I keep saying, don't sweat for lower stock prices for good dividend stocks. You should feel happy as lower stock prices will allow you to buy more shares (and automatically if via DRIP). The increased number of shares (not stock prices) will likely make you much richer over a long period of time (see here why)!


Make no mistake thinking that I meant Apple has already reached its absolute bottom in this round of correction. It could be but not necessarily so. Technically it has been damaged badly and will require time to recover. During the course, it may still be very volatile and may even go down to find its next support around $130ish. For for long term value investors, it is not the price they are buying but the valuation. Apple may not be at the exact lowest price they may pay now but certainly they are buying a good value at the moment.This is how I'm looking at Apple right now from a long term investment perspective! And also I believe we will soon see the report that Buffett is doing just as I fabricated: buying more Apple shares when it tanked! 
 

Powell is scared again

This is the blog title I posted a month ago: Powell is scared. At that time, I was talking about the signal the junk bond market was sending to the Fed chair. And today, he is scared again. Why so? Here is what I just wrote days ago: But I think the FED may likely yield to the market pressure and may not raise rates at all in 2019. You see, the market has already given Fed “some color to see see” in the past couple of weeks. Believe or not, the Fed is very sensitive to the market. If the market becomes angry, the Fed will likely give in. This is basically what Powell telegraphed to the market today at a conference that he is listening to the market closely and will behavior properly per what the market is telling him,  plain and clear! As I said, the market has basically priced in no rate hike in 2019 and it is even thinking there is a higher chance to cut rates than raising rates. The market is apparently very happy to see how Powell is giving in to the pressure and therefore made the stocks moonshot today.


As I said lately, the market wants to rebound from an extremely oversold condition and it is likely on its way to at least 2600. I'm not saying we are out of the woods already. Not at all and we will continue to see gigantic gyrations in a wide range between low 2300 to 2600. In the short term, agile trading is probably the only game that can work. "Buy and hold" won't be profitable in most cases.