My way to make 10 baggers

I have read with great interest of a post regarding what’s the worst enemy for general investors: failure to hold long enough of the stocks that have potential to be 10 baggers. Sounds like a good wisdom to know this but in reality, is it really doable for general investors to be able to sit tight for their holdings regardless what happens to the stocks, especially if they are dropping like stone? Sure you may argue, if we know a stock will eventually be a 10 bagger, I will stay with it regardless up or down. That’s really the key point. How do you know with certainty in advance whether Amazon, Apple, or Google would become today’s Amazon, Apple or Google? Retrospectively everyone is a genius but in reality we are all general human beings, not genius most of us. Definitely not me!! Believe me, I have tried and very hard in the past to become a genius who could identify such 10 baggers when they were still young and immature. Eventually I have given up as I’ve finally realized that this is fool’s game for most people like me. Success of a business and its stock is not just its products and/or services but a lot more than that, including, but not limited to, strategy vision, management ability, execution and implementation of the business plan, the market and so on. Rarely an outsider would be able to decisively convince himself/herself that a young and immature company can overcome all the challenges down the road and eventually succeed. I can confidently say 99.9% of the people don’t have such an ability to predict the future of a company precisely. No wonder why most people cannot sit and hold stocks for long in the rough time. If you are not aware, Amazon crashed by 95% during its early days. Apple came to the edge of bankruptcy 7 times before Jobs finally saved it. Nearly all the 10 baggers have gone through near death moment in their life time before becoming truly successful. So if you ask me how to identify and ride a potential 10 bagger stock, my answer is simple: forget about it and don’t waste your time!!

Having said that, while I think it is awfully difficult to identify 10 baggers in terms of stock share appreciation, I do think it is a lot easier relatively speaking to grow the total value of your portfolio towards 10 bagger, or 10 times more than your initial invested amount. How to do it? Simple: just identify the quality dividend high grower with a long term track record, buy them at good a price, hold them with dividend reinvestment (DRIP) and then “forget” about them. Giving it sufficient time (at least 15 years or more), you may suddenly find that your portfolio may have grown to 10 times more or even higher. Don’t believe it? See my mathematically proven case study on this. Sure, it is still a daunting task to identify such stocks but I’d say it is a lot easier than thought. Long term dividend growers are generally those that have well established their business with a track record and their brands or services are likely already household names. Due to the nature and maturity of their business, likely they won’t grow fast anymore but they usually can mint tons of cash and therefore can reward shareholders with increasing dividends. The chance of such value businesses going out of business is probably many times less than that of young and fast growing companies that are still facing tons of unknown challenges. As demonstrated in my case study, the beauty of such a DRIP investment is that you really don’t need to worry about the up or down of the stocks’ prices as long as their business is still performing fine and they still grow their dividends. Actually lower stock prices can even benefit you more and accelerate your process to become a 10 bagger for this kind of stocks. So it is a kind of situation, “Heads I win, tails I still win”. I can hardly  see anything better than this low risk, low maintenance, and low stress long term investment strategy for 10 baggers with near certainty of success.  This is one of my main mandates to share such kind of quality dividend growers with my Deep Woods Family members. I'm sharing a couple of ideas this weekend. Hopefully with a little bit of my efforts, my DW Family can be much better equipped with a solid army of dividend growers to generate increasing income nonstop for the rest of our life!  If you are interested to learn more, send me an email: dwmt19@gmail.com 

By the way, you may notice that I use Microsoft as an example in my case study.  Microsoft is among the first few dividend stocks, for which I was so convinced to be a great long term DRIP stock that I had been pounding the table several times when it was trading below $50 several years ago (see here with links to previous posts on MSFT). For myself, I started to accumulate its shares when it was in $20s almost 10 years ago and bought more till $50. I honestly wish it could stay as low as $20s or $30s forever as “dead money” which would have made me a lot more money down the road with DRIP. “Unfortunately”, it has revived itself and become a new growth stock in the past few years. While my early shares have become 5 baggers and likely will become 10 baggers as well, my DRIP compounding power has been substantially reduced with such kind of fast share price appreciation. Its recent winning over Amazon for a $10 billion Cloud contract from Pentagon (Department of Defense) will substantially further enhance its leading position in the fast growing Cloud technology sector. The only “downside” for me is that it’s a hopeless wish now to expect Microsoft to become a pure value stock again any time soon. So I'm "forced" to hold a value stock with fast growing power. I just wish the total return from this hybrid can be bigger at the end!       

For DW Family Responders Only

Dear All,
I just set up to send bulk email via Benchmark to all those who have sent me email. The sender should be DW Family.


The subject line is "Welcome"




I have tested different ways and it looks like this email will likely be automatically moved to your SPAM folder even if you accept the email in your Contact.


This means, you just need to check your SPAM folder in the future for DW Family emails.


Sorry for the inconvenience but this is likely the complication by using a bulk email service. For now this is the easiest way for me to communicate you. When the service is more firmly established, then I will consider to set up a password-based website. It is always a bit headache at the beginning. So bear with me for the inconvenience.



I will likely send you more email this weekend with more details how to sign up. So check your email tomorrow afternoon or evening.




Thanks again for your interest in the DW Family! I think we will have a lot of fun together.

I’m still shorting it

From the FOMO darling to the dumping target, this is typical for this asset and I have seen it again and again over years. I’m talking about gold (and same for silver)!

If your memory is long enough, you should recall that I said gold would come down soon back in Aug (see here). At that time, the heat for the shining metal was quite hot and as usually we saw a lot of FOMOs who had missed the initial boat when gold was in the dust bin late last year, a good time to buy but they didn’t. After seeing relentlessly moving up for gold, they finally wanted to catch up the boat and started to chase. That’s typically the moment “tragedy” starts. Not only for gold but virtually for anything else, when speculators become so much interested and bullish on something, the good days are often numbered and near its end. We nailed it with the help from the smart insiders, the truly smart money which I said has never been wrong on the big trend. No exception this time. Within just two months or so, gold has dropped from its recent peak around $1566 to now below $1500, about 5% decline. Not a big deal, you may say. Indeed, a 5% decline may not sound much but for money-type of assets like gold, it’s sizable. It is especially true for gold stocks that have already shed about 15% off its recent peak (for GDX) and much more for GDXJ for junior gold stocks. If you are on the wrong side, this is a real pain by my standard, period!

 

Now the million dollar question is whether we have seen the worst of the correction for gold and their stocks? The short answer is, we are close but not yet. Sure, we are seeing quite some resilience in this sector as people just want to step in to catch the falling knife in the fear of missing the bottom. But I’m not in hurry in closing my short positions for it and I think there is a higher chance we may see further weakness in the weeks ahead. Two major reasons: For one, the technical setup for gold has been damaged significantly and needs more work to recover. So far I still see more bearish than bullish TA for it. More importantly, the smart money is still not retreating much from their bearish calls and still holding near record high short positions till now. This tells me they are not seeing immediate good value for gold at the moment. So be prepared to see more weakness for gold/silver and more so for their related stocks.

 

Gold has a unique way of bottoming via a specific pattern. For the fairness to my Family members, I will reserve this “secret” to them. My Family will be the first ones to know if I’m convinced that the bottom has been reached for gold/silver. For long term, I’m a big gold bug and firmly believe the best day for gold will come with a lot higher prices down the road. For now, I’m just playing the swing game for short term gains as much as possible.

Whom should I believe?

First of all, my big thanks for the overwhelming responses with interest to my DW Family idea. I really appreciate your interest and trust in me, which makes me really humbled. Unfortunately I'm running into a big headache right now. I cannot effectively send email to you as of now and that's why you haven't heard much from me in the past two days. It really sucks! Apparently nowadays with the extremely widespread SPAM for emails, it becomes a norm for all the major email systems to cap the volume limit of sending email on a daily basis, even hourly. Sending emails in bulk is especially suspicious and I'm basically blocked each day in trying to send emails with a long list of recipients. I'm even trying a paid service but after paying the fees, it turned out to be the same rules in this regard. So I'm kind of stuck for now and still struggling to figure out a better way to overcome this challenge. So bear with me for now if you don't hear from me directly via email. Believe me I'm actively trying but apparently need some time to solve the problem. I don't want to use WeChat for now for a reason. If some IT savvy friends know some good tips about sending emails in bulk without much SPAM risk, please shoot me an email. I can still receive emails. I wish to get this resolved ASAP as I have a very time-sensitive idea to share with a great potential. I hope the opportunity will still be available when I can effectively communicate via email.


Now back to the market, I don't think I need to be long for what I'm thinking. Yes, S&P has broken out to an all time high today with highly elated sentiment in the market. I'm indeed proven to be too early or you can call I'm wrong so far for being bearish as I wrote last week. No need for sugar-coating. But here is the thing. While the market in general is in some sort of short-term extreme euphoric mood with crazy bullishness, virtually all the major TA indicators have run into extremely overbought conditions at least for now. Just show you one example that I have been watched closely with very accurate track record in the past couple of years: the VIX traders (the smart money for me). Right now, the C/P option ratio for next Wed is about 10, meaning they are expecting in just a few days, VIX will be shooting higher significantly 10 times more likely than lower. In about 4 weeks from now, it is 35 times more likely. We rarely see this kind of extremely odds in favor one than the other and as far as I can recall, they have always been right for the past few years when extremes are hit. So who should I believe this time? You can bet that I'm definitely with the smart money! I'm adding more positions for long VIX via VXX. In addition, early this week I was buying IWM next week puts to short Russell 2000. Since I was early it is quite under the water as of today but I'm adding more for the week after. It is a high risk speculation but I'm betting for a quick double if lucky while being prepared to lose 100% with such kind of short term options. The beauty is that I don't need to spend a lot of money for the speculation with options. Next week's FOMC meeting may be a catalyst for some firework with high volatility. Let's see how it goes.


Just be clear I'm not really totally bearish outright. I'm actually quite bullish for something: the beaten down quality dividend stocks that will typically outperform in bad times. For example, as I told me friends, I was aggressively buying MO in the past few weeks not only as long term for DRIP but also with options for trading. Luckily in the past month or so, MO  has been outperformed S&P in a wide margin, gaining about 10-15% (vs S&P 3-5%?). With the general crazy bullishness today, I cashed out my short term trading position for MO. It may come down as well with the general market in the next week or two after such a short term good run. So the good profit from this trade alone is more than enough to fund my short positions for the market and long for VIX.

The time has come......

Dear all,
This is a special announcement.

As you may know, I have been writing blogs for over 10 years and I really enjoy doing this when seeing quite a lot of interest from the ever increasing audience. In the past year or so, I have been receiving more and more questions asking if I may consider a subscription based service, in which I can share more actionable/tradable ideas. I have thought about this and finally I decide to give it a try. I tested the true demand in my own group and it seems the demand is quite high. That’s why I’m making this announcement here to see if more friends will be interested to join me. Below just name a few about what I’m thinking to do for now:

• As a basis, I will share some ideas for a portfolio using ETFs across different assets. This will be a long term investment strategy, especially good for those who want to keep some money in the market but don’t want to keep an eye on the daily basis of the positions. With appropriate positon size, diversification and stop loss in place, this strategy should be a low risk approach aiming to beat the market performance.
• Another low risk investment idea is something in the bond market, especiallty distressed debt investment. From time to time, we may see some companies in temporary setback but still with strong fundamentals to support its business. But their bonds may be sold off due to the market overreaction that we often see. If we can identify this kind of bonds at huge discount, investing in them may mean very safe 15-20% or more total return. This is especially true during financial crisis and I have seen and also got 50%+ return from bonds during the 08/09 crisis. I think we will start to see more of this kind of bond crisis in the next few years and I’m prepared to take a good advantage for it.
• I’m reading a lot every day and getting a lot of ideas from different sources. So I will also share some ideas for short-term trading purpose. For example, I have talked about the potential opportunity from the UK Brexit saga. Yes, betting for the UK pound is a good deal for me but I also have some idea that is even better and safer that may be benefited from the underlying stock price appreciation as well as the positive effect from the pound recovery. Or if I see some intensive insider buying, that may be a good idea to get along.
• How about early stage or startup company investment (pre-IPO)? There are some ways one may consider to put some money to speculate and I may share what I’m interested personally and how to invest without too much risks involved.
• I will also share some technical analysis for overall trends that I’m seeing. This may give us an edge what may be coming that could be very different from what the market is felt about. Or I can share some TA techniques that may help you to do some own analysis or at least better understand the rationale of some ideas.
• Apart from trading ideas, I may also share many ideas nothing to do with investment but could also be interesting to many. E.g. as a physician, I can share some health-related info for more healthy or better life. Worry about your ID safety or personal information that may be illegally used online? Do you know there is an easy way you can take to substantially increase your confidentiality online?

 

This is just some examples I can share with friends who would like to join me. You may think it will cost a bundle to join. Not at all. I hope you can understand I’m not lacking money and must do something to generate income via this. Honestly I can easily earn probably much more by spending more time in the market. What I’m really interested to do is to create a win-win situation where my top priority is to make sure you can be benefited from what I can share and you are satisfied by joining “my family”! Yes, this is my ultimate goal to create a “FAMILY”, in which we are all partners and can enjoy many things together and hopefully can also make some decent money along the way. I think my retirement life will be much more enjoyable if I have such a family than just doing something for my own. This is the real motivation for me to do this! Have you heard about the concept “Medical Tourism”? Why not we can also have something called “Investment Tourism”, when we can travel together and have investment/trading discussion and idea sharing on our way. Or I may invite some of you to my Panama residence for some days away from your routine life where you can enjoy exotic sightseeing as well as exploring some investment opportunities...... There are simply so many things we may explore together in the years ahead! The cost? I will only charge if you feel benefited. So the upfront cost is really negligible and you only pay if you gain. That’s how I will operate to ensure it is truly a win-win situation for everyone.

 

If this sounds like an interesting idea, please send me an email to DWMT19@gmail.com. Please note, DO NOT send me note via Wechat as this is an email-based subscription due to the extent of information sharing. There is no commitment whatsoever when you send me your initial email. Only if you are really comfortable and want to sign up, then you will be my family members by then. For those who have already expressed their interest, I have started to share some actionable ideas already as my token for appreciation and thanks. Even if you decide not to join at the end after your initial interest, there will be no ill feeling on my part and I totally understand. We just part as friends!

 

Regardless what I’m doing, one thing you can bet on: I will never take any advantage at friends’ expense and will never abuse the trust from my friends! Money is important but there is something that is much more important for me!!

 

Thanks for your attention and your continuous interest in my blogs over all these years. I hope together we can build up a unique Deep Woods Family with a lot of fun for life that can benefit us in many ways, monetary and beyond!! 

The fake meat saga may continue

As you may recall I shorted Beyond Meat about 2 months ago and said I expected it could crash down to $100 (see here). At the time it peaked around $240 and now it was $109. Ouch!! So my target has reached within just 2 months. I was asked if it is a good buy now? Still not a chance for me. 

You see, for many investors in the market, they often got confused about the company vs its stock. They usually think a good company must be a good stock to own. Yes, BYND is indeed a very good company with a great product and the market first mover advantage. This is all great for it but it does not mean you should buy the stock at any price. Since its IPO till about two months ago, FOMOs went crazy to chase it to so high that that to me it was really a no brainer to short it as it just couldn't go up further with an unbelievably expensive valuation. The stock was priced like it's risk-free but we all know there is no such thing as risk-free. Now, even after over 50% haircut, it is still a "risk-free" stock for those who still own it. With the company valued at $7 billion, it carries a price-to-sales ratio of 40, meaning it is currently valued at 40 times its annual sales. OK, you can argue that the company is growing at an incredible 287% year-over-year pace. So it certainly deserves a premium valuation. But you really think it can grow at such a pace to justify the still crazy valuation? In general, a stock will be considered expensive with a P/S 3 or more. With a 40 P/S, it is like there is and will be no any competition for BYND and it can just keep growing exponentially not only alluring all of those who love fake meat but may be even everyone who has to eat every day and will only eat the fake meat from BYND. Even with that illusion, I still cannot get my head around to try to justify its P/S 40 valuation.  

Unfortunately BYND is not a risk-free business at all as the fierce competition is coming, which is going to become a much bigger problem soon. Impossible Burger and countless new entries into the sector are all competing for market share. Tyson Foods, Nestlé and Kellogg - just to name a few - all want a piece of this market. Considering all this, I'm even not sure BYND at $10 will be a good buy. 

Just to be clear, I'm not saying BYND will crash down to $10 any time soon. The market is full of crazy things that cannot be easily explained with rationale. I'm pretty sure there are many BYND lovers who cannot wait to get in. After such a nightmare crash, it is very possible to see some sort of "dead cat bounce" for BYND in the near term. But I think BYND will be a great short target again if indeed another FOMO moment comes with its dead cat bounce! I hope I'm smart enough to spot the moment again when it comes! 

The worst is likely over

What a contradiction when I just advised for a good dose of correction! But it is not, as I'm not talking about the US market at all. It is another slow-motion water torture type of depressive movement that has being haunting the country for over 3 years. You may guess what I'm talking about. Yes, it is the UK Brexit!


Since the UK referendum decided to leave the EU (aka. Brexit) over 3 years ago, the country has entered a never-ending nightmare that has turned it upside down many times economically. Such a move without a historical precedent has largely shaken up the confidence of the business cycle. Nearly all the major multinational companies or institutions that have a headquarters in the UK have it moved out. Major investment decisions have been postponed, new hiring has been suspended.....Just name a few. No need to say this is a very serious disruption to the UK economy and business development. If you want to see how the world is looking at the country in terms of confidence, you simply just look at its currency. The UK British Pound has last 25% from the peak to trough in the past 3 years since Brexit started. No need to say, the investor's sentiment for the UK as a whole is deeply in the toilet and outright depression. But my source tells me we may have seen the bottom for the UK Brexit crisis regardless what will happens next. Here are a few pieces of evidence that suggests the economic situation is improving in the UK:

• the UK unemployment is at its lowest since the mid-1970s
• the growth in employees’ weekly pay has increased 4%… the fastest average wage growth since mid-2008.
• the housing prices across the UK appear to be rising.
• more encouraging, foreign firms have been quietly buying up British companies as the M&A activity is heating up without much notice. Per Bloomberg's  report, an increase to 475 acquisitions for a combined $232 billion has been made two years after the vote.

While the final Brexit deal with EU is still up in the air pending on the parliament vote to approve by the UK this weekend as well as the EU final approval, I think it doesn't matter too much now. We likely have seen the worst for the UK Brexit saga and the next major move is likely up. Well the sensitive UK currency (FXB) has already started to make the move to the upside. After making a double bottoms recently, it is screaming higher these days. Its long term weekly chart has shown a good bottoming trending for highs. Depending on the final Brexit deal vote, it may come back down a bit towards the support around 122/123 area but I think it will hold and trend higher again soon.

The UK has gone through a crisis in the past 3 years but finally I think it is seeing the light at the end of the tunnel. Betting for the UK is safer than most people would think.

    

   

Ready for another 100 points plunge

What a few weeks can do to the sentiment and then to the market as a whole!

Probably you still remember my call for 100 points jump for S&P just 2 weeks ago (see here). Back then,  AAII investor sentiment weekly report showed that the investor's mood was really depressing, 44% bearish vs only 20% bullish! So within days, our mission had been accomplished with the 100 points up move and then some. We are seeing now about 120 points gain since then. The mood has really changed as I have seen many calls for all time highs and the sky seems very clear for general investors now. Sure enough, we just saw a new weekly report released by the AAII survey showing 33% of respondents now bullish with 31% bearish. While it is still not outright bullish, it is the first time in a few weeks that bulls outnumbered bears. Can this bullish sentiment continue? Sure it can but I won't count on it!

Of course, I'm not smart enough to tell you exactly what may ruin this bullish sentiment. After all, we seem to see all the positive factors in place for an uptrend, lower interest rates, a tentative trade deal with China, and even a possible Brexit deal coming....But fortunately I don't need to be too smart to tell you why. Rather I just need to rely on my TA indicators to tell me what is the most likely move in the near term with fairly good accuracy. And exactly in the contrast to my bullish 100 points call two weeks ago, I'm not calling for a 100 points plunge fairly soon. This is what my crystal ball telling me right now. For sure I can be wrong, especially in terms of the timing that I could be too early as quite often the case for me,  but I'm confident that a sizable leg down is coming soon, if not immediately. This is how I'm positioning myself now. Here is my prediction: We may see S&P down to 2900ish and VIX  up to 18-20 in the next few weeks. 

BE PREPARED!

A true Russia

We just came back from Russia, a place that has probably been largely undervalued and underestimated by the West, especially under the constant smearing and defaming by the Left in the US. If your main source of information is from the major media like CNN, you probably will think it is a very underdeveloped country under the dictatorship of Putin's leadership. While I don't watch CNN at all for years, I was still getting something similar to this kind of impression. After all, the media invasion is just too strong and do we have much honest media here these days? Not much as far as I can see. I'm digressing a bit.


What I saw was totally different from my prior impression! And I got the same feedback from friends who came here first time as well. It is a quite developed country and at least on the surface, I don't see any drastic difference between a Russia city from a Western country city. On the contrary to my surprise, Russia seems to have been very influenced by the West from the commercial perspective. All the major US/EU brands are easily seen on the Russian commercial streets. Shopping malls or centers are nothing inferior to those in the US. People on the streets all appear happy and busy with their daily life. We have met quite a few Russian guides for our tours and they all sound quite positive and satisfied for their current life. This is not an impression change we have got just from one or two cities we went. We spent 10 days there via a River Cruise (Viking) from St. Petersburg to Moscow, passing many different small towns on the route. We have seen and heard the same thing all along.  With the Viking cruise, we also benefited from their quite informative history lessons they offered every day, which allowed us to have a crush course to learn a lot about their long and rich history. A few personal takeaways I have got from their talks:

• The decades long socialism/communism implementation in Soviet Union was just like a historic joke for nowadays people. It was a rather brutal period for them but they are happy that it has finally been turned over. When they talk about what happened back then, they just sound like talking about some ridiculous things that were so terrible that should have never really happened but somehow actually happened and caused a lot of harms to the peoples and society! I'm afraid something similar will be repeated as well sooner or later not far from Russia. I just wish it will be a smooth transition process, not so violent as for Russia.      
• For those Russians who have experienced the past SU time, they know how bad it was in comparison with what they can enjoy now. The freedom they are having now is unthinkable in the past, which often meant  life or death. I'm sure it is not the same type of freedom yet for them vs what we have in the West, but at least there is no restriction for the media, especially the online social media as they can freely search for anything. And they can openly criticize or joke about Putin as we often heard about during their talks.
• The laughable centrally controlled planning economy with a promise of Free for All had turned the once rich and powerful country to the edge of collapse that eventually dissolved the seemingly unbeatable country! They showed us a few photos from the SU time, which looked quite familiar for people in my age: long queue for buying everything and empty shelves in stories. Ironically Free for All that has been tested and demonstrated again and again with nothing but brutal failure is becoming a fashion now in the US. People are brainwashed for the socialism ideas that are becoming more popular here. What a tragedy we are going to see if the Left extreme ideology will become reality some day. Unfortunately the chance is high as far as I can see that the push for the extreme left will indeed invade into our daily life, like it or not!
• They shared some terrible stories occurred during the SU time. One of them: if you wanted to expand your living space, you could simply report to the KGB about some wrong doing of your neighbor without a need of any evidence. Your neighbor would be taken away by the KGB very soon and you could move into their living rooms. Sounds familiar? If you don't like anyone, you can just "Me-Too" him here! No evidence? No problem! the DEMs will force the poor Me-Too'ed guy to surrender or at least being humiliated in public. Anything different from the SU KGB's behavior? Not much for me at least!!  
• Russia is facing huge challenges for sure. And indeed it is still suffering dearly in economy due to two major headwinds: lower oil/gas prices as Russia is hugely dependent on natural resources; and severe sanctions imposed by the US/EU. But as far as I can see and hear, Russia is surviving quite well under enormous challenges. That leads me to my conclusion:
• I think Russia has likely seen its worst by now. More bright future is unfolding for Russia. Maybe the stock market has already sent this signal to us. If you don't know yet, Russia stocks (RSX) are outperforming the US market this year and more so for the EU. For risk takers, betting on Russia may turn out to be a great idea in the next few years!

Before I sign off, let me share a few beautiful autumn Russia photos extracted from             

千万不要和俄罗斯的秋天比美，这里已把摄影师逼疯！(more beautiful photos in the link)

The weather was not so great for us in the past 10 days but we indeed have seen quite similar breathtaking beauties there. If you haven't been there, I'd highly recommend you to go there to see with your own eyes. Thanks to the intensive sanctions, the Russian Ruble is very undervalued, just 16 cents for each Ruble (or 62 Rubles for each US$). So everything is cheap there. But I'm not sure how long this will last. If the Russian economy starts to turn around, especially with sanctions being removed even partially, Ruble will go up quickly.

During our trip, I was "elected" to be a team leader for 5 golden flowers (5朵金花)👰👩👸👱👯 My job? Take care of their umbrellas when they are busy with sightseeing and take photos for them when they need....😇

But there are a lot of fun for sure and we are already thinking when to go back again.

 

 

 

Halloween scare has already come

I assume everyone living in the North America knows Halloween tradition. In the US, it is on Oct 31 every year when the Halloween ghosts will come out to scare people. When our son was young, this was one of his favorite days each year. But beyond ghost stories and gory films, October is often a scary month for investors.  As I have said many times, October tends to be the worst month of the year for the stock market and many major crashes somehow often happened during October. Still don't believe it? Let's see a few examples, dating back to the famous 1929 Great Depression:  

• The Crash of 1929 began in October...
• Black Monday was October 19, 1987...
• The minicrash of October 1989 was on Friday the 13th... 
• The markets endured another minicrash on October 27, 1997...
• October 2007 marked the beginning of the financial crisis... 
• And last year October?  We saw the third-largest one-day drop in history for the Dow Jones Industrial Average.

Ouch!!
It seems we have already started to see the Halloween ghosts coming out and wandering this October. You see, we have already seen 1+% daily declines a couple of times even though we are just in the second week of the October. The extreme volatility has made virtually everyone nervous or even panicky. The AAII investor sentiment weekly report has just shown that this week's investor's mood has been really depressing, 44% bearish vs only 20% bullish. This is the same scale of bearishness we saw back in Dec 2018!


So we are seeing the scary market gyrations this month. And unfortunately we probably will see more scary selloffs in the remaining 3 weeks time. Of course, I don't mean it will be a straight line down. Instead,  in between severe plunges, we will likely see some mini to gigantic rebound (like "the rip your face off" rally I called upon late Dec last year). We have seen such kind of "short squeeze" type of plunge and rally this week. The first two days of the week were brutal for the market with stock prices spiraling down. The sentiment was accordingly depressing and most people were on the short side. On my way to the airport in the early morning (Russia time around 5 AM) of Wed, I sent a note to my friends, expecting a rebound any moment within a day or two. Well, the market shot up all day long when I was in the air, followed by another very strong bull run yesterday. Today's further rally is pushing the market towards the oversold territory. At its highs, S&P shot up 52 points to 2993 but cooled off at the closing by "just gaining 32 points". So, it is not at the extreme end yet and we may see some further buying pressure in the days ahead. But folks, we are still in the ghost month and the official Halloween day has not yet come. Any such strong rally will not likely last for long. Instead, we will probably see another more severe plunge after the "short squeeze" rally runs its course.


I'm closely watching the TA indicators and will be trying to spot the extreme conditions for shorting opportunities in the next two weeks. For most people, it will be better to take whatever gains you may have got if you are lucky enough for the short term trading in the past few days. Don't be greedy to try for your maximal gains. More importantly, it is not the time to chase highs regardless how strong the current rally may feel like. It will be a bull trap again. Be cautious!!  

Mission accomplished?

Oh boys! This is really fast but hopefully not a surprise if you are reading my blog! As I said Thu that I was expecting a 100 points moonshot within days for S&P500 and here we are, within just a day, we have reached the goal (almost)!! The panicky selling at the opening on Thursday brought down S&P to 2856 and the closing price next day on Friday jumped to 2952, 4 points shy from my target. I guess you won't blame me to claim "Mission Accomplished", right? This is how a severe oversold condition can do for a quick and strong bounce. After all, it is just like a overstretched rubber band that will snap back swiftly at the end, unless it breaks. But most of the time it won't break at all. That's the beauty of being a contrarian to do what most of others are not doing. I know it is usually not felt so great for being lonely but often the best time by doing so (see an example here for Boeing).


Now the million dollar question is where the market is heading the next. I don't know for sure of course and actually I can argue for both ways as of now. You see, after such a forceful rebound, Mr. Market has used up a lot of his energy already and right now, it is sitting in a rather tricky position that allows him to swing literally either way with good reasons. S&P has just broken out above its 50 DMA (2942), for which bulls can claim a victory that can lead to further upward moves. But bears can easily argue that S&P may be just doing a suicide kissing! Indeed, as I have talked several times in the past year, the market has performed a few suicide kisses already often around the 50 DMA (see here for more details about the suicide kissing). 


So Mr. Market is playing a guessing game with us right now by wandering around its 50 DMA and let everyone guess what's his next direction. Here is my take for next week: if there is no negative news popping up during the weekend, we may see some further buying to push S&P towards 3000 or even 3020ish in the next week or so. But I won't count for much more than that. After all, it is still a "dead cat bounce" and we will see another leg down soon. Of if we are bombarded with new scary news again, then forget about further bouncing. We may start to head down again immediately. My own bias is a bit bullishness for the next few days, followed by more severe selloff later. Let's see how and where Mr. Market will lead us to!

It is really painful....

I guess anyone betting for a upside market this week must be suffering painfully for most of the week. I have to admit that I was wrong by expecting a more upside than downside for this week. It happens from time to time that Mr. Market just wants to go its own way regardless what I'm thinking and expecting. How can we be bullish when there is endless bad news on all aspects: unresolved US-China "trade war",  impeaching Trump movement, an unexpected declining manufacturing index (ISM), potential new trade tariffs with EU, accelerating slowdown of the economy everywhere else.....just name a few. So we see more panic talking about the upcoming recession that may be coming sooner than later, which obviously is not great for the stock market. I got it and I do believe the risk for the market is indeed quite high for the moment. As I have said for quite some time, Oct is not a good month at all; actually it is the worst seasonal month in general. And I still believe we will see more downside pressure in a few weeks time towards the end of the month or even Nov, depending on how things are unfolding. But dose that mean we will see a collapse right away from here? I don't think so. Actually the severe selloff this week has caused sufficient pain for most of people with a widespread panicky mood we haven't seen for quite some time, leading to a quite significant oversold condition which tends to mark a temporary bottom for now. So I managed to send a note to my friends yesterday (Wed) that I believed a turnaround would be "just a spit distance if not as soon as by end of the day". No, it didn't come by the Wed closing. Actually today we saw another panicky selling at opening. Well, I was glad to see that as for me it was a greater opportunity to trade for higher!


But I'm telling you, it was really painful these days for me; as while I'm greatly enjoying the beautiful scenic journey on the Russian river, the Internet connection is quite painfully spotty and choppy, just as unstable as like the stock market! But fortunately I still managed to buy some yesterday and added more early this morning (US time). The buying process was just like a slow motion movies: I had to wait many seconds between clicks. Oh, gosh! It is just too painful but thanks God,  I still had the connection not interrupted during the process.


Here is my prediction: I think the oversold condition is strong enough for a quick rebound in the magnitude of 100 points or so for S&P500. If I'm right, we may see this within just a few days!! Of course, don't count on me as tomorrow's jobs report is a wildcard that may easily derail the "dead cat bounce" that seems to be starting today. But I still believe my TA even though it betrayed me a bit early this week. Let's see how it plays out tomorrow and next week.


By the way, as I have said, Smart Money Has Never Been Wrong, which has been proven right again this time for the gold correction. Be cautious for gold/silver right now!