Well, the stock market indeed had a free fall immediately after the election. Dow Jones plunged over 300 points and S&P 500 over 30 points, the sharpest daily drop since 2009. Although the president election did not repeat the struggling show in 2000 with prolonged uncertainty, people apparently still worried about the upcoming battle on fiscal cliff. It won't be pretty! Expect more uncertainty to come. But believe or not, the chance is high that the stock market may start to advance from this level and end up with a year end rally. However, the road won't be smooth but bumpy and volatile.
If you bought some short positions in the past few days as I suggested, pat yourself on the back to enjoy it but I'd take the profit off the table.
Wednesday, November 7, 2012
Monday, November 5, 2012
A potential high volatility post-election
Just a very quick note about what could happen after tomorrow's presidential election. You may remember what happened in 2000 following the voting day with the Bush/Gore election. The result could not be determined for weeks due to election "recount". And the market was very nervous with high volatility and plunging of stock markets.
With a new voting system introduced in Ohio recently, this fiasco could happen again that at least for 10 days the country will not know who wins. You can read this news here yourself. If this indeed materializes, likely the stock market will not respond well and volatility will likely shot up substantially. One way to hedge against this potential high volatility is to buy some VXX call options or simply buy SDS which will go up for a plunging S&P 500 index.
With a new voting system introduced in Ohio recently, this fiasco could happen again that at least for 10 days the country will not know who wins. You can read this news here yourself. If this indeed materializes, likely the stock market will not respond well and volatility will likely shot up substantially. One way to hedge against this potential high volatility is to buy some VXX call options or simply buy SDS which will go up for a plunging S&P 500 index.
Sunday, November 4, 2012
Coal has likely bottomed
I talked about coal in April, which was apparently too early. But the rationale I laid out then are still valid. I don't believe coal is dead and will not pick up again in demand. Actually the recent economic data from China start to look promising again, which will further support the increasing demand of coal. I have seen news that the coal prices in the past month have finally jumped high and there are many indicators suggesting the demand for coal is truly picking up. Looking at the chart below. You may notice the ETF for coal (KOL) has been range bounded between 22 to 26 in the past half year, a very clear bottoming range. If KOL can break through 26 and hold, I will be very confident that the new bull run for KOL has finally come. If so, I will be interested in the coal companies such as BTU or ACI.
Saturday, November 3, 2012
Buy gold in the Euro term
I hope all the friends are safe and sound without problems by now. After a few days of no power and Internet, we are finally back to normal. But still it is difficult to find gas locally here.
The Apple stock got hit quite hard last few days. I guess I was too early again. But for Apple I'm not a trader; rather a long-term investor. As long as its value is good, I'm fine to be a bit earlier. I will buy more if it drops further. Actually by the way I'm buying Apple I will not lose a penny until it drops to $500. At $576 at the moment, I don't think it will get to that level but I could be wrong of course.
As I predicted, gold is indeed coming down as well. With a $37 decline yesterday to $1678, gold is very close to its 200 day moving average at around $1650-1660 area. As I said, this is a strong support level and I think is a good entry point. However, I have learned over years that I should never be too confident about what I believe in. While I believe gold is likely bounce back from this support level, there is always a chance that it may not hold up there and may further go down. Whenever possible, I want to set up a position in such a way that my loss could be minimized. So what is the strategy to hedge against this possible short-term over correction for gold?
About 2 months ago in Sep, I said US$ was likely bottomed and would appreciate. See below that this is exactly what has happened. The US$ index has been range-bounded roughly between 79.0 -80.1 in the past 2 months. But it appears it has just broken through the upper bound. This will likely push US$ up to 81-84. I think this is one major reason why gold has declined so much lately, because a strong US$ will push down gold price at least in a short-term. Eventually though, gold will not be bounded by the US$ and will continue to go up substantially in its huge bull run, since gold has become more and more a currency, not a metal.
So when US$ goes up, what is the next obvious victim? I hope you can guess: yes, it is Euro. I think Euro has run its upward course already by now. Likely it will start to decline from the current level of $1.29. I won't be surprised to see Euro plunge to below $1.20 this time. I have talked about EUO many times in the past, which is a 2 x leverage ETF against Euro. In other words, when Euro drops 1%, EUO should go up 2%. You may notice interestingly below that EUO was also range bounded between 19-20 in the past 2 months and has just broken through the upper bound over 20 now. If indeed US$ appreciates in the next few months, Euro will decline and EUO will go up in parallel.
If you buy gold and at the same time short Euro (e.g. by buying EUO), you essentially buy your gold in the Euro term. If gold goes down due to a stronger US$, EUO will go up due to a weaker Euro to offset your loss in gold, a perfect hedge to me. But be aware, this is just a concept to let you know how to hedge your gold for a potential over correction. As we discussed before, I don't like to simply buy EUO due to the headache in tax filing for it, since EUO is structured as a partnership fund. I'd either buy EUO call options or buy FXE (a direct Euro fund) put options. For those who don't know options, maybe simply use the dollar averaging technique to buy some gold at its current level and buy more if it further drops. In the long run, I firmly believe you will be doing very well. My gut feeling tells me that this is likely the last chance to buy gold at such cheap levels for a long long time. So whatever the levels this correction will bring down gold and silver to, to me it is a great opportunity to buy more cheaper gold and silver. Don't miss it!
The Apple stock got hit quite hard last few days. I guess I was too early again. But for Apple I'm not a trader; rather a long-term investor. As long as its value is good, I'm fine to be a bit earlier. I will buy more if it drops further. Actually by the way I'm buying Apple I will not lose a penny until it drops to $500. At $576 at the moment, I don't think it will get to that level but I could be wrong of course.
As I predicted, gold is indeed coming down as well. With a $37 decline yesterday to $1678, gold is very close to its 200 day moving average at around $1650-1660 area. As I said, this is a strong support level and I think is a good entry point. However, I have learned over years that I should never be too confident about what I believe in. While I believe gold is likely bounce back from this support level, there is always a chance that it may not hold up there and may further go down. Whenever possible, I want to set up a position in such a way that my loss could be minimized. So what is the strategy to hedge against this possible short-term over correction for gold?
About 2 months ago in Sep, I said US$ was likely bottomed and would appreciate. See below that this is exactly what has happened. The US$ index has been range-bounded roughly between 79.0 -80.1 in the past 2 months. But it appears it has just broken through the upper bound. This will likely push US$ up to 81-84. I think this is one major reason why gold has declined so much lately, because a strong US$ will push down gold price at least in a short-term. Eventually though, gold will not be bounded by the US$ and will continue to go up substantially in its huge bull run, since gold has become more and more a currency, not a metal.
So when US$ goes up, what is the next obvious victim? I hope you can guess: yes, it is Euro. I think Euro has run its upward course already by now. Likely it will start to decline from the current level of $1.29. I won't be surprised to see Euro plunge to below $1.20 this time. I have talked about EUO many times in the past, which is a 2 x leverage ETF against Euro. In other words, when Euro drops 1%, EUO should go up 2%. You may notice interestingly below that EUO was also range bounded between 19-20 in the past 2 months and has just broken through the upper bound over 20 now. If indeed US$ appreciates in the next few months, Euro will decline and EUO will go up in parallel.
Saturday, October 27, 2012
Is it the time to buy gold?
First of all, I hope all my friends will be safe when Hurricane Sandy hits us in the next few days. Keep my fingers crossed that we will still have power in service.
Some friends ask me whether now is a good time to buy gold, given gold has corrected quite some percentage now in the past few weeks. It is a difficult question because my answer will be Yes and No, depending on your situation. It is YES, if you haven't bought any gold yet. For me, gold should always be an important part of your portfolio. It may not be cheap compared with a few years ago but it is still very cheap if you look back a few years later. This is what I'm pretty sure about. We can try our best to speculate what may be the bottom of this correction and then wait for that point to get in, but any analysis is indeed just a wishful thinking, which may not always be exactly correct. Good technical analysis may decipher the right direction but it is very hard to pinpoint the exact entry point. I will be very disappointed to miss the big uptrend simply by waiting for an artificial ideal entry point, which may just be a few dollars difference. However, if you have already got some gold and are waiting for a better chance to get more, then I think more correction is likely in the next few weeks. At the moment, gold is sitting around $1700, just dropping below its 50 day moving average (DMA). There is a good chance that gold will further decline to test its 200 day MA around $1660. However, that is a rather strong support for gold and I think it will hold there and start to bounce back. Below is the chart for GLD. You may notice that the 200 DMA for GLD is at around $160 (the red line) and interestingly it is also the low end of the Bollinger Band (the lower grey line). Stocks usually bounce back and forth within its Bollinger Band. This coincidence is further suggesting that gold is likely to bounce back from its 200 DMA. If you are waiting for a better chance to get in, I'd wait till it drops to that level.
Some friends ask me whether now is a good time to buy gold, given gold has corrected quite some percentage now in the past few weeks. It is a difficult question because my answer will be Yes and No, depending on your situation. It is YES, if you haven't bought any gold yet. For me, gold should always be an important part of your portfolio. It may not be cheap compared with a few years ago but it is still very cheap if you look back a few years later. This is what I'm pretty sure about. We can try our best to speculate what may be the bottom of this correction and then wait for that point to get in, but any analysis is indeed just a wishful thinking, which may not always be exactly correct. Good technical analysis may decipher the right direction but it is very hard to pinpoint the exact entry point. I will be very disappointed to miss the big uptrend simply by waiting for an artificial ideal entry point, which may just be a few dollars difference. However, if you have already got some gold and are waiting for a better chance to get more, then I think more correction is likely in the next few weeks. At the moment, gold is sitting around $1700, just dropping below its 50 day moving average (DMA). There is a good chance that gold will further decline to test its 200 day MA around $1660. However, that is a rather strong support for gold and I think it will hold there and start to bounce back. Below is the chart for GLD. You may notice that the 200 DMA for GLD is at around $160 (the red line) and interestingly it is also the low end of the Bollinger Band (the lower grey line). Stocks usually bounce back and forth within its Bollinger Band. This coincidence is further suggesting that gold is likely to bounce back from its 200 DMA. If you are waiting for a better chance to get in, I'd wait till it drops to that level.
Friday, October 26, 2012
Apple is likely bottoming
Apple announced its earnings yesterday, which was very disappointing. Its stock immediately dropped in after-hour trading. I thought it would be a bloodshed day for Apple today. Yes, it was, but just a few hours. See below the price movement for Apple today. It indeed declined below $600 as I hoped and at one moment plummeted over $15 to $590. I hope you have got the chance to get in. However, amazingly Apple managed to climb back all the way and closed only a few dollars below the yesterday's price. I must say I was very impressed by Apple's performance and I think Apple is likely near its bottom, if not yet at the bottom. Why? It is a Wall Street famous saying that when a stock acts well during a terrible time (e.g. poor earnings or bad news), the stock has usually bottomed. In other words, those who want to sell the stock have already all sold the stock and the only people left are those who want to buy. This will of course push the stock upward. Apple today's price action seems to demonstrate that. I and no one know if this is the exact bottom for Apple. Only the time can tell. But I'm starting to pick up a few shares of Apple now.
Monday, October 22, 2012
10 times increase of college costs over 30 years?
I know there are some friends who still have young kids. Don't want to scare you but thought you at least should be informed what is going on regarding inflation, especially related to college costs. Just read something which could be interesting to you. See here. The text below pointed to a 10 times increase of college costs in the past 30 years. What will happen in the next 30 years? I bet it will only be worse. Be prepared!
If you are looking for out-of-control inflation in the US, look no further than the college and hospital next door. The CPI data show that college tuition and fees have increased 1,036% since January 1979 vs. 546% for Medical Care Goods & Services vs. 238% for the overall CPI. In other words, college costs have more than quadrupled relative to the CPI over this period, while Medical Care has more than doubled relative to the CPI.
If you are looking for out-of-control inflation in the US, look no further than the college and hospital next door. The CPI data show that college tuition and fees have increased 1,036% since January 1979 vs. 546% for Medical Care Goods & Services vs. 238% for the overall CPI. In other words, college costs have more than quadrupled relative to the CPI over this period, while Medical Care has more than doubled relative to the CPI.
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