Markets finally closed today, which ends the 2007. Next year is a brand new world and it's all due to your prediction.
I am never a good fortune teller, but as I said everyone needs a plan ahead before they commit their money, so I want to finish off the theme in 2008 in here.
I'm not going to pinpoint specific sectors, funds or stocks but I'll generally state what I think may come up. Let's start with what we had in 2007.
1. If we talk about 2007 we cannot skip the topic of subprime mortgages blown up. Many times I heard news or articles said the subprime issue is small relative to the whole market size and so on and so on... I'm tired about reading it. If there is no additional insight, those articles look the same to me. I want to say, subprime taught me a lesson that, there is always something you don't know about a public company, and that something can blow your investment up. So, trust less about any public company, unless you know so much like an insider. Now how big is the subprime issue? Well I don't know. I know only one thing, there are (still) many ways to interrupt free flow of information about anything on earth so nobody can really make sure how big the impact could be. To say the market is small and will only have small impact is like to say people only gamble on casino table but ignoring all the side-bet. You see what I mean? Whatever people have put on the table does not represent the whole picture, as the size of the side-bet can be so huge that it can easily be many times of the amount on the table. If you don't want to bet on any single bank or brokerage, I suggest to use UYG and SKF, the ultra long and short of S&P Financials, which are what I'm going to use in 2008.
2. I already talked about China in my part 1. I don't want to repeat much here. Just want to add a bit more. The first one is CAF, which is a closed-end fund of Chinese A-shares. Since in North America there is limited way to invest in A-shares so CAF is a good vehicle. The second, TAO, is a new ETF of China real estate market, which composes of the mix of Hong Kong and Chinese real estate companies. Lastly, there are still quite a few pink sheet over-the-counter ADRs available in US. Do not expect a high trading volume nor lots of news, but we do not have many choices.
3. US market as a whole I think will whipsaw up and down throughout 2008. I know there is a president election in 2008 and people believe the FED will do anything to make the market goes higher. With the FED in the hot spot to balance between lower the rate and higher inflation, it's hard to do than to say to lift the market. So overall, I will only go long on strong stocks but long and short the ultra indices from time to time. With the invention of ultra long and short ETFs, one should learn how to make use of them to capture extra profits or at least, to protect the portfolio from any downside risk.
4. Hot sector. Well I can't tell you which sector will become hot in 2008. But from time to time there are hot sectors, there is no doubt. In 2007 I saw bulk shipping and solar energy. But I was scared I could be late in finding them so I didn't invest in any. Look at DRYS as an example of shipping stocks, it went all the way up from the teens to as high as $131 before it retreated, 900% up in about 9 months. Look at FSLR as an example of solar energy, it went all the way up from $30 to about $270 as of today, again 900%. So you see, if you can spot a hot sector early, the potential is humungous.
Before the new year of trading begins, let's have a good rest tomorrow.
Monday, December 31, 2007
Sunday, December 23, 2007
FXP again
Market will be slow these days due to Christmas and New Year. But my brain cannot slow down not to think how will 2008 look like.
Anyway, I want to update here that I bought into FXP (again) at $73.50. Originally I thought I couldn't get it but it did reach my limit price so here I go. I bought less shares this time because I agree that one should not commit all money at once. As well, FXP is a very volatile position that I guess I should use less money but more cautions.
I tried to buy more Nintendo too but my order didn't get fill. I put down $70 but on Friday it never traded at that price so my order expired.
I felt a little bad that I didn't buy RIMM. If I would have bought it I know I'll sell into this rally. Since I forecast an (at least) slightly down market in 2008 in all areas, so I think I should start to be very picky and careful. After all, I acknowledge that I'm not good at picking individual stocks.
Anyway, I want to update here that I bought into FXP (again) at $73.50. Originally I thought I couldn't get it but it did reach my limit price so here I go. I bought less shares this time because I agree that one should not commit all money at once. As well, FXP is a very volatile position that I guess I should use less money but more cautions.
I tried to buy more Nintendo too but my order didn't get fill. I put down $70 but on Friday it never traded at that price so my order expired.
I felt a little bad that I didn't buy RIMM. If I would have bought it I know I'll sell into this rally. Since I forecast an (at least) slightly down market in 2008 in all areas, so I think I should start to be very picky and careful. After all, I acknowledge that I'm not good at picking individual stocks.
Monday, December 17, 2007
Bad Monday
Well I already expected a bad Monday so it's not surprised to me. Guess I'm just a little disappointed myself that I sold my FXP a bit too early at $85, only to see it closed at $88.99.....
I am not perfect and I never am. Perfect timing is not possible. So I am still happy that I managed to make a 1.5% profit since I bought at $83.50. I'm glad that I sticked to my plan and analysis and have not sold when FXP went all the way down to as low as $61.74. As I said in my theme 2008 part 1, FXP is something you cannot ignore.
The market has been down for a while and could possibly take a rest because it goes down further. If FXP goes back to the 20-day EMA (which current is about $76.50) I will consider buying in again, but this time will buy no more than 2/3 of position. I don't want to make the same mistake as last time.
As well, I bought into Nintendo as said yesterday at $70.88. This is the first time I buy stocks on pink sheet. Throughout the day I saw no quotes, no bid/ask show. I entered $72.30 and got at $70.88, meaning Nintendo was brought down by the board market as well. Now I have filled my theme 2008 part 2 and need to sit on it.
I am not perfect and I never am. Perfect timing is not possible. So I am still happy that I managed to make a 1.5% profit since I bought at $83.50. I'm glad that I sticked to my plan and analysis and have not sold when FXP went all the way down to as low as $61.74. As I said in my theme 2008 part 1, FXP is something you cannot ignore.
The market has been down for a while and could possibly take a rest because it goes down further. If FXP goes back to the 20-day EMA (which current is about $76.50) I will consider buying in again, but this time will buy no more than 2/3 of position. I don't want to make the same mistake as last time.
As well, I bought into Nintendo as said yesterday at $70.88. This is the first time I buy stocks on pink sheet. Throughout the day I saw no quotes, no bid/ask show. I entered $72.30 and got at $70.88, meaning Nintendo was brought down by the board market as well. Now I have filled my theme 2008 part 2 and need to sit on it.
Sunday, December 16, 2007
Theme in 2008 (Part 2)
Part 2 will be very short. And I think I'm going to look to put up my money tomorrow to buy a little bit for this part 2.
Besides investing, I like video gaming. Although I'm not a huge big fan of Nintendo Wii (I do have one but played less than my PS2 and 3) and Nintendo DS, but you have to acknowledge that the Wii and DS are very popular among groups from young to old, and of course they made a lot of money on it.
It comes in no surprise that Wii and DS continued to top the holiday shopping gift lists throughout 2007. With more titles and games hitting the stores during the Christmas season, you will see the consoles out of supply very quickly again. Yes, it's 2006 Christmas all over again.
Nintendo (NTDOY.PK) only trades on pink sheet, not much trading volume, and it went up more than 150% from last year already. With a console that is not expensive to produce but comes out as a big hit, owning Nintendo gives me confidence that the downside is not as much as other tech stocks. If you buy into a video game software company you may face a risk that they cannot release hot games, but buying Nintendo helps you to diversify that kind of risk.
As well, I can see Wii and DS have a lot of party games or multi-player games. Those games are good interface to connect people. Many people liked to be connected (that is why facebook becomes so popular so quickly). Players enjoyed the experiences to play together, comparing scores, and even compare the characters (Mii) they created. It's like Apple's product, everybody has it and if you don't have one, you feel isolated from people.
I will look into the market tomorrow and consider buying NTDOY from there. I was already late to buy into Nintendo last year. I still think there are (at least) a few good years for Nintendo Wii and DS, my guess is potentially a 30% to 50% upside in 2008, 100-day EMA should provide good support.
Besides investing, I like video gaming. Although I'm not a huge big fan of Nintendo Wii (I do have one but played less than my PS2 and 3) and Nintendo DS, but you have to acknowledge that the Wii and DS are very popular among groups from young to old, and of course they made a lot of money on it.
It comes in no surprise that Wii and DS continued to top the holiday shopping gift lists throughout 2007. With more titles and games hitting the stores during the Christmas season, you will see the consoles out of supply very quickly again. Yes, it's 2006 Christmas all over again.
Nintendo (NTDOY.PK) only trades on pink sheet, not much trading volume, and it went up more than 150% from last year already. With a console that is not expensive to produce but comes out as a big hit, owning Nintendo gives me confidence that the downside is not as much as other tech stocks. If you buy into a video game software company you may face a risk that they cannot release hot games, but buying Nintendo helps you to diversify that kind of risk.
As well, I can see Wii and DS have a lot of party games or multi-player games. Those games are good interface to connect people. Many people liked to be connected (that is why facebook becomes so popular so quickly). Players enjoyed the experiences to play together, comparing scores, and even compare the characters (Mii) they created. It's like Apple's product, everybody has it and if you don't have one, you feel isolated from people.
I will look into the market tomorrow and consider buying NTDOY from there. I was already late to buy into Nintendo last year. I still think there are (at least) a few good years for Nintendo Wii and DS, my guess is potentially a 30% to 50% upside in 2008, 100-day EMA should provide good support.
Thursday, December 13, 2007
Theme in 2008 (Part 1)
No kidding. China as one of the theme in 2008.
I know it's a boring topic as people keep talking and talking about Olympic games in Beijing next year will boost GDP for the whole country and so on and so on......
I'm not a big fan of "Olympic game will boost economic activities". Well it will to a certain level, but it can be a one-time event only. I didn't do any attribution analysis on Olympic games to an economic system, so I cannot say it has no impact. But I think all kinds of business exhibitions together with an improving country-wide infrastructure are more important than a one-time Olympic game.
So what could happen to China in 2008 and how should we position ourselves to look for profit? Let me start guessing from the macro view.
China just finished their political meeting before end of this year. New committee members were introduced to the closed loop of authority. It almost means we can expect who could be the next president in China 5 years down the road. I don't expect any dramatic change in the government body, so China should be politically stable in 2008.
It's hard to say if their fiscal and monetary policies can work out well on controlling inflation and trade surplus and even the appreciation of currency, but given that the government is quite pro-active in controlling the economy, I'm not surprise that the Chinese government will act quickly and aggressively to solve any economic problem.
But there's only that much human beings can do, so China is still facing tough challenge ahead. My guess on the overall China stock market is continued to be volatile, and in the meantime I'm slightly bias to the downside. If inflation really becomes out of control, expect larger movement from the government and watch out from the downside.
Notwithstanding, I believe there are still strong stocks can hold their grounds and possibly move up to take the lead. Below I'll focus on ADRs which we can buy here in North America.
Baidu - I guess we are now in 2008 and we cannot ignore Chinese tech stocks. Baidu as the most famous search engine in China surely has the potential to move on and expands itself. Although China is still considered as emerging market by measures of governance and transparency, but the size of its market is enormous compare to any emerging market country. So if Google can grow to become a $200 billion company I don't see why Baidu cannot. I don't expect Baidu to become a $200 billion company in 2008 (currently it's about $13 billion), but double in size is possible. To be conservative given the possible challenge in China next year, a 50% increase is reasonable. I expect Baidu to close 2007 at around $350. So my guess is it stands a chance to reach $525. The worst case in the meantime I can think of is about $300 then $225 (unless the CEO of Baidu is a criminal and the whole firm just collapses).
Focus Media - Well I already put my money where my mouth is. Focus Media has an almost monopoly ad market in Chinese malls, elevators and etc (except airports). With several acquisitions they made in 2007 they will only become stronger, and hopefully the profit margin numbers as well. Again I hate to use Olympic game as the excuse, but if anyone would like to reach the public during Olympics by commercials Focus Media almost is their only choice. I will not be surprise that Focus Media will charge them more during Olympics, as it's just like TV station charges more on commercials that show in peak hours. My guess in 2008 is FMCN could reach a 50% return, approximately to $80. Downside is $50, then $40.
Ctrip.com - I like it because it's still small and consistently making money. They are the expedia in China, and they are by far the largest. With Chinese people having more and more money to spend, travelling definitely is one of the big thing they will do. Don't make me to tell you the Olympic story again. My guess is a 50% return to about $90, downside is $52.5 then $45.
Netease - Netease is not the biggest online game company in China, but they just kicked start their own search engine called yadao. Will it be a success I don't know now, but having a new revenue stream without a need to invest huge capital I won't say why not? You can imagine this company can approve $100 million to buy back their own shares and at the same time getting revenue from new type of business. Even something can go wrong but it won't kill them. As i have mentioned in some of my previous blog it didn't drop below the 200-day EMA even they reported so-so earnings. I think in the meantime it found a bottom and building up from there. So, my guess is a possible 50% return to mid $30's, if they report good growing revenue in their search engine, a double is possible too. Downside is $19, then $16.
China Digital TV Holdings (STV) - The problem of STV is it's an IPO. Generally I'm scare about IPO as there is not much trading history. But STV is kind of the biggest player in this area so I guess I cannot totally ignore it. China is such a volatile and immature market so I prefer to pick the leader of the industry. Do not try to pick anything other than the leader, unless you dig pretty deep into that company. You never know what can happen to these Chinese company. My guess is a possible 100% upside and 30% downside.
China Mobile - Again I like the pick the leader only. I don't mean there is no value in CHA or CHU, just that picking CHL I guess I can sleep better. But since CHL is pretty big already, so I guess one should trade in and out with CHL instead of just holding it. If you catch at the right moment I guess a 20% every time you trade is possible. At the least if you think you get in at the wrong time, you have much better confidence to hold it longer.
China Life - LFC in this case is even stronger than CHL, because insurance company is too important to an economy and I believe if anything goes wrong, the governemnt will not let it dies. LFC is quite big as well so one should try get in and out to seek the 20% return.
Finally, do not ignore FXP. This is by far the only chance you can play the downside of China. It is not for long term but if you can make good use of FXP, I'm sure you will love the person who brought it to the market. Just that it is very gappy and you have to play it with confidence and cautious.
I know it's a boring topic as people keep talking and talking about Olympic games in Beijing next year will boost GDP for the whole country and so on and so on......
I'm not a big fan of "Olympic game will boost economic activities". Well it will to a certain level, but it can be a one-time event only. I didn't do any attribution analysis on Olympic games to an economic system, so I cannot say it has no impact. But I think all kinds of business exhibitions together with an improving country-wide infrastructure are more important than a one-time Olympic game.
So what could happen to China in 2008 and how should we position ourselves to look for profit? Let me start guessing from the macro view.
China just finished their political meeting before end of this year. New committee members were introduced to the closed loop of authority. It almost means we can expect who could be the next president in China 5 years down the road. I don't expect any dramatic change in the government body, so China should be politically stable in 2008.
It's hard to say if their fiscal and monetary policies can work out well on controlling inflation and trade surplus and even the appreciation of currency, but given that the government is quite pro-active in controlling the economy, I'm not surprise that the Chinese government will act quickly and aggressively to solve any economic problem.
But there's only that much human beings can do, so China is still facing tough challenge ahead. My guess on the overall China stock market is continued to be volatile, and in the meantime I'm slightly bias to the downside. If inflation really becomes out of control, expect larger movement from the government and watch out from the downside.
Notwithstanding, I believe there are still strong stocks can hold their grounds and possibly move up to take the lead. Below I'll focus on ADRs which we can buy here in North America.
Baidu - I guess we are now in 2008 and we cannot ignore Chinese tech stocks. Baidu as the most famous search engine in China surely has the potential to move on and expands itself. Although China is still considered as emerging market by measures of governance and transparency, but the size of its market is enormous compare to any emerging market country. So if Google can grow to become a $200 billion company I don't see why Baidu cannot. I don't expect Baidu to become a $200 billion company in 2008 (currently it's about $13 billion), but double in size is possible. To be conservative given the possible challenge in China next year, a 50% increase is reasonable. I expect Baidu to close 2007 at around $350. So my guess is it stands a chance to reach $525. The worst case in the meantime I can think of is about $300 then $225 (unless the CEO of Baidu is a criminal and the whole firm just collapses).
Focus Media - Well I already put my money where my mouth is. Focus Media has an almost monopoly ad market in Chinese malls, elevators and etc (except airports). With several acquisitions they made in 2007 they will only become stronger, and hopefully the profit margin numbers as well. Again I hate to use Olympic game as the excuse, but if anyone would like to reach the public during Olympics by commercials Focus Media almost is their only choice. I will not be surprise that Focus Media will charge them more during Olympics, as it's just like TV station charges more on commercials that show in peak hours. My guess in 2008 is FMCN could reach a 50% return, approximately to $80. Downside is $50, then $40.
Ctrip.com - I like it because it's still small and consistently making money. They are the expedia in China, and they are by far the largest. With Chinese people having more and more money to spend, travelling definitely is one of the big thing they will do. Don't make me to tell you the Olympic story again. My guess is a 50% return to about $90, downside is $52.5 then $45.
Netease - Netease is not the biggest online game company in China, but they just kicked start their own search engine called yadao. Will it be a success I don't know now, but having a new revenue stream without a need to invest huge capital I won't say why not? You can imagine this company can approve $100 million to buy back their own shares and at the same time getting revenue from new type of business. Even something can go wrong but it won't kill them. As i have mentioned in some of my previous blog it didn't drop below the 200-day EMA even they reported so-so earnings. I think in the meantime it found a bottom and building up from there. So, my guess is a possible 50% return to mid $30's, if they report good growing revenue in their search engine, a double is possible too. Downside is $19, then $16.
China Digital TV Holdings (STV) - The problem of STV is it's an IPO. Generally I'm scare about IPO as there is not much trading history. But STV is kind of the biggest player in this area so I guess I cannot totally ignore it. China is such a volatile and immature market so I prefer to pick the leader of the industry. Do not try to pick anything other than the leader, unless you dig pretty deep into that company. You never know what can happen to these Chinese company. My guess is a possible 100% upside and 30% downside.
China Mobile - Again I like the pick the leader only. I don't mean there is no value in CHA or CHU, just that picking CHL I guess I can sleep better. But since CHL is pretty big already, so I guess one should trade in and out with CHL instead of just holding it. If you catch at the right moment I guess a 20% every time you trade is possible. At the least if you think you get in at the wrong time, you have much better confidence to hold it longer.
China Life - LFC in this case is even stronger than CHL, because insurance company is too important to an economy and I believe if anything goes wrong, the governemnt will not let it dies. LFC is quite big as well so one should try get in and out to seek the 20% return.
Finally, do not ignore FXP. This is by far the only chance you can play the downside of China. It is not for long term but if you can make good use of FXP, I'm sure you will love the person who brought it to the market. Just that it is very gappy and you have to play it with confidence and cautious.
Tuesday, December 11, 2007
FMCN
I bought into FMCN at $57.30 before the FED announced the 0.25% cut. Maybe I'm stupid but I expect good numbers keep coming out from FMCN. As well, I committed about 2/3 of my position only. So I may still want to add to my position.
The FED might have disappointed many investors, but, it is doing what it needs to do, but not to please every single investor. Yes, there maybe more rate cuts in 2008, but anyway, a Christmas rally may end for now.
Many sectors reversed to drop almost simultaneously when the FED announced (only) a quarter point cut. Even strong stocks, like solar energy stocks retreated. Quite a few of them retreated with high volume as well. The market has rebounded quite a lot since the end of November, guess they need more substantial good news to go up from here. But Christmas usually is slow, I don't see any one will be making significant move in Christmas, so expect a slow and slightly down market from now on to the end of the year.
Well, since end of 2007 is fast approaching, I guess it's time to sit down and think about what theme may play out in 2008. Let me get back to this topic and brainstorm about this topic from now.
Besides, I'm still holding my FXP that I bought at $83.50. I guess a high $70's is not difficult (it's $73.65 already), just not sure if I can go back to break even in December......
The FED might have disappointed many investors, but, it is doing what it needs to do, but not to please every single investor. Yes, there maybe more rate cuts in 2008, but anyway, a Christmas rally may end for now.
Many sectors reversed to drop almost simultaneously when the FED announced (only) a quarter point cut. Even strong stocks, like solar energy stocks retreated. Quite a few of them retreated with high volume as well. The market has rebounded quite a lot since the end of November, guess they need more substantial good news to go up from here. But Christmas usually is slow, I don't see any one will be making significant move in Christmas, so expect a slow and slightly down market from now on to the end of the year.
Well, since end of 2007 is fast approaching, I guess it's time to sit down and think about what theme may play out in 2008. Let me get back to this topic and brainstorm about this topic from now.
Besides, I'm still holding my FXP that I bought at $83.50. I guess a high $70's is not difficult (it's $73.65 already), just not sure if I can go back to break even in December......
Saturday, December 1, 2007
FXP
I'm being very lazy these days, as I should have updated my position on Tuesday that I bought FXP again at $83.50. As you see i'm not hiding my position here to make up a good looking gain, I'm sitting at a loss of more than 15%.
This coming week is pretty critical. As DIA and SPY both tested the most highest daily EMA (in this case it's the 100-day). Many people might think the 200-day EMA should be the most important one as a test. I do not totally agree, as I saw on many charts that quite often the stock (or ETF/index) will test the most highest daily EMA from below and eventually heads back down.
I would say, a stock is resuming upward trend if:
1. After it breaks through the 200-day EMA with hugh volume, it doesn't drop below that again
2. Eventually the shorter-time EMA is above longer-time EMA (20-day > 50-day > 100-day > 200-day)
3. The uptrend may still be quite choppy until the stock/ETF makes new high
Of course, you may say, to wait till it shows all these characteristics I already missed a big move, that probably can be a hugh amount. Well, unfortunately trend following is not to find the bottom and get onto the bottom. A trend needs time to develop, so using a trend following technique you can never find a bottom.
To quickly find bottom or top I guess you need to use techniques of swing trading. I'm not good at that so I won't get into it here.
So when should I cover my FXP? Will China market drop given that US Fed will reduce rate on Dec 11 very likely? I want to use financial and brokerage stocks as the first measure.
Looking at XLF, in mid-Sept the Fed lowered the rate by 50 basis points, XLF went up from around $32 (when people started to anticipate a rate cut) to as high as $36, about 13%. Using the same time period we can see:
C: up from $45 to $50, about 11%
BAC: up from $48 to $53, about 10%
WFC: up from $33 to $38, about 15%
JPM: up from $43 to $48, about 12%
WB: up from $45 to $52, about 16%
MER: up from $68 to $77, about 13%
MS: up from $56 to $69, about 23%
GS: up from $165 to $220, about 33%
LEH: up from $50 to $65, about 30%
BSC: up from $100 to $127, about 27%
I don't want to include CFC or WM as they dropped so much that I guess you don't need to see them. The above 10 stocks (5 banks, 5 brokerages), only GS and LEH did not drop below the lowest price shown above. JPM and BSC dropped below the lowest price but not by too much. All the rest dropped by quite a lot from that lowest price. Let's take a quick comparison of new low price to last low price of the worse 6.
C: down from $45 to $30
BAC: down from $47 to $42
WFC: down from $33 to $29.50
WB: down from $45 to $37
MER: down from $68 to $50.50
MS: down from $56 to $47.50
That is not surprising to me, as usually when the Fed started to reduce rate, the weak sectors usually will continue to drop further. Anyone who thinks one rate cut from the Fed will save the economy is simply naive.
Now let's take a quick look of the 6 above and XLF due to the anticipation of rate cut on Dec 11.
XLF: up from $28 to $31, about 11%
C: up from $30 to $33, about 10%
BAC: up from $42 to $46, about 10%
WFC: up from $29.50 to $32.50, about 10%
WB: up from $37 to $43, about 16%
MER: up from $50.50 to $60, about 19%
MS: up from $47.50 to $52.50, about 11%
HHmmm, not much difference than the last rate-cut rebound. I don't think history will repeat exactly the same way, that is a stupid assumption. But at least these stocks have to show that they will not drop below the last lowest price first, before I can say they are really coming back. If they fall back to their lowest price, I will think about putting in some money in UYG maybe.
So given the US is not very clear, China may continue its volatile characteristics for a while. A Christmas rally may be true, but what about after Christmas? Anybody thought about that?
This coming week is pretty critical. As DIA and SPY both tested the most highest daily EMA (in this case it's the 100-day). Many people might think the 200-day EMA should be the most important one as a test. I do not totally agree, as I saw on many charts that quite often the stock (or ETF/index) will test the most highest daily EMA from below and eventually heads back down.
I would say, a stock is resuming upward trend if:
1. After it breaks through the 200-day EMA with hugh volume, it doesn't drop below that again
2. Eventually the shorter-time EMA is above longer-time EMA (20-day > 50-day > 100-day > 200-day)
3. The uptrend may still be quite choppy until the stock/ETF makes new high
Of course, you may say, to wait till it shows all these characteristics I already missed a big move, that probably can be a hugh amount. Well, unfortunately trend following is not to find the bottom and get onto the bottom. A trend needs time to develop, so using a trend following technique you can never find a bottom.
To quickly find bottom or top I guess you need to use techniques of swing trading. I'm not good at that so I won't get into it here.
So when should I cover my FXP? Will China market drop given that US Fed will reduce rate on Dec 11 very likely? I want to use financial and brokerage stocks as the first measure.
Looking at XLF, in mid-Sept the Fed lowered the rate by 50 basis points, XLF went up from around $32 (when people started to anticipate a rate cut) to as high as $36, about 13%. Using the same time period we can see:
C: up from $45 to $50, about 11%
BAC: up from $48 to $53, about 10%
WFC: up from $33 to $38, about 15%
JPM: up from $43 to $48, about 12%
WB: up from $45 to $52, about 16%
MER: up from $68 to $77, about 13%
MS: up from $56 to $69, about 23%
GS: up from $165 to $220, about 33%
LEH: up from $50 to $65, about 30%
BSC: up from $100 to $127, about 27%
I don't want to include CFC or WM as they dropped so much that I guess you don't need to see them. The above 10 stocks (5 banks, 5 brokerages), only GS and LEH did not drop below the lowest price shown above. JPM and BSC dropped below the lowest price but not by too much. All the rest dropped by quite a lot from that lowest price. Let's take a quick comparison of new low price to last low price of the worse 6.
C: down from $45 to $30
BAC: down from $47 to $42
WFC: down from $33 to $29.50
WB: down from $45 to $37
MER: down from $68 to $50.50
MS: down from $56 to $47.50
That is not surprising to me, as usually when the Fed started to reduce rate, the weak sectors usually will continue to drop further. Anyone who thinks one rate cut from the Fed will save the economy is simply naive.
Now let's take a quick look of the 6 above and XLF due to the anticipation of rate cut on Dec 11.
XLF: up from $28 to $31, about 11%
C: up from $30 to $33, about 10%
BAC: up from $42 to $46, about 10%
WFC: up from $29.50 to $32.50, about 10%
WB: up from $37 to $43, about 16%
MER: up from $50.50 to $60, about 19%
MS: up from $47.50 to $52.50, about 11%
HHmmm, not much difference than the last rate-cut rebound. I don't think history will repeat exactly the same way, that is a stupid assumption. But at least these stocks have to show that they will not drop below the last lowest price first, before I can say they are really coming back. If they fall back to their lowest price, I will think about putting in some money in UYG maybe.
So given the US is not very clear, China may continue its volatile characteristics for a while. A Christmas rally may be true, but what about after Christmas? Anybody thought about that?
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