After sitting on the sidelines for the last 3 weeks, while the markets did not provide a clear direction, I started to initiate some new positions last night as the S&P 500 and DoW Jones showed a clear uptrend signal with candles closing above their 50 DMA, 20 EMA above 40 EMA and parabolic SAR below the candles.

I bought half of my intended positions last night as this rally is still not proven to be sustainable yet. I will add to positions as prices move up. I always believe in buying more at higher prices and I never buy more at lower prices (averaging down- that’s just not my style).

For those of you initiating new positions or holding onto positions, start to take note of WHEN your stock is going to report its earnings (can check from google.com/finance) and avoid holding stocks when it announces earnings UNLESS you are really confident that they will not disappoint. Some of my stocks will be reporting in about 2 weeks, so I am in it for a quick kill (hopefully, it does not kill me first ;-))

After the market close, Alcoa (AA) started the US earnings season by reporting better than expected results and providing optimistic guidance for the future. This should continue to give markets a boost moving forward.

The Singapore STI is still on a downtrend so I will definitely not be doing anything on SG stocks for a while. The KLCI is on an uptrend but faces resistance at 1,790 and the parabolic SAR has turned bearish so be careful in entering new positions for KLCI.

My Latest Transactions…
8 July Buy Nokia (NOK) at $4.12 (Stop loss $3.80), Earnings 18 Jul

8 July Buy Nu Skin (NUS) at $64.56 (Stop Loss $56.86), Earnings 22 Jul

8 July Buy Bank of America (BAC) at $13.16 (Stop loss $12.80), Earnings 17 Jul

8 July Sold Sodastream (SODA) at $67.86 for a +20.11% Gain, SODA has been showing weakness despite the index rallying so I sold it even though it is not on a downtrend yet to protect profits .Rather reinvest the funds on stronger performing stocks. Actually,I should have sold it much earlier when price fell more than ATR from its high. I held on because of stupid ‘hope’- damn these human emotions :-).

US Earnings Season- What to Expect

Analysts aren’t expecting much bottom-line or top-line growth for S&P 500 companies.
According to FactSet, the estimated earnings growth rate for the second quarter is 0.8% while the estimated revenue growth rate is 1.2%. Those estimates are down from 4.2% and 2.7%, respectively, at the start of the quarter.

The lowly growth expectations are a function of several factors:
-Weak GDP growth seen around the globe
-The start of the sequestration in the US
-A preponderance of negative guidance from companies issuing guidance (87 out of 108 companies providing guidance issued negative EPS guidance, according to FactSet)
-Falling commodity prices

Is this bad news for the market? Not really. You see, analysts & companies like to play a game where they will always lower expectations ahead of an earnings seasons. This way, the companies can EASILY BEAT earnings and see there company’s share’s rise. Of course once in a while, they really screw up and cannot even beat the lowered expectations.

It is like you son telling you that he will fail his exams very badly. Then, when he gets 63%, you are so happy that you take him out to celebrate. Companies play the same game.

Don’t be surprised, therefore, if the reported EPS growth rate for S&P 500 companies at the end of the reporting period is closer to where it stood at the start of the quarter. The real surprise would be if companies simply matched, or did worse, than the revised growth estimates.

The financial sector, which rolls out its results early in the reporting period, will help set expectations in that regard. Strikingly, it is one of just two sectors (utilities being the other) where EPS growth estimates have gone up, not down, since the start of the quarter. Analysts are expecting the financial sector to deliver 17% EPS growth for the second quarter, making it a key swing factor.

Expected Rise in Interest Rates Will Actually Be Good For Stocks- Especially Banks

Whether you believe that the Fed is going to start withdrawing its stimulus anytime soon or not, the fact is that the market is already pricing in higher interest rates (hence the fall in Bond prices, REITS and high divided stocks).

While some market participants may argue that rising rates will kill the stock market rally, history tells us that the initial phase of rate increase is almost always accompanied by higher stock prices. And the reasons are clear—the increase in rates reflects an improving economy and lower risk of deflation—which are positive for stocks. Chairman Bernanke and many other Fed officials have repeatedly clarified that the gradual withdrawal of stimulus would strictly be economic data dependent. And stocks are the place to be in when the economy improves.

Increase in rates—in particular the initial phase of rise from very low levels—actually indicates that the market now expects a much improved economic picture in the months ahead—a positive scenario for the stock market. Further, bonds lose value when rates rise and so more money will flow into stocks from bonds—another positive for stocks.

Increase in interest rates are bad for stocks only when the central bank raises them to combat inflation, which is not going to be the case anytime in the near future.
Higher rates will result in losses for bond portfolios and will also hurt “bond-like” investments, such as utilities, REITs, telecoms and other high dividend payers which saw a spike in interest earlier this year. Growth/cyclical sectors will benefit significantly from an improving economy.

Higher Interest Rates is Great News for Regional Banks and Insurance Companies
Most banks will benefit in the current environment of rising longer-term rates and low short term interest rates. This causes a steepening of the yield curve.

Short term rates are going to stay at ultra-low levels as long as the Fed maintains its fed funds rate near-zero levels but long-term rates will continue to rise in anticipation of slow-down in the Fed’s bond buying program.
A steepening yield curve improves banks’ net interest margin since they can borrow at very low rates and lend at much higher rates. In addition to a steepening yields curve, an improving earnings picture is also expected to act as a tailwind for banks. US regional banks may actually perform much better than the big banks because they are mostly focused on traditional banking business of deposit taking and lending, whereas bigger banks have many other much more complex activities.

Those of you that may not know which are the best US regional banks to buy can look at ETFs like PowerShares KBW Regional Banking Portfolio ETF (KBWR) and SPDR S&P Regional Banking ETF (KRE).

Insurers also stand to benefit from the rising rate scenario. Many insurance companies—life insurance companies in particular—invest in longer-duration bonds and have thus been hurt by low interest rates. Higher interest rates will enable these companies to earn higher returns on their investment portfolio.SPDR S&P Insurance ETF (KIE) follows the S&P Insurance Select Industry Index and is one I am looking at.

So far, January has started off with a big bang and global stock markets are continuing their bull run into the 5th year. Ever since US Earnings season kicked off 2 weeks ago, strong earnings reports from JP Morgan, Bank of America, Google and IBM have given extra fuel to this stock market rally. The only big disappointments have been Citigroup and Apple (last night). As a result, Apple has fallen by $50 (-10%) in after hours trading way below $500. Things don’t look too good for Apple.

What is interesting is that the S&P 500 is reaching its all time high of 1,562 points (reached on 9 Oct just before the subprime mortgage crisis). The index is just 68 points away. If the index can punch through this all time high resistance, then it would add even more power to the rally and we will see new all time highs.
S&P 500 Index 5 Year Chart

S&P 500 Index 1 Year Chart

There are a few reasons why I believe that the US market rally has a lot more to run (barring any US Debt default).

1) The great rotation of Bonds into Equities by Institutional Funds
After allocating the majority of their assets into government bonds in the last 10 years (because of global economic fears), institutional pension and insurance funds are now finding that they are holding onto now expensive, ultra-low yielding government debt. There is a need to rebalance their portfolios and shift funds from bonds back into equities as the latter is now attractively valued in terms of relative yield and valuation. In other words, stocks are now much much cheaper than bonds. This will results in great fund inflow into the stock market, thus supporting high prices. According to Lipper, net flows to U.S.-based equity funds in the first two weeks of 2013 was, at $11.3 billion, the biggest fortnightly inflow since April 2000!

2) Indexes are still reasonably priced on a PE Basis
After rising more than 113% over the last 4+ years, are stocks expensive? Well, according to the indexes historical PE ratios, I don’t think so. These are the PE Ratios (TTM) of the various indexes
S&P 500             14.84
Singapore STI   12.29
Malaysia KLCI   14.48
Shanghai CI     12.8

Indexes are still trading below the PE =15 median, which means that stock markets are still cheap from a historical perspective. They could still potentially rise 20%-50% from here.

The Singapore STI and KLCI are still on a strong uptrend as indicated by the Moving averages on the charts. The KLCI had a big sell off because of election fears but is being supported by the red 200DMA. If the index can bounce off this index, it would make a nice ‘buy a dip on the uptrend’. The CAF (China ETF) that I have been holding onto is now up +31.21%, and it is only the beginning of the great recovery of the Chinese stock market.

Singapore STI

Morgan Stanley China A Share (CAF)

Highlights From My Stock Portfolio

I am sure you have read the news that the US Federal Reserve has pulled the trigger on the biggest quantitative easing effort, QE3 thus far. Fed Chairman Ben Bernanke announced that the FED will be buying $40 billion in mortgage-backed securities each month until employment levels improve. In other words, this time, they are going to do whatever it takes to fire up the economy with no restrictions in place like the last time.
In addition, the Fed also indicated that it plans to keep short-term interest rates close to zero% until mid-2015.

What The FED’s Move Means To Investors
So, how does this help the US economy and the markets? Let me explain it to you as simply as I can…
1) By buying up billions in mortgage-backed securities, the FED will essentially ensure that mortgage interest rates stay low and that banks have the confidence to lend to consumers again. These low interest rates will encourage more people to buy houses. This in turn will increase home values and reduce the glut of unsold houses.

2) As home values increases, people will start feeling rich again. This will cause them to go out and spend more money, thus increasing consumer spending (that makes up the bulk of GDP) and increasing the profits of US businesses. Subsequently, businesses will have the confidence to go out and hire more workers again to meet to the higher business demand

3) As demand for homes increase, home-building companies will see more business, which will spur more hiring of workers. Since the housing industry makes up a large proportion of the labour market, this will help create more jobs.

4) By essential printing money and injecting it into the economy, the Fed is intentionally driving the US dollar lower. A weaker US$ will help boost exports and at the same time, US companies remitting foreign profits back home will convert them to more US$. This will boost the profits of MNCs.

5) Low interest rates will also force savers to avoid leaving their money in the bank and instead seek better returns by shifting their money into the stock and property market. These inflow of funds will subsequently drive up stock and real estate prices, making people feel richer to spend more. The increase in consumer spending will again lead to higher business profits and increased employment.

In summary, this move by the FED will result in the following:
1) The US$ has depreciated and may continue to weaken
-> You can profit from US$ decline by buying the Powershares US Dollar Bearish ETF (UDN)

2) Commodities like Oil Prices and Gold will be pressured to rise.
-> Watch the Gold ETF (GLD) and Oil ETF (USO) which are now on short term uptrends

3) This expansionary monetary policy will further inflate stock and property prices
-> the US S&P 500 and Dow Jones continue to be on an uptrend and have broken key resistance lines, signaling increased bullishness. Many Asian stocks have also reversed from downtrends to new uptrends. Watch for good entries on fundamental good undervalued stocks. As you can see from the S&P 500 chart, the price has broken past the resistance at 1,416 points. As long as it stays above this line, the bull run should continue.

4) Inflation will result in cash being worth less over time

Criticism Over The Fed’s Move
There are an equal number of politicians, economists and analysts who believe that this move by the FED will fail in creating jobs and boosting the economy.

They believe that it will only cause inflationary pressures that will destroy people’s wealth (i.e. Those who are holding onto cash). They also believe that it will lead to fake appreciation in stock and property prices (when there is not real increase in demand for goods & services), creating a huge asset bubble and lead to a bigger crisis down the road when the bubble finally bursts. 

People like Warren Buffett believe that the FED is doing the right thing while investors like Jim Rogers & Marc Faber believe that it will be a disaster. So who is right?

The answer is…. WHO CARES.

Remember that to be successful in the markets, we don’t need to predict the future of the economy and the markets. Predicting the market is not an investment strategy. We just have to know where the current trend is and keep riding it UNTIL it changes. This is why I have been long the market since June 2012 and will continue to stay long as long as market remains on an uptrend.

This is the latest Snapshot of My Portfolio

If the critics are proven right and the whole thing DOES collapse in the future, I will sell to take profits and start to short the market all the way back down. So either, way, I am going to make a lot of money. I hope that by applying all that you have learnt at Wealth Academy, you will profit like crazy as well.

Why Some People Missed Out On The Rally
When I spoke to some people over the last weekend at Wealth Expo, Singapore and Malaysia, I was surprised that many people have been missing out on the uptrend over the last few months and the bull run over the last 3 years (the US, Singapore, KL market has risen more than 110% from 2009-2012 Present).

”The market has been on a confirmed uptrend (50 DMA above 150 DMA), so why aren’t you invested in the markets? Stocks are cheap (undervalued) and it is on an uptrend? “ The main answers these people tell me is that they have listened to EXPERTS who have been telling them that the market will  crash, that the recession is worsening, that the Euro will collapse etc…

As I have told you at Wealth Academy/Expo, never listen to the advice, opinions of experts! Nobody can predict the market. Predicting the market is NOT an investment strategy. Instead of predicting the market, you have to FOLLOW THE TREND and ensure you always but at a price that is undervalued.

Even the expert advisors at Goldman Sachs (the top investment bank in the world) made a very wrong prediction when they said the S&P 500 will decline and advised all their clients to short the S&P 500 on June 21, 2012. Since then, the S&P 500 has RISEN 10%!!!!

So, remember, never listen to the opinions and advice of experts. Instead, keep doing your own research and follow the rules you have learnt and you will make profits consistently. I hope you guys enjoyed the Wealth Expo in Singapore and Malaysia

On Friday (1 June), Global stock markets, led by the US stock market suffered their biggest one-day percentage drop for the whole of 2012. The S&P 500 fell 32.29 points, Dow Jones 274.88 points and the Nasdaq was off 79.86. Needless to say, Asian markets will probably plunge as well when the markets open next week.

Recent Data is Showing That Europe is Getting From Bad to Worse, Pulling the US and China Economy Down With It

This massive sell off was sparked by a batch of disappointing economic data that shows that word’s biggest economies are slowing down and in danger of contracting again.

Until recently, it appeared that Europe would muddle through its debt problems in such a manner that US companies (and the rest of the Asia) would be able to maintain profit growth. That could increase the value of US & Asian companies (especially China), and raise their stock prices.

If European countries like Greece and Spain reject any efforts to address their fiscal problems, however, the risks to the global economy increase. There is a real risk that Greece will not be able to put together a viable government and will leave the Euro. That may be the best policy for the long -term, but it will cause near-term havoc in the financial markets.

Now, Spain has taken the limelight and appears to be a slow-motion train wreck with no easy policy prescriptions. When a country has 24% unemployment, even the best policies will take years to produce results. The political debate in Europe has intensified and will probably get worse. Now, it is unclear the degree to which even Germany will follow policies amenable to the financial markets. The political turmoil will be a persistent problem for the financial markets

As if to compound concerns about the Eurozone’s fiscal, financial, and economic conditions, a batch of disappointing manufacturing numbers released by Europe after a lackluster manufacturing report from China. They were followed by one of the worst US payrolls reports of the past year.

Official numbers indicate that nonfarm payrolls increased in May by 69,000, which is far less than the increase of 150,000 that had been expected. Nonfarm private payrolls increased by a mere 82,000, which is also hardly half of what had been broadly forecasted.
What’s more, the headline unemployment rate ticked up to 8.2%. Most economists expected it to remain at 8.1%. Manufacturing data also proved uninspiring as the ISM Index declined during May to 53.5 from 54.8 in the prior month, missing the reading of 54.0 that had been expected for the latest reading.

The US Market Is On The Verge Of A Medium Term Downtrend

The recent drop in stock prices has resulted in Major Indices (i.e. S&P 500 and Dow Jones) to fall to/below their 200 Day Moving Average. As many of you have learnt at WA, the 200DMA is the last line of defence for stocks.



If prices continue to fall below the 200DMA over the next few days, and the 50 DMA crosses below the 150 DMA, then the Market will be in a medium term downtrend, meaning that stock prices will likely continue to fall lower over the next few months.

While cyclical stocks will be hit the hardest, you will find that defensive and predictable company stocks and especially those with good dividend yields, will be the least volatile. This is why it is so important to balance your portfolio with enough of these predictable and defensive stocks. While they may not soar as fast as cyclical stocks, they also do not plunge as much during market downturns.

As mentioned in my previous email, the Singapore STI is already in a medium term downtrend and probability is that it will continue to decline. The KLCI is still one of the most resilient indexes and continues to be on a medium term uptrend. We shall see if it can hold on this week.

Although Stocks Look Cheap, They Can Get A lot Cheaper

When the market is in a medium down trend, it does not make sense to buy stocks YET. Stocks of good companies may appear to be cheap (and even recommended by analysts), but on a downtrend, they can get much much cheaper. I would be patient and wait for stocks to find their bottom, reverse back into an uptrend (with the 20 Day EMA at least above the 40 Day EMA) before starting to invest again.

Ever since the market was in a short term downtrend (20 Day EMA crosses below the 40 day EMA) three weeks back, I have been selling almost all of my stocks. Now, I am 90% in cash and only 10% in stocks. Better to preserve my cash and wait for the opportune time to re-enter stocks of good companies once markets reverse back into an uptrend. Hopefully, if they fall a lot lower, I can buy even more at cheaper prices.

In the meantime, I will still profit from the downtrend by shorting specific stocks (i.e. Like Facebook, which I have been shorting for quite sometime) and holding short/inverse ETFs like the Ultra Short S&P 500 (SDS) and the Ultra Short Financials (SKF) which will rise in value as the S&P 500 and Financials ETF (XLF) fall.

Investors who choose to keep holding stocks through this downtrend must be prepared to sit on paper losses for the next few months and have their money stuck in the market. When prices get much much cheaper, they may not have as much cash to take advantage of the much lower prices. However, investors choosing to hold can also HEDGE their positions by again buying Inverse/short ETFs. In this way, the profits from their SHORT ETF positions will offset the unrealized losses from their LONG stock positions.

The Only Thing That Can Save The Market…

Right now, the only thing that can possibly cause a rebound in stock prices is if the European Central Bank (ECB) 0r the US Federal Reserve suddenly announces that they are going to start buying up bonds/ printing money. This will inevitably cause GOLD PRICES to rally again. This explains why the Gold ETF (GLD) gapped up on Friday, on anticipation of future monetary easing by central banks.

It may also make sense to still be LONG on Gold for the time being. As long as there is fear in the markets and a high possibility of more money printing, Gold will continue to run up. I would however, again wait for the 20 Day EMA to cross above the 40 Day EMA to buy the Gold ETF (GLD).

The other thing that can bring confidence back to the markets is if the New Democracy Party of Greece wins the Mid-June elections from Radical leftist leader Alexis Tsipras, whose Syriza party intends to reject the austerity measures imposed by Europe. New Democracy leader Antonis Samaras, meanwhile, said his party would “keep fighting for a developing Greece within Europe” and “against those who say they want to get Greece out of Europe.”