Hello Again!
Bulls make money, Bears make money but pigs get slaughtered!! Except for this final week in October, the market was really stagnant and boring in October. Finally it came back to life with a modest correction. I do not think it is over yet. It was like a perfect storm. Technically it was ready for a correction. Astrologically it was ready to decline. With the covid 19 situation getting worse with the election coming up soon, it was a perfect storm. Add to that the market did not get the stimulus package it expected from the government. Surprise! Surprise! Most of all, even after this decline, the market, especially the technology stocks are way overvalued. I am talking about “irrational exuberance” which is the favorite cause of market crashes. However almost all expect the markets to fall early next week. I am a contrarian. If everyone is on one side of the boat, I prefer to go to the opposite side. Don’t be surprised to see a rally next week. There are a lot of people waiting for the market to crash so they could have a buying opportunity; and that includes me!
After many, many months, I hear most people are negative on Apple! Whenever that happens, we have to get ready to buy more in the future! Some say Apple will go down to $80! Imagine that! Buy it at $80 and double it in 3 years or less for sure!
On a daily basis I watch a video by Carolyn Boroden aka Fibonacci Queen. It is my understanding that decades ago, she worked with Jim Cramer at Goldman Sachs. She states that according to March’s low, we have not yet come to the expected market top yet but that is close. Her advice to traders, “Not to be too concerned about the long-run and just take one decision to the next”. However long-term investors do not have this luxury. With Boroden, I pay a lot of attention to market indices and also to Apple as I trade in Apple options. She also analyzes bonds, commodities, and stocks like Amazon, Google, Microsoft, Facebook etc. On Apple she has a short term upper target of $121 (even though she is bearish on Apple) and a long-term target of $147. At today’s prices (after 2020 split prices), we got our initial Apple purchases at $23 per share 5 years ago! After the 2020 split, it became very attractive for option trading. Tesla, just like Elan Musk, is in a universe of their own (too crazy to be in those stocks or options) ! Musk, one of the most brilliant humans alive! Boroden relies a lot on the 5/13 rule. She states that it does not always work but it is very reliable. What is the 5/13 rule? If the 5-day moving average is above the 13-day moving average, then it is bullish for that specific stock or market; and when the 5-day is below the 13-day, it is bearish for that specific stock or market. I tested it out and it works for me too.
Different technicians using different methods come to the conclusion that possibly within the next 12 months (anytime now?) we could have a market top and then the market would drop for 2 years as it did from 2007 to 2009. Merriman believes that DJIA could end up 2,000 to 6,000; and Robert Prechter expect the DJIA to go down to 1,000. 2020 was year when we had a depression coupled with irrational exuberance on Wall Street so intuitively I agree with those predictions. Who will get blamed for such a “correction”? Most probably the naïve Robin Hood investors and traders. I heard on CNBC that these Robin Hood folks boast about their achievements on Facebook etc. and many get their accounts hacked and money stolen! Being young and naïve! As they say, if it is easy for you to move around money with a “click”, then it is just as easy for hackers to steal your money with a “click” too!
Merriman (astrologer/technician) has been writing newsletters etc. for all markets for the past 40 years or so; and he has been doing the same for gold for about 50 years. He has some subscribers who have been with him for 40 years! On 10/11/20 he held a webinar that was attended by people in 10+ countries. He is from Arizona, USA but right now he is with his German born wife in Germany. Some interesting points from the webinar:
· New era starts on 12/21/20; that would last for 140 years. Jupiter/Saturn
· 1/11/21 to 2/17/21: “heavy energy”. “Difficult period” . Mars/Jupiter/Saturn/Uranu
· After March 2021- A better time. “less fear”
· 2007-2009 Decline (53%) was worst since 1929/1932
· Market should bottom between 2020 and 2023
· Market should top out by December 2020 (Venus Retrograde) or between February 2021 and December 2021.
· China hit a top in July 2020
· US Dollar is in a downtrend; will bottom in 2024
· Silver does better than gold during the last stages of a bull market for metals. Expect silver to go over $30. Even though it is unlikely, gold could get to $8,000 before declining for 30 years –somewhat like what happened around 1980.
· Stand aside (no trades) till mid-November or so-Issued this early October.
In 2016, just before the elections, technical analyst Tom De Mark of DeMark analytics made some correct predictions. On 10/13/20. Jim Cramer featured him on his Mad Money program on the “off the charts” section. Here are some of the highlights:
· Current upward trend is running out of steam.
· DJIA could run up to 29,400 to 29,550 and then it will run out of steam.
· The end is close
· There will be another run up during the week of 10/13, and then the market will decline
· Right before the election, the market will bottom
· Just as it did in 2016, there could be a short stagnant period after the election but as it did in 2016, the market could have another rally thereafter
Are we going to have a leadership change in the market? Big techs like Amazon, Apple, Facebook, Microsoft have been leading the market for many years now. One of the big money managers who come on CNBC often that I respect a lot is Josh Brown. He stays connected to some of the most important people on Wall Street. On 10/22/20, on CNBC, Josh was talking about his talk with this “world’s best market technician” (did not name him) who is in charge of technical analysis for Soros. Soros is sure to hire the very best. Per Josh, this technician believes that all the big techs (i.e Amazon, Apple etc.) made a long term top around July/August 2020 and they will not make all-time highs for many months to come. I am not so sure.
During October some finance and bank stocks came back to life for a while. Why? Interest rates or the bond yield on most treasuries went up and whenever that happens, banking and finance stocks do well.
By mixing stocks and stock options we can create many different avenues of revenue. Most of these methods will be taxed as normal income and not capital gains. I heard something on CNBC and I tested it out and this method has some validity. This guy who owns JP Morgan stocks, was selling call options on JPM, once a month and making a profit of 2% per month or 24% per year plus JPM dividend rate is at about 4% so the net profit is close to 28% per year. Let us say you bought 100 shares of JPM on 10/13/20 at $100 per share at a cost of $10,000. Then you “sell a covered call option contract” (one contract that cover 100 shares for $2 (price range $1.98 to $2.11); which expires 11/13/20 with strike price of $105. Given what happened over the past 3 months, it is unlikely that JPM would go over $105 by 11/13/20; and if that happens, the option will expire worthless and you get to keep your 100 shares and also you have already made a 2% profit within 30 days. Assuming you can repeat the same process month after month (as the guy I saw on CNBC on 10/13/20) , you will be able to earn 24% within the next year. Also you get the 3.56% dividend yield JPM was paying on 10/13/20. What happens if JPM go over $105 (let us say up to $110)? Since you have written a covered call, you cannot sell your 100 shares and most probably the buyer of the option will exercise his rights and buy your 100 shares at $105. So initially you got 2% for an option premium and now you get another 5% for buying at $100 and selling at $105. A cool 7% profit in about 30 days! If you are concerned that JPM would fall by about 25%, you can buy a put option for about $3 (3%) that expire in about 8 months. Nice way to get an income!!
Riding these waves could be risky. Trends can change suddenly. I noticed that Fedex has done better than most high flying tech stocks in 2020. In March 2020, Fedex hit a low around $90 and then rose to $270+!!! A couple of weeks ago, I thought to myself, “better late than never” and bought some call options on Fedex. In 3 trading days, they were up by 75%! However I did not sell them then the decline started. You win some and you lose some! Hope you will win more than you lose!!
Have a great month!
Fernando