Hi Again,
As I have always been saying, always remember to keep 25% to 50% in cash.
Take a look at our scorecard. During the month of April, our total portfolio had a net gain of 7.66%; and out total net gain (mostly from the 3/18/20 crash) is at 51.39%. As the market guru Peter Lynch said in the 1980s, the highest gain we get soon after a crash. Did the market hit a bottom in March 2020? Probably not; but it does not matter. If the market goes below that we could buy more as long as we keep our average lower than the current average cost. That is the secret! All the professional money managers I respect limit their purchases to the safest companies with rock solid balance sheets that did not decline that much in March 2020 but they also limit their upward potential. Higher the risk, higher the return. However it is very important to limit our exposure to companies that have a likelihood of bankruptcy; and that is why in the highly risky airline section to Delta and Southwest. In March 2020, I made some money by short selling (through put options) American Airlines as I believe that they will declare bankruptcy within the next 12 months. My puts had a strike price of $5. Last week an analyst downgraded American and stated that it is very likely that they would go bankrupt and set a price target for American at $1!
Last month I suggested the Casino, WYNN at $38 and now it is up 138%. At that time China was opening up and they get 60% of their revenue from China. Why did it shoot up? Their CEO was on CNBC with plans to open up casinos in Vegas. This world is full of gambling addicts. I made a lot of money on Disney, first short selling through put options and then on call options as the stock rose. Most people do not have an imagination. I wish I could talk to Disney execs about my idea for Disney. Monday through Friday, I watch or listen to CNBC Wall Street coverage from 4am to 5pm and I have not heard a single person mention my idea. Jim Cramer and other “experts” say that Disney theme parks (where they get 40% of their revenue) will come back only after we have a vaccine for the corona virus. I do not agree. As Amazon does, Disney can use a “fog” to clean out the virus periodically. Now Emirate Airlines give a 10 minute virus test and board only the people free of the virus in to the plane. Very soon Disney should be able to do that for their theme parks. Each theme park is a universe unto itself. If every person within the park is negative for the virus, there is no need for “social distancing” and wearing masks. All the people in the world are suffering from cabin fever so I expect most people would be eager to visit Disney theme parks. Once Disney announces that they have plans to reopen their theme parks, their stock price is sure to skyrocket.
As for my personal investments/trading, I am no longer in individual stocks. From 2/15/20 to about 4/1/20, I tripled my net worth by doing daily trades. I lost a lot and made a lot of mistakes too but that was great as I learned a lot from those mistakes. Now I am totally in to index options and no longer in to stock options (with a couple of exceptions like Disney and Boeing). In the 1980s when I got in to stocks, I wanted to find a way to predict the future of the markets and I found technical analysis. Most people do not understand the difference between “fundamental analysis” and “technical analysis”. In technical analysis. Even without knowing what they are studying they can use the same techniques to forecast the future of stock markets, bond markets, commodity markets, gold, oil, bitcoin etc. Here are some of the aspects of technical analysis (1) Charts study (2) Trends (3) Patterns (4) Moving averages (5) Measuring market strength (6) Cycles (7) Elliot Wave Theory (8) Dow Theory (9) Market Sentiment (10) Fibonacci numbers in charts. I just bought a book titled “Fibonacci Numbers” written by the “Fibonacci Queen” (Carolyn Boroden). She is one of the best technician and she has been doing this since the 1980s.Prior to the 1987 crash I knew that it was coming as I was following Richard Prechter who was using the Elliot Wave Theory.
From birth, as it was done my parents and ancestors, I was a big believer in astrology and a few weeks ago my astrologer told me about an astrologer who was using astrology plus technical analysis for the market. I tested him out and I find him to be amazing. Many traders all over the world subscribe to his services and now he is going to start publishing in French and German too. Every Saturday I get 2 newsletters from his organization and they tell me what I can expect each stock index to do the following week and the days the market could reverse its trend. At times he contradicts himself due to the various astrological influences affecting at any given moment but with my intuition I pick up what is right for me. He has been amazingly accurate! For example, on Saturday 4/25/20, he predicted the market would go up at the beginning of the week and would start going down from 4/30/20-which was 100% accurate! He was correct about the previous week too. Most people look down on people who believe in astrology but this has been done for thousands of years and I laugh all the way to the bank! 4/25/20 to 5/20/20, my net account balance rose by 30%! Every Saturday, like child waiting for Santa on Christmas Eve, I wait for those 2 newsletters! According to those people, we could see extreme volatility and sharp declines in May 2020 and June 2020 as major planets like Venus, Saturn, Jupiter and Mercury go retrograde. More about this in future newsletters. A good market technician stated on 5/1/20 (on CNBC) , that he expect the market to fall significantly soon- On 5/1/20, the S&P 500 ended at 2830 and he expect it to fall to 2100 (about 30%)! Merriman (astrologer) expect for us to see the market bottom between 2021 and 2023 and the Dow going down all the way to 2,000 is a possibility. Now let us talk about sentiment. Per technical analysis, it is well known that when more than 50% of the investors think the market would go up in the future, market tends to go down in the future (a contrarian view). Over and over again I have seen that this is very true. This is especially true when “retail investors” (mostly naïve investors) are bullish. All the expert professional money managers I respect that come on CNBC are pessimistic about the market and they think the market would go down sharply in the future but they all say that all their customers are calling them to buy the most risky stocks right now! In 1929 before the crash when Joe Kennedy heard that his shoe shine was buying stocks, he sold his whole portfolio and did not get caught to the 1929 crash. As I said when more that 50% are bullish it is negative for the market so do you want to know how many “retail investors” (naïve investors) are bullish right now? 96% !!! The purpose of a market crash is to scare these people and bring some sanity to the market so I have a feeling that we could see the Dow going down all the way to 2,000 prior to 2023! Prior to 2/15/20 we had an unemployment rate of 4% and we have an unemployment rate of 30% now and yet the Dow and S&P is only a few points less than its all time high and a few days ago the NASDAQ was higher for 2020 as if nothing big happened in 2020!! What did Greenspan say a few decades ago, “Irrational Exuberance’? When the market fall to 2,000 or so, all the people would be crying about their retirement funds! Better be safe than sorry! As I always say if you always keep 25% to 50% in cash, you have a shot at recovery one day!
Have a great May 2020 and watch out for a wild ride in the market!!
Fernando