Hi again folks,
We do not have to care if the market goes up or down-even how far it goes down. We just have to wait for opportunities when ‘our stocks’ (listed on the scorecard) go below our average cost; then we can increase our holdings and be patient till we make a profit in the long run. Since December 2014, the market has been in a range without making new highs. Looking at historical data, once the market has not made a new high for more than 18 months, when it makes a new high again, you can expect the market to move up significantly. Our investments will eventually pay off.
Over the past 30 years I have noticed that when experts expect the market to go down due to a certain future event (i.e. the BREXIT that took place a couple of weeks ago), you also get many money managers who wait for the opportunity to invest new money in the market. The BREXIT mini crash took down the Dow Jones Industrial average by about 870 points in 2 days ending on Monday, 6/27/16. On 6/27/16, market volume went up to 5 billion shares and the volatility index (VIX) went down which was a clear indication that all the sellers got out and the market is ready to go up-which it recovered most of the 870 points within the next few days. Also as it always happens, most of the rebound was due to short covering. One must never sell in to a crash when others are in to panic selling. That is a time to go shopping and buy.
This mini crash gave us an opportunity to increase our holdings in Apple, Bank of America, Disney and Glaxo Smith Kline on 6/27/16. Where will the market go from here? There are many who expect the market to go down in a big way. On 6/10/16, the bond king, Bill Goss stated that all financial markets are in a supernova close to explode and be vulnerable. He also stated that oil, stocks, bonds and gold all have gone up so the market is very confused. He is invested in top oil company bonds. On the same day it was announced that Carl Icahn is saying that stocks and gold is up due to negative interest rates in many countries but he is net long on stocks. On 6/9/16, CNBC reported that George Soros is selling stocks and buying gold. As he did in the 1990s, he correctly predicted the downfall of the British pound if and when Britain exits the European Union. In one day the pound dropped by 8% to $132 to the US Dollar after the BREXIT vote but we have to wait and see if Soros’s prediction of $115 will come true. Paranoia among billionaires could be due to the fact that they lost $570 billion in 2015 and 200 billionaires lost their billionaire status in 2015. 85% of all trading in the market is done by computers and algorithms and as with the unexpected 8% drop in the Chinese market months ago, the computers did not know how to react to the BREXIT mini crash. Robo money managers of the Betterment Fund froze all trading on 6/27/16 and thereby they missed a huge buying opportunity.
Humans can always beat computers! On 6/8/16, oil (WTI) hit a multi-year high of $51. On 6/17/16 it was announced that oil rigs were up by 9 and gas rigs were up by 1. Natural gas which was not expected to go up for decades has gone up more than 25% in one month. We may never see the February 2016 lows and we may never be able to buy our oil stocks at a cheaper price. Some expect oil (WTI) to hit $80 within the next 6 months. I have relied on technical analysis to assess the future of the market but what happens in the next moment can reverse all previous predictions when it comes to technical analysis. For example, world’s best technical analyst, Ralph Acampora, when the market was crashing on 6/27/16, stated on CNBC that we could see the February lows once again the ten year yield on the US treasury could even go down to !% (it has been around 1.5% to 2%). He wanted to see more fear in the market prior to making a return to new highs.
Apple- On 6/17/16, Beijing (China) Intellectual Property Court ruled that Apple infringed on Chinese patents. For now Apple can sell in China. Unlike in the US, Chinese courts are not independent and it seems like the Chinese government is out to get Apple and bully them. This is why Carl Icahn sold his holdings in Apple. It is no surprise Apple promised to invest billions in China. On 6/10/16, Brian White of Drexel stated that he expects the stock to rise by 90%. He also stated that innovation at Apple is still alive and growth will continue but not as it has done in the past. On 6/16/16 JP Morgan cut the Apple price target to $105.
Disney-We made our first purchase of Disney on 1/10/16 when most analysts were negative on Disney due to ESPN and ‘cord cutting’ by consumers. Now many analysts are recommending Disney as a buying opportunity. On 6/20/16, Anthony DiClemente of Nomura Securities issued a buy recommendation on Disney with a price target of $115(our average cost is $94.28). He also stated that ESPN problems are well documented and no further cord cutting is expected. On 6/16/16, per CNBC, Disney opened its theme park in Shanghai, China with 33 million people living within 3 miles of the theme park. Disney CEO Igor stated that this was Disney’s best investment since they bought land in Florida. Their world’s biggest castle is in China.
GE- Per Josh Brown, CEO, Ritholtz Wealth Management announced on 6/15/16, that the price of GE just moved above its 50 day moving average and if it goes over $32, it could go much higher.
Twitter- On 6/15/16, Twitter went up by 6% in 4 hours due to their acquisition of Sound Cloud (online music); and also due to the acquisition of LinkedIn by Microsoft, there were rumors once again of Twitter being taken over by another company. It is difficult to find anyone who wants to buy the stock but analysts say not to short it due to M&A rumors. On 6/10/16, CNBC reported that Instagram is attracting more ad dollars than Twitter and they cannot understand why Twitter cannot make use of the presidential campaign (with Trump so Twitter happy) to monetize more.
Have a great month!
Fernando