The CBOE Volatility Index (^VIX) is a measure of market sentiment, based on options trading among the S&P 500 companies.
The most extreme bullish is at 13 and the most bearish events is at 49.
- At 13: This means investors are very complacent. We should buy the VIX and sell stocks.
- At 49-Plus: This means investors are panicking. We should sell the VIX and buy stocks.
Currently, the VIX indicator is at the low 20s, and declining. It is time to get ready to sell. A more detailed discussion can be found here.
Saturday, September 11, 2010
Friday, September 10, 2010
Why I would not be following some investors on rushing to the exits
Current picture:
1. Investor sentiment is as bad as it was during the market's low in March 2009
2. Only 29% of stocks rated by the usually uber-bullish analysts have a buy rating
3. The stagnating economy, the persistently high jobless rate, taxes, war....
Why we should be buying stocks?
1. In 2010, S&P 500 earnings are expected to grow 46%, the largest increase since at least 1988.
2. Next year, the S&P is expected to earn $94.31 per share, putting the P/E at a low 12 times expected earnings and below the 14% growth rate.
3. Since 1988, the S&P 500 has traded at an average historical P/E of 19.3. Today, it's at 15, implying a return to 1,417 if it simply trades back to its average P/E.
"Times are tough, but that's when you're supposed to buy stocks, before things turn around. Perhaps it truly is "different this time." But I'm not buying it. I'm buying stocks instead." - Mark Lichtenfeld
1. Investor sentiment is as bad as it was during the market's low in March 2009
2. Only 29% of stocks rated by the usually uber-bullish analysts have a buy rating
3. The stagnating economy, the persistently high jobless rate, taxes, war....
Why we should be buying stocks?
1. In 2010, S&P 500 earnings are expected to grow 46%, the largest increase since at least 1988.
2. Next year, the S&P is expected to earn $94.31 per share, putting the P/E at a low 12 times expected earnings and below the 14% growth rate.
3. Since 1988, the S&P 500 has traded at an average historical P/E of 19.3. Today, it's at 15, implying a return to 1,417 if it simply trades back to its average P/E.
"Times are tough, but that's when you're supposed to buy stocks, before things turn around. Perhaps it truly is "different this time." But I'm not buying it. I'm buying stocks instead." - Mark Lichtenfeld
Monday, September 6, 2010
Noble represents good value
Finally, Noble has turned, and has broken its 20-day high. According to the turtle trading method, this is a buy signal. Fundamentally, now could be time to pick up shares of the China-backed commodity supply- chain manager. CEO Ricardo Leiman told shareholders and analysts via a conference call on Aug 12. “Despite the fall in profit, we are on target to double our profits to US$1 billion within the next three years.” Analysts' target for the stock range from 1.62 to 2.26. Current price is 1.71. More on this article
Noble Group: Share price falls to attractive levels as earnings take a hit
Monday, 23 August 2010
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Monday, 23 August 2010
© 2010 - The Edge Singapore
What is overbought can remain overbought
C K Ee's explanation of why RSI can remain overbought is an extremely interesting one.
This is as follows:
For Long, buy when
-RSI cuts back into overbought territory the second time. Condition is that RSI has to remain above 50.
- Exit when RSI cross below 50.
Example:
This is as follows:
For Long, buy when
-RSI cuts back into overbought territory the second time. Condition is that RSI has to remain above 50.
- Exit when RSI cross below 50.
Example:
Sunday, September 5, 2010
The meaning of expected value
Say in a game of roulette, there are 37 numbers, 0 to 36.
The casino payout is 35:1 for winning no.
The odd of winning is 1/37.
The odd of losing is therefor 36/37.
EV = 1/37 x ($35) + 36/37 x ($1)
= - 0.027
Hence, we say the expected value to us is -$0.027
The casino payout is 35:1 for winning no.
The odd of winning is 1/37.
The odd of losing is therefor 36/37.
EV = 1/37 x ($35) + 36/37 x ($1)
= - 0.027
Hence, we say the expected value to us is -$0.027
Saturday, September 4, 2010
The Turtle Trading Method
I have long been interested to learn the trading method, but have not managed to, until recently, when I attended C K Ee's workshop. In short this is what it is about:
It is a trend-following system based on:
System 1: Long on 20-day high
Exit on 10- day low
or vice-versa
System 2: Long on 55-day high
Exit on 20-day low
or vice-versa
Initial stop-loss at 2 x ATR
Limitations of the Turtle trading include 1. Whipsaw losses
and 2. Slow and insensitive
However, in the long run, the expected return is positive (about 4%). Therefore, it is a system that is worth applying, especially with penny stocks.
It is a trend-following system based on:
System 1: Long on 20-day high
Exit on 10- day low
or vice-versa
System 2: Long on 55-day high
Exit on 20-day low
or vice-versa
Initial stop-loss at 2 x ATR
Limitations of the Turtle trading include 1. Whipsaw losses
and 2. Slow and insensitive
However, in the long run, the expected return is positive (about 4%). Therefore, it is a system that is worth applying, especially with penny stocks.
Wednesday, September 1, 2010
What is the right bet now?
On March 13, 2000, The Wall Street Journal ran an op-ed piece from Wharton Professor Dr. Jeremy Siegel entitled "Big-Cap Stocks Are a Sucker Bet." The column shocked the investment community.
Siegel focused on the 33 largest firms based on market capitalization - those with values greater than $85 billion. Of these, 18 were technology stocks. He noted that their market-weighted P/E equaled 126. What's more, he pointed out that half of the large-cap technology stocks had P/Es over 100. For these stocks, the market-weighted P/E was 208.
These prices were totally unjustifiable. There was no way that these companies could grow fast enough to support such insane valuations.
Are You Heeding Siegel's Current Warning?
That month, the Nasdaq - home to these tech giants - hit its all-time high of 5,132. From there, it imploded. Many of the stocks he singled out in the column - like Yahoo! (Nasdaq: YHOO) and JDS Uniphase (Nasdaq: JDSU) - plunged over 99%.
Even today - more than 10 years later - the Nasdaq is 60% below its high.
It's great when a knowledgeable analyst like this rings a clear warning bell at the top. So understand that he's doing it again today.
Earlier this month, he wrote another Wall Street Journal op-ed piece. This one is called "The Great American Bond Bubble."
Siegel says: "What is happening today is the flip side of what happened in 2000. Just as investors were too enthusiastic then about the growth prospects in the economy, many investors today are far too pessimistic."
As a result, they're plowing money into Treasuries and Treasury mutual funds.
This will almost certainly end badly.
Unless we have a full-blown deflationary depression, these bonds are a horrible bet, offering minuscule yields and huge downside risk. Many investors don't realize how badly they can get clobbered in super-safe Treasuries when the bond market turns down. (And those holding leveraged bond funds could see 40% or more of their principal vanish in a matter of months.)
As Siegel concludes: "Those who are now crowding into bonds and bond funds are courting disaster... The possibility of substantial capital losses looms large."
What does Siegel propose that income investors hold instead?
Don't Be a Sucker: Invest in This Asset Class Instead
Large-cap dividend stocks.
He points out that the 10 largest dividend-payers in the United States are:
AT&T (NYSE: T)
Exxon Mobil (NYSE: XOM)
Chevron (NYSE: CVX)
Procter & Gamble (NYSE: PG)
Johnson & Johnson (NYSE: JNJ)
Verizon (NYSE: VZ)
Phillip Morris (NYSE: PM)
Pfizer (NYSE: PFE)
General Electric (NYSE: GE)
Merck (NYSE: MRK)
And together...
They sport an average dividend yield of 4%, substantially more than what 10-year Treasuries are paying.
Their average P/E ratio is 11.7 versus 13 for the S&P 500.
Aside from the mountain of cash they're sitting on, their prospective earnings will cover their dividends by more than 2 to 1.
Despite fears of another stock market dip, income investors are wise to switch from Treasuries to high-dividend stocks. It might not feel like the right thing to do, but neither did buying stocks at the market low 17 months ago.
Adapted from Alexander Green's article "Are You One of the Millions Making This Sucker Bet?"
Siegel focused on the 33 largest firms based on market capitalization - those with values greater than $85 billion. Of these, 18 were technology stocks. He noted that their market-weighted P/E equaled 126. What's more, he pointed out that half of the large-cap technology stocks had P/Es over 100. For these stocks, the market-weighted P/E was 208.
These prices were totally unjustifiable. There was no way that these companies could grow fast enough to support such insane valuations.
Are You Heeding Siegel's Current Warning?
That month, the Nasdaq - home to these tech giants - hit its all-time high of 5,132. From there, it imploded. Many of the stocks he singled out in the column - like Yahoo! (Nasdaq: YHOO) and JDS Uniphase (Nasdaq: JDSU) - plunged over 99%.
Even today - more than 10 years later - the Nasdaq is 60% below its high.
It's great when a knowledgeable analyst like this rings a clear warning bell at the top. So understand that he's doing it again today.
Earlier this month, he wrote another Wall Street Journal op-ed piece. This one is called "The Great American Bond Bubble."
Siegel says: "What is happening today is the flip side of what happened in 2000. Just as investors were too enthusiastic then about the growth prospects in the economy, many investors today are far too pessimistic."
As a result, they're plowing money into Treasuries and Treasury mutual funds.
This will almost certainly end badly.
Unless we have a full-blown deflationary depression, these bonds are a horrible bet, offering minuscule yields and huge downside risk. Many investors don't realize how badly they can get clobbered in super-safe Treasuries when the bond market turns down. (And those holding leveraged bond funds could see 40% or more of their principal vanish in a matter of months.)
As Siegel concludes: "Those who are now crowding into bonds and bond funds are courting disaster... The possibility of substantial capital losses looms large."
What does Siegel propose that income investors hold instead?
Don't Be a Sucker: Invest in This Asset Class Instead
Large-cap dividend stocks.
He points out that the 10 largest dividend-payers in the United States are:
AT&T (NYSE: T)
Exxon Mobil (NYSE: XOM)
Chevron (NYSE: CVX)
Procter & Gamble (NYSE: PG)
Johnson & Johnson (NYSE: JNJ)
Verizon (NYSE: VZ)
Phillip Morris (NYSE: PM)
Pfizer (NYSE: PFE)
General Electric (NYSE: GE)
Merck (NYSE: MRK)
And together...
They sport an average dividend yield of 4%, substantially more than what 10-year Treasuries are paying.
Their average P/E ratio is 11.7 versus 13 for the S&P 500.
Aside from the mountain of cash they're sitting on, their prospective earnings will cover their dividends by more than 2 to 1.
Despite fears of another stock market dip, income investors are wise to switch from Treasuries to high-dividend stocks. It might not feel like the right thing to do, but neither did buying stocks at the market low 17 months ago.
Adapted from Alexander Green's article "Are You One of the Millions Making This Sucker Bet?"
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