Which will be the next Ezion?

As we know by now, Ezion has come a long way from 0.40 since Oct last year , hitting a high of 1.51 just last month (a 300% increase!)

Some others which have exhibited similar patterns are:

 

Of course, there are many others. But we are not interested in the past. More interestingly, which stocks will take off in the coming year? I will be writing about these soon.

Why I am still bullish... at least for first part of 2013

Despite fears of the fiscal cliff, China slowing down and US and Europe possibly going into recession, the markets are refusing to budge. Therefore, I am still bullish on the stock markets for the following reasons:

• I am betting that the fiscal cliff will get some resolution
• Over the last five years, some $500 billion has poured out of equity mutual funds and $1 trillion flooded into bond funds. Virtually every category of investor is running equity exposures at historic lows. A reversal of these flows would trigger the mother of all bull markets.
• The Fed will keep good on its promise to keep interest rates at zero until 2015.
• The European Central Bank will continue its never-ending monetary stimulus

How much will the markets rise?
The S&P 500 could clawing its way to $1,600 or more by the end of 2013, up some 13% from here.

Source: Presented by John Thomas, Global Trading Dispatch, Market Authority

I am especially bullish on stocks related to China at this moment .

Reasons to buy Midas for 2013 recovery

Midas Holdings: BUY S$0.36; Bloomberg: MIDAS SP
Poised for a turnaround;
Price Target : 12-Month S$ 0.50 (Prev S$ 0.49)
By: Paul YONG CFA +65 6398 7951

• We visited Midas’ production facilities in Luoyang, Nanjing and
Jilin recently
• The Group’s production capabilities and capacity has expanded
during this lull period
• Winning more orders from wider sources should help boost the
Group’s profitability
• Maintain BUY with TP S$0.50 (1x FY13 P/B)


Enhanced capacity and capabilities. Whilst orders have been slow in coming
through to Midas, it has been enhancing both its production capacity and
capabilities, in addition to diversifying its product range. Jilin Midas
now has an aluminium extrusion production capacity of 50,000 tonnes per
annum and can fabricate a complete range of train parts, including for
export.

More contracts to flow in, and boost profitability in 2013 and 2014. We
expect Midas to comfortably win orders of c. RMB1bn from metro, export and
the non-rail segments (power and other extrusion products) over the next 12
months, while high-speed train orders will depend on how soon the Ministry
of Railway (MoR) makes its purchases. If the MoR does order 400 train sets,
as people in the industry expect, we project that Midas could win c. RMB1bn
worth of high-speed train orders for delivery over the next 2-3 years.
Meanwhile, associate Nanjing Puzhen should also see an earnings turnaround
on its strong RMB8.5bn order book.

BUY for 2013 turnaround story, TP S$0.50. Midas is currently trading at
0.7x FY13 P/B, which we see as attractive for a turnaround story. We
believe the stock should re-rate as contracts start to flow in once again
for the Group. Our TP is based on 1x FY13 P/B.

Bear Run?

STI has broken below a Double Top.

 






                          

                                                                           

How long more to go is anybody's guess. But as usual, I will be preparing a buying list.

 

 

Stock Market Outlook 2013 - Market Authority

This is the time of the year to make preparations. Of course, prior to preparations, I must have a general feel of the markets. The only way to do this is to read up on market outlooks. This one, by John Thomas of Market Authority goes like this:


The 4 likely black swans
1) The Presidential Election. Most of Wall Street is hoping for a Romney win, but bracing themselves for an Obama one. No matter who wins, I expect a post-election surge in stock prices as a great mantel of uncertainty has been lifted from the markets. And as we all know, markets hate uncertainty.

2) The Fiscal Cliff. The media is ramping up their warnings of the dire impact of the "fiscal cliff" further scaring investors out of risk positions in everything from stocks to gold. The only real tangible impact of this "wolf crying" was to give a much-welcomed lower low in risk assets in October.


3) The Next European Quantitative Easing. Another round of monetary easing is due on the form of an additional "Long Term Refinancing Operation" or LTRO. The last one was for €500 billion, or $650 billion. Make that a double.

4) The New Year Reallocation Push. Add these annual flows to the positive developments outlined above, and you have the ingredients for a serious rise in stock prices. I think we could get as high as 1,600 for the S&P 500 in the first quarter of 2013.

This will however be the last 10% of a 140% move off of the March, 2009 low. This next ramp in share prices could be setting up us for the Greatest "Sell in May and go away" of all time. While president Obama may be puffing his chest out over one of the greatest stock market performances on record, he may well go down in history for "The Great Obama Crash of 2013."

Let me list the reasons why I expect a recession in 2013:

• The retirement of the baby boomer generation will continue to act as a drag on the economy for another decade, paring growth by 1%-2% a year.
  
• While the resolution of the fiscal cliff will be hailed as a great accomplishment, the bottom line is that a $4 trillion agreement will take 25% out of our GDP. 
    
• Look for Europe to remain in recession, adding more dead weight to corporate earnings here.
• Ditto for China, where a growth recession is delivering a serious blow to any company involved in the commodities sector, including steel, coal, iron ore, and copper. However, things may pick up after March 2013, after the leadership changes.
    
• While QE3 will give us a nice 4-6 month boost to asset prices, it can't do it forever. 
    
• We will enter the next recession with the highest unemployment rate in history, now 7.8%. .
  
• The year after a presidential election is always a great year to have a recession because it gives the ruling party three years to dig out before the next one.
  
• All of the gains in the stock market since June have been achieved through multiple expansion - from 12.7X to 14x today and 16X by March, Corporate earnings have actually been flat to falling during this time. Many companies are now hunkering down and reducing spending in expectation of a 2013 recession. This is why capital spending only reached half of the peak spending seen in the previous cycle.

If I am wrong with this analysis, the markets will bounce along sideways in an environment of falling volatility. That's why I am positioning myself with in-the-money calls spreads in order to profit from every possible scenario.

 

Recession 2013

 

All of this adds up to a big "R" for 2013, and share prices will no doubt reflect this. But I'm not looking for a major collapse a la 2008-2009, which saw a 53% plunge in the (SPX). I'm thinking more like a 25% to 37% pull back from a 1,600 top to no worse than 1,000. Those predicting Armageddon-like meltdown to 600, 300, or worse will be wrong by miles.

My reasoning is very simple. To get those huge, cataclysmic sell off of 500-800 Dow points a day you need to have a massive amount of leverage in the financial system. You had that six years ago, with equity hedge funds levered by 200% and bond funds betting the ranch with 1,000% or more long positions.

Conditions couldn't be any more different today. Hedge funds are typically running modest longs of 10%-20%. If they asked for 200% leverage, their prime brokers would probably tell them to go to hell and close their accounts. Morgan Stanley (MS) and Goldman Sachs (GS) are now running more bankerly 10X leverage. Individual stock investors have gone missing in action.

Biggest Buying Opportunity

Hopefully, it will be a short recession, maybe six months in duration, or only two back-to-back down quarters. After that, one of the biggest buying opportunities of the decade will set up for all asset classes. That will be the subject of a future report.

China at the point of reversal

China shares are bottoming, and reversing. This is indicative that the worst is over for the Chinese economy. Look at the table below. These are shares of companies most likely to benefit from the lastest Chinese quantitative easing - railway construction.

	3 months ago	Now	% change
Anhui	19.1	27.4	43%
China Coms	5.75	7.6	32%
China Railway Constr	5.71	7.7	35%
China Railway Grp	2.83	3.79	34%
Zhuzhou	16.38	23.5	43%
Midas	0.27	0.44	63%

 
Chart of Midas below. Notice that it is breaking out of a double bottom formation.

Time to buy Chinese shares.

Once-in-a-generation buying opportunity

Albert Edwards, global strategist of Societe Generale, says the US is headed for recession, and that a hard landing looms for China. This could lead to a more than 60% to 70% crash in the S& 500, and a more than 80% collapse in copper prices, all within the next 18 months.

Who is Albert Edwards? He is the economist who foresaw the Asian financial crisis in the 1990s. In fact, he warned clients back in 1995,1996. The crisis became full blown by 1997. He also foresaw the tech bubble in 2000. Now, he says, another crisis is looming. What are the reasons for this?

1. US will be unable to avoid a major recession
2. US stocks are now very expensive
3. Spillover effects to the rest of the world
4. Asian and Europe equities will get cheaper
5. Most people are way too complacent that policies will work in China

Conclusion
The world might now be in similar situation to early 2008.

Implication
Deadline for crash is March 2014. Between now and then, short the markets. Then wait for the once-in-a-generation opportunity to buy very cheap equities. Start to deploy cash as the index is on the way down to 400-500. More importantly, have a lot of cash on stand-by.