Will stocks crash in 2015?

Tan Teng Boo reckons there will be a big crash for the S & P in 2015. The reasons:

• Valuations are rich. US stock market rally has been going on for 6 years.
• The only time US equities have gone up so long without a 20% crash was between 1992 and 1999.
• In the last 114 years, CAPE (Shiller PE) ratio has been above 26 times during only 3 occasions - in the market peaks of 2007, 1999 and 1929.

Tan is in 70% cash currently.

The last time Tan predicted a crash was in 2011, and we know by now, he was wrong. But I am still excited, because if a crash truly comes, I will be moping up stocks.

Some of Tan's recommendations in a market crash are AIA(HK), Treatt Plc(Europe), De'Longhi(Milan), IP Group(London), Church and Dwight and Estee Lauder (US).

Time to switch from office landlords to residential developers, says Deutsche

 It’s time for investors to switch from owning office landlords to holding shares in residential developers.

In a 135-page report entitled ‘Time to switch?’, Deutsche Bank analysts Joy Wang and Man Chien-Fie said the best time to buy residential developers is when home prices are still falling and the declines have largely been priced in by the market.

Deutsche Bank’s top picks for residential developers include City Developments ( Financial Dashboard), Wing Tai Holdings ( Financial Dashboard) and CapitaLand ( Financial Dashboard).
Its price targets for the three stocks are $12, $2.15 and $3.95 respectively.

3 phases of the market

There are 3 phases of the market.

The first is liquidity-driven, like what we saw in 2009 when the financial crisis was ending.

The second stage is when markets move into a fundamentals-driven phase, when investors pay attention to things such as economic data and earnings That's the stage we are at now.

The third and last stage is basically a performance-broadening phase. Here, underperformers start to get traction and catch up. This next move will likely see investors rotating from their favourite developed markets to emerging markets including China.

(Quoted from Benjamin Yeo, CIO, Barclays Singapore)

Bullish on gold

Actually, I have been bullish on gold since a few months ago when it made new lows, but did not commit. Gold prices are starting to inch up again.

Royal Gold (RGLD), my favourite pick, has made new highs for the year. I must kick myself, for even if I have been targetting this one, has not made it my priority to get in when it softened to 59 recently (see 5 Apr post). Currently trading at 74.

Other gold stocks on my watchlist include Barrick Gold (ABX) and Silver Standard Resources (SSRI).

Why I am out of short positions

I am out of my short positions after a brief fling. Reasons are that Lowe's prices have reversed back to the uptend, and I now want to shift my funds to long the still-bullish oil sector and the Singapore markets. Hence, I have long on:

Vard (MS7): 1.085. Will add more if share price softens.

STI: 3064. Will add more if index softens.

Local oil stocks to watch

I am particularly optimistic about the O&G sector.
On the local front, the ones to watch (Maybank) for are:

Ezion (TP:2.70): strong liftboat opportunities in Asia-Pac and Middle East

Mermaid (0.59): emerging oilfield services player

Nam Cheong (0.45): key beneficiary of recvering OSV market

Vard (1.27): improving order win momentum

Bearish going forward

My decision to short the markets back in February was way too early, as markets reversed to new highs instead. I was forced to cut my short positions, and turn long instead, incurring an overall small loss still.

Now, I am initiating new short positions, as I believe that the markets are finally primed for correction. The reasons:

•  US stocks now trading at frothy valuations (PE 18 times)
• The Fed's tapering of quantitative easing ends in October or November, and investors will begin pricing in Fed's rate hikes
• Sentiment indicators show extreme investor bullishness

In fact, Normura's Bob Janjuah has predicted that some point in the third quarter, anything up to a 10% correction would occur. A bigger correction, depending on how soon we hit 10 on the VIX, may happen four or five months after that. Historically, when the VIX hits 10, it tends to explode upwards (very bearish sign). Of course, it can stay around 10 for a very long time, meaning markets can still trend higher for now.

 

For me though, I am maintaining my shorts.

 

 

Oil stocks are strong

Even as the biotech and social media sectors are imploding, energy stocks are performing brilliantly in spite of current weaknesses.

Conoco Philips (COP) and Cenovus (CVE) are now recovering from recent lows, and are displaying trend reversal signs from down to up. Looking to buy on market dips.

Bearish on Dow, but bullish on STI

Chart-wise, I see STI breaking out to the upside from its base. For this reason, I will be cutting loss or take profit on my "short" position when the index turns down from current overbought.

The stock counters I am looking to buy include Breadtalk, Goodpack and Noble. 

I am finding lots of sell signals in US market

Despite continued analysts' recommendations on purchasing US equities, I am finding plenty sell signals in US stocks. I think insiders/ fund managers are beginning to sell out of US equities owing to rich valuations. My top 2 to short now:

Cabot Oil & Gas (COG)

Herbalife (HLF)

Death cross and bearish candlestick patterns galore. As I have said in Sun 4 Aug article last year (see my post "Are we in last stages of bull run?"), I will be preparing to short these stocks. Other candidates on my list include: Amgen (AMGN), Biogen (BIIB), Celgene (CELG), Gilead Science (GILD).

My dogged performance in 2014 and the way forward

It has been a slow and frustrating 2014....

I was short Twitter, it rose, hit my adjusted stoploss, and fell back again.... I should have been in profits...

I was short Symantec and i took profit 2 days before the price crashed 10%...

I was short Krispy Kreme and the price rose to hit my stop loss, which I forgot to raise.... I managed to put back my postion but it had gapped down.

I was short STI, it fell back slightly, and now rose back up to way above my short price and its 200-d MA (a bullish sign)... I think this one will reverse to upside soon.. I will be adding more positions on its way up and then, when it corrects (inevitably), I will get out...

Moral of story: Need to hold on to my convictions. If I think a stock is going to fall, do not adjust stop loss nor take profit too early. Always check that I have entered buy/sell prices correctly. And, always have guts to put in more positions even as stock prices going against me.
I am usually right in the stock market, just need to hold my nerves.

Royal Gold my pot of Gold?

Royal Gold made a golden cross as of Feb this year.

With the increased volatility in stock prices, gold could finally bottom. And this spells upside for gold mining stocks. I am getting in soon!

Shorting candidate #1: Hang Seng Index

Felix Zulauf (CEO, Zulauf Asset Management) has viewed the Chinese banking system as about to implode. If this happens, there could be a bamking crisis in Hong Kong. He expects 2014 to be the year of the demise of the Chinese banking system. Hence, shorting the Hang Seng stock market is recommended.

Technically, Hang Seng has just broken below its 200-Day MA, confirming its downtrend. However,  I am not shorting yet. Will wait for it to tick slightly higher.

Should I short now?

Marc Faber has said that the stock have made a high, and stocks are overvalued. I am finally a buyer of his theory.

For the past 5 years, I did not heed his doomsday advice as I felt they were made too early. As such, I

am a buyer on every dip in the stock market. This year, I am bearish on the stock market. The reasons have been discussed before (Fed tapering, overvalued stocks, etc...) 

Unfortunately, I did not make money from shorting Twiiter as its price has not changed much. I have got out of it, and will be looking at other stocks/ indices to short.

Between US, HK and Singapore stocks, I think Singapore and HK are better shorting targets as they have been the weakest. However, now that they have been so oversold, I will be looking to short only once they have made a temporary recovery. 

What does Marc Faber think of the markets now?

Famous contrarian investor Marc Faber has shared his views on where the stock markets are going in 2014 in an interview with CNBC on Dec 19. The key summary:

•  The S&P 500 won’t surpass its November 19, 2013, high of 1,813. We know that the S&P has since surpassed its high of 1813.
• Shares, Twitter, Netflix, and Veeva Systems are “grossly overvalued,” and shorting a basket of these stocks will return at least 30 percent next year. I do believe that US stocks is overvalued. That is why I am shorting Twitter. It remains to be seen, however, if this pans out.
•  Physical precious metals, gold shares, and Vietnamese stocks are “buys”. I am not so sure about this. Normally, a rising interest rate and strong US-dollar environment is not good for gold

Let's see out of the remaining two predictions. Which one/s will Faber get right?

Sell US and buy Japan/ Europe

Recently, some contrarian analysts have written about the possibility that US equities bull run may be coming to an end. At the other end of the spectrum, recently battered stocks in Japan and Europe could find favour amongst investors. This is due to:

• US stocks expensive on valuations basis. Its Shiller PE is 24 times versus 16.4 historical.
• Tapering could dim shine of US equities. Normally, equities didn't perform for weeks or months after that.  
• Japanese stocks have earnings growth
• Valuations are cheaper than US
• Accomodative monetary policies driving Japanese equity prices
• European stocks (particularly Germany, Italy, France) trading at discount to US competitors

Some of the names bandied about are: BMW, Daimler AG, Volkswagen, Total SA Toyota, Suzuki, Fuji Heavy Industries, East Japan Railway the likes... Time to check these out

Why I short Twitter

Twitter has almost tripled in price since its IPO since November, so why I am shorting this overly bullish stock? That is because I smell blood in the coming days ahead:

• The Dow is very overbought. It is a matter of time that a correction comes.
• Twitter is overvalued. Once the Dow "crashes", Twitter will go down very fast with it.
• There are high expectations of Twitter's earnings at the end of the month. Any disappointment, it will crash
• It seems analysts are bent on sending the stock lower with more "sell" each passing day
• Feb could see a bout of selling following employees ability to sell shares from Feb 15 onwards
• From May 6, senior personnel in the company could sell shares in Twitter 

Bearing these in mind, I will progressively sell Twitter shares, starting at $65.00

New Year Resolution

In 2010, my ROI was 40% on very limited capital. In 2011, 30% on still limited capital. In 2012, 100% on same limited capital. 2013, it fell to 40% still on same capital. Not good enough, it has to be way better.

For 2014, I have set an ROI target of 100% on a now expanded capital base.

My first trade for 2014 is long GOME. This quiet performer on HKSE has been on an uptrend since Sep last year, and has been picked up by T3b system. Will be staying with this trade till later this month at least.

My second trade is short Twitter. I am taking a huge risk by going countertrend on Twitter. However, I believe it will pay off. I will talk more about it in my next article.