Sell Off ?! #DJIA #SPX #bubble #stocks

And so it has begun selling off for most of the value and cyclical stocks. In fact the selling off already started close to

4th July weekend starting with real estate and utilities stocks.

I tend to think this is due to profit taking after all three major indices hit ATH (All time highs) several days in a row. However the current sell off is not uniform across all three major indices. Notice that NASDAQ is still bullish compared to DJIA and S&P 500.

Now is the time to ready your war-chest and monitor the value stocks that you have been keeping an eye on 🙂

As for me, i have my eyes on ONE particular value stock only . I will reveal it when the time is right 🙂

Refer to my post here regarding rebalancing and preparing your war chest earlier

Uncomfortable ranging of the market

The markets are ranging currently as a generic trend this few days after $DJIA, S&P500 and NASDAQ maintain their relentless climb despite already reaching all time highs.

https://www.cnbc.com/2021/06/30/stock-futures-are-flat-as-sp-500-sits-at-record-wall-street-gets-set-to-kick-off-second-half-of-2021.html

However i am seeing some warning signs which may occur over the next few days

1. DJIA

Currently an incomplete head and shoulder pattern is forming in the daily chart. Careful monitoring is required especially if the pattern completes with a plunging neckline at 33259 support level. Bearish reversal trend is confirm if it breaks past 33259 support line and its neckline.

2. SPX

Currently SPX is overextended. It is currently forming a incomplete bearish divergence. More monitoring is required to see if this pattern is completed. Once it breaks past 4200, bearish trend reversal is confirmed. The last time this happen was in Sep 2020 which saw a 10% correction in S&P 500.

https://www.cnbc.com/2020/09/26/the-september-market-swoon-accomplished-most-of-what-corrections-are-supposed-to-do.html

In short, the markets are really overextended right now and there are several warning signs of bearish reversal forming.

Do invest with caution. I would not be buying any more stocks right now.

Refer to my post for high impact event alerts for July Week 1

Refer to my post for the impending crisis which may happen in July.

Sit tight !

My first major milestone and … starting a podcast ??

1. First 10 Followers

I consider it my first major milestone when 10 people start following my blog.
Big shout out to my followers (11 of you so far). Thank you for following my blog!

Kudos to those who have read (and liked) my blog consistently too

2. Starting a podcast

I am also thinking of starting a podcast. It has been resonating with me for some time now.

Now why in the world would i start one , you wonder ? Well , below are some reasons

  1. To have fun – this is the most powerful reason for me 🙂
  2. To educate through bantering
  3. As a side hustle
  4. Not comfortable with YouTube exposure.

What will my podcast be about?”

  1. Capture the journey of collaborative fund investing.

2. Also provide monthly market movements/food for thought/stock analysis/portfolio spotlight/High Impact events episodes.

3. Introduce more of Asia Stocks (e.g. HKEX/SGX stocks) to my audience. I feel there is a lack of exposure to stocks in these regions.

What do you wish to hear in the upcoming podcast ? Submit your comments !

US Debt Default – the next crisis #debt #default

I came across an interesting article today. It is an article which highlights the next potential crisis for the US Government – the expiration of the Federal Borrowing Limit in End July.

https://www.reuters.com/article/us-usa-treasury-yellen-idUSKCN2DZ2ET

The August Recess runs from 30 July to 19 Sept in the House and 9 August to 10 Sept for the Senate. If the borrowing limit expires by 30 July with no suspension or raise, the US Government can only depend on tax receipts to pay their obligations.

How will this impact retail investors like you and me?

1) High Interest Fears

Well, it starts with bond investors. Knowing that the limit is going to expire in End July, bond investors will be concerned whether bonds can be repaid should the US debt be defaulted. I am anticipating that short term bond auction take-up rate in mid July will be low, this may result in high interest rate concerns rearing its ugly head again.

Growth/bubble stocks may experienced heavy volatility leading up to End July.

2) Financial Market Uncertainty

Should the House and Senate encounter obstacles in deciding on the borrowing limit action, this will create financial market uncertainty. Mr. Market hates uncertainty. Therefore investors may flock to gold and other safe haven assets leading up to End July.

3) Overall Market Volatility

The DJIA was showing signs of a market correction in End June. Refer to my post here.

It rebounded strongly as of 24th June amidst the news that the democrats and republicans have ‘agreed’ on a deal for the infrastructure bill. However, they have yet to decide on how to pay the bill. However, should the borrowing limit crisis not be resolved early, investors may be spooked as to the uncertainty surrounding the bill again. I foresee the DJIA experiencing volatility as well as NASDAQ and S&P 500. Yes that is how serious this can be. https://www.cnbc.com/2021/06/24/infrastructure-deal-talks-biden-invites-bipartisan-senators-to-white-house.html

What other impacts do you foresee in July ? Do submit your comments !

Happy Father’s Day #HappyFathersDay

20 June 2021 is Father’s Day. I was touched on this day and wanted to spread the joy. It felt really good to be appreciated.

Life is a never-ending cycle of balancing, holding onto your loved ones as well as shielding them from strong winds and dark clouds. Big Shoutout to all DADsthe going gets tough but the tough gets going.

Stay strong , Stay safe – DADs. You have earned it

Mister Market chooses to wear short sighted glasses? #rebalance #bubble #stocks

Mister Market seems to have chosen to wear his short sighted glasses. Why do I say this ?

After the FOMC announcement on the 16 June, there were two main information

  1. Fed retains the short term interest rate near 0%
  2. Fed marks two rate hikes in 2023, instead of 2024

The longer term view would be to start progressively sell off bubble stocks to their intrinsic value. This would be aligned with the second point above. You can refer to my earlier post here for the full content.

Instead Mr Market choose to wear his shorted sighted glasses and sold off his value stocks instead.

I would interpret this as Mister Market has chosen to continue blowing bubbles 🙂

1 day relative performance of the s&p 500 on 17 June 2021

Of course the above is an observation based on 1 day of post-response. Really, active monitoring is required to see if this behaviour remains over the next few weeks.

At this point in time, I would NOT recommend to buy more bubble stocks further. Instead holding/rebalancing is the name of the game now if you have too many bubble stocks/growth stocks. Start preparing your war chest and explore the world of value stocks

I leave you with one of my favourite quotes from Peter Lynch 🙂

What are Bubble Stocks? #bubble #stocks $TSLA

You might have seen the phrase Bubble Stocks used in my postings. So what exactly are bubble stocks ?

Well, bubble stocks are stocks which are in a bubble (meh ^^). But the more interesting question is – how do we know that a stock is a bubble stock ?

As a general rule of thumb , a stock is a bubble stock if its PE Ratio is 3 or more times than the average PE Ratio of its business sector. The PE Ratio (Price Earnings Ratio) values the company base on its past EPS (Earnings Per Share) excluding future growth.

PE Ratio refers to the current price one is willing to pay for 1 share of the stock.

A PE Ratio of 10 means investor is willing to pay 10 dollars for 1 share of the company.

The market generally accepts that a PE Ratio of 10 is the generic benchmark of a fairly priced stock.

To calculate PE Ratio, a company should have past EPS (Earnings Per Share) of 5 years or more.

However for companies in their growth phase, it is not accurate to value them by their PE Ratio as the company does not have a long history of EPS yet or the business sector is still not mature yet (think innovative/disruptive sectors).

For such companies, another indicator is used to value them. This is call the PEG Ratio ( Price to Earnings Growth Ratio). The PEG Ratio divides the EPS by the company’s earning growth rate. A company with a higher growth rate will have a higher peg ratio.

{\mbox{PEG Ratio}}\,=\,{\frac  {{\mbox{Price/Earnings}}}{{\mbox{Annual EPS Growth}}}}

As a general rule of thumb , a stock is a bubble stock if its PEG Ratio is 3 or more times than the average PEG Ratio of its business sector.

The market generally accepts that a PEG Ratio of 1 is the generic benchmark of a fairly priced stock. Companies with PEG Ratio of less than 1 are undervalued. Those with PEG Ratio of more than 1 are overvalued.

Comparing Stocks in Electric Vehicle sector (Growth)

There is nothing hotter than Electric Vehicle (EV) sector right now. Above are the major players for EV Sector in US – Tesla, General Motors and Ford. Look at the Peg Ratio of Tesla compared to its competitors – 13.96 ! This is 14 times higher than the average Peg Ratio. Tesla is definitely a bubble stock right now.

Comparing Stocks in Finance sector (Value)

Let’s compare the PE Ratio of Banks. Banks are in Finance Sector which is traditionally known as a value sector. Look at the Average PE Ratio in the sector. You can tell that the average PE Ratio is 10+ . This indicates that banks are generally fairly priced right now

Personally for great companies with many years of history and EPS, I will always compare a stock using its PE Ratio comparing to the average PE Ratio of its industry.

For growth companies, PEG ratio is more applicable.

Palantir has just been added to the Russell 3000 Index! What’s next? $PLTR #Russell 3000 #Index

Today i picked up this interesting article from Seeking Alpha

https://seekingalpha.com/news/3706243-palantir-technologies-and-snowflake-among-tech-companies-to-join-russell-3000-index-while-waitr-and-synchronoss-technology-to-leave

Palantir will be added to Russell 3000 Index on 28 June.

https://content.ftserussell.com/sites/default/files/russell_3000_index_additions_-_2021.pdf

So what is the Russell 3000 Index ?

The Russell 3000 Index is a market-capitalization-weighted equity index maintained by FTSE Russell that provides exposure to the entire U.S. stock market. The index tracks the performance of the 3,000 largest U.S.-traded stocks which represent about 98% of all U.S incorporated equity securities.

What does it mean to be added into an Index ?

This means institutional investors, mutual funds and ETFs tracking Russell 3000 will now be buying and then holding PLTR leading up to market closure on 25 June. This bodes well for the stock price as well as less volatility moving forward. Do also expect the stock price to reach new support levels leading up to 25 June. For PLTR Stock Analysis, you can refer to my post here.

Russell 3000 Index is an example of a market cap weighted index. So what is a market cap weighted index ?

Calculation of a Capitalization-Weighted Index

To find the value of a capitalization-weighted index, first multiply each component’s market price by its total outstanding shares to arrive at the total market value. The proportion of the stock’s value to the overall total market value of the index components provides the weighting of the company in the index. For example, consider the following five companies:

  • Company A: 1 million shares outstanding, the current price per share equals $45
  • Company B: 300,000 shares outstanding, the current price per share equals $125
  • Company C: 500,000 shares outstanding, the current price per share equals $60
  • Company D: 1.5 million shares outstanding, the current price per share equals $75
  • Company E: 1.5 million shares outstanding, the current price per share equals $5

The total market value of each company would be calculated as:

  • Company A market value = (1,000,000 x $45) = $45,000,000
  • Company B market value = (300,000 x $125) = $37,500,000
  • Company C market value = (500,000 x $60) = $30,000,000
  • Company D market value = (1,500,000 x $75) = $112,500,000
  • Company E market value = (1,500,000 x $5) = $7,500,000

The entire market value of the index components equals $232.5 million with the following weightings for each company:

  • Company A has a weight of 19.4% ($45,000,000 / $232.5 million)
  • Company B has a weight of 16.1% ($37,500,000 / $232.5 million)
  • Company C has a weight of 12.9% ($30,000,000 / $232.5 million)
  • Company D has a weight of 48.4% ($112,500,000 / $232.5 million)
  • Company E has a weight of 3.2% ($7,500,000 / $232.5 million)

Although companies D and E have equal amounts of shares outstanding—1,500,000—they represent the highest and lowest weightings in the index, respectively, because of the effects of their prices on their individual market values.

Pros

  • Market-cap indexes provide investors with access to a wide variety of companies both large and small
  • Large well-established companies have a greater weighting providing lower volatility to investors

Cons

  • As a stock price rises, a company can have an excessive amount of the weighting in an index
  • Companies with larger weightings can have a disproportionate impact on the fund’s performance
  • Fund managers can often add shares of overvalued stocks assigning a larger weighting and create a bubble

The Calm before the Storm ? Good to be contrarian this week #FOMC

Hi readers, this is a special posting before the FOMC. From what i can see, Mr Market seems to be taking the position that the FOMC predictions and speech will be following the scripted tone of transitory inflation. This is in line with my earlier posting of not expecting any surprises.

HOWEVER, if your portfolio is made up of mostly growth stocks and / or bubble stocks and is lacking in terms of diversification. I strongly encourage you to use options to protect your holdings. You can use covered call options or buy put options . Both work equally well.

No one can predict what Powell and Yellen is going to say. Any indication of earlier paring of assets and / or earlier raising of interest rates to before 2023 will cause Mr Market to go into tantrum mode again.

Apple encroaching on Facebook ?! $APPL $FB

Today i picked up this interesting article from CNBC

https://www.cnbc.com/2021/06/08/apple-ios-15-new-social-features-will-compete-more-with-facebook.html?utm_content=Main&utm_medium=Social&utm_source=Twitter#Echobox=1623238002

It talks about the future of Social Communication which will be diverging into two main types – Privatize  and Public Social communications. As part of IOS 15, Apple will be introducing

1.Able to hold FaceTime video calls with Android and Windows users for the first time.

2.new feature called SharePlay, which lets you hold a FaceTime call and watch a streaming movie, listen to music, or share your screen with your contacts

3.IMessage is getting a boost as well, with new features that make it easier to share web links, photos, Apple Music tracks and Apple News articles with your contacts

Apple is laying the groundwork for a suite of social features designed to let you do a lot of what you would normally do on Instagram and Facebook, only with more emphasis on privacy. 

Facebook is also trying to recalibrate its product strategy to a more privatized Social communication via WhatsApp / Facebook/ Instagram and monetize using Libra. However it appears the pace is still some way off from implementation and Apple is now attempting to usurp Facebook to first mover advantage to this private social communication mode.

My thoughts on this are the impact of the IOS features on two main audience – Non-IOS and Existing IOS users.

  1. Apple private social communication features may succeed in attracting IOS users who value privacy into NOT using Facebook ecosystem. However is this still strong enough to totally break the network effect of Whatsapp/Facebook/Instagram? the answer is no as there are still many non-IOS users out there.
  2. Apple’s premium branding strategy is still an obstacle which forces Non-IOS users to decide between costs and privacy. Costs still wins when it comes to practicality.

Apple may succeed in undermining Facebook’s ad revenue short to mid term wise due to the

  1. iOS privacy feature that limits how companies like Facebook can use your personal data to send you targeted ads
  2. Further locking in IOS users and attracting them away from Facebook’s ecosystem

Long term wise , It depends on how Facebook react. Will they be able to roll out a private social communication strategy in time and effectively?

As for Apple, I would rather see them rolling out new product lines (e.g. electric car, streaming ) instead of encroaching on Facebook. The private social communication features doesn’t really create new markets for Apple. It just further tightens Apple’s grip on existing IOS users which is not exactly what Apple should be prioritizing now.