We are still in the bear market that was started on 8/24/15 and in another 2 to 3 years our portfolio should have an average gain of 25% to 50%.
The stock market has been going in the same direction as the oil market for a long time now. Everyone has been waiting for the ‘decoupling effect’ but it is not in sight. The fate of the high yield bond market depends on the US oil companies that depend on the price of oil. As stated in a previous newsletter on 1/20/16, oil (WTI) hit a bottom of $26. According to conventional wisdom, we will not test that low again but it is always a possibility as this was a technical low and not according to oil fundamentals. For that to happen we must see about 1/3 of all US oil companies declaring bankruptcy. On 2/16/16 Saudi Arabia announced that it has agreed with Russia and other major oil producers to freeze production and the market was buzzing with the rumor that by this summer they would start cutting production but a few days ago the Saudi Arabia announced that it would not cut oil production.
85% of all stock trading is done by computer programs and now there is talk that these computers might even use artificial intelligence to move markets. On 2/18/16, Roy Niederhofer of the Quant Fund, stated that using computers with no human intervention and just following trends, his fund had a gain of 16% from 1/1/16 to 2/18/16. His computer tracks trends that go from one minute to another. He also confirmed that this is a bear market and he recommended buying gold. I have my doubts about gold. I think the gold rally is going to be short lived.
Even though most believe that the market has been unreliable since 1/1/16, I believe that it has been quite predictable. It has been moving to technical analysis without missing a beat. For the past 3 months, most technicians agreed with one another but that is not so now. Unlike astrological predictions, predictions made by technical analysts could change from day to day depending on what happens in the market. For example, they could say that if the S&P500 goes below 1820, the market could lose another 25% but if it manages to stay above 1820, it could rally to 1900 (or so)-just an example. For the past 30 years or so I have had a knack for following good technicians. The technician I like these days (no one is 100% correct) is known as the ‘Fibonacci Queen’ or Carolyn Boroden. Fibonacci is the ancient mathematician who discovered the golden ratio (2/3 or 3/2) to study the universe but now it is used to study market moves as well. These days most technicians say that the market is close to a top (even a big decline like 2008 when the S&P hit 2000 and Dow at 17,000 which it did today, 3/4/16!!) but Carolyn disagrees and her record is quite impressive. On 2/29/16, on CNBC, Carolyn stated the following (after doing her chart analysis):
· On 2/11/16, the market hit a low of 1810 which could be a pivotal low.
· Now, the very next day, the market could start to rally in a substantial way.
· Short term rallies have lasted 8 to 10 days.
· From 3/1/16, if it goes up and continue to go up might hit new highs. We have not had a new high since 5/21/15. However if the market goes down the next day (3/1/16), expect the market to repeat old trends by going down significantly.
· NASDAQ rally will be stronger than the Dow/S&P500 rally.
Then the very next day 3/1/16, within the first 3 hours, the Dow was up 270 points (or 1.65%) and NASDAQ was up by 2.18%!!!
Many technicians say that short term gold might go down a bit but long term it would go by 25%. I find it difficult to believe that I have got burnt by gold so many times and I know. Also if you look at the chart going back to 1900, gold seems to be in a long term bear market.
Schlumberger- We had a gain of 18.35% in just 38 days! That is amazing as we are in the middle of a big bear market in stocks and oil! On 2/22/16, a chart analyst showed a ‘reverse head and shoulder’ formation in the Schlumberger chart. This is an extremely bullish sign that you can take to the bank! We were so lucky to get in on 1/25/16. To make matters better, on the chart, the current line moved over the moving average-another very bullish sign in the chart. According to that technician, Schlumberger has a better chance of rallying than Exxon or Chevron!
Exxon Mobil- We had a gain of 23.65% in 193 days. On 2/16/16, an analyst announced that he expects the credit agencies to cut ratings for Exxon in 2016. Due to their large refinery business they are not very sensitive to changes in crude oil prices. After lifting of the oil and gas export ban, for the first time, there was a shipment of liquid natural gas from the US to Brazil on 2/24/16 and this was done by the only company that has the capacity to do it- Cheniere Energy (LNG). Carl Icahn is one of the major shareholders of Cheniere. Since Exxon is a major player in this area some think that they might even buy Cheniere in the future. On 3/2/16, the CEO of Exxon Mobil made these announcements:
No more layoffs in 2016.
He intends to increase the dividend as he wants the investors to hold the stock for a long time.
He did NOT borrow $10 Billion to pay dividends or buyback stocks; even though they temporarily stopped the stock buyback program.
Exxon Mobil has collected a ‘war chest” of $30 Billion to go on a future buying binge. Per analyst, Doug Terreson of Evercore, their balance sheet is only second to J&J and crude oil (WTI) has to go down $15 and stay there for long for Exxon and Chevron to cut their dividends
Chevron- We had a gain of10% in 53 days! Chevron (and Exxon) are the least sensitive to crude oil prices as refiners account for a good part of their operations.
Apple- For many years everyone on Wall Street loved Apple. It was impossible to find anyone who would say anything negative about Apple. However about 6 months ago, bulls became bears and it kept on increasing till recently when almost everyone was negative on Apple. Carl Icahn got in Apple years ago as an activist and due to the changes he got management to make, the share price increased by 400%+. About 6 months ago when most people were negative about the market and Apple, Carl Icahn said that as the price of Apple drops, he will buy more. It is said that in 2014 alone Icahn made over $1Billion on Apple. On 2/16/16, Icahn announced that he was going to trim his stake at Apple by 7 million shares. He has been losing a lot of money (billions?) on Chesapeake Oil, Cheniere Oil and Freeport McMoran. Over the past 3 weeks, some analysts have come forward to recommend Apple as a buy and also with their new phones coming out the price could easily go up to $120 by year end-another 25%. In my opinion, in another 3 years, we could easily see Apple around $150. After all the PE is only 10.96.
I wish you all, good luck!