For the month of March 2016, our portfolio had a gain of 9.59% but for April 2016 had a loss of 1.79%; however if we remove Twitter and Apple, we have a gain of 12.89% for April 2016! For more on these 2 stocks see at the end of blog.
For the past 30 years I have noticed that technical analysis is the best method to predict the immediate future of the stock market. When most of the technical analysts agree on the future path, we can have a lot of confidence that is the correct path of the market. When the technical analysts do not agree, we could go with one(s) with a good track record. Now we have a very unique situation-most of the good technical analysts are very confused! Remember, technical analysts do not look at fundamental like earnings, economic growth and so on. Most technical analysts study charts.
Different experts have different theories. One theory that has been effective for years is “Sell in May and go away (to buy back in the Fall)”. In order for us to be bullish, the market (S&P500) index has to go over 2130 and stay at that level for some time. However, the fundamentals and technical analysis show that the long term future for the market is very rosy. Therefore, if we have another correction, it would be another buying opportunity.
Over the past year or so, banking stocks have been moving within a given range so if you are trader and not an investor, consider banking stocks. In technical analysis, in a chart, when a stock or an index is below the 200 day moving average, it is in a very risky territory and most prudent investors avoid such stocks and industries. The ETF, “XLE” that monitor the oil industry (biggest oil companies), for the first time since 2014, moved above the 200 day moving average in April 2016 which is an indicator that the worst is over for the oil industry. Since January 2016, when most expected Chesapeake to declare bankruptcy, it has risen over 245% in 4 months!
On 4/26/16, on CNBC, Jeff Curries, Goldman’s head of commodities, upgraded oil to neutral (reduction of risk) with a long term price goal of $45 per barrel. Everyone expected the demand for steel in China to decline but it increased slightly! SO much for the experts! However Goldman does not expect commodity (except oil) prices to rise for many years to come. Goldman wants traders to short gold-especially if the Feds raise interest rates. On 4/28/16, Doug Terreson of Evercore recommended Exxon and Chevron as buys. As they are cash neutral at $50 per barrel; and these companies are expected to cut costs in the short term and raise prices over the next few months. They are not expected to cut dividends. BP currently has a dividend rate of 7%! Apart from Exxon and Chevron, he also owns Conoco Phillips and Schlumberger.
On 4/6/16 I attended a very good seminar titled “Legends of Technical Analysis”. The panelists were Ralph Acampora, John Murphy, Charles Kirkpatrick and Paul Desmond. I do not care for Kirkpatrick and Desmond but Acampora and Murphy are true legends. Ralph Acampora is the demi-God of technical analysis. He has over 50 years of experience. I was surprised that my hero John Murphy was initially taught by Acampora. Acampora did not do his degree in business, economics, mathematics and so on; he did his degree in theology! Here are some of the highlights:
• Transports hit a low in January 2016 and Industrials hit a low in February 2016- This could be the end of the bear market
• Moving from a bull to a bear market is a slow process and does not happen overnight.
1st rollover: Small Caps
2nd rollover: Mid Caps
3rd rollover: Big Caps
• What stocks to sell first: Highest beta stocks (highest volatility stocks; higher the beta, higher the volatility)
• GE will double in the long term (per Ralph Acampora)
• Per Ralph Acampora, we will not see the big caps going down
• Per Tech Analysis, we have a sell sign on gold but this is not a good time to short sell gold
• Per John Murphy, we are still in a bull market. We did not get in to a bear market.
• Per Ralph Acampora, we could have a correction now but it will be shallow. After that we will see higher highs, we will go to all time new highs in 2016. We will not go to February 2016 lows but if we have a 50% decline to the February 2016 lows, it would be very healthy.
• Optimum word in investing: Always be willing to change.
• If we go below February 2016 lows then we will go in to a bear market.
• John Murphy does Relative Strength Indicators-comparison to other markets or stocks
• All of Tech Analysis work some of the time
• If most tech analysts agree, then it is reliable.
• Don’t fall in love with one system of tech analysis
• Nothing works all the time
• Per Ralph Acampora, study of stocks and markets
3rd: P/E etc.
4th: Tech Analysis
• 50% of all traded on NYSE are not stocks; they are close end funds, bond funds, preferred stocks etc. It is important to subtract these items when looking at advance/decline line etc. Watch your data!
• Per Ralph Acampora, the weekly MACD is important and not the daily MACD. Moving average convergence divergence (MACD) is a trend-following momentum indicator that shows the relationship between two moving averages of prices. The MACD is calculated by subtracting the 26-day exponential moving average (EMA) from the 12-day EMA.
• Per Ralph Acampora, Emerging markets bottomed and commodities bottomed too.
• Per John Murphy, All commodity currencies (Russian, Brazilian,Australia and so on) have bottomed too.
Have a great month!
TWITTER- This is dragging our whole portfolio down but I am still optimistic about Twitter. Even the former CEO of Microsoft sold his holdings. On 4/15/16 they announced an exclusive deal with NFL. On 4/6/16, GFI Group announced that they are optimistic on Twitter as they have 360 million users and they said that Facebook had the same problem many years ago. That is when I sold my Facebook at about $25 after buying it at $18! Now FB is at about $100! On 4/27/16, it was announced that losses were not as most expected and there was a pickup in users. If the price drops under $10, buy 100 shares and bring down the average cost by 50%.
EXXON- On 4/26/16, after 6 decades, Exxon lost their AAA rating downgraded to AA+ - due to its debt level and refusal to cut the dividends. On 4/30/16, despite losses, Exxon raised its dividends by 2.7%-slimmest hike in 30 years.
APPLE- Last month we had a 14%+ gain (from day one) on Apple. At 4/30/16, we have a loss of 1.65%-in just 31 days! Now it is trading below our average cost and some believe that it could even go down to $80 prior to August/September 2016. I suggest buy 5 more shares at the lowest available price on 5/2/16. In the future, if the price drops to around $85, buy 5 more and if the price drops to around $75, buy 10 more shares. This is the next best thing to a sure thing! In the future, Apple is going to be like an ATM!
On 4/30/16, Apple announced that it would cut $2B in IPhone inventories. Last week Apple raised its dividends by 10% to 57 cents per share-total dividends paid by Apple is at $12.6B which is 3.21% of all dividends paid by the S&P500 companies. This makes Apple the biggest payer of dividends overtaking Exxon Mobil. Apple earnings went down by 22% and they missed revenue guidelines(for the first time). First sales drop in 13 years! Sold 12 million watches. Their IPhones fetch a margin of around 40% when others have a margin of around 0. On 4/26/16, Per Toni Saccibaughi of Sanford Bernstein analyst Apple product cycle will come in September 2016 so the stock will start going up July 2016. Only 60% of handsets in the world are smartphones. Apple just entered the market in India and in a few years India will overtake China as the most populated country on Earth. Per Barron’s article on Apple on 4/9/16:
• Stock could rise to $150 in 12 months
• Current pessimism due to slowing growth of IPhone sales that account for 2/3 of revenue
• Total revenue projected to decline by 2.4% to $228.1B pulling profits down by 6.3% to $50B.
• Apple service already brings in 15% of Gross Profit., and could reach 29% by 2020.
• Apple has a long term potential to reach 1.5b active devices with stable free cash flow if $67B a year up from 1B devices now and $56B in free cash projected for this year.