Market Hedge and Asset Allocation

Market Hedge and Asset Allocation

Since Trump rally began on Nov. 8,  financial stocks and infrastructure stocks had huge run.Goldman Sachs up over 30%,bank of America over 36%, among others.

This sprinter of financial stocks is totally due to Trump's promise to deregulate financial industry.
Based on Bloomberg's report, financial sector will probably engage on six reforms: capital requirement, small banks, shadow banks, stress tests, bank failure, and the Volcker rule. If president-elect Trump can be finalized as president tomorrow on electoral college vote, deregulation in financial sector will bring more risk-takers in lending and investing.

However,  the gains in financial stocks are building on hope, since deregulation will meet gigantic obstacle in Congress. In this regard, taking partial profit in the following financial stocks should be encouraged at this points: Goldman Sachs, Bank of America, Morgan Stanley,Northern Trust, J.P Morgan, etc. Also to hedge Trump's loss in electoral vote, it is prudent to trim some position in financial stocks.

Infrastructural stocks are also based on hope rather than facts. Anything in financial market based on hope is a little ahead of time, since right now nobody has faintest idea  on how to and when to start  rebuilding USA infrastructure, especially considering unpredictable Trump. The case in points: just after Trump won presidency-election, defense stocks-- Lockheed Martin and Northrop Grumman joined joyful  uptrend parade, but weeks later Trump smashed  Boeing and Lockheed Martin for high government military orders, upending those stocks run-ups.

If Trump indeed is president on Jan. 19, 2017, tech sector will possibly not have too much change as Trump said on Campaign at least during first year. Besides  last Wednesday Trump promised tech guys to serve them well. This is really confusing for Wall Street. On the other hand, Trump encouraged tech firms to back to USA by cutting their firms' tax. This is the main reason why most tech stocks have not participated recent rally without incurring meaningful pull back.Should crystal ball not appear in Trump plan next year, tech stocks would not take full relay baton to lead market until next April as usual.Some discrepancy between market perception and blurring reality exists here, providing a nice chance to profit from this market inefficiency.

Last week Fed raised federal fund rate by 25 basis points and promised another 3 raise in 2017. Market seems fully discounted this rate raise.But the market will face and figure out how the Fed to speed up rates hiking. Historically, hiking rates often happens in bull markets. When the Fed becomes hawkish, bond market and gold stocks will face headwind, while dollar  has tailwind. Do some asset re-allocation among bond, commodity and equity.

Chinese Yuan touched $0.14, devaluing  almost 6% after I said it had 7-15% devaluation room last year. But some market players predicted one US$ will be worth 7.4 Yuan. It may happen, but not guarantee. At this point, to my views, China's central bankers don't need to rush to defend its currency fall. Historically,  the price of financial vehicle seldom goes straight up to the sky from very bottom.


Gunning Ju

Market Analyst

From NYC

Will 2016 Parallel 2012?: Trump's win Surprised the Market

Will 2016 Parallel 2012?: Trump's win Surprised the Market: Trump's Win Surprised the Market Nov. 8's Trump win surprised the world and market. After initial panic in overnight futures mark...

Trump's win Surprised the Market

Trump's Win Surprised the Market

Nov. 8's Trump win surprised the world and market. After initial panic in overnight futures market, the USA market rebounded forcibly, leading by infrastructure and financial sectors, while FANGs ( Facebook, Amazon, Netflix, Google) and other tech stocks dropped without participating this Trump rally.

Before election, almost all pollsters predicted Clinton's win. Trump won electoral votes 290 over   Clinton's 232 while Clinton won popular votes 63 million vs. Trump 61.5 million by nearly 1.5 million votes. Most market watchers were wrong on election, but some very few were right:Jeffery Gundlach, Martin Armstrong, Sam Stoval, Jeffery Hirsch, and my friend Jone and Charles at Queens Flushing Library.

In fact, according to Sam Stovall's research, if S&P500 fell between August and October, historically, incumbent party will 83% likely lose election. This year from the end of July to the end of October, S&P500 dipped 2%, which again validated Stovall's findings.

Regarding two presidential candidates, I think that Mrs. Clinton is more qualified than Mr. Trump, consistent with the fact that more people in USA voted for Mrs. Clinton. Since 2000, I had been right on presidential election every time based on presidential debates, candidate's experience and demestic and international knowledge plus education background. This time I am wrong, even though Mrs. Clinton won 3 presidential debates by huge margin.  So why nearly all mainstream media were wrong on this election? As my friend Jone Bell puts, this is a revolution and a fight between social media and mainstream media with former winning out.

If social media won election and can impact other person's political views, we can believe that mainstream media will still have far more impacts on the financial markets than social media. This is because more informative people still regard mainstream media holds more power than social media in financial markets.

Back to the market, this Trump rally lacks FANG's participation and may send some signal for the market weakness ahead. But short-term market uptrend still has leg for two main reasons: 1. Market sentiment still not so hype; 2. Bullish market seasons--S&P500 sending bullish signal on Nov 7. right before election day, which may say that regardless of who wins presidential election, it is the time to be long the equity market.

Happy Thanksgiving Day to All.

Gunning Ju

A market analyst from New York

Will 2016 Parallel 2012?: Presidential Election and Bullish Market Season

Will 2016 Parallel 2012?: Presidential Election and Bullish Market Season: Presidential Election and  Bullish Market Season  Weekend GOP presidential Donald Trump's lewd remarks on Entertainment Tonight Hos...

Presidential Election and Bullish Market Season

Presidential Election and  Bullish Market Season 

Weekend GOP presidential Donald Trump's lewd remarks on Entertainment Tonight Host Nancy O'Dell in 2005 once again created another headlines for all media.Some GOPers even asked Mr. Trump to quit now.

Tomorrow  will be the second presidential debate.Hillary Clinton won the first debate on September 26; Vice presidential debate winner went to GOP's Mike Pence over Democratic's Tim Kaine. In the first debate Mrs. Clinton obviously showed more politic intelligence and qualification than Mr. Trump. However in vice presidential debate, Mr. Kaine erroneously was impatient to interrupt Mr. Pence, creating a sense of Pence's higher level of debate.Historically, first debate has far more impact on final election results than the other two.

Based on Predictwise.Com's data,   Mrs. Clinton winning odds increased to 87% from 69% before the first debate, efficiently stopping Mr.Trump's momentum. Like stock market, trend in motion tends to continue. If this is true, Mrs. Clinton will win in November 8 election.

Mrs. Clinton economic policy focuses on investment and growth while Mr. Trump wants to reform domestically and internationally.In USA too much reform doesn't seem to be passed easily when Congress has divisive views, which will create a gridlock that in turn will have less uncertainties for the market. This is why the market likes Mrs. Clinton so far.

Next week will start the third quarter earning and bullish season.October is the jinx month due to crashes in 1929 and 1987, the 554-point drop on October 27, 1997, back-to back massacres in 1978 and 1979, Friday the 13th in 1989, and meltdown in 2008. Also October is a  bear killer and turned tide in 12 post-WWII bear markets: 1946, 1957, 1960, 1962, 1974, 1987, 1990, 1998, 2001, 2002, and 2011. These facts are quoted from Yale Hirsch's and Jeffrey Hirsch's stock Trader's Almanac, 2017== its 50th anniversary. Tip my hat to my friend Messrs. Hirsch.  

So in the next four weeks market will not likely to drop too much, and will continue to engage time correction rather than magnitude correction.

Gunning Ju

 market analyst

Flushing, New York

Will 2016 Parallel 2012?: Rising Tech Index Imply Hilary Clinton Win and Fed...

Will 2016 Parallel 2012?: Rising Tech Index Imply Hilary Clinton Win and Fed...: Rising Tech Index Imply Hilary Clinton Win and Fed Next Move Recent market gyration disguises tech index strength. Over the past four week...

Rising Tech Index Imply Hilary Clinton Win and Fed's Next Move

Rising Tech Index Imply Hilary Clinton Win and Fed Next Move

Recent market gyration disguises tech index strength. Over the past four weeks, S&P 500 dropped 2.5% from its high, while Nasdaq Index down only 0.8%. Tech Index strength resulted from Apple, Alibaba, Amazon, Google, Facebook, Netease, Priceline, among others, each of which shows its uptrend intact.

In spite of tech stocks strength, many market players still think market will face tremendous challenge ahead. Below we continue our comparison between 2016 and 2012, two election years.

In 2012, S&P 500 had two corrections: One from March to June, S&P 500 corrected 11%, just 100 points below previous year high, after which S&P 500 entered 21.5% shallow short bear market mainly caused by European debt crisis; the other 8.9% correction happened between September to November with Hurricane Sandy and presidential elections  as two uncertainties.

Back to 2016. In 2015 S&P 500 dropped 15.2% in 10 months caused by China's stock market collapse and the Fed's first move. Based on Ned Davis' bear market definition, this S&P 15.2% corrections was a bear market. In June 2016, S&P 500 dropped 6% due to Brexit fear. So what parallels can we draw from 2012 for the rest of the year?

Now the market similarly faces two uncertainties: the Fed fear and election.The  Fed fear has been priced in the market for so long. Any real move and clear guidance for the next move will lift the veil, and market will melt up. As to election, most Silicon valley tech gurus endorsed Hilary Clinton, helping Nasdaq Tech Index continue to climb wall of fear.

So in 2012 after a 21.5% bear market in 2011, S&P 500 had two corrections: drop 11% between March to June, and down 8.9% from September to November 8 election;

In 2016, after a 15.2% bear market, S&P 500 had a 6% correction in June. How about market  from September to November 8 election?   In terms of above  2012 and 2016 similarities, my best guess is that S&P will drop 3-5%. Given that it has already down 2.4%, S&P 500 downside should be very limited. This optimistic view implies that the Fed will likely raise rates next week and say the the future move will be based  on macro-data points.

So buying any dip will still be a good investment strategy this year.

Gunning Ju

From New York

Rising Tech Index Imply Hilary Clinton Win and Fed's Next Move

Rising Tech Index Imply Hilary Clinton Win and Fed Next Move

Recent market gyration disguises tech index strength. Over the past four weeks, S&P 500 dropped 2.5% from its high, while Nasdaq Index down only 0.8%. Tech Index strength resulted from Apple, Alibaba, Amazon, Google, Facebook, Netease, Priceline, among others, each of which shows its uptrend intact.

In spite of tech stocks strength, many market players still think market will face tremendous challenge ahead. Below we continue our comparison between 2016 and 2012, two election years.

In 2012, S&P 500 had two corrections: One from March to June, S&P 500 corrected 11%, just 100 points below previous year high, after which S&P 500 entered 21.5% shallow short bear market mainly caused by European debt crisis; the other 8.9% correction happened between September to November with Hurricane Sandy and presidential elections  as two uncertainties.

Back to 2016. In 2015 S&P 500 dropped 15.2% in 10 months caused by China's stock market collapse and the Fed's first move. Based on Ned Davis' bear market definition, this S&P 15.2% corrections was a bear market. In June 2016, S&P 500 dropped 6% due to Brexit fear. So what parallels can we draw from 2012 for the rest of the year?

Now the market similarly faces two uncertainties: the Fed fear and election.The  Fed fear has been priced in the market for so long. Any real move and clear guidance for the next move will lift the veil, and market will melt up before. As to election, most Silicon valley tech gurus endorsed Hilary Clinton, helping Nadaq Tech Index continue to climb wall of fear.

So in 2012 after a 21.5% bear market in 2011, S&P 500 had two corrections: drop 11% between March to June, and down 8.9% from September to November 8 election;

In 2016, after a 15.2% bear market, S&P 500 had a 6% correction in June. How about market  from September to November 8 election?   In terms of above  2012 and 2016 similarities, my best guess is that S&P will drop 3-5%. Given that it has already down 2.4%, S&P 500 downside should be very limited. This optimistic view implies that the Fed will likely raise rates next week and say the the future move will be based  on macro-data points.

So buying any dip will still be a good investment strategy this year.

Gunning Ju

From New York

Will 2016 Parallel 2012?: Markets as anticipated defy all the doubts heading...

Will 2016 Parallel 2012?: Markets as anticipated defy all the doubts heading...: Market Defies Bearish Views and Goes Its Own Way To Its Destiny Months ago famous billionaires George  Soros, Bill Gross,Carl Icahn, Dru...

Markets as anticipated defy all the doubts heading to new high ground

Market Defies Bearish Views and Goes Its Own Way To Its Destiny

Months ago famous billionaires George  Soros, Bill Gross,Carl Icahn, Druckenmiller , and Jeff Gundlach all declared themselves bearish on equity markets.I said that this bearish comments on markets would create kind of contrarian support to the market. How would market react to that?

Back to six years ago when markets rallied nicely, Paul Tutor Jones made a comment via Bloomberg that he would not chase market , considering the macro-fundamental was not so strong that market rally would have  further to go. Along the way until now, this second-longest bull market has surprises many market players and has been making us so suspicious on its legality and durability.But as long as there are so many doubters and /or perma bears around, this bull market will continue to climb the wall of worry.

So why have so many famous market players talked down market? Don't  they really have no idea about what's going on? Of course not. To my views all those gentlemen have their own agenda. Lets say Jeff Gundlach, the young bond king, may have two agendas ( to educated guess) for why he is so bearish on equity market: a. being bearish on equity market, he may hope to have a bullish bond market;b. He endorses Donald Trump to be next president. Historically when markets performed poorly during election year, incumbent party would lose presidential election, 80% of the time.

Carl Icahn also belongs to second category. he publicly claimed that he would like to be Trump's Treasury if Trump is president.

Another bearish comments on equity markets may result from the fact that these market players want to take advantage of media to make up or add long positions....

This year gold and gold stocks have huge run. Jeff Gundlach was right at this aspect that the global central banks will continue to create ample liquidity and  will not raise interest rate at faster paces.The previous  three years' plunge with gold prices was overdone, and lot of gold stocks were priced in bankruptcy as the global equity markets did in 2009. So gold stocks revenged to run up immensely. But I think this run seems to be overdone and this gold bull rally is not the beginning of another leg of super gold bull market.

Weeks ago I found great Dow theorist  Richard Russell passed way on November 23, 2015.We lost a truly great market theorist.  I thought that I would interview him some time ago. His five decades' Dow letters of  using Dow theory to interpret market will be a market treasure for us forever.  Wish he Rests In Peace.

Gunning Ju

A market analyst

From Flushing, New York

Market Will Eventually Climb Over Three Hurdles Next Five Months

 

Market Will Eventually Climb  Over Three  Hurdles  Next Five Months

Today Goldman Sachs downgraded US. equity market for two major reasons: 1. high market valuation--current forward p/e 16  is higher than long-term average 14.5; 2. low earnings growth cannot support market to go higher.

Days ago, George Soros, Carl Icahn, Jeffery Gundlach, and Stanley Druckenmiller all publicly talked down market, creating a little panic in the markets.

The latest Fed minutes today further hammers market. The Fed possibly will raise interest rate second time, which really surprised the market, sending gold price diving.

The market seems to really face too many hurdles to cross: uncertainties of interest rate, Brexit, presidential election. Each hurdle looks like a tower wall to climb. But each will not impede this bull market run, to the writer's view.

Given that the global economy is still shaky and needs the major central banks' accommodation, the Fed will not likely be too aggressive in hiking interest rate. If the Fed indeed raises interest rate in June meeting, it will not do so again in the next meeting for all sort of reasons.

Historically, presidential election seldom creates a bear market. Then how about Brexit? It should be another temporary market fear that will not have deep impact on the market.

The bearish comments by the four aforementioned market gurus, to some extent, help soothe market, in the contrarian way. This can be seen via semi stock NVDA and others keep hitting new high after solid earnings reports.

Thus, the chance that the market enters 15%+ correction should be slim during next 5 months, but not guarantee.

 

Gunning Ju

Market Analyst

from Flushing, NYC  

Will 2016 Parallel 2012?: Will 2016-2018 repeat 2000-2003 or 2007-2009?

Will 2016 Parallel 2012?: Will 2016-2018 repeat 2000-2003 or 2007-2009?: Will 2016-2018 repeat 2000-2003 or 2007-2009?       Many market players nowadays think 2016 -2017 will repeat 2000-2002 or 2008-200...

Will 2016-2018 repeat 2000-2003 or 2007-2009?

Will 2016-2018 repeat 2000-2003 or 2007-2009?

 

 

 

Many market players nowadays think 2016 -2017 will repeat 2000-2002 or 2008-2009, two big bear markets. To writer's view, this time may be really different, although this statement is considered by Wall Street the most expensive phrase.

 

Before I dissect the difference, I would like first to mention their similarities:

 

a. Like  2000 or 2008, 2016 is presidential election year, and during each of previous bull market, markets have up huge;

b. Indexes'  long-term MACDs line downward deadly crossed, regarded by many as a dangerous sign.

 

But there are 4 hidden substantial difference:

 

a. Unlike in 2000 or 2008, the yield curve in 2016 is not inverted;

b. Although Indexes' long-term MACDs appear  deadly cross, this year Indexes have not given up rising, while 2000 or 2008 Indexes simply surrendered to downside in spiral;

c. Economies looked peaking in 2000 or 2008, with the FED did not hesitate keeping raising interest rates; while in 2016 the FED still accommodates easy monetary policy when the economy is in the early stage of recovery; 

d. Leading stocks react well to solid earnings reports, with no sign of climax run as did in 2000 or 2007/8.

 

In these regards, this time big bear looks like farther away. However, be preparing  for  10%+ market correction and cherry-picking.

 

Gunning Ju

 

Market analyst

 

5/4/2016 from New York



Buy in May dip, not go away: AMZN, FB, LNKD, MNST

Buy in May dip, not go away: AMZN, FB, LNKD, MNST 

Wall Street's wisdom says " sell in May and go away". Every year this time, this old sayings seems to be a self-fulfilling prophecy, creating huge market panics.

However, since the end of Great Recession in 2009, last 7 years, Sell-in- May worked well 4 out 7 times: S&P500 dropped 17% in 2010; -21.5%  in 2011;-10.5% in 2012; -12.5% in 2015. Unlike 2016, these 4 times have no meaningful corrections prior to May-October market chaos. From this market internal mechanism, Sell-in May and Go-Away may not work well in 2016.

Also leading stock firms reported solid earnings so far: Amazon, Facebook, LinkedIn, Monster beverage, Baidu, among others, with these stock prices having been reacted well to earnings reports. As long as there are such leading stocks leading market parade, the chance for big market drop should look dim, but not guarantee.   

Granted,  Q1 GDP(+0.5%) growth looks much better than 2011 Q1's -1.5%, so market may not happen 20% drop correction like year 2011. For 10% market correction, buy-dip makes good sense. But this depends on what stocks you will buy. 

Currently, markets may bounce from 3-5% pull back as said in last blogger. Growth investors can consider buying following stocks in weakness: AMZN, LNKD, FB, MNST, TYL, etc.

Gunning Ju

Market Analyst

4/30/2016 from New York     

Why the stock market wants to hit new highs?

US stocks on Friday diverged, with industrial and technology stocks moving the opposite way. Microsoft, Google, IBM dropped after Q1 earnings reported lower than expected, causing the other technology stocks sell-off. Meanwhile Norfolk Southern broke-out under solid earnings report, providing other transport shares a cordial. Dow rose slightly, the market rotated of the tech sector into industrial shares. At this time,  Dow is just an inch away from a new high while  NASDAQ stocks still has to go another 6% to the new high ground.



Historically, Dow and S& P500 are the first to enter weak season, while the Nasdaq follows suit. Dow benefited from strong emerging market and commodity market bottoming out and rebounding, but technology stocks are affected by short-term currency exchange rate adjustments.  To my view, this currency adjustment should not be able to control fluctuations in the overall market longer-term. After all, Microsoft, Google, and IBM are not market leaders. And Facebook, Tesla, etc. may determine the genuine intentions of the market next week or so.

Since the stock market enters the weak season and is unwilling to compromise, this indicates  its strong inherent intention to go new high. Current Fundamentals are comparable to 2009 after the bear market bottomed out, with the market anticipating  improved fundamentals  3-6 months forward; while the index technically parallels to 2012, with market psychology up to 47% bearish not a bad thing. Because there are ample uncertainties in an election year, the market seems to slowly digest those uncertainties and create an antibodies.

 

The market may need 3-5% correction, or may not need, and then continue another 3-5% up after a new high. After that, there will be an chance for intermediate 10% of the correction.


Trim some position with 15%+ return ,and wait for ER. 

Gunning Ju

A long time market analyst
4/24/2016 from Flushing, NYC 

Will 2016 Parallel 2012?

                                             Will 2016 Parallel 2012?

US markets seem stalled past week after robust splinter from February low. Although markets officially enter the seasonal volatile season with unknown variables lurching out sooner or later, it seems that a blowout headwind markets face still is miles away for the time being if there is one.

So how and what uncertainties markets need to digest so that it can breakout to new high ground while ignoring all negative news?

·         Unlike 2012, this year markets still stay below proceeding high. i.e., technically, markets may be still a correction market rally.

·         2012 was Euro zone big flounder in addition to US presidential election drama; 2016 also has an uncertainty of Euro zone—Britain exit of European union, called Brexit (June 23), plus Deja Vu presidential election.  

·         Also markets seem to well understand the impact of Brexit and US presidential elections and will gradually discount these uncertainties.

·         The 13% market run from February low has discounted most of previous overreaction to interest rate hikes and fundamentals. Markets know that fundamentals are neither so bad, nor so good, keeping Ms. Janet Yellen still for a while.

 

Next week starts Q1 earnings report season. Solid earnings may offset seasonal market weakness, paving the way for later year market rally. Therefore, investors need to wait for solid ER, or conservatively buy 5-8% dip during volatile May—October season.

 

Gunning Ju

4/9/2016 from NYC