Spot-on market analysis and insights from the trading desk

Longest Bull Run in the US Stock Market – Good Idea to Buy Now?

 

If you’ve been reading the news, you will know the US stock market is at an all-time high, and quite possibly one of the longest bull runs in history. According to Zerohedge, this is the longest bull run since the great pyramid boom of 2580 B.C.

Article: https://www.zerohedge.com/news/2018-08-22/longest-bull-market-great-pyramid-boom-2580-bc

Also, the US economy seems to be doing pretty well, especially with the booming tech sector, and even the banks are hitting record profits.

Article: https://www.zerohedge.com/news/2018-08-23/us-bank-profits-hit-record-60-billion-q2

But I think the big question on everyone’s mind is this:

 

Is this a Good Time to buy Now?

If you believe that markets follow the boom and bust cycle, such as the 10-year cycle, you will know that we are “overdue” for a big correction. Logic dictates that we aim to buy after a big crash to get the best value (and most potential upside), hence buying at the all-time highs might not seem like a good idea to many people.

 

If you look at the current chart of the S&P 500, you will see that the price is just testing the prior highs, which means that it is at a very critical point.

If prices get rejected at this level, it could end up forming a double top reversal pattern, which is very bearish and could see a decline to the 2280 levels.

For the strong uptrend to continue, prices need to confidently break above the prior highs and stay above that level.

 

What Could Go Wrong?

With escalating political tensions with many countries, and the trade war with China, a confluence of negative factors could adversely affect the fundamentals of the US economy.

Article: https://www.zerohedge.com/news/2018-08-23/trade-war-escalates-us-china-slap-each-other-fresh-16-bn-tariffs

With the risks in mind, I will not be aggressively accumulating positions at this time, and will have to focus more selectively on key sectors.

 

After Crashing 20%, Is Facebook Stock a Good Buy Now?

Just last month, I made a trip to the Facebook HQ in Silicon Valley, and I was very impressed by the work culture and vibe of the whole community there. It made me glad to be a shareholder of Facebook, and since then, I have been waiting for an opportunity to buy more of it. 😀

Yesterday, after a disastrous Q2 earnings call, Facebook’s stock has plunged almost 20% so far; is this the start of something really bad, or the long-awaited chance to buy this stock?

 

Personally, I am a big fan of the tech sector, and I have been accumulating positions in the US tech giants since I liquidated all my Singapore stocks portfolio in 2015. but I am not going to jump in blindly, so let me sum up some of the key considerations:

  • The comment that spooked investors was the CFO’s prediction that revenue growth rates would continue to decelerate in the “high single-digit percentages” in Q3 and Q4.
  • While the results were not as fantastic as in the past, the disparity to analysts’ revenue and user growth forecast were not very major.
  • Facebook is likely being extremely conservative and has plenty of opportunities to gain back the momentum.
  • They are constantly innovating and acquiring new companies, some of these might turn out to be big winners
  • Its valuation based on PE is still ok compared to other stocks in the tech sector (about 30x)

 

The last time there was a plunge in FB shares due to the Cambridge Analytica scandal, it dropped almost 10% overnight in March. However, prices recovered very quickly, and before long prices were back to hitting all time highs, bringing valuation close to a $1 trillion market cap.

Some of the key risks could include more regulations that will hurt its bottom line, or anti-trust actions that attempt to split up the company.

But there are also upsides, such as the company leveraging on its technological innovations and data to expand to other industries and eat up the value chain.

So, in conclusion, I will not buy in immediately as I do not want to be catching a falling knife, instead I will wait for selling momentum to wane and the dust to settle before scooping up more of this stock. This is to ensure that I can get in at the best price. After all, I am still optimistic for the long run.

Will the Stock Market Crash or Continue Going Up for Another 10 Years?

Since the crash of 2008, and the recovery which started in 2009, the stock markets (especially the US markets), have been on a steady uptrend.

Chart: S&P 500 index (weekly chart)

Many of us have heard about the 10 year cycle, where the market is supposed to crash once every 10 years, for example the Asian markets during the 1997 currency crisis, and the global markets in 2007 during the subprime crisis.

However, in 2017, we did not see any significant crash or correction, which have led many analysts to rethink the theory.

Now, it is 2018, so should we be expecting a delayed crash, or are we experiencing a structural change in the markets?

If we observe the supercycles of major human technological innovations, we see that each major wave of progress is driven by a major technological innovation, such as the steam engine in the 1700’s or the internet and IT advancements in the 1900’s.

And based on the cycles, we could be in the early stages of the 6th wave, which is going to be driven by the upcoming huge advancements in applications of big data, artificial intelligence, virtual reality, augmented reality, internet of things, and blockchain technology.

Source: The Market Oracle

This means that we could be on the cusp of a super bull market, if these technological advancements are able to create a quantum leap in productivity for businesses and a huge jump in the standards of living across the globe. All these would translate into stronger stock prices, which instead of crashing the market, would propel it to new heights.

However, there are also major concerns:

  • Unequal gains across companies: the major tech companies may soon dominate all industries via the application of new technologies.
  • High unemployment: If machines take all the jobs, what are humans going to do?
  • High debt and leverage of US and European economies
  • Political risks: clash of superpowers (US and China)

In summary, many retail investors are wary of entering the stock market now because it is at all time highs and has already “gone up a lot” since 2009, hence they are waiting for a “big crash” before going in. However, this big crash may not come if successful widespread application of new technologies and innovation are able to drive a quantum leap in productivity.

P.S. Next week, I will be heading to Silicon Valley to explore the latest technologies and innovation at some of the biggest tech companies, join me for live updates here:
My personal FB: https://www.facebook.com/iamrecneps
My Instagram: https://www.instagram.com/iamrecneps/

Cheers! 😀

Follow-up on GBP/AUD Trade – US$2,966 Profits Locked in!

Following up on our major trade call of the week, we have locked in US$2,966 of profits for the week on this one trade, and many of our hardworking forum members have also been doing their homework (15 minutes a day) and reaping the rewards from the markets.

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Cryptocurrencies & The 50-Year Kondratiev Wave Cycle

About 2 weeks ago, I attended a talk by one of my former professors (SMU), and it was on the topic on cryptocurrencies and the upcoming technological disruption. She mentioned about Kondratiev waves and the 50-year cycles, and I went on to do some research on how Cryptocurrencies fit into this wave, and how long it is likely to last according to this model.

“In economics, Kondratiev waves (also called supercyclesgreat surgeslong wavesK-waves or the long economic cycle) are hypothesized cycle-like phenomena in the modern world economy. It is stated that the period of a wave ranges from forty to sixty years, the cycles consist of alternating intervals between high sectoral growth and intervals of relatively slow growth.” – Wikipedia

 

After the global financial crisis in 2008, the market bottomed in 2009, and since then we saw the start of a new major cycle, which could last till 2050/60. This means that we are still in the early stages (fast growth stage) of a big long-term trend. This trend consists of not just cryptocurrencies, but also things like blockchain, AI, VR/AR, machine learning, etc.

 

Will it Crash Like the Dot Com Bubble?

In every phase of innovation, it will start off with radical innovation, where a new technology is introduced. This will be a period of experimentation and flux, as many new products come into the market. Cryptocurrencies are currently in this stage, which is why prices are so volatile.

As you might be aware, there are 3 main types of coins: currency, platform, and applications. Some people also include a 4th type called privacy coins, like Monero and Zcash, which are meant to allow completely anonymous transactions. Some examples of currency coins include Bitcoin, Litecoin & Bitcoin Cash, and their main purpose is to serve as a virtual currency. However, Bitcoin behaves more like an asset rather than a currency now, since people are buying it for capital appreciation rather than to use it for transactions. Platform coins refer to ones like Ethereum, which do not directly provide a function to the consumer, but allow applications to be built on their platform. Lastly, applications are like the iphone apps, which serves a particular function for the end user.

After the market has gone on long enough to enter the bubble stage, the next phase of innovation is the “shake out” phase, where the market gets rid of “useless” or bloated/weak products. This will typically be the part associated with a market crash, but it is also possible that the bubble deflates slowly instead of bursting.

In an early stage boom, the application coins will tend to proliferate, and there will be a lot of them. This means that this class of coins would be the most risky to invest in, because a lot of them will be the first to die out when the market crashes.

 

 

After the dust settles, the ones who survive will likely become the dominant players (Facebook, apple, Amazon), and it is worth noting that the best products/technology may not necessarily be the ones that survive, rather it is the one with the widest adoption. Do keep this in mind when building your Crypto portfolio and deciding which coins to invest and hold for the long-term.

After the crash, the trend may take a while to resume, but it will be more majestic than before. The next phase involves incremental innovations, where products are further refined, such as improvements in the products, or new applications for existing products, etc.

So Should I Buy Now?

Although we know we are at the early stages of a mega-trend, we also have to keep in mind the “shake out” phase which has not occurred yet.

If you are willing to hold through that and capture the subsequent big upside, then you will not need to worry so much about timing the market now. But if you prefer to take a more cautious approach, you can wait till the “shake out” is over before entering the market.

And lastly, if you prefer the best of both worlds, you can use swing trading to capture the short/medium-term moves in the market, while waiting for the “shake out”, and then going all-in when the dust settles. Whichever approach you choose, just make sure you don’t miss out on this 50-year wave, because it is literally once in a lifetime. 😀