Market analysis, insights and trading ideas on various markets and products!

Spencer Li

Is the Stock Market Heading for a Correction? (While Bitcoin Surges…)

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After the sharp run-up in stocks from last year’s March lows, some people are starting to wonder if the market has got a bit too bubbly.

In this post, we will compare the different stock indices, as well as some other products, to see if there are any good opportunities.

 

The Meteoric Rise of Bitcoin

Meteoric Rise of Bitcoin

When placed on the same scale, the epic 700+% returns on Bitcoin (BTC/USD) dwarfs everything else, and has also provided some of the best returns for my portfolio last year.

Looking at its strong trend, it does look like there are a few more legs for it to go, so I will hold onto it for now.

To see the rest of the products, I will now remove Bitcoin from this comparison.

 

Overview of Various Markets

 

Overview of Various Markets

 

The top 3 you see are the 3 indices of the US stock market, and the one in candles is the S&P 500. The other 2 are the Dow Jones Index and the NASDAQ.

The Nasdaq had the sharpest recovery at the start, but the other 2 recently caught up, especially in the last few weeks where the NASDAQ corrected sharply.

So in terms of percentage recovery, all 3 indices are roughly at the same level.

Next if we look at the line in dark purple (2801), which is one of the China Stock ETFs which I invest in, it had a good run, and just earlier this year it was on par with the NASDAQ.

However, in recent weeks, it has corrected sharply and is now below the 3 US stock indices.

The STI Index (Singapore market) was pretty much lackluster last year, but has picked up in recent months, making it one of the top performing stock markets this year.

The last line on the chart is Gold (one of the Gold ETFs to be specific), and it seemed to have hit its recent peak in August last year.

 

Will Rising Rates Kill the Stock Market?

 

Kill the Stock Market

 

Historically, rising yields have led to recessions, but the lag time could be years, so it’s not like we won’t be able to see it coming as it happens.

 

Kill the Stock Market 2

Kill the Stock Market 3

 

Looking at the charts of bond prices (which are an inverse of interest rates), we can see that it peaked around the same time the stock market bottomed (March 2020), and in recent weeks has been dropping faster.

This in itself it not necessarily a bearish indication for stocks, because it is more of a sign of potential rising inflation, but as long as inflation remains low, then it may not necessarily be bad for stock prices.

Which means the best way is still to check out the charts of the stock indices.

 

Chart Analysis of S&P 500

 

Chart Analysis of S&P 500

Chart Analysis of S&P 500 2

In summary, the stock indices are currently trading within a sideways range after a long run-up, so it won’t be surprising if there is some medium-term correction before the trend continues.

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Spencer Li

US & China Reach Phase One of Trade Deal – What Next?

us china trade deal

I just got back from one month of travelling in Eastern Europe, and I’m glad to see some progress on the trade war resolution.

The US and China finally agreed on Phase One of the trade deal on Friday (Dec 13), including immediate cuts on import tariffs.

This is good news for Trump who is now battling impeachment, and with his 2020 reelection campaign coming up, he needs to give voters some small wins.

If this deal was not reached, a new round of tariffs on consumer electronics like cell phones and computers would have kicked in on Sunday.

As a sweetener, the US will also slash in half the 15% tariffs imposed on US$120 billion of Chinese goods that were imposed on Sep 1 previously.

US & China Reach Phase One of Trade Deal

However, existing tariffs of 25% on US$250 billion of Chinese imports would stay in place pending further negotiations on a second phase deal.

In return, China is committing to increasing purchases in four sectors: Agriculture, manufacturing, energy, and services.

In a sign that tensions remain high, Foreign Minister Wang Yi accused the US of “suppressing” China in a number of fields, including the economy, trade and technology and had “seriously damaged the foundation of hard-earned trust between China and the US.”

The US also angered Beijing by backing Hong Kong’s pro-democracy movement and criticising China’s mass detention of mostly Muslim minorities in the northwest region of Xinjiang.

US & China Reach Phase One of Trade Deal 2

Looking at the chart of the S&P 500, stocks have continued to climb even during the trade war, which shows that the uptrend is still very strong.

Now that we are at the top of the trend channel, we might see some correction to the middle or bottom of the channel.

If there are no major political surprises or escalation of the trade war, then we might even see a Christmas rally before the year end.

Overall, I would be looking to invest in high growth US stocks.

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Spencer Li

US-China Finalizing Phase One of Trade Deal – Will We See New Highs?

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In the news, U.S. and Chinese officials are “close to finalizing” some parts of a trade agreement after high-level telephone discussions on Friday, the U.S. Trade Representative’s office and China’s Commerce Ministry said.

This seems to bode well for the stock market, with prices already creeping up to test the prior highs.

So will we see new highs? And how bullish are these new highs?

US-China Finalizing Phase One of Trade Deal

Unless there is a drastic turn of events, I am pretty confident we will see new highs.

However, the question of how sustainable these new highs are are more difficult to answer.

For example, there are other factors to consider, such as whether both sides stick to the agreement and the trade war does not escalate again.

There is also the Trump impeachment which is going on.

And there is also the softening of the US economy, which will also affect markets negatively.

So it is a matter of balancing the positive and negative catalysts, and deciding which are more important in the short-run and long-run.

Unfortunately, I am not seeing many long-term positive catalysts.

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Spencer Li

Bitcoin Spikes up $2500 in One Day – Any Reasons Why?

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Yesterday, we saw an incredible spike in Bitcoin of close to $2500, which is 40+% move.

Even though price has corrected slightly, it is currently still up by about 30% from its recent lows.

Bitcoin Spikes

Although no one really knows the reason for such a sudden move, many people have attributed it to remarks by the Chinese President, Xi Jinping, who said the country needs to “seize the opportunity” afforded by blockchain technology.

Speaking as part of the 18th collective study of the Political Bureau of the Central Committee on Thursday in Beijing,  he said that blockchain technology has a wide array of applications within China, listing topics ranging from financing businesses to mass transit and poverty alleviation.

Although he was talking about Blockchain technology rather than cryptocurrencies, traders seem to have felt that it would still have a positive effect, at least based on what the market is reflecting.

For a technical perspective, the chart is starting to look more bullish medium/long-term, with the breakout of the falling wedge pattern.

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Spencer Li

Tesla Shares Spike 21% on Earnings Surprise

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Tesla recently posted a cash balance increase to $5.3 billion and reported a profit of $1.86 per share, shattering analyst expectations for a loss of 42 cents per share.

Elon Musk promised a 2020 rollout of a cheaper SUV and more self-driving technology to stay ahead of larger rivals rushing into the premium electric vehicle market he created.

 

Tesla Shares Spike 21% on Earnings Surprise

 

Looking at the chart of Tesla, we can see that it traded between the range of $250-$390 for almost 2 years (mid 2017 to mid 2019), before breaking to test a major support level at $180.

From there, it has made a strong recovery, with a whooping 70% gain from its June 2019 bottom.

Now, prices are close to $300, and it looks poised to test the highs of $390 again.

I will continue to hold and look for opportunities to accumulate more again.

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