Consumer Stocks: Discretionary vs Staples

Ein55 Newsletter No 052 - image - Consumer products

Stock prices will rise over time when business is growing.  Consumer stocks depends on businesses in consumer market. A consumer business sells us products and services which could be in 2 broad categories:

 

1) Good to Have (we WANT)

Optional for us, eg high end restaurants, premium property, branded handbag, children enrichment programs, etc.

In stock market, “Good to Have” are Consumer Discretionary stocks, they are usually dependent on consumer purchasing power which subject to economy condition. In a bull market, many people could make money in stocks or properties or having a higher increment in salary, therefore having more budget to buy non-essential products, eg. a car with high COE price, even public transportation is easily available.  In a bear market, this type of stocks are likely to fall down badly in share prices.

One could position with “Cyclic Investing” strategy for Stocks or Business with Good to Have products or services.

 

2) Must Have (we NEED)

Essential for us, eg. basic 3 meals in foodcourt or simple bread & coffee at home, a house (HDB) to stay (rent or own), a bag which we could carry when going for work, children public transport to school, etc.

In stock market , “Must Have” are Consumer Staples stocks, they are usually more defensive, needed in daily life regardless of economy condition.  Whether good time or bad time, people still need to eat & drink, taking bus or train, wearing clothes. Most people are unlikely to cancel their mobile phone plans or cut their utilities (water/electricity/gas) supplies.

One could position with “Long-term Defensive or Dividend Investing” strategy for Stocks or Business with Must Have products or services.

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In actual stock market, most stocks are hybrid of Good to have and Must have, because the definition of needs are dependent on individual.  Therefore, we could have a variety of investing strategies over a spectrum of needs for products and services.

How to Capture Falling Knife Safely for Stocks in Crisis?

Ein55 Newsletter No 035 - image - Falling Knife image

Every crisis is an opportunity.  We have learned to be greedy when others are fearful.  However, not everyone is mentally prepared to buy low and sell high following one’s personality.  When a business is in crisis, the stock price is like a falling knife, one could get hurt when enters too early, buy low and may get lower, emotionally affected with the endless falling prices.

For example, over the last 2 years of crude oil crisis, stock prices of global oil & gas stocks are significantly corrected. Singapore oil & gas stock index is at 9% optimism (see chart below), a very attractive price level over the last 10 years, upside is much higher than downside from a long term perspective.  However, whenever there is a technical rebound due to good news (eg. recovery of crude oil price), there could be another negative news who correct it down further (eg. Swiber plans to wind up the business recently).

Ein55 Newsletter No 035 - image - Falling Knife

 

Here are a few important considerations for us to safely capture the falling knife of a stock in crisis:

1) Fundamental Analysis

Some weaker stocks may not survive through the crisis. It is critical to always consider giant stocks with strong fundamentals.  Based on the survival of the fittest, after the winter is over, these strong stocks will grow stronger, especially there are less competitors with higher demand then.  For more conservative investors, one could wait patiently for signs of reversal in the business performance.

 

2) Technical Analysis

While long term view of a stock could be at attractive low price, the intermediate price trend usually is bearish for a stock or sector in crisis, eg. commodity, shipping, casino, etc.  It is important to follow the trend before entry, waiting for the falling knife to drop the floor first, before pick it up safely.  Confirmation of uptrend is required, aligning Level 1 (individual stock), Level 2 (sector / industry), Level 3 (country / region) and Level 4 (whole world).

 

3) Personal Analysis

One should know own’s personality before deciding whether short term trading or long term investing is a more suitable approach.  It is hard to force a trader to buy low and wait for several years to have tremendous capital gains.  At the same time, a true investor could grab an opportunity even with counter trend in prices, ignoring the daily market news, using strong holding power to reverse the trend eventually, buy low sell high.

 

Oil & Gas Stocks – Time to Buy or Sell?

Ein55 Newsletter No 025 - image - oil & gas

Global oil & gas related stocks have experienced significant corrections over the past 1 year, many stocks including blue chips are at attractive low prices.  Although investors know that crisis is an opportunity, the share price could become lower with time, therefore few people dare to grab the opportunity.

Is it time to buy or sell Oil & Gas stocks? The answer is to align the strategy with personality (short term trader vs long term investor):

1) Long Term Investor

For a long term investor with at least 3 years of holding power, oil & gas crisis presents a rare opportunity for entry to buy low.  As shown in the Optimism Chart below for Oil & Gas Stocks Index, long-term optimism is 22%, an attractive low price, having RRR (Reward to Risk Ratio) of 3 times.  However, no one will know the true bottom, therefore the best strategy is to buy low enough (below 25%), not to depend on luck to wait for the lowest point.  The investors enter with long-term low optimism require 3 additional weapons to be successful:

  • Know what to buy for giant oil & gas stocks. Some weak stocks may not survive through this storm, losing business with high debt could break the camel’s back. Giants with strong fundamentals will last and revive as final winners.
  • Holding power of at least 3 years to wait for the recovery of oil & gas
  • Ability to control the fearful emotion during crisis, certain stocks may fall in price further due to market sentiment.

Ein55 Newsletter No 025 - image - Oil & Gas - LT

2) Short Term Trader

For a short term trader, the holding power is shorter (a few weeks to a few months), therefore the strategy is totally different from long term investor.  A trader has to align with the short term market sentiment which is still bearish over the past 6 months.  With the recent recovery of oil & gas prices, the short-term optimism is high at 77% (see chart below).  For a short term trader, the upside is limited, downside is 2 times, having RRR (Reward to Risk Ratio) of 2 times if shorting strategy is applied.  Of course, a short term trader could also wait for stronger breakout above 100% Optimism, if still want to long the market for a short period.

The traders who long/short the oil & gas stocks require the following strength:

  • Know what to buy for trading, either for long or short, choices are different from investing.
  • The ability to cut loss when direction is wrong based on risk tolerance level, knowing when to take profit, not to be too greedy. Winning or losing is a probability game in trading. Retail traders may have hard time to manage own emotions as the trades are their own capital, they could be forced to hold the stocks from short term to long term when direction is wrong, finally ending up sell low when price breaks below their psychological limit one day.

Ein55 Newsletter No 025 - image - Oil & Gas - ST

When Optimism Strategies are combined with Fundamental Analysis (value investing & growth investing), Technical Analysis (support / resistance / trends), and Personal Analysis (mind control of greed and fear), it is very powerful when one is able to take the right action (Buy, Hold, Sell, Wait or Short) at the right time aligning with own personality.

The unique Optimism Strategy developed by Dr Tee provides a special advantage to know which investment (stock, forex, property, commodity, bond, etc) to buy safely, when to buy, when to sell, including option of long term holding.  So far over 10,000 audience have benefited from Dr Tee high quality free courses to the public.  Take action now to invest in your financial knowledge, starting your journey towards financial freedom.

Brexit has created new stock trading and investing opportunities globally.  At the same time, British Pound is severely corrected, one could apply Forex Optimism to maximize the gains in stock market.   The fear factor has supported the bullish gold price and gold related stocks (eg. gold miners), analysis with Commodity Optimism is needed.  Every crisis is an opportunity, provided one knows how to position.

 

 

 

Profit in Stocks from Commodity Market Cycle (Oil & Gas, Palm Oil, Mining, etc)

Commodity

Every major investment market (eg. stock, property, commodity, forex, bond) has its own unique market cycle. A wise investor could combine 2 market cycles of 2 different markets to maximize the potential gains.

Currently, regional stock markets have diversified performance.  Major economy such as US, China and Germany are still at moderate to high optimism levels.  At the same time, countries with GDP depend heavily on commodity, eg. Malaysia, Indonesia, Australia, are suffering in slower economy due to declining commodity prices.  Their stock markets are at low optimism level now, risk seems to get higher with political uncertainty and weaker currency.

The recent free-fall in share price for Glencore, major global commodity stock is an alert to the whole world, both commodity and stock markets. At the same time, local commodity related stocks such as Oil & Gas (Keppel Corp, Sembcorp Marine, Ezion, etc), Palm Oil (Golden Agri, First Resources, Wilmar), as well as overseas commodity related sectors (eg. mining in Australia), are recording huge correction is prices over the years.  This could be a rare opportunity to buy during a crisis but many people do not know how to take this advantage.

The secret of making money in investment is simply Buy-Low Sell-High. However, most traders and investors are too normal, therefore their emotions will swing with the market news, ending Buy-High Sell-Low.  Commodity related stocks locally and globally are very attractive in prices but whoever dare to buy, could end up buy low and get lower, eventually may sell lower due to fearful outlook. The dilemma is how to measure low and high, how low is considered low? It has to be 20%, 50% or more discount in price?

In the past few years, STI component commodity stock, Noble Group, share price has been declining from over $2 to about 40 cents now, more than 80% correction in prices.  At which level, share price may be supported?  When is the right time to enter?  The decision requires good understanding of fundamentals of commodity and stock market cycles.  Commodity market cycle now is in winter season while stock is near to summer time.  A wise trader or investor would align these 2 unique market cycles in one’s trading plan or investing strategy.  There is a limit in falling in price, as long as the reason is not due to fundamental of company is getting worse, eg. declining business with little asset or cash to pay for excessive high debt.  Not everyone is master of fundamental, therefore a stock price could be over-corrected based on declining in business (eg. due to commodity market downturn).  For the case of Noble Group, the accusations by Iceberg Research and Muddy Waters, resulting in share price falling below $1, all the way to 40 cents, is mainly a reflection of traders’ fear.

The safest time to buy a stock is when everyone is afraid the sky will fall down while the business is still operating normally with consistent performance. Such opportunity requires patience.  Opportunity of fortune is for someone who is prepared.

 

Risks are Opportunities in the Year of Sheep 2015: China Market Rally and Crude Oil Crisis

Happy New Year to all readers.  Here are some new updates on current market outlook (supplements to eBook on Global Market Outlook 2015) when we welcome the Year of Sheep 2015.

1) China Market Rally

As shared in several workshops and publications since 1 year ago, 2000 points was a golden entry point for China SSEC Index (through A50 ETF) as it was at 25% Optimism, a rare opportunity for a major country index to be corrected.  Indeed, in the past few months, after the Shanghai and Hong Kong stock markets are connected, it provides a reason for the traders and investors to push up the undervalued SSEC Index to 3330, appreciation by 65%!

Although SSEC or A50 still has more than 50% growing potential (before reaching 75% Optimism), a safer  strategy now could be looking for individual undervalued stocks with low optimism (<25%) which are still lagging but having more potential to rise.

2) Oil & Gas Correction

Brent crude oil price has been dropping in the past few months, from US$115/barrel to the lowest of US$47/barrel recently.  Global commodity price index has been below 25% Optimism when crude oil was still above US$100, the unstable high oil price at over 75% Optimism was triggered by a complex interactions of:

2.1) Recovery of US:

The US dollar is strengthened after QE3 is fully tapered since Oct 2014, following by anticipation of US interest rate hike in 2015. USD and commodity (eg. gold, oil, etc) usually move in opposite direction.  With US unemployment rate drops to 5.6% in Dec 2014, the US recovery will continue in the next few years, oil will be under pressure.

2.2) Political Economy

There could be political considerations for oil producer vs oil consumer countries, OPEC and non-OPEC countries, conventional vs shale oil technology.  The demand vs supply principle of economy is disturbed, resulting in high volatility in oil prices.  The crude oil price is halved, the impact is as if a new form of global QE (Quantitative Easing) to stimulate the economy because the energy cost is lowered, there is more saving for spending or investing in near future, at the expense of oil producers who have accumulated significant reserves of wealth during the super bull run of oil from 1999 to 2014.

2.3) Trader Psychology

Profit taking or cut loss when prices drop from high point, resulting in falling-knife trend, few traders dare to catch to support the price.  With more hedging and shorting sentiments, the oil price will be under correction, following the old foot step of gold prices a few years ago.

A crisis is usually an opportunity, a blessing in disguise. Oil price has resulted corrections in many stocks in Oil & Gas, some are below 25% or even 0% Optimism, which usually only observed during Global Financial Crisis, not in the middle of a bull market. Commodity has a much longer market cycle (eg. 20-30 years), may not be aligned with economy cycle. Each investment market (stocks, properties, forex, bonds, etc) has different investment clock, % Optimism strategy could be applied to buy low sell high.  For long term Brent crude oil, 0% Optimism is at US$44/barrel, over-correction by the market will provide an excellent opportunity to both traders and investors but a proper strategy must be adopted, especially to overcome the market emotional swing due to short term volatility.  The timing of crude oil recovery then will be the timing for oil & gas related stocks.

The sector correction will be rotated from time to time among various industries due to imperfect market, following the Optimism level, higher one will have higher risk, lower one will have higher potential.  The oil correction will help the shipping sector (eg. NOL, SIA, etc) at low optimism to grow, higher outlook for profitability with lower energy cost.  The rally in China market will help the Singapore S-chips to recover gradually, especially after the China economy is improved further. The last example was severe Singapore REITS correction in year 2013 after 50% rally, now in recovery phase but will have limited upside due to increasing mortgage rate (anticipation of US interest hike) and gloomy outlook of Singapore property market.  Earlier example was storm in penny stocks, correcting many stocks, resulting in low trading volume due to negative sentiments.  Based on the survival of the fittest, each correction will make the “giants” or strong-fundamental stocks become stronger after recovery from the valley of lower price.  We want to look for giants who are falling down, helping them to recover at the right time, then the giants will reward us when becoming strong.

For those who are interested in the details of market outlook 2015 or Ein55 styles with Optimism Strategies, you may drop by to attend the next free workshops conducted by Dr Tee.  All the best to all in trading and investing for year 2015!

eBook on Global Market Outlook 2015

It is fresh from the oven:   I have just finalized 35-pages eBook on Global Market Outlook 2015. You could download here:

Existing Newsletter subscribers: Please refer to the download link sent by email on 14 Nov 2014

Non-newsletter subscribers: Please sign up (click on eBook image of ein55.com) before download

Aligning with the introduction of new eBook, I have prepared 3 exciting free workshop and short course (total worth $1000) in Nov & Dec 2014 for the readers:

1) Global Stock Market Outlook 2015

2) Best Timing to Profit from Singapore Property Market and REITS Stocks

3) Market Optimism Strategy with Integrated Fundamental and Technical Analysis

 

Free seats are limited (first come first served), please register through:

http://www.ein55.com/free-public-education-on-investment-programs-by-dr-tee/

 

eBook Table of Contents (Global Market Outlook 2015)

1.  Mass Market Sentiment Survey

2.  Review of 2014 Global Markets

3.  US Economy and Market Outlook

3.1  US Government Debt Limit

3.2  Tapering of QE3

3.3  Fed Interest Rate Hike

3.4  US Job Market

3.5  US Property Market

3.6  US Bond Market

3.7  US Dollar, Inflation & Gold / Silver / Crude Oil

4.  Regional Economy and Market Outlook

4.1  Europe Market

4.2  China Market

4.3  Hong Kong Market

4.4  Japan Market

4.5  Southeast Asia Market

5.  Singapore Economy and Market Outlook

5.1  Singapore Stock Market

5.2  Singapore Property Market

6.  Stock Market Potential for 2015 and Beyond

7.  Conclusions and Recommendations

Acknowledgements

Appendix