So, the first proper week back in the markets, things have been somewhat volatile ( expect more ) and we should start to get some semblance of a direction in a few weeks once the ECB decision is out the way. As is often the case, the news is understandably focused on the short-term but this should give some awesome opportunities for the long-term. This post will be focusing on the latter for now and i’ll cover short-term stuff in another post.
I am starting to see some interesting changes in charts, i’m not sure what it means so all i can do is speculate and put my money where my mouth is and hope the dice roll in my favour.
First up, the mighty US Dollar. Many people in the news channels are going on about the dollar’s continuing rise, is this the case? Well from the chart below, it certainly looks like it but if >everyone< is on one side of the table, always be very cautious, this is often when you get some explosive moves to opposite side to ‘shake the tree’ and so on. It does appear that it has a very long term target of 120? on the dollar futures chart but maybe it’ll put in a lower high. I ultimately do expect this dollar strength to completely reverse at some point and a weak dollar would be the fuel for some underlying inflation. Maybe too simplistic but make of it what you will..
US Dollar futures chart ( monthly )
This has a very long-term rounded bottom and it looks like it is working its way through a bunch of resistance here. As you can see from several years back it hit 120 – perhaps somewhere there is the target. I’ll guess we’ll find out in due course.
Next up, if the dollar is super strong why is Gold holding on? The fear of the grexit? Russia? Some other geo-political stuff? Well there is some support right now, that’s for sure but until Gold firmly closes over $1350 i have to remain on the ‘it’ll keep treading water’ camp. I am actually in a lot of the miners as i think they have been crushed too far, i still believe Gold will reverse in a few years but here is the monthly chart, make of it what you will.
Downside is $1035 target and possible overextension to the $800 level, upside $1300-$1350 ceiling, if that breaks then game on again.
Gold Futures ( /GL ) Monthly chart
Next, everyone’s favourite topic Oil.
This commodity has been absolutely annihilated in the space of 2 months, the short-term is EXTREMELY oversold so i am expecting Oil to sort of rally sporadically, hold and churn in this $47-52 range for a bit. I am also fully expecting oil to at least have a shot at the 2008 lows ($30 ish ) with the selling momentum it currently has but i don’t expect that to last too long. However, tail-end of this year and into next year, i am in the camp with many pundits that i think it will stabilize in the $60 range give or take….and then eventually it will rip back up and take out the $110 ceiling and beyond ( inflation anyone? )..
Oil futures ( /CL ) chart Monthly chart
The white zones are where i have highlighted what i think is super long-term support and resistance. Notice i do have another target in the $20 range and notice the $110 level. So my current plan is to take advantage and load up on premium energy stocks as we drift towards the lower targets. I have been slowly accumulating stocks in the $40’s and then will start to sell at the $100-$110 which we will hit at some point ( note: this could take a few years or a few months, that’s the crazy thing with commodities, they can flip on a dime ). To me, the energy crisis is reminiscent of the housing crisis, it will probably be another generational low so take advantage and don’t be scared. Also don’t put all your eggs in one basket :P.
In summary, wait for the earnings to come out, there will likely be many casualties in the next 3-6months. Find the cream of the crop, tuck it away, stick your helmet on and pray oil recovers in a year or two.
Finally a few stocks…
Apple ( AAPL )
The stock of 2014, man what a wild ride that was. I got out way too early on it last year much to my frustration but you win some and you lose some. It looks to me the stock is sort of short-term topping out here. The numbers for iPhone sales for xmas will be stellar and likely already priced in but there have been interesting comments out of Bloomberg today like so:
‘Apple, which gets the majority of its $182.8 billion in annual revenue from outside the U.S., has recently said it is mindful of how the strengthening dollar will affect its business. In October, Chief Financial Officer Luca Maestri said the company faced “significant foreign exchange headwinds” from the strong dollar, just as the company made new iPhones and thinner iPads available for the end-of-the-year holiday shopping season.’
This will probably be a common theme for many companies in the upcoming earnings so be aware.
The stock may or may not be priced for this, that’s the fun of the market but here is the Daily chart.
Notice the massive gap and the rising 200ma that isn’t actually that far below. My gut tells me that a visit back to $100 could be in order, you can see the price is getting whittled down with lower highs and lower lows. I’m also thinking the Apple Watch is likely to be a disappointment as cool as the tech is – but i said that about the iPad 1 and look where it got me :). Main issue for me personally is the charging and short battery life – if charging is a daily thing, i think the novelty will wear off pretty quickly. I also believe Apple pay will be huge and continue to help the company while it finds the next big catalyst. The one major caveat with this, you need an iPhone and this is the reason why there is a consortium of merchants using another NFC payment system that works with other hardware. We’ll see how this plays out.
Also for the first time in a while, i am struggling to see what else they can do to improve the iPhone beyond the ‘incremental updates’ ( weight, display, battery life, cpu ). The 6 is a great phone – i have have some buddies who hate Apple with a passion but they have an iPhone 6 because they think it is awesome. To keep the momentum and growth up at these lofty levels and therefore the stock price, something else will be needed. I don’t think wearables is it personally until battery tech is improved 10-fold. I believe the main reason why the iPhone 6 sales were so strong is that the iPhone 4 was at the end of its cycle ( 3 years or so )….and the difference in performance and quality is like black and white.
What does this mean in short? I think the stock basically drifts sideways this year and into next. At the very least, i believe it will need to take a breather to digest this enormous move up.
ARCP ( American Capital Realty )
I like REITS a lot, especially in this low interest rate environment – i liked the prospects of this stock and then it went ugly . However, i’m still in it – the price action is starting to look very good in a down tape. Below is the daily chart. I think in 1 year, maybe even 1 month the stock is likely to attempt a breach of $10 and try and fill the gap to $12.50. This is dependent on 1) the filings for earnings to be resubmitted in a timely fashion and 2) the dividend being reinstated. If both of these happen and this interim CEO starts sorting this REIT out, i think we’re onto a great long-term hold and i’ll feel much more comfortable going forward.
Petrobras ( PBR )
I seem to have some crazy clairvoyant prediction with Brazil and Tim Seymour from CNBC. It seems we both agree that the EWZ Brazil may have some chance at going up for the next 6-9months. My approach is generally go for stuff that has been clobbered so much, look at the potential stocks in that area, try and find the best or at least something that has the potential to be the cream of the crop and invest slowly over time.
My controversial prediction of PBR was a bit short-sighted last year – i thought $10 was the base but as soon as the Brazil elections wrapped up the stock tanked at an incredible speed from $20 to $6. This was compounded with the strong dollar, an oil collapse and a lack of trust from investors given all the corruption going on. All this volatility is a day traders dream so there are plenty of people picking up cents here and there, jumping in and out. People have extremely polar opinions on the stock, with volatility comes emotion, with emotion comes extremes and i believe that is your edge.
Why the hell would anyone risk an investment now?
Because i believe it is virtually all priced in. The stock is trading at pretty much 30% of book. Even with oil down here, the stock should be at least $10 in my view. If you look at the media, pretty much everyone is wailing into it, corruption this, scandal that, lawyers are setting up lawsuits left right and centre. But here it sits, building a base of sorts around this $6-$8. It is south america’s largest oil producer, the revenue it creates are ENORMOUS.
Given all the craziness that is going on, the stock should essentially be $0 with the debt and so on but one key component, it has the government of Brazil supporting it and it is very important the entire continent. It could go to $5, it could go to an all-time low of $2 but i think once they file again, once people see the earnings, the corruption scandal is cleared up, the stock will rip back to $10-12 very quickly and slowly begin to stabilize long-term for the next target which i believe will be $28-30 ( 5 yrs or so ). The PE will be brought closer in-line to its peers. It simply has a complete monopoly on huge oil reserves in the pre-salt ( 50 billion barrels or so ). It is a risky play but this is the stuff i love, the risk/reward is compelling if you have the patience.
Have a great weekend.