Market Update: Moving Forward

I hope all of you have been doing well! Now that first quarter earnings are over, let me do an update of how I see the markets moving forward.

US Markets – Trendless Consolidation Period

If you look at the big picture of the S&P 500, you can see that over the last 1 year, it has been in one big consolidation period ever since peaking in Mid 2015. During this consolidation, it has in fact, been making lower high points. This looks to me like a consolidation distribution period which may lead to a new bear market. On a technical level, I am rather bearish moving forward.

Fundamentally, although markets are not expensive on a PE valuation, earnings growth has been rather negative. The first quarter earnings decline was not as bad as expected. Still, it was not good either. Aggregate S&P 500 earnings per share (EPS) are estimated to be down 6.0% year-over-year in the first quarter.

This is the third straight quarter that S&P 500 EPS has declined on a year-over-year basis. Moreover, the 6.0% decline in first quarter EPS is the largest decline since the second quarter of 2009, according to S&P Capital IQ.

When the market is not in a clear trend, it can be pretty frustrating attempting to make money whether you ar buying and holding OR whether you are doing medium term trend following. If you have found yourself simply breaking even or not making any profits during this period, there is nothing wrong with you or the method you are using (if you are following the rules). This is simply a period in the market where there is no strong trend to generate high profits (be it long or short).

In other words, this is a neither here nor there market for investors. For value investors, prices are not cheap enough to warrant strong buying. They have to wait for a bigger price crash before things get more attractive to pick up. For momentum investors, there is not much momentum to speak of as well. So, be patient.

Markets go in cycles and eventually the market will trend strongly again (either uptrend or downtrend). So, it will be good to brush up on your short selling skills if this consolidation happens to be a prelude to big bear market (It has been 9 years since the last financial crisis, so I am not surprised that it will happen anytime).

Having said this, remember that we can never predict the market. Anything can happen. This is why I will continue to take long positions and short positions as the setups present themselves. Yes, there is still a lot of money to be made in this market. However, you have to employ very very short term swing trading or day trading techniques to ride the very short term trends within the consolidation.

Also, remember that while stocks are trend-less, there are other assets that are going through strong trends, which you can invest/ trade in using ETFs. This would be the Oil and Gold ETFs which have been rallying strongly and look set to continue.

Following the Leader

As you know, the majority of stocks (70%+) tend to follow the direction of the overall market (the respective index in question). When the index is on an uptrend, I tend to take on more long positions and fewer short positions. When the index is on a downtrend, I do the opposite (take on more short positions and less long positions).

As you know, there are three kinds of trends (long term trend, medium term trend, and short term trend). Which trend we look at depends on whether we are a short term trader, medium term investor or long term investor.

To keep it simple, you can use the 20EMA (for short term trend), 50MA (for medium term trend) and 200MA (for long term trend) to see the trends (If you are unfamiliar on how to see the market trends, do read my other article) . See the chart below.

Currently, the price is below the 20EMA and 20EMA is sloping down. As a short term swing trader, I will take more short trades than long trades as the market is short term bearish.

If you look at the 50MA, the price is below the 50MA but the 50MA is till sloping up. So, on a medium term, it is still on an uptrend, but not a clear one. Price must get back above the 50MA before I will commit to taking any medium term long trades.

If you look at the 200MA, it is sloping down. Although price is above the 200MA, it is sloping down. So, the long term trend is not clear at all. Again, in a consolidation.

Oil and Gold

Oil has been continuing its recovery (from $28 in January to close to $50 today). Based on the Oil ETF (USL), price is above the 200MA and 50MA looks like its going to cross above the 150MA. However, recall that for the new medium term uptrend to be confirmed, it is best that 50 and 150 MA both flatten or slope up (or 200MA slope up). Medium term trend followers can get in then.

Those of you who read my outlook article in January and bought oil early (during the short term uptrend or capitulation), would be sitting on some nice gains now. Quite a number of WA grads have been telling me that they have made couple of thousands $ already.
During my last update, I mentioned that I have started to get bullish on gold (contrary to what I said earlier in January). Well, Gold has been also on a nice uptrend, bouncing along its 50MA. We had a bit of a pullback last night as the FED said that they make hike interest rates in June. Recall that when the market expects rates to increase, this will be bullish for the US Dollar and Bearish for commodities.

Apple- The Battle of the Billionaires 

Some of you may have read the big news that while billionaire investor Carl Ichan dumped Apple shares a month ago, it was revealed that Buffett’s company Berkshire Hathaway bought $1.1 billion worth of Apple shares at $110+.

What is Buffett doing????!!!! Many of you have heard me say that Buffett will never buy Apple, because it is not a predictable company. Why is he breaking his own rules and even buying more IBM shares (which he already lost 25%) which is also another technology company?

If you actually read carefully…Buffett did not actually make the decision to buy Apple. It was his proteges Todd Combs and Ted Weschler who made the decision and are now running the company. Since buying Apple at $110, Berkshire is so far down $200 million on its Apple investment, so I hope they know what they are doing.

If you do an intrinsic valuation of Apple, the shares are worth $130. So, at the current price of $94, it is very undervalued. So, it is a classic value investment for the long term. However, you must have the confidence that Apple will continue to deliver great products in the future and not become another Nokia (which we can never foresee). Having said that, Apple remains on a downtrend. I did take a position in Apple last night based on Capitulation Strategy.

Note: This post was first published to our Wealth Academy Graduates on 21st May. Do attend my free 3 hour financial and investment workshop to learn more!

Chart sources are from Thinkorswim platform, by TD Ameritrade.

About your author

<p><center>Adam Khoo</center>

Adam Khoo

Chief Trainer in Wealth Academy™

Adam Khoo is an award-winning Singaporean entrepreneur, best-selling author, professional stocks & Forex trader and peak performance speaker. Adam conducts Wealth Academy™ Program on a quarterly basis to educate the public about value momentum investing using deep fundamental and technical analysis approach.


Any content in this presentation should not be relied upon as advice or construed as providing recommendations of any kind. It is your responsibility to confirm and decide which trades to make. Trade only with risk capital; that is, trade with money that, if lost, will not adversely impact your lifestyle and your ability to meet your financial obligations. Adam Khoo Learning Technologies Group Pte Ltd (AKLTG) and its associated trainers are not liable for any losses incurred from your investment activities. Past investment performance is not necessarily indicative of future performance, even if the same strategies are adopted. All forms of investments carry risks. Such activities may not be suitable for everyone. This course presentation is not meant to be a recommendation to buy or to sell securities nor an offer to buy or sell securities. The publishers of Adam Khoo and AKLTG are not brokers, dealers or registered investment advisors and do not attempt or intend to influence the purchase or sale of any security. AKLTG does not guarantee the accuracy or completeness of the information displayed. This is shared purely for educational purposes only. 

0 replies

Leave a Reply

Want to join the discussion?
Feel free to contribute!

Leave a Reply

Your email address will not be published. Required fields are marked *

Other articles you might be interested:

5 Costly Mistakes That Investors Make (Part 1)

In this post, I'll be talking about the 5 costly mistakes that most retail investors make that's costing them millions of dollars of potentially lost profits. But before that, let's do a quick review on what's happening in the markets. If…

Stock Market Cycles

We will be talking about how to use market cycles to achieve profitable investing today. The market goes through different phases and different strategies perform well under different market conditions. The market goes through 4 cycles: 1)…

Different Strategies for Different Stocks

Have you ever wondered what is the best strategy to use when you enter the stock market? Short or long term? Buy-and-Hold and dollar cost average or trend follow? Use only fundamental analysis or technical analysis? When is the best…

Profit from Stock Market Trend Following

Let's take a look at how you can profit from trend following the index. I always talk about how indices always go up in the long term.  If you look at the chart below, although it goes through ups and downs in the short and medium-term cycles,…

The Power of Stock Market Trends

In this post, we will be looking at the power of stock price trends to profit immensely. If you look at prices on a stock chart, it may seem like it is moving randomly but they often exhibit repeatable patterns that can be exploited. When…

The Bull Market in Stocks Continue! What's Next? (Part 2 of 2)

This is part two of the bull market continues. If you haven’t read the first part of this post, click here to read it and come back to continue. To find out where we're going from here, let's consult the charts and look the technicalities Here,…

The Bull Market in Stocks Continue! What's Next? (Part 1 of 2)

As all of you know, the bull market rampages on as we have foreseen, proving the naysayers and the purveyors of doom so wrong. Since the hit of the low last week, stock market is up 32% in the last two weeks, and in fact it's made back more…

The Bull Market in Stocks is Back!

I have got pretty tragic news on 10th April 2020. There’s been the death with someone that we all know really well. And it is the death of the bear. The bear market is officially dead. But the good news is the bull market is back. So…

4 Keys to Profitable Investing

In this post, I will be talking about the 4 Keys to Profitable Investing. If you want to achieve consistent profits while investing in the stock market, you must read this. What To Buy – 20% of success We only want to buy very good…