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 than 55% of the losses during this very short bear market.

So where do we go from here? Do we continue going up to new highs by the end of the year? Or are we going back down again to a new low?

Before reading the rest of this post, it is very important for you to go back and read this post to understand the background of how the bear market died and how the bull market began.

So, on the 3rd of April 2020, I called the stock market bottom using a set of proven customized indicators. This set of indicators was backtested for close to 100 years and proved its reliability.

On the 10th of April 2020, I called the bull market and started to buy stocks aggressively with my community of students and bought selected stocks (Coronavirus-proof stocks).

The funny thing is, when I share all these optimistic and bullish news, I got a lot of hate mail saying things like I am irresponsible for saying that the market is bullish because it is leading into a recession. And this surprised me because I watch other videos out there saying that the market is bearish and pessimistic, people left them positive comments.

You see, I don’t believe these people. I think they have seen too much bad news.

For example, on 16th March 2020, Goldman Sachs warned that S&P500 might not bottom until 2,000 points, (a 50% decline). On 6th April 2020, Jim Cramer was convinced that there will be more selling in the stock market.

So, I guess when people see all this bad news, they sold in fear on the 6th of April 2020, near the bottom, and that’s when I will buy stocks!

After they sold, the market went up and now and many of them are upset and angry and I understand how they feel.

Once you look at the facts and you know the market’s going to go up and people tell you all this negative stuff. You have to ignore them, right? And not only do you ignore them but you also have to use it to advantage.

In fact, when I saw all those bearish comments, it made me even more convinced that the market was going up because I’ve explained this before, the market tends to do the opposite of what the majority thinks.

Let’s take a look at these quotes –

“The stock market is never obvious. It is designed to fool most of the people, most of the time” – Jesse Livermore

“The market moves in a way to disappoint the masses.” – William O’Neil

“The main purpose of the stock market is to make fools of as many men as possible.” – Bernard Baruch

Now, I’ve been in the market since I was 18 years old. I am now 46 and I have seen 6 bear markets in my lifetime. I made a fortune in the markets and I realised that the market always moves the opposite of what most people expect.

Look at this interesting chart below:

The red line tells you the number of people who short the markets and the blue line tells you the number of people who long the markets.

During this period, do you think there are more bearish or bullish people?

There are more bearish people and as long as there are more bearish than bullish, the market will go in the opposite direction!

Now, we can see that the market is going up and we have a record number of net short and record lows of net long. The more the market goes up, the more bearish the people get, the better it gets for me because the market is going to go back up a lot faster.

Why does this happen?

Because demand for stocks exceeds the supply of stocks, hence the prices go up. Here’s the thing, when there are so many people who already short the market or they are bearish, it means that there are very few shares left to be sold, so there’s a very low supply of shares.

So when supply is very low, what happens?

A little bit of demand will push the price sky-high; we call it a short squeeze. The majority of retail investors have sold their shares, but it’s the big institutions and value investors that start buying.

So when we buy, the demand exceeds the little supply left and prices skyrocket! As long as there are more sellers and buyers, there’s more bearish than bullish, the market will go sky-high.

Here is the S&P500 chart. See how we made the low on 23rd March 2020 and this is the fastest bear market of the history with a 36% drop and we have so far made back more than half of the losses during this bear market.

Did all the stocks recover? No.

So, I do hope that you read my previous post about Coronavirus-proof stocks which has stocks that I am looking at / I own. I mentioned that you don’t want to buy stocks that are actually affected by this crisis.

Hence, I don’t buy airline stocks because they got their sales and profits whacked, I also don’t buy cruise stocks like Royal Caribbean cruise and I don’t buy oil and gas.

I mentioned that the best stocks to buy are those that will benefit from people staying at home.

For example, when you have to work from home, you will use office software like Microsoft and Adobe. When you have to entertain yourself at home, you got to use Google, you got to watch YouTube and watch Netflix. You also have to use social media like Facebook, Instagram, and WhatsApp.

All these stocks will rebound the fastest and indeed it has. In fact, some of these stocks are at new all-time highs like Amazon and Alibaba. These are 2 core stocks in my portfolio.

Because the more people stay at home, the more they order things online and both Alibaba and Amazon will benefit from this.

Even though the market has recovered more than 50%, stocks like Amazon is now higher than it was before the crisis and this is why Amazon is one of the biggest stocks in my portfolio.

The other one is Alibaba (Orange line in the chart below). Alibaba again has outperformed the markets.

If you look at Microsoft (Blue line in the chart below), it also went all the way up.

So this is why buying the right stocks at the right time is really important. You are then able to build your portfolio a lot faster.

This is one of my core portfolios.

You can see that in the last one month since the market bottom, I’m up 28.4% for that month with a  $196,000 rebound.

Now I’ve got to say I’m still down about 10% from the year to date highs because the market has not fully recovered. This is fine because I know that eventually this will be over a million or 1.5 million by the end of the year and I’m going to explain why later on that the rebound has just begun.

I find interesting where people say, the stocks shouldn’t be where they are right now, it doesn’t make sense and that it is inflated by the federal reserve.

Well, I do agree that certain stocks are overpriced but I can tell you the stocks I buy are still massively undervalued. So, unless you know how to calculate the intrinsic value of the company, you have no idea whether the company is expensive or cheap.

So I mentioned Amazon for example and about a year ago, I said that the intrinsic value of Amazon was about $2,500 per share. But since then, since then Amazon has grown in terms of its sales, its cashflow, its asset and it’s worth a lot more right now.

I’ve been buying Amazon for about $1,500 – $1,800 and you can see that Amazon recently started to take off and it is at $2375. People are saying that it’s too expensive, it’s going to come down and it is inflated.

But if you calculated the intrinsic value, you would know that Amazon is still dirt cheap! So it’s really important for you to understand how to calculate intrinsic value.

Let’s take a look at the intrinsic value calculation of Amazon.

If you plug in the operational cash flow of the company via current debt via cash and equivalents at a 25% growth rate, the intrinsic value of Amazon is $3,700 now. That is the real value of Amazon.

These rates are given by analysts who studied the company every month.

Right now, Amazon is selling at $2,300 which means it is still 36% undervalued.

This is a company that has got tremendous cash in the bank compared to the debt that they have. Now, having said that, am I saying that I’ll buy more Amazon right now? No, I wouldn’t. Why?

Because although it’s undervalued and just because it’s worth $3,700 it does not mean the stock will go to $3,700 the next month or the next week. The value will get there, but not right away.

So I also look at the charts as well.

So you can see from the charts that it is short-term overbought. We never buy at a high, always buy at the low.

I’m going to wait for it to retrace to come back down to about $2,000 before I buy more shares. Because what goes up must come down before going higher. Remember the wave patterns, stocks don’t go up in a straight line.

They move in wave patterns. They go up, they got to come down first before they go up higher. You got to always buy when it comes down, not when you’re going up. You want to buy low, not high.

Now the same thing with Alphabet (A.K.A Google).

You can see that it recently started to take off and although it’s not back to all-time highs, it is currently at $1279, people are saying that it is overpriced and inflated but they have not calculated the intrinsic value!

By taking very conservative growth rates, based on its current cash flow, the intrinsic value is $1,900 or about $2,000 per share.

Alphabet is currently at $1,003 and it is 34% undervalued!

There are many stocks out there that are still very cheap and I’m still buying them. So, you can see that when you make decisions based on fundamental analysis and facts, not based on opinions, predictions, or bad news in the mainstream market, that’s when you do well!

The funny thing is that after my students and I have bought all the stocks, the stock market has gone up 32%! Now the mainstream media is starting to get bullish!

Goldman Sachs is saying that US stocks have likely bottomed on policy support.

Jim Cramer now says, I bet the March bottom was the real deal.

And today I just read on Bloomberg news in defense of the rally, five pros who say the new bull has legs.

When more and more people are getting bullish, is the market going to do the opposite? Maybe… We are going to find out in part 2 of this post 🙂

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