Happy New Year 2019 to Ein55 Readers!
Year 2018 has been a bearish year for global stock market including Singapore, US, China, Hong Kong, Europe, etc. Crisis is nearly always an opportunity for stock market if one knows What to Buy, When to Buy/Sell. There are 2 possibilities for Year 2019, both are “good news”, either a major correction (moderate return, suitable for trading) or a global financial crisis (tremendous return, suitable for investing).
1) Major Correction (>10-25% discount) – Political Economy
Uncertainty in US-China trade war has resulted in major correction in global stock market, starting with the rest of the world (except US) in beginning of the year 2018, then dragging US stock market along to join the bearish train since Q4/2018. Before Q4/2018, US was the only major economy which still has bullish stock market, therefore Trump was confident to fight against China and the rest of the world to reach the best trade deals for US.
Trump views S&P500 as his performance indicator which has risen by about 30% since he got elected 2 years ago to a peak of 2900+ points. With S&P500 falling below critical 2500 points (lowest was 2300+ points) over the last quarter, Trump has to think twice as his KPI could become negative if falling below 2200 points for S&P500. Both US and China have to compromise during 90 days cooling period, reaching a win-win deal by end of Feb 2019. If not, it may not be a just a major correction.
China has suffered in real economy, not just a “crisis” in stock market. Recent China PMI is falling below the critical 50 points, if trade war continues further, China could suffer long term recession as Japan several decades ago. Burst of China property market with high corporate debts could make it worse. If China is willing to “give face” to Trump with major compromise, Trump could declare “victory” to end the Episode #2 of Trade War to support his re-election for second term US President by end of next year.
So, current stock market is mainly suitable for short term trading, applying trend-following strategy. VIX (Volatility Index) has been above critical 20-30 points, daily market volatility could wipe out many day traders. Since short term stock market is bearish, any recovery of stock market could be short-lived, a more consistent uptrend has to be established before entry. Based on probability, shorting strategy in short term still has higher winning rate but careful selection of stocks (eg. weak fundamental with downtrend with certain form of crisis) is important with enforcement of S.E.T. (Stop Loss, Entry Price, Target Price) in trading plan.
2) Global Financial Crisis (>25-50% discount) – Systematic Risks
Political economy (eg. US-China trade war, US interest rate hike, etc) alone may not be powerful enough, when combining with a Black Swan (eg. burst in property / commodity / forex markets) at high stock market optimism, then it could trigger the next global financial crisis which is overdue.
Some stocks could go bankrupt during crisis at Level 1 (company crisis), Level 2 (sector crisis), Level 3 (country crisis) or Level 4 (world crisis). Therefore, it is important to consider 10 fundamentally strong giant stocks (minimize unsystematic risks), buying at low optimism price (minimize systematic risks), aligning with L1-L4 crisis.
Position in current global stock market requires alignment with own personality, eg. time frames of interest, risk tolerance level, reward expectation, etc. Unique personalized strategy is required, defining own 10 dream team stocks with entry and exit.
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Crisis is an Opportunity only for those who are prepared. You may join the next 4hr free stock trading/investing course by Dr Tee. Register in www.ein55.com
For overseas readers, you may join the online stock investment course by Dr Tee ($100, currently at special rate of $25).
