What to look for in the stock market

Tuesday, 29 August 2017
Melbourne, Australia
By Bernd Struben

  • Bargain hunters beware
  • Why not to bargain hunt for stocks 
  • Marijuana and…boxing?

It’s a sea of red on the Australian Securities Exchange today. As at writing the ASX 200 is down 0.88%.

Today’s fall erases the last remaining gains from the index for 2017. It’s currently down 0.12% since 3 January, when markets opened after New Year’s holidays.

And it’s a long way from the heady days of early May. As you may recall, on 1 May the index was less than 44 points from breaking through the psychologically important 6,000 level. Its fallen 4.98% since then.

The reason for today’s rout has nothing to do with the mixed earnings season coming to a close. Or the lack of any meaningful guidance from the world’s leading central bankers at the Jackson Hole Economic Policy Symposium. Or investors waking up to the reality of the debt bomb building across the system.

(If you’ve woken up to that reality already, you can find your best recourse here.)

The reason, of course, is our old friend Kim Jong-un. As I’m sure you’ve heard, North Korea — in all its wisdom — fired a ballistic missile over Japanese territory. And it’s not just the ASX losing ground. Markets across Asia sold off today.  

Gold, as you’d expect, rose on the news, gaining 0.7%.

Now what really surprises me is that investors are surprised. That simply because Kim hasn’t fired a missile in several weeks and Donald Trump hasn’t threatened to incinerate North Korea, they believe this might all just blow over.

As quoted by Bloomberg, Chihiro Ohta, a Tokyo-based senior strategist at SMBC Nikko Securities said, ‘Some observers had thought U.S. and North Korea were pursuing discussions behind closed doors, but it turns out North Korea continues to pursue missile development’.

North Korea is still pursuing missile development? Shocking!

Make no mistake. Much as we all would love for this to blow over…that’s highly unlikely.

Earlier this month I wrote that you should take a close look at your portfolio. And consider reallocating some of your holdings to gold and a few of the best gold stocks. That advice stands. You can find resource analyst Jason Stevenson’s favourite gold plays here.

But spring is in the air. Rather than war, it’s a time to think about longer days and opening your windows for a bit of fresh air. And, if your family is like mine, shopping for some new spring attire.

More after this…

Markets

Overnight, the Dow Jones Industrial Average fell 5.27 points, or 0.02%.

The S&P 500 gained 1.19 points, or 0.05%.

In Europe, the Euro Stoxx 50 index closed down 17.52 points, or 0.51%. Meanwhile, the FTSE 100 was closed for Summer Bank Holiday, and Germany’s DAX index dropped 0.37%.

In Asian markets, Japan’s Nikkei 225 index is down 101.313 points, or 0.52%. China’s CSI 300 is down 0.17%.

In Australia, the S&P/ASX 200 is down 50.39 points, or 0.88%.

On the commodities markets, West Texas Intermediate crude oil is US$46.79 per barrel. Brent crude is US$52.04 per barrel.

Gold is trading for US$1,316.86 (AU$1,659.77) per troy ounce. Silver is US$17.51 (AU$22.07) per troy ounce.

One bitcoin is worth US$4,430.33.

The Aussie dollar is worth 79.34 US cents.

Bargain hunters beware

Having enjoyed a sunny outdoor lunch — it’s a balmy 14 degrees in Melbourne today — I can attest that spring really is in the air.

Before you write in, I know spring doesn’t actually kick off on 1 September, as many people believe. Technically spring starts on 23 September this year…at 5:32am if you wish to set your alarm to celebrate the equinox.

Along with the warmer weather you might be looking for some new lawn furniture or summer clothes. And you’ll likely check the price tags before buying anything, gunning for a bargain.

Now bargain hunting while shopping makes good sense. Yet contrary to popular opinion, bargain hunting in the stock market is often a mistake. Cheap stocks, after all, are usually cheap for good reasons.

No one knows this better than Time Trader editor, Phil Anderson. If you haven’t yet read the series of Phil’s essays we’ve put onto the Port Phillip Insider website, you should make some time to do so this evening. You can access them all for free here.

This is what Phil has to say when it comes to shopping for bargains in the stock market:

The stock market is not a supermarket. So do not treat it as such. In the stock market, we’re NOT looking for bargains.

Look for growth. Especially right now, when so many industries are facing disruption from the newer ways of doing business.

“Buy low and sell high” can’t be done. How do you know, after all, what “low” is?

Better to buy high and sell higher, trading with the uptrend. I’ve found it’s a faster way to make money.

You can avoid the bad stocks simply by not buying a stock where the price is below the moving average.

Pretty simple. But it’s just been amazing to me how people ignore that.

You cannot go into the stock market looking for cheap stocks. And we’ve just seen a classic example there with Ten Network.

Just look at the chart below. When would you have bought?



chart image

Source: Bigcharts.com
Click to enlarge

Phil makes a great point. And Ten Network has come up more than a few times as a possible bargain stock in some recent conversations. After all, it looked almost sure to be at or near the bottom. Right?

Phil put the above chart together a few weeks ago. Well before US based CBS Corporation [NYSE:CBS] stepped in to buy the Ten Network.

From The Australian Financial Review:

CBS aims to hold 100 per cent of Ten by settling the broadcaster’s debts, including $98 million to the Commonwealth Bank and $33m to investors including James Packer, Lachlan Murdoch and Bruce Gordon, but shareholders will get nothing for their stock. One of the attractions for CBS is to continue its long-term content deal with Ten, estimated to be worth up to $843m as an unsecured debt when the broadcaster went into receivership.’

While Packer, Murdoch and Gordon look to walk away with most of their funds intact, shareholders aren’t so lucky. As noted above, shareholders will get nothing for their bargain stock. Zip.

Caveat emptor.

I’ll bring you more from Phil tomorrow, including shedding some light on his uncanny ability to predict stock moves before they happen.

In the meantime, you can review ‘The Anderson Series’ on our website here.

Marijuana and…boxing?

Some things just naturally go well together. Popcorn and movies, beer and (watching) footy, a warm blanket on a cold night and, apparently, marijuana and boxing.

Whether or not you follow the sport, you probably heard some of the hype surrounding the big fight between Floyd Mayweather and Conor McGregor. As most pundits predicted, the champion boxer Mayweather won the fight. The referee intervened in the 10th round and awarded Mayweather the victory by Technical Knock Out (TKO).

The match was the first big draw in Las Vegas since 1 July, (which was when recreational pot, or marijuana, was legalised in Nevada). As reported by LasVegasNow, ‘Pot dispensaries prep for fight night.’

The dispensaries geared up for both the pre and post party crowds, selling cannabis in various forms. Some customers preferred ‘edibles’, various cakes and candies infused with cannabis. Many chose the more traditional method, buying dried cannabis buds to be smoked.

It’s one more sign of the widespread and growing acceptance of cannabis in the US…and the world. An acceptance that’s seen many legal marijuana companies’ share prices explode over the past year.

In 2016, marijuana sales topped $6.9 billion. That’s up 34% on 2015. And it’s seen some early investors in US ‘pot stocks’ bagging gains of 1,000% or more.

But as Sam Volkering tells us, the momentum is only just starting to gain traction. Many experts believe the global marijuana market could eventually reach $270 billion. Taking a small stake in some of the most promising pot stocks now could see you join the list of investors with ‘10 bagger’ bragging rights.

Sam has narrowed the field of pot stocks down to what he believes are the three best candidates. Stocks that could deliver life changing gains. If you haven’t already, you can get all the details from Sam Volkering and Kris Sayce right here.

Cheers,
Bernd