Markets are uneasy as emerging markets selloff continues. The contrarian investor starts to look for specific stocks to mitigate the herd heading for the ETF exits. China first. Cloud Computing has been a bit of a blind spot in my investing. Time to address that with 3 picks. Crypto gets clobbered in one 5 minute spell of trading - 10% and 20% down go Bitcoin and Ethereum.
Portfolio News
Market Jitters - Tariff Tantrum All the talk was about the social media testimony to Congress
The headlines do not even mention the Congress session but the story lies behind the sharp selloff of tech stocks. Google were bad boys and did not even present at Congress - Facebook and Twitter sent the big guns. The commentary was fascinating. Wall Street likes the Wild West ways because they make money in an unbridled way. The regulators and lawmakers in Congress want the cozy cushion of chats with grandma next to the fireside and they think they will be able to get that from regulation. At the core of what is being discussed is their ability to stop one person expressing an opinion that influences another person to vote in a particular way. In broadcast media, they can regulate it because it is direct one to many one way broadcasting. Regulate the broadcaster. On social media, it is many to many broadcast and/or one to one communication and all the social media platform is is a channel of communication. Tough luck they will be having when a dominant culprit is Donald Trump himself. It is not about fake accounts. It is not about bots. It is not about hate speech. It is not about fake news. It is about FREEDOM. I do not like the vitriol that Alex Jones, of InfoWars infamy, talks about but he has a point about being free.
The real market news is elsewhere. Emerging markets continue to fall with a combination of strong US Dollar and trade fears.
Biggest fallers in my portfolios were Indonesia (-4%), Social Media (-3%), Saudi Arabia (-3%), Philippines (-2%), Africa (-3%). I talked yesterday about interest rates (TIB293). Moving up in my portfolios were bank stocks especially in Europe with Banco BPM (+7%) and Intesa San Paolo (+3.6%) leading the charge in Italy with Commerzbank (+2.5%) not far behind in Germany.
Argentina One headline that caught my attention was a proposed slate of export taxes.
Argentina is a big supplier of salt brine-based lithium. The proposed tax is 8% sales duty and will apply for the next 2 years. This type of action is a salutary reminder for investing in development projects to spread one's risk across several projects. I am exposed to Argentine lithium through development projects in a few places
- Galaxy Resources (GXY.AX) have a salt-brine development in Argentina but are also operating in Canada and Australia
- Latin Resources (LRS.AX) has lithium and copper in Argentina with some copper in Peru
- Posco (PKX) are in the process of buying some of the Galaxy Argentina tenements.
- My other mainstream investments, Birimian (BGS.AX) operate out of Mali in Africa and Kairos (KAI.AX) in Australia.
So I am exposed to the tax but not 100%. Most of my investments have a development cycle that is longer than 2 years BUT one has to be confident that the tax will only be 2 years. My experience of government is once they start taxing, they keep taxing.
Bought
Cloud Computing
There was a time when I was well invested in technology stocks. I am a technologist after all. Somewhere along the way I have got lazy relying on Technology ETF's to do the work for me and being influenced by my investing coach who was not into technology at all. He did not get it. I was also somewhat burned in the Dot.com crash and the GFC collapse in 2008. This laziness has cost me a lot of opportunity as tech stocks have been a disproportionate driver of performance of the S&P500. I watched a segment by Jim Cramer talking about Salesforce.com (CRM). His view is one has to be invested in cloud computing stocks for the long haul. Pick one he says and start there.
He wrote an article which talks about a bunch - I read it and stacked them all up on a chart over 5 years, 3 years and 1 year.
The chart stacks the 7 stocks mentioned by Jim Cramer plus an industry ETF
- Adobe (ADBE - red line)
- Service Now (NOW - yellow line). I did make some proifits on holding this.
- Red Hat (RHT - ochre line): see the fall back to the reference stock bars only partly recovered
- Salesforce.com (CRM - black bars)
- Splunk (SPLK - blue line)
- Cloud ETF (SKYY - black line)
- Workday (WDAY - brown line)
- VMWare (VMW - green line). This is one third lower than Salesforce.com
Rather than pick one, I picked 3 - the bottom two and the one that has not rebounded from its last correction.
Workday, Inc (WDAY): Financial and working capital services. Workday reported results after market open. I bought before the announcement. Price was smashed by 9%. I will average down tonight.
Red Hat, Inc (RHT). Open Source Software. Red Hat was a key driver for open source Linux. This is an example of a missed opportunity coming from taking my eye off the technology ball. I first bought 1000 shares of Red Hat in October 2000 at $15.68. I sold in May 2003 at $6.67 per share - an ouch of a loss. Those 1,000 shares would now be worth $149,200. The daft thing is I held them all through the Dot.com crash
VMware, Inc (VMW) Virtualisation software. VMware is lagging the group because it has a complicated ownership situation through EMC and Dell. There is a chance that Dell could bring it back into their private fold. This has dragged price a bit. My VMWare investing history is a little less sad. I did lose a bundle through the EMC/Dell shenanigans but I retained a parcel when EMC spun it out. That parcel recovered all the loss plus $50.
Now there is an ETF that tracks Cloud Computing, First Trust ISE Cloud Computing Index Fund (SKYY). I did look at that and have included it on the chart. It is an equal weighted fund with 31 holdings which overlaps to a degree with the Technology Select ETF (XLK) through holdings in Amazon, Google and Facebook. As I already am holding XLK, I elected to go stock specific. If you are not invested in technology stocks, this could be a gentle way to start.
China
The Emerging Markets selloff is reinforcing my view that this is becoming a stock pickers market. When investors get nervous about Argentina or Turkey or South Africa or Malaysia, they dump the most liquid of their Emerging Markets holdings, starting with EEM, the largest of all Emerging Markets ETF's. This ETF is invested only 5.6% in South Africa and less than 0.5% in Argentina or Turkey, yet it gets dumped when one small country gets into trouble.
http://etfdb.com/etf/EEM/ for details of holdings by stock and country and sector
When they get nervous about China and the trade war, they sell FXI, the Large Cap China ETF. If I want to be invested in a region and I use ETF's I am hostage to the nerves of other ETF investors, especially Americans. China is one such example. I have a long term view, say 5 to 7 years, that China will continue to grow into a dominant economic force. I want to be part of that growth. I started to look for ways to invest more directly in China.
I am already invested in China technology stocks that make up a big part of the China large cap ETF (FXI) through an ETF (CQQQ). I ran stock screens specifically on Chinese stocks using the Ft.com screener. I selected one bank based on a Price to Book valuation screen (PB < 1) and one financial group based on a Price to Sales screen. A few energy companies came up on this screen too - I am well invested in energy through the likes of Royal Dutch Shell and Exxon Mobil. I then reviewed financial information using Reuters.com data. Ft.com no longer provides financial data free of charge - one has to subscribe to the newspaper. I did explore specific holdings in the China Consumer ETF's to get invested in the consumer side of the growth story BUT did not find any whose financials or returns looked comfortable.
In this journey I came across a small caps ETF - that works to connect me to the economy directly but reduces company specific risk.
iShares MSCI China Small-Cap ETF (ECNS): China Small Caps. What I liked about this ETF is that its holdings in financials and energy are low (page 2 and adding up to 5% between them). This feels like it is fixed to domestic China with no credit risk.
Agricultural Bank of China Limited (601288.SS): China Bank. Agbank is third largest Chinese bank. Credit risk is a key factor for investing in Chinese banks. I relied firstly on this quote
China’s biggest lenders are in the midst of a revival, posting faster profit growth and generally healthier net interest margins after years of rising bad debt as economic growth slowed down.
This article does come from April 2018. The quarterly reports showed that AgBank's non-performing loan ratio fell then. The latest AgBank results show profits increasing 7% - that was enough for me. The 2 year chart shows price is 30% off the early 2018 highs.
Ping An Insurance (Group) Company of China, Ltd (601318.SS): China Insurance. Ping An is the largest Chinese insurer which reported the best results in a decade in August. As one of the world's largest insurers it has been classified as "too big to fail". This is allowing it to diversify its revenue streams into healthcare and banking and wealth management. In last 6 months, gross written premiums grew 20%. Good enough for me. The 2 year chart shows price is 25% off the early 2018 highs.
Now there is currency risk in these trades as they are listed in Chinese Yuan. I am holding call options on the USDCNY which will act as a currency hedge for these trades. I have already banked some solid profits on some of these contracts - the hedge is paid for in advance that way.
Sold
Deep Yellow Ltd (DYL.AX): Namibian Uranium. Uranium has been a frustrating investment basically looking to the nuclear power plant building in India and China and Japan switching back on after Fukushima. I saw a headline saying that Duke Energy, US's largest nuclear power producer, would not invest in any more nuclear power as natural gas power generation economics are so much better. I decided to exit with some profits where I can. Achieved a 43% blended profit since December 2016/March 2017 on this Namibian producer. I remain exposed in a few other ways - the Global X ETF (URA) and Centrus Corp (LEU) and the remnants of Paladin Energy (PDN.AX).
Cryptocurency
Bitcoin (BTCUSD): Price range for the day was $737 (10% of the high). Bitcoin price collapsed 2.5% in one 5 minute session and followed that up with another like it 20 minutes later.
There is no shortage of technical analysts that are pointing to brilliant analysis as to why this happened. The reality is it dropped in one 5 minute block - that has to be news driven or a planned dump - the volume data suggests a dump though there was news flow running about Goldman Sachs doubting the flow of institutional funds and not opening a trading desk.
Price today has continued the fall - margin calls are ringing in my IG Markets account. Make your own mind up. The time clock for the dump is 09:50am - Europe time. The Goldman news came out at 16:25 New York time. If it was the Goldman news, it was leaked as Americans were in bed when the dump happened (03:50 am).
https://www.ccn.com/goldman-sachs-is-abandoning-plans-for-a-bitcoin-trading-desk-for-now/
https://www.coindesk.com/bull-trap-bitcoin-price-slides-below-7k-despite-strong-indicators/
Now begins the long grind back.
Ethereum (ETHUSD): Price range for the day was $61 (21% of the high). Ethereum followed Bitcoin down but twice as hard. This takes price well below a support level it has been respecting down to the level below set in September 2017.
Ouch....
CryptoBots
Outsourced Bot No closed trades. (220 closed trades). Problem children stayed at 18 coins. (>10% down) - ETH (-66%), ZEC (-63%), DASH (-65%), LTC (-49%), BTS (-51%), ICX (-76%), ADA (-67%), PPT (-77%), DGD (-81%), GAS (-79%), SNT (-59%), STRAT (-73%), NEO (-78%), ETC (-50%), QTUM (-77%), BTG (-74%), XMR (-34%), OMG (-64%).
No coins improved with most coins dropping 3 or 4 points. OMG was the worst faller. BTS (-51%), DGD (-81%), STRAT (-73%), and ETC (-50%) all dropped a level. DGD (-81%) remains the worst for the 2nd day.
Profit Trailer Bot Four closed trades (1.04% profit) bringing the position on the account to 1.91% profit (was 1.86%) (not accounting for open trades). Profit percentages are lower as DCA has a lower exit threshold. The idea is to clear the DCA list quickly.
Dollar Cost Average (DCA) list remained at one coin with AION replacing IOTA which traded into profit after 2 levels of DCA - one from the first round and one from a PT Defender round.
Pending list remains at 9 coins with 2 coins improving, 2 coins trading flat and 5 worse. On a bad day for Ethereum this was encouraging.
PT Defender completed sales for IOTA and ICX. I added one more coin to be defended. This time I took the worst coin on the pending list (AION). Defence has started and the first trade is in DCA.
New Trading Bot Trading out using Crypto Prophecy. Trades closed out on RCN (+4.17%), XRP (+1.51%) and LINK (+2.50%). LINK trade was longest standing trade opened Aug 28 - 8 days ago. New trades opened on TRX and ETH based on Crypto Prophecy signals. The ETH trade was after the big selloff.
XRP exit is the first one testing a new 1.5% target on the whole trade. TRX chart shows entry on a downtrend and a very close missed exit on the spike in price. Exit price was set at the high reached for that bar. TRX is a very liquid market and there would have been a lot of orders ahead of mine.
ETH chart shows entry some time after price dropped below the Bollinger Band. I liked the low test bar before entry - that tells me there is buying support below my entry.
Currency Trades
Forex Robot closed 4 trades (0.15% profit) and is trading at a negative equity level of 11.1% (lower than prior day's 12.4%).
Cautions: This is not financial advice. You need to consider your own financial position and take your own advice before you follow any of my ideas
Images: I own the rights to use and edit the Buy Sell image. News headlines come from Google Search. ETF mix charts come from Etfdb.com All other images are created using my various trading and charting platforms. They are all my own work
Tickers: I monitor my portfolios using Yahoo Finance. The ticker symbols used are Yahoo Finance tickers
Charts: http://mymark.mx/TradingView - this is a free charting package. I have a Pro subscription to get access to real time forex prices
Crypto Prophecy provides a useful tool to identify oversold and overbought coins - https://mymark.mx/CryptoProphecy
September 5, 2018