Beat the Market

What is Sector Rotation? Sector rotation is an investment strategy. Major players in the market move money from one industry sector to another in an attempt to beat the market. In order to understand sector rotation, we need to study the market cycle and economy cycle. Market Cycle and Economy Cycle Both have 4 stages: bottom, recovery (bull market), top, recession (bear market), which is shown in the following chart. However, market (in blue) usually move ahead of the economy (in yellow) for a few months. Market will reach top when the economy still looks great. However, the interest rate and inflation would be high at that moment. In bull market, investors prefer to rotate into financials/transportation (early bull), technology/capital goods (middle bull), basic industry (late bull). Money rolls into energy and gold/silver at the market top. As the bear market starts, healthcare and non-cyclical become attractive. During the downtrend, utilities would be the only survi...

BREAKING NEWS: at least 6 killed in lower Manhattan --- possible terror attack Market finished October strongly. Customer confidence hits 17-year high, which should be good news for retailer heading into holiday season. Tech is still sucking cash from other sectors for the 3rd day. The recent rally makes me nervous. In this month, Dow Jones + 4.3%, Nasdaq +3.6%, S&P 500 + 2.2% . My portfolio performs worse than any index this month, because of the bet on GE and large holding on M & MAT. Winners Apple hits all time high, ignoring the negative news on apple watch 3. Other big names: MU + 6.4%, WDC +4.1%, Intel +2.5%. K (+6.2% ) and MDLZ (+5.4%) boost the Staples Sector by strong earnings. Casinos enjoy a nice day amid the encouraging data from both Vegas and Macau. Losers UAA/UA (-23.7% & -21.8% ) weak sale in North American, lower margin and full year guidance. More downgrades are on the way, not bottom yet. QCOM (-6.7% ) due to the news that Apple is s...

The market is taking another break after the strong Nasdaq pop last Friday. Political chaos is adding the clouds. Also investors are waiting for more big earnings later this week ( FB, QCOM, AIG, AAPL ). You can find the major earnings and events here ( https://defeatmarket.blogspot.com/2017/10/events-and-stocks-to-watch-next-week.html ) Winners MAT (+11.2% ): BMO Capital Markets analyst Gerrick Johnson said investors should start looking at the toymaker “from a sale of the company perspective.” His note, which said Mattel’s assets could be worth much more in a sale or breakup, followed a surprisingly sharp sales decline at the toy titan last quarter. Stock price now is higher than the closing price before earnings. It is so ironic. It was below $12 once in last Thursday AH. Fix-income investors were rushing out to damp MAT. It finishes @ $15.6 today. What can I say? The street always wins. AAPL (+2.3% ) jumped amid the speculated 'strong demand' of iPhone X. No numbers ...

Politics News Breaking News : Friday night CNN reported a federal grand jury as approving charges in the special counsel investigation, though they were sealed by a federal judge. That person could be taken into custody as soon as Monday. FED Nominee The president next week will likely announce Fed Governor Jerome Powell as his nominee to be the next Fed chairman, according to a source. If confirmed, Powell could be FED chairman in early February when Janet Yellen's term ends. Powell is dovish. The market has already priced this in. Earnings Monday     before: D, DO Tuesday     before: MA. PFE     after: APC, FTR, PAYC Wednesday     before: EL, SODA, WFT     after: EEP, FB, QCOM, SHAK Thursday     before: CHK, DISCA, TEVA, W     after: AAPL, AHT, AIG, CBS, DATA, GNW, LOCO, MOH, NE, RUBI, SBUX, TIVO WING Friday     before: AFRAF KLAC will have annual meeting on Wednesday, SINA, WB an...

As I said yesterday on mitbbs, the market would be boosted by big tech earnings on Friday. Nasdaq jumps 2.2%. Winners: AMZN (+13.2%), GOOG (+4.8%), INTC (+7.4%), MSFT (+6.4%) all due to great earnings Feeling the heat in tech, FB +4.3%, NFLX +2.2%, NVDA +3.2% AAPL (+3.6%) iphone X pre-order shows big demand. If you pre-order now, you will feel lucky to receive by Xmas. I am not sure if it is partially caused by wrong estimate, or OLED production bottle-neck. The impact on their next earning is also unclear. First Solar (+20.4%) due to nice earnings. However, please be cautious that solar market is expected to cool down in 2018. USO (+2.6%). As I keep saying in the past week, crude price will recover gradually. Brent crude tops $60 and WTI reaches $54. I expect WTI to ~$56. Losers: EXPE (-16%). Missed ER, disappointing guidance. Travel companies have enjoyed fast growth and fat margin in the past 5 years. Any slowing down will trigger such selloff. As I mentioned befor...

EU will reduce QE purchases from January 2018. At the post-ECB meeting press conference, Mario Draghi was sure to say rates will remain low long after QE ends. Europe markets finish strong today. It is quieter in US market except a brutal day for healthcare sector. Winner TWTR (+18.5%) ER beats, daily active usage +14% Y/Y. However, I don't think twitter can be a facebook story. BWLD (+19.6%) ER benefited from bone-less wings. Health insurer Aetna ( AET +11.5% ) spikes at the end of the trading hour on the news that CVS Health (CVS -2.9%) is in talks to buy the company. F (+1.9%) ER beats. Losers Airlines (except SKYW SAVE ) have a wild swing from green ( AAL and LUV delivered good earnings before open) to red after Southwest Airlines warns on its post-earnings conference call that unit costs will be flat or slightly higher next year as it faces pricing pressure in some markets. Celgene (-16.4%) (along with BMY -4.8% MCK -5.2% ) takes down the whole biotech se...

What a bloody morning with bullish afternoon. The market shakes off loose hands and holds the ground. I expect such volatility will continue as more ERs roll out. Winners Visa ( V +1% ), very solid ER. I prefer V over Mastercard (MA). Currently I hold AXP (lower P/E and higher dividend). In the healthcare sector: Anthem ( ANTM, +5.4% ) ER beats and raises its full-year EPS forecast to $11.90-$12.00 from ~$11.70. Escript ( ESRX +3.9% ) Q3 EPS of $1.90 beats by $0.03. Revenue of $24.5B (-3.6% Y/Y) misses by $1.14B. They lift 2017 guidance. I am still concerned about the impact of political clouds on ACA reform. Nike ( NKE +2.8% ) spikes in afternoon trading as the company lays outs long-term guidance and strategy at its investor day event, which I mentioned in my weekend post ( https://tinyurl.com/yazpw2uq ). Nike's future goal is revenue growth at a high single digit rate over the next 5 years and EPS growth in the mid-teens. Nike expects that 75% of sales will come from ou...

CAT, MMM and GM all deliver solid earnings, which lift the whole market today. Cash rotates into industrial, basic materials, energy, auto and financials . At the meantime, healthcare, telecommunications and utilities suffer. Healthcare, is hurt by BIIB ER; the other two, along with REIT and bonds, are usually defensive choices, all of which perform poorly this year. Winners CAT (+4.9%) , they surprised the market with $1.95 EPS ($0.85 Q3 last year), Revenues +24.5% Y/Y. Outlook for 2017: Adjusted profit per share is now expected to be $6.25 (up from $5.00), on sales of $44B (confirming the high point of its $42B-$44B previously stated range). Share is almost doubled in a year with P/E ~21. I will not chase high. MMM (+5.9%) , revenues +6% Y/Y. Updated its outlook for 2017: Earnings are expected to be in the range of $9.00 to $9.10 per share (vs. $8.80-$9.05), with organic local-currency sales growth of 4%-5% (vs. 3%-5%). GLW (+6.4%) reaches new high. Revenue +5.9% Y/Y. I l...

Market is finally cooled down a little bit. All three indexes finish red. By the past weekend, among reported earnings 70% companies beat expectation. However, the revenue growth is less than 2%. (cannot remember where I read this yesterday). JPM strategist David Kelly predicts "a slowdown in earning growth because of stronger wage growth and higher interest rates". What might trigger selloff? The following things still matter in this bull market run (a lot of other things do not matter anymore). 1. Political tension with North Korea and Iran. 2. Tax reform failure. 3. A government shutdown in middle Dec. Be prepared. Winner Today STX provides nice ER, boosting stock price 12.6% , helping WDC gain 1.8% . WDC gets some relief from Toshiba bidding failure. WDC will report earnings this Thursday AH. UNG (+1.1% ) natural gas recovers a little bit. Good news from OPEC during weekend and dropping rig counts in US indicate crude price may get into up trend. Uncerta...

During the weekend In Japan, Abe wins big in the election --- 4 more years, which means maintaining super-easy monetary policy and armed forces. A powerful typhoon approaches Japan --- tens of thousands were evacuated and hundreds and flights were canceled. In Spain, Prime Minister fired the regional government of Catalonia and forced a new election. Nearly half million people flooded Barcelona's streets in a huge protest. Bitcoins reaches new all-time high of $6,147. Earnings Next Week Monday: KMB, STX, HAL, HAS (toy market), ITW Tuesday: CAT (industry), GM (auto market), MCD (fast food), BIIB, LLY, CMG, COF, AMD, LMT, ILMN, MMM, T Wednesday:  BA, GD, KO, ABX, LVS (casino in Macau), V, AMGN, AGNC, O Thursday: AMZN (Whole Food impact, grocery stocks), GOOGL/GOOG, F, AAL,  INTC, UPS, MSFT, TWTR, MO, MAT, BIDU, CELG, CMCSA, COP Friday:  ABBV, CVX, SOHU, MRK It will be a very busy week for ERs. The complete list can be found here https://seekingalph...

Shortly after its IPO in June 2015, FIT touched $50. Then it fell into a downhill channel. The original Flex, Charge, Charge HR, Charge 2, Alta and Alta HR were very successful and adopted widely. The Blaze was not a smashing success as it fell short on functions and wasn’t much more than another form of step tracker. Fitbit also came up short and misjudged the market for the Flex 2, which has experienced poor sales. Here are all the earnings in its history as a public company. 2015 Q2    $0.21    $400M 2015 Q3    $0.24    $409M 2015 Q4    $0.35    $712M 2016 Q1    $0.10    $337M 2016 Q2    $0.12    $587M 2016 Q3    $0.19    $504M 2016 Q4    $-0.56   $574M 2017 Q1    $-0.15   $299M 2017 Q2    $0.00    $353M The revenue hit bottom in 2017 Q1. Afterwards, Fitbit made quite some changes --- layoff...

New records again ... Everybody (nearly) in green GE reported their Q3 earnings, in which EPS got a big hit although revenue beated. GE reached multi-year low $22.10 at the opening (so close to trigger my buy order @ $22, damn it! I have been calling $22 for a few times recently) before recovering all the loss and finishing green ( +1.1% ). After the panic sale as they released the ER, investors realize that GE is cooking the book for EPS growth in 2018. I am still suspicious about their turn-around story and will watch it closely. CELG  ( -10.8% ) dragged the whole healthcare sector down. In AH yesterday, Celgene announced to discontinue two studies evaluating GED-0301 (mongersen) for the treatment Crohn's disease (Phase 3 RESOLVE (CD-002) and the extension trial, SUSTAIN (CD-004)). The planned Phase 3 DEFINE study (CD-003) in Crohn's will not be initiated. The company is waiting to review the data from the Phase 2 study in ulcerative colitis to determine the next steps....

WOW, Dow Jones and S&P 500 manage to finish green in this 30th anniversary of BLACK MONDAY (on which day 1987, S&P500 down 22.6% ). ADBE jumped 12% to new high after the company ups EPS estimates for FY18 from $5.15 to $5.50 and FY19 from $6.29 to $6.63. 48 P/E is justified by high revenue growth rate (more than 20% from 2-years ago) and healthy margin. It is in my watch-list. Gild (+2%) : New cancer drug Yescarta for lymphoma (developed by Kite, bought in August $11.9B) got approved by FDA yesterday. The list price for Yescarta, which is to be administered just once to each patient, would be $373k . The price is well below that of the first drug in this new class - Novartis $475k Kymriah (approved in August). Spokeswoman Amy Flood said: "We are in ongoing and active discussions with payers, and we have communicated our openness to considering different solutions that improve patient access." If it cures the patient, it definitely saves insurers money in long ru...

Dow Jones reaches new high again, helped by IBM. IBM (+8.9%) , delivered solid earning and guidance yesterday after market close. Its revenue has declined for years. Massive buyback and low tax rate (~10%) keep EPS growing. I believe IBM is turning around in 2018 --- revenue will finally start to grow again with focus on cloud and security service. My target price is $180 within a year. CREE (+17.9%) , a shining star today due to a short squeeze. However, I don't like it now, more like a value trap, would stay away. Crude and Natural Gas ( USO -0.1% and UNG -0.8% ): More than a week ago I called that they would stay in a narrow range for a while. I keep my prediction for the near term. I don't see crude price beyond $60 in next 2 years. Natural gas is hard to predict, depending on weather. I would like to buy USO below $10 and UNG below $6 if possible. Otherwise, I will stay at the side-line. Housing market is taking a break. September housing starts came in at a season...

(I will be on vacation for a week, during which period there will be no updates. I will update daily again starting from 10/18. Wish me good luck in Vegas!) Catalan president declares 'deferred independence' in Spain. Then he steps back from the brink of crisis, seeking talks with the Spanish government rather than an immediate declaration of independence from Spain. I have no idea what is going to happen next. According to Moody's , Americans earning between $25.3K and $43K devoted 15.6% of their income toward servicing debt in 2016 - the first increase in that ratio since 2010 . Before worrying too much about lenders just yet, Moody's Shenn reminds that debt servicing levels remain "very manageable," noting growing wages, low interest rates, and longer term loans. Redbook Chain Store Sales: +3.2% Y/Y vs. +4.1% last week. October sales are expected to increase 3.6%. Redbook Chain data (chart below) indicates retailers are probably doing fine after all...

It is Columbus day. Market is taking a rest as well. Indexes all finished slightly red. Tech section is still leading the market. GE -4%. JPM predicts a dividend cut. I would like to see it @  $22 . Barclays warns grocery stores on the impact Amazon ---- quite late call... Nevertheless, KR, COST, TGT, SFM all in red. AIG (-0.8%) sees Q3 pretax catastrophe losses net of reinsurance of $2.9B-$3.1B, or $1.9B-$2B after-tax. Roughly $1B each of those losses are from Hurricane's Harvey and Irma, and the rest from Hurricane Maria and the Mexico earthquakes. Box office is not doing well, again. However, Disney will release the new trailer of Star Wars (mid-Dec) tonight. Long DIS . Natural gas (UNG)  is new low --- still in down trend due to warm weather. My Trades Today Increase COST by 80%. I called $154 right after the earning. My new holdings average price is $155 . Increase M by 10%. I see $20 as a support. Initiate ESRX @ $59 .

World Economy Early next week, IMF will probably paint a bright picture of world economic outlook, despite social tensions. Tesla An article was published (by Charley Grant) on WSJ yesterday, questioning Tesla's Model 3 production and high valuation. I would like to stay away. Earnings Big banks are expected to have good ER next week. WFC will face tough questions in earning call. Oct 11:   BLK Oct 12:   C, JPM Oct 13:   BAC, WFC, PNC Analyst/investor meeting Oct 10:  Wal-Mart ( WMT ) and Workday ( WDAY ); Oct 11:  Kroger (KR) and Western Digital ( WDC ); Oct 12:  Box ( BOX ) and HP (HPQ ); Oct 13:  Sanderson Farms ( SAFM ), Fifth Street Asset Management ( FSAM ) . Hurricane Nate:  It is better than feared. The disrupt Gulf production for CVX, BP, COP and XOM will resume. Crude is expected to trade between $48 and $54 in near term.

Market finally took a pause of the recently rally, finished mixed ( DJI red, SP500 red, NASDAQ still green ). Except Healthcare and  Tech , all other 8 sectors all finished red. Energy performed the worst, -1% . Job Market Payroll data was down amid hurricanes. Nearly 1.5M people reported having a job but were unable to work due to bad weather, the highest number since early 1996, and average hourly earnings jumped 2.9% Y/Y, perhaps reflecting low-wage earners dropping out of the sample because the hurricanes had prevented them from working. Following the release, the market now sees the chances of a December rate hike at 98.2% , according to the CME FedWatch Tool, up from yesterday's 77.5%. Crude Oil (USO -2.7%) The total U.S. rig count fell by 4 to 936 following last week's gain of 5, and have decreased in four of the past five weeks, according to the latest Baker Hughes survey. The oil rig count fell by 2 to 748 and gas rigs also slipped by 2 to 187. Costco (...

The revolution in electric vehicles set to upturn industries from energy to infrastructure is also creating winners and losers within the world’s biggest metals markets. It is expected that more Lithium, Cobalt, Copper, Aluminum and Nickel are demanded. In anther post, I have briefly introduced Lithium, which is the key component in Electric Car Batteries. https://defeatmarket.blogspot.com/2017/10/invest-in-lithium.html In this post, I will introduce other related commodities: Cobalt Lithium cobalt oxide (LiCoO2) is widely used in lithium ion battery cathodes. YTD, Cobalt price has been pushed up 80% . The problem: 60% of the world’s cobalt reserves are in the Democratic Republic of Congo ( DRC ), where political instability and violence have created a serious moral dilemma for miners and companies such as Tesla and Apple. By 2015, DRC supplied 60% of the world production of 32,000 tons at prices of $20,000 to $26,000 per ton. Early this year, UN has reportedly foun...

Led by Tech, Non-cyclical consumer goods, Financials and Energy, all three indexes finishes @ new all-time high again. Netflix ( NFLX +5.4% ) hikes the price. The standard service currently billed at $9.99 will roll to a $10.99 pricing in November, while the premium level goes to $13.99 from $11.99. Deutsche Bank downgrades Western Digital ( WDC, -0.9% ) from Buy to Hold and lowers the price target from $105 to $80. Electric Airplane? A start-up company backed by Boeing ( BA +1.2% ) and JETBlue (JBLU)  unveils plans to bring a hybrid-powered airplane to market by 2022 that can dramatically reduce the travel time and cost of trips under 1,000 miles. Casinos in Nevada reported that gaming win revenue jumped 15% Y/Y in August. Analyst Rating in biotech: Biogen ( BIIB, +3.8% ) upgraded to Overweight by Morgan Stanley. Celgene ( CELG, -4.4% ) downgraded to Underweight by Morgan Stanley. Gilead Sciences ( GILD, +1.3% ) initiated with Market Perform rating by Oppenheimer...

Lithium, this alkali metal is probably best-known for its wide use in lithium batteries common in all sorts of electronics devices. Other industrial applications include manufacturing heat-resistant glass and ceramics, high-performance alloys used in aircraft, and lubricating greases. The breakdown of the global end-use lithium markets is estimated as follows: ceramics and glass, 31%; batteries, 23%; lubricating greases, 9%; air treatment, 6%; primary aluminum production, 6%; continuous casting, 4%; rubber and thermoplastics, 4%; pharmaceuticals, 2%; and other uses, 15%. As all the auto companies are racing for electric cars, lithium usage in batteries is expected to shoot up. Check out the lastest news of GM, VW, F, Tesla, also Dyson ($2.7b investment to build its first car by 2020)! That's why Goldman Sachs calls lithium the “new gasoline.” The Economist calls it “the world’s hottest commodity.” Where is Lithium Mined? Top 3 lithium-producing countries: Australia , Ch...

The bulls seems to lose stream today, although all three indexes finish green again. Dow Jones +0.09% to 22,661.57. S&P 500 +0.12% to 2,537.73. Nasdaq +0.04% to 6,534.63 What is Going on Today? Google  ( -0.64% ) shows new products: phone --- Pixel 2 (waiting for reviews), Home products (integrate Nest), Pixelbook laptop ($999 up), 'smart' Clips camera ( GoPro had a hit today, -6.4% ), and VR headset. TEVA (-14.6%)  took a hit after FDA approved Mylan ( MYL, +16.2% ) generic MS treatment,  BIIB  also dropped below $308 at the opening, but recovered most of the loss. SHOP , after Citron Research warns with video release on the retailer that is decisively on the bearish side. Andrew Left says the FTC is going to take notice of the actions of Shopify. Background: Shopify is a rapidly expanding cloud-based, multi-channel commerce platform business. Here is an analytical article calling to short SHOP https://seekingalpha.com/article/4108901-shop...

Military defense stocks are doing extremely well after the electron. Most of them reach all time high. With the threat from North Korea in mind, I would like to pay my revisit of my DOD (Department of Defense) Stocks: (not holding any of them at this point, used to hold LMT and UTX) If you have good picks in this group, please share with me by commenting. Among the eight stocks, BA returns 96% in a year (highest), and UTX returns 18% (lowest) PE in range of 18~28 Div in range of 1.0~2.6% BA General Dynamics Corporation Price now: $255.46 Market Cap: $151B PE: 22 Div: 2.2% Return in a year: 96% HON General Dynamics Corporation Price now: $142.67 Market Cap: $109B PE: 22 Div: 2.1% Return in a year: 24.5% UTX General Dynamics Corporation Price now: $117.71 Market Cap: $94B PE: 18 Div: 2.4% Return in a year: 18.2% LMT Lockheed Martin Price now: $312.86 Market Cap: $90B PE: 24 Div: 2.6% Return in a year: 33.1% GD General Dyn...

Market rallies again. All record high: Dow +0.37%, S&P 500 +0.22%, Nasdaq +0.23%. What is Going on Today? Airlines breaks out after DAL updated guidance, DAL +6.6%, UAL +6.1%, AAL +5.8%, LUV +4.5%, ALK +4.1% . Home builders continue its run following LEN earning. KR is in rumor of takeover, +3%. Roku retreats some gain after IPO, -11.7%. Fitbit ( FIT ) cools down -3.5% after a +13% run in September. GM hit 52-week high, +3.1% ; Ford ( F, +2.1% ) releases its plan for smart vehicles and future capital rearrangement after-hour. My Trades Today Cut 50% UAL to take profit. Day-trade M again for 2% profit. (same pattern as yesterday, 4% in 2 days, not bad) CPTA gets a hit today due to big dividend cut (from 17% to 10%), luckily I have cut 50% position in last two trading sessions. I will buy more if it drops below $9. With a big stake in UAL, beat the market easily today. Earnings Tomorrow Pre-market:   AYI   MON   PEP   RPM Post-mark...

The market carries its momentum into the 4th quarter, ignoring all the negative news. Dow Jones +0.68%, S&P 500 +0.39%, Nasdaq +0.32% What is Going on Today? Biggest news --- Las Vegas shooting, killed 58 and injured 515 . Gunman, 64-yr old Stephen Paddock, is a high-stakes gambler. His motive is still unclear. MGM -5.6%. Spain is in a mess due to Catalonia independence referendum voting. Hundreds have been hurt. Developing story. Nordstrom ( JWN ) drops buyout (go-private) deal, drags all the malls stocks down, including M, JCP, KSS, DDS, SHLD . I made day-trade on M for 2% profit. GILD resumes its up trend with +3.1% gain. I am expecting the next profit-taking action will be in Nov when FDA approve Kite's KTE-C19, CAR-T cell therapy for Non-Hodgkin Lymphoma (NHL). GM (+4.4%)  will bet big on electric car, adding 20 models by 2023. My Trades Today Unload 40% CPTA @ $10 (+5% today, 10% profit). Sold 30% DIS @ $100 (only 3% profit). Day-trade M for 2% profit....

Born in a rich Jewish family in 1966. His father is the chairman of a New York real estate financing firm, Ackman-Ziff Real Estate Group. Net Worth $1.4B (Forbes, Feb 2017) Harvard Univ. (BA 1988 & MBA 1992) Early Career (Gotham Partners) In 1992, Ackman founded the investment firm Gotham Partners with fellow Harvard graduate David P. Berkowitz, starting small investments in public companies. The fund grew to $500M by 1998. By 2002, Gotham Partners had become entrenched in litigation with various outside shareholders who also owned an interest in the same companies in which Gotham invested. Pershing Square Capital Management In 2004, started with $54 million in funding from his personal funds and from his former business partner, Leucadia National. In 2005, Pershing bought a significant share in Wendy's and successfully pressured it to sell its Tim Hortons doughnut chain. Wendy's spun off Tim Hortons through an IPO in 2006 and raised $670M. After Ackman s...