Shesa's JULY 2014 INVESTMENT BLOG

                        20 July 2014

JULY 2014 Investment Blog

Shesa Nayak  

USA Stock Market Commentary

Hello and Welcome to my July investment blog.

The US Stock market shot up last Friday. Why did it happen? We will discuss in a while. Let’s quickly go through stock market indices. The DOW Jones closed this Friday at 17,100.18, S&P 500 closed at 1,978.22 and NASDAQ closed at 4,432.15 points. Both DOW and S&P 500 hit new all time high last week 17,113.51 and 1985.59 respectively. NASDAQ on the other hand may have difficulty in breaking the record set on March 10, 2000, when the index peaked at an intra-day high of 5,132.52, and closed at an all-time high of 5,048.62. I believe it would be a long wait before we reach to that milestone.

Current US Stock Market Trend and Wall Street this week

This Friday the market shot up high after the merger announcement of drug maker AbbVie and Shire on a $54 billion deal. In addition, shares of Google (GOOGL) rallied almost 4% after the company reported another quarter of increased sales growth after the bell Thursday, driven by a 25% increase in ad viewing compared to the previous year. It can be noted that Google missed its earnings estimate. Moreover, these news ignited the market after a heavy fall on Thursday where investors were concerned about the geopolitical situation, including the Malaysian airliner flight 17 was shot down over an area of Ukraine and the escalating tension in the Middle East, particularly in the Gaza strip and Iraq.

The Federal Reserve declared that the Quantitative easing Bond buying program is anticipated to complete by October 2014. This took some investors to surprise since many of them thought earlier than required! Europe’s debt crisis resurfaced with the news that one of the Portuguese bank is likely to default on its payments.

At present, we keep hearing stock market news with buzzwords like "overdue," "bubble," "crash," and "meltdown." It has been almost 33 months since the last 10% correction, compared with the average 12-month cycle, and some consider this alone to be proof that we are "overdue" for a correction! But market still keeps going up. The Earning season has begun. If the earnings are good then stock market may hold or go up. However, I feel that, at this point the risk is higher since market has gone up significantly in last couple of years without a major correction. Hence risk has increased when market is high. Thus, taking profit on some of the equities those have gone up substantially is of immense significance. I am not saying that market will come down in next few days or weeks but risk mitigation strategy must not be forgotten.

A glance to “Return on Investment (ROI)” in last 50 years

Trying to timing the market or trying to pick the top or bottom of the market is extremely difficult. We have been hearing that market would take a hit and there would be a big correction.. “Sell in May and go away” works most of the time but not always. Let’s take a look at the statistics of DOW Jones in the worst and best 6 months period.

Stock market worst 6 months period (May 31^st – Oct 31^st):

Since 1950 to 2013, investors lost money in last 63 years, except 3 years where sell in May did not work. DOW gained 18.9% in 2009, 15.6% in 2003 and 10% in 1995. All the remaining 60 years the investors lost money during that period.

Stock market best 6 months period (Nov 1^st - April 30):

A $10,000 investment in DOW in the best 6 months period could have resulted in more than $800,000 since 1950. That’s whooping 8000%. So we can see why there is philosophy behind sell in May and go away. But reminding readers that so far in 2014 the sell in May and go away logic has not work. Let’s see what happens in next few months!

(Source: https://www.arlington-capital.com/RadioShow.aspx)

Now let us go to this month’s recommendation.

Direxion Daily Gold Miners Bear 3X Shrs (DUST)

This month I am writing about an ETF that may surprise the readers. DUST is an Exchange-Traded Fund (ETF), which is 3 times volatile to gold price movement. So please note that this is highly volatile and aggressive in nature.  As its name suggest, this works against the gold price. In other words, if the gold prices fall the share price goes up, if the gold prices go up then its share price will fall. What it means is, we are hedging against the gold price. So, am I saying that gold price will fall? Probably, YES in short term but NO in long-term. So why I still believe that I should buy this? Please note that, this is for trading rather than investing. If we observe last couple of years then we could see that gold price keeps fluctuating from about $1230 to about $1400. DUST is trading almost at its 52 week low. Hence I believe one can take advantage of this fluctuation to make 15-25% gain in few months and book some profit. Basically we are trading this for short term. Coincidently, if gold price goes up significantly than there is high risk to own this. But I think the risk may be limited since DUST is towards its bottom. As a matter of fact, I visualize limited risk to the down side but upside potential could be reasonably high. Let me make it very clear that I am not betting against gold price rather I would like to take advantage of the gold price fluctuations. Since it’s risky play we must analyze our investment strategy before taking any action otherwise better avoid it.

Whenever, I buy such volatile and aggressive equity, I would keep the following investment strategy in mind:

·        Never invest more than 2-5% of the portfolio value

·        Always buy and sell in a phased manner, dollar cost average is very helpful

·        Sell a portion of the equity and take profit when it goes up certain %age

·      Put a Sell STOP anywhere from 10%-25% in case the strategy goes wrong due to any unforeseen reason depending on your risk tolerance level

Watch List:

Direxion Daily Gold Miners Bull 3X Shrs (NUGT)

I am still keeping this ETF to my watch list as long as it does not come down to suitable buying opportunity. Once the right time comes, I will write about NUGT which is opposite of DUST. This will help making some money whether the commodity price, particularly gold goes up or down. But at this point of time, I will avoid recommending this one as the prices have gone up in last several weeks.

Equity	Suggested Price (USD)	Current Price (USD)	Suggested Date	% Changes	My Opinion (see disclaimer)
STOCK
AAPL	58	94.43	1/25/13	63%	BUY - see update
BIDU	86.43	191.17	4/18/13	121%	Hold - Take profit
GOGO	14	16.48	9/1/13	18%	HOLD
SLW	22	26.64	10/1/13	21%	BUY
FB	47	68.41	11/13/13	46%	Hold - Take profit
TSLA	135	220.02	11/13/13	63%	Hold - Take profit
AGNC	20.02	23.14	12/14/13	16%	BUY
MA	78.7	77.5	12/12/13	-2%	BUY
EXEL	5.82	3.5	12/12/13	-40%	HOLD - see update
NLY	10.77	11.25	2/2/14	4%	BUY
KO	38.55	42.43	3/9/14	10%	BUY
KNDI	19.4	19.62	3/9/14	1%	BUY - see update
AMZN	311.73	358.66	4/12/14	15%	HOLD
BAC	14.74	15.49	5/11/14	5%	BUY - see update
QIHU	85	87.83	6/22/2014	3%	BUY below $85
ETF
GDX	27	26.93	4/1/13	0%	BUY
EDC	25	32.43	1/2/14	30%	Hold - Take profit
DUST	15.33	15.33	7/20/14	NEW	BUY
MUTUAL FUND
FBIOX	128	188.63	3/1/13	47%	Accumulate
PRHSX	60	63.37	2/2/14	6%	Accumulate
FSCHX	142.24	152.67	4/12/14	7%	Accumulate
OBCHX	16.14	16.65	6/22/2014	3%	BUY

Earnings Calendar for our Stock profile
Equity	Earnings Date
AAPL	22-Jul
BIDU	24-Jul
GOGO	Week 8/4
SLW	N/A
FB	23-Jul
TSLA	31-Jul
AGNC	28-Jul
MA	31-Jul
EXEL	31-Jul
NLY	Week 8/4
KO	22-Jul
KNDI	N/A
AMZN	24-Jul
BAC	See update
QIHU	Week 8/22

Company Updates

APPPLE Inc (AAPL): Apple is set to release its earning after the close of market on Tuesday, 7/22. I feel that it would meet or beat the analyst expectation. I still see it as a buying opportunity. However, seeing its run up I will be cautiously optimistic and take some profit if there is substantial gain. Moreover, iPhone 6 is and iWatch is rumored to be releasing during the fall. There is high expectation that these product could take Apple stock further up. Hence I feel that this is a great stock for any portfolio with long-term objective.

Kandi Technologies (KNDI): The stock has gone up more than 35% in last couple of weeks. This company has the potential in long run. If investor already bought it then it may be good idea to should hold/take profit. But if there is no position then it’s still a buy for long term. Please see more update here:

http://shesanayak.blogspot.com/2014/07/update-on-kndi-kandi-technologies.html

Bank of America (BAC): Bank of America incurred a $4 billion legal charge as settlement talks with the Department of Justice over mortgage-backed securities. This charge brought down its net income to $2.3 billion, a 43 per cent decline from a year ago, and missing analyst estimates. However, I remain optimistic about the Bank’s future and next year is expected to get better on earnings side.

Exelixis, Inc. (EXEL)

A few days ago the stock went up almost 23% on one day. Please see more update here: http://shesanayak.blogspot.com/2014/07/update-on-kndi-kandi-technologies.html

Folks, that’s all for today. Stay tuned for my next month’s blog. Thanks for your time. Please feel free to send me your comments and suggestions to shesa.nayak@gmail.com

Disclaimer: This blog is meant to provide my personal opinion rather than professional recommendation to buy/sell any stock, ETF, mutual fund or any other security(s). As an investor, it’s your hard earned money and you decide what is best for you. The above are merely my own suggestions and please contact a professional money manager to buy/sell any security. I do not earn any money by writing such blog. I have position on whatever security I write on the blog and avoid recommending any security that I do not follow.

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