Stock-market autumn blues

As in most years, the stock market went bearish in September. However, October was worse than usual and I don’t expect these corrections to be the last setbacks in 2018.

 

All price corrections open opportunities. For our portfolio and the benefit of my eToro copiers I have found some reasonable entry points into US aircraft maker Boeing $BA, European sport and fashion brand Adidas $ADS.DE and semiconductor developer Lam Research $LRCX. Even the semiconductor investment is showing green, in spite of the current contraction in the semiconductor industry, on which many analysts have turned rather bearish, which in the coming months should provide opportunities to invest in the semiconductor industry at reasonably price points.

 

eToro popular investor and CopyFund tracking

The popular investor and copy fund tracking for August shows meager returns for 2018, worst among crypto investors. The ranking formula, which used square roots had to be adjusted due to negative results, with six months losses exceeding 30% on some Popular Investors, who have diminished the investment of thousands of eToro copiers.

 

The ranking is based on a zero to one hundred percent value relative to the performance of the other investors and CopyFunds tracked. The aim of the “desirability ex crypto” formula is to highlight popular investors and funds with a balanced portfolio, preferably low risk and a continuity in increasing the return on equity.

Unfortunately the CopyFund SharpTraders and GainersQtr hide cryptocurrency investment and possible imbalances behind the eToro investors data. These two funds rank highly largely for their low risk score, reasonable 12 months performance and supposedly balanced portfolio.

Pos Trader Desirability 6 months Risk 12months Profitable Aug 2018
Aug handle @ ex crypto return % return, % months (8) return, %
2018 Min 0.08733484302 -0.7874 3 2.35% 1 -0.3823
Mean 0.6652816771 -0.1824 5.32 41.81% 2.36 -0.06666060606
Max 1 0.1879 9 179.49% 5 0.0568
1 SharpTraders 100.00% -2.24% 3 31.85% 2 -1.34%
2 GainersQtr 97.01% -0.46% 3 19.74% 3 -1.51%
3 JeppeKirkBonde 95.06% 1.17% 4 53.01% 4 1.09%
4 oroumann 91.41% 0.23% 4 17.65% 2 -1.67%
5 TrendingR7 91.12% -16.51% 3 5.92% 1 -2.48%
6 BigTech 90.82% 10.86% 5 39.78% 5 3.71%
7 OutSmartNSDQ 89.34% 18.79% 5 47.13% 4 0.22%
8 eddyb123 85.91% -2.05% 6 179.49% 4 -0.64%
9 AlexandruCinca 85.24% -3.89% 5 37.92% 4 -1.73%
10 InTheGame 83.56% -2.66% 5 18.19% 4 0.74%
11 goodgoing 81.08% -14.07% 3 2.35% 1 -6.65%
12 Fastik 79.11% -28.66% 5 26.04% 2 -8.74%
13 CRISPR-Tech-Only 75.64% -3.26% 6 6.76% 2 5.68%
14 ADC0602 75.42% 13.96% 9 55.90% 2 -4.91%
15 Wesl3y 74.66% -19.26% 6 27.86% 3 -3.23%
16 Xavier86 73.13% -13.78% 6 28.61% 3 -1.18%
17 SallyForex 72.87% -8.54% 4 20.93% 2 -5.64%
18 AlexPlesk 72.14% -16.49% 5 9.45% 3 -11.36%
19 MrThor7734 64.85% -35.41% 5 27.76% 1 -12.45%
20 KarinRoth1 64.28% -39.79% 7 115.15% 2 -8.89%

The OutSmartNSDQ CopyFund produced the best six months return on the list. ADC0602 produced the highest 3 months return.

 

You can find the spreadsheet with a lot of data on the portfolio and performance for download here  http://iitm.be/etotrader – for your own analysis.

 

I welcome hints for the names of eToro Popular Investors with outstanding performance to include in the tracking.

Information sources for investment decisions

When investing, I like to buy shares in companies that I have had dealings with in the past as a supplier. I feel that this gives me a better understanding of the company’s culture. While I have been dealing with many businesses while working in several countries, in the interest of a diversified portfolio, this range of stocks is not broad enough. ‘etoro’s “research” feature is a helpful starting point on US listings, but I prefer the valuations provided by onvista (a subsidiary of Commerzbank AG) and boursorama (mainly for French shares) and PCbolsa for Spanish companies.

 

For short selling I tend to check UK stocks with shorttracker, US stocks on generally accessible sites as the wsj, volumebot and shortsqueeze. I check German shorts under the Federal Bundesanzeiger.de publications for “Leerverkäufe”.

 

The starting point for looking into a particular stock is often company news, political and economic developments, technological advances or trends. Checking Wall Street Journal’ market data centre, Reuters and the FT are must read sources, in addition to a last second check on Twitter for latest updates help to see where the money is moving and why.

Why stock markets will stay volatile – and how to make money from volatility

Record highs

Most markets are near record highs, point at which more volatility is to be expected. This is exacerbated by many events in world politics. I will highlight three here:

 

Brexit

The UK may struggle to find an amicable exit from the EU, pointing towards a prolonged, business friendly transition period, which has send the FTSE to record highs. The only problem is that a prolonged, close relationship with the EU will not be acceptable to hardcore Brexiteers, which risks leading to new elections, likely to be either inconclusive or ending with an old Trotskyist taking the keys to number 10 Downing Street. The Brexit negotiations outcome is still unpredictable, with only weeks left to find an agreement on the divorce. Thereby the EU’s third largest economy holds a lot of potential for volatility in the UK and wider markets.

 

USA and Donald Trump

Surveys give the Democrats a ⅔ chance to take a majority in both houses at the upcoming mid-term elections in the USA. As this will increase the pressure to impeach Donald Trump with all the mud sliding that goes with it, the compulsive tweeting POTUS45 holds a lot of potential for volatility in the USA, which still sets the pace for global markets. As a side note, one has to wonder how to control that his family and friends are not benefiting from advanced knowledge about tweets which move markets?

 

At the same time, an increasingly protectionist, inward looking US is retracting from Africa and the Middle East. Having gained greater independence in its energy supply, the USA is for the first time in decades in a position to fight trade wars and to strategically withdraw from oil supplying countries. These regions won’t fall into a vacuum, as Iran, Russia and China are all keen to replace American influence. For better or worse, this will change energy markets and investment markets dramatically.

Italy

The European Union and the common currency have made great progress since the real estate bubble burst and caused the last global financial crisis. The “PIGS” economies of Portugal, Ireland, Greece and Spain (though currently under the threat of a no-confidence vote) are growing, unemployment had been reduced, public finances are in better shape and so are most European banks. Except for Italy, where little has been achieved so far, and populists promising a guaranteed income are forming a coalition government with separatists demanding a flat rate income tax of only 15%. Much of the press is relating Italy’s economic woes to the Euro and some populist elements in Italy are playing with fire when toying with introducing a soft Lira. Brussels and Frankfurt will exert pressure on Rome making great headlines and sending the Euro and European markets occasionally lower.

 

How to make money in volatile markets

Where investing and waiting is a simple valid, profitable strategy in bull markets, volatility requires a more active and informed approach.

 

Some of the traditional instruments used in volatile times are gold and Volatility Futures. I am no fan of them. Commodities are not productive and investing in them is only driven by speculation, with gold having had a poor performance over the past five years. I find Volatility Futures hard to handle and it is tough to find the right entry point. I prefer shortening particular stocks and indexes when the signs are right. I also hold cash in orders to take advantage of extreme swings in stocks which I consider sound companies with a great future or sell positions in stocks where I see trouble ahead (eg Deutsche Bank or some UK retailers).

 

As a side note I would like to highlight the positive development of our unleveraged buy positions in eToro’s OutSmartNSDQ fund and GW Pharmaceuticals plc have developed well.

Sanctions, Trade Wars, Real Wars

Against all odds – sanctions, trade wars, real wars – the past week saw gains in the stock market, where we managed to recover some ground.

 

During stable periods, I am not a great fan of index trading, however with high volatility prevailing and some leverage applied, our trades in DAX30 / $GER30, CAC40 / $FRA40, IBEX35 / $ESP35 and Euro Stoxx 50 /  $EUSTX50 worked out well this week, producing profits for my eToro copiers. Despite our portfolio not profiting from this weeks’ recovery in crypto-currencies, we are benefiting from other shares gaining value again!

Fifth largest drop in the stock markets opens new opportunities

When markets hit record highs they turn jittery and corrections follow. This week we saw what some count as the fifth largest drop in stock market values ever. The portfolio has not been helped by a cooling of the interest in the ever expanding range of cryptocurrencies. More than 90 major cryptocurrencies quoted lower this week. For most cryptos, we may already be seeing a slow decline, reason why I decided to cut losses on NEO, XLM and BCH and may close Ethereum and Bitcoin soon:  http://iitm.be/cryptos4asset . I will also try to open more short positions in cryptos in addition to the short position on $BTC.

 

Because of market volatility I have been setting tighter stop losses on profitable positions, leading frequently to positions closing with small profits, followed by re-opening similar long positions at marginally lower prices. This has helped to lock-in profits from the likes of Aareal Bank AG / ARL, Aixtronic SE / AIXA, Alibaba Ltd / BABA, Davide Campari SPR / CPR, Cellectis SA / CLLS, Hella AG / HLLE, Leoni AG / LEO, Siltronic AG / WAF, Solvay SA / SOLB, as well as minor short trades in Paypal Inc / PYPL and and Petrofac / PFC.

 

A trade war?

Much of the steel dumped by China is generic and low grade. Despite some job losses in western steel mills, western consumers have been benefiting from cheaper steels and aluminium going into tins for food and drink and cheaper construction steel for factories, supermarkets and bridges. In turn much American produce and crops are sold overseas at lower prices than in their home market, thereby giving Chinese farmers cheaper pork and chicken feed and consumers cheaper food. Consumers throughout the world have been benefiting from increased competition through growing international trade. There is a chance that the American administration wants to direct their trade negotiation with the Chinese towards extracting greater respect for Intellectual and an opening of their market for Foreign Direct Investment. As far as the EU as the world’s largest consumer market is concerned it has much leeway in trade talks, I don’t expect the USA to start a trade war with the EU and our portfolio reflects that.

 

US stocks tend to have stretched price to earnings ratios. Our portfolio contains more EU shares than most on eToro. I expect the value our portfolio of shares in excellent and promising businesses to grow over the coming days and weeks, as pressure on the US administration increases to calm markets.

 

The market correction is probably worrying for the copy trader. However, if you share my optimism in the recovery of stocks like Santander SA / SAN, ThyssenKrupp AG / TKA, Unilever plc / ULVR, Inditex SA / ITX et al, then now is an optimal moment to copy my trades on eToro: http://iitm.be/oroetoro

New DAX Stocks on eToro

eToro has  finally added a few more CFD options in the German stock market.

The British foreign secretary Boris Johnson, who read Classics and is married to a barrister, once claimed that German chancellor Angela Merkel, who holds a Ph.D. in quantum chemistry  and is married to a full professor in that subject, to be ‘jealous of British tech‘. On a similar occasion Johnson contrasted the British economy to Germany’s as excelling “not in the old industries in which, of course, Germany still excels. Not in metal bashing …”.  So if you believe ultra Brexiteer Boris Johnson, you don’t need to read on. But if you consider him a serial liar anyway, as some people have suggested, you might want to find out more about German tech stocks less well known than Daimler, Volkswagen or Siemens.

Among the new German CFD options on eToro, I find the following interesting:

Aareal Bank AG, Aixtron AG, Dialog Semiconductor, Drillisch, Evonik Industries AG, Evotec,  Gea Group AG, Gerresheimer, Hella GmbH & Co KGaA and Kion AG.

I have opened a long CFD in the international real estate bank Aareal Bank AG (ARL / DE0005408116) headquartered in Wiesbaden (near Frankfurt) at €39.18 and I a position in “metalorganic chemical vapour deposition (MOCVD) equipment” maker Aixtron AG (AIXA / DE000A0WMPJ6) at €16.30.

Hella has the complex German structure of a GmbH & Co KGaA, keeping the company under family control. It is among the top 50 global automotive suppliers, employing around 33,700 people at more than 125 locations in over 35 countries, with more than 7000 engineers and technicians working in research and development. Hella (HLE, DE000A13SX22) is a welcome addition to eToro – I opened at €54.60. Most analysts see $HLE.DE stock rising to above €60.

I am observing the smallish, German-British fabless Dialog Semiconductor plc (DLG), which could become subject of a take-over. I have no orders yet on telecommunication and internet service provider Drillisch (DE0005545503 / DRI) – also known for it’s brand 1&1;  specialist chemical maker Evonik Industries AG (EVK / DE000EVNK013);  the very speculative pharmaceutical research company and CRISPR-Cas9 licensee Evotec AG (EVT / DE0005664809) of Hamburg;  engineering company Gea Group AG (G1A / DE0006602006);  specialist glass maker Gerresheimer (GXI / DE000A0LD6E6) or leading forklift and supply-chain solutions business Kion Group AG (KGX / DE000KGX8881).

If you invest in German stocks may be influenced on where you think Germany stands in its economic cycle and if how big you think the downside risks to German car making are. For the medium term I think German industry will keep growing, despite the current hiccups emanating from the Trump-administration in the USA…

 

 

Major correction in cryptos and the stockmarkets at the end of January 2018

The first month of the year ended with the US-Dollar and with it the Japanese Yen down and major corrections in the valuation of health sector stocks and crypto-currencies. I have  restructured our portfolio accordingly, leading into another profitable month.

 

Cryptos

I have been pushing a crypto-sceptic message for weeks. I had hoped for a raise this coming weekend and planned to close some of the last remaining crypto buy positions in the portfolio. However, as the drop on cryptos accelerated I decided to cut losses closing long positions in $BTC, $LTC and $BCH. On the plus side, I managed to close a couple of crypto shorts, realising profits. If cryptos recover during the upcoming weekend, as they did over last weekend, some of the shorts I added may turn negative for a few hours or days, though past performance is no …. and as always, the price of any of the 15,000 existing digital currencies is whatever people believing in them are willing to pay. In the meantime, I will keep monitoring crypto-currencies.

 

 

Health sector

Three corporate behemoths — Amazon, Berkshire Hathaway and JP Morgan Chase, announced this week, that they are partnering to create an independent not-for-profit company for their U.S. employees. While life expectancy in the USA has been dropping for three years in a row (mainly due to drug abuse), Americans have the highest health care expenditure per head. The employers’ attempt at reigning in health-care costs has had a negative effect on the value of stocks exposed to the US health care sector like $MRK (in our portfolio still a 10% profit at the time of writing). However, our CRISPR and bio-pharma developers are already recovering – most positions in in deep green at the time of writing.

 

CHFJPY

Despite the US’ President’s fondness for everything strong, including his stated aim for a strong Dollar, the Yanks have managed to suppress the Dollars exchange rate. The Yen was already perceived as cheap in December, but the Japanese government has entered into the competitive devaluation race, where the already dear Swiss Franc stayed strong more in line with the Euro. The result is that the $CHFJPY stood at near a 12 months high of ¥118.38 at the time of writing and our short at a loss. While the competitive devaluation is driven by politics and hard to judge, I plan to hold this position over the weekend, hoping that the Yen recovers a little, just as the US-Dollar did.

 

As a consequence of the competitive devaluation, European stocks are under pressure, with some stocks like L’Oreal SA (OR.PA) taking time to turn profitable.

 

New stock additions this week

I have added long positions in Unipol Assicurazioni (US.MI at €2.07) of Bologna, Puma Biotechnology Inc (PBYI at $66.71) of Los Angeles CA, Microsoft Corp (MSFT at $94.17) of Redmond WA and Banco Santander SA (SAN at $7.27).

 

Infineon Technologies AG of Neubiberg near Munich is under pressure from the saturation in microchips and the weak Dollar. I bought IFX.DE in a dip at €22.62 and sold after half an hour at a profit of 0.80% (€22.71). Preferred to keep cash for the upcoming fluctuations in stocks and cryptos.

 

The week ended with what I assume is a technical glitch, though it now seems that inadvertently, my copy of one of the most popular traders on eToro hit the Stop Loss. I have reported this to my account manager and eToro are looking into it.

 

Have a good weekend and happy trading at eToro!

eToro popular investor trading update week 4 2018

Another interesting week, in which I think we have created potential for the coming days and weeks.

 

CRISPR-Tech

Our best performing positions are currently the CRISPR-Tech stocks like Cellectis SA $CLLS, Merk Inc $MRK, Editas Medicine Inc $EDIT, Intellia Therapeutics $NTLA and Sangamo Biosciences Inc $SGMO. CRISPR stocks are highly speculative, so setbacks are to be expected, but the potential upside in gene editing is enormous.

 

Crypto-currencies

I have further reduced our crypto-currency holdings. Just before eToro increases the weekend spread, I have  gone one step further, partially hedging the remaining crypto-buy-positions, with so far only one short each on Dash and Bitcoind each. I would love to open a few more sell positions, specially on Ripple, but, as cryptos are purely speculative, I find it incredibly difficult to gauge the entry points. I hope the smoke lifts sufficiently, to allow me to see which of the opposite positions (buy and sell) I should close. I found eToro’s crypto discussion on Thursday informative in that I feel that the participants (eToro traders liamdavies, Wesl3y, Jaynemesis, stebliss, matthewne) failed to address the central questions putting crypto coins’ medium term value in doubt; eToro failed to put up a single panellist questioning cryptos as to create a debate.

If you are heavily invested on cryptos, you may want to consider copying my crypto-sceptic portfolio as a hedge.

 

FOREX: EUR/USD

ECB chief Mario Draghi failed to stop the Euro’s rise against the greenback. Though the US president has then said that he is supporting a strong Dollar – this may have been because he simply finds the word “strong” appealing. For its unpredictability, we have no US-Dollar currency positions in our portfolio. The drop in the value of the US-Dollars is in the short term bad news for selling CHF/JPY and in particular GBP/CAD, where I had to cut losses on two positions (eToro’s risk ratings unfortunately force popular investor’s hands in such circumstances), check the situations and I re-entered later with a smaller profit. The US-Dollar’s extreme weakness is – at least in theory – also bad news for European stocks, e.g. Unilever plc $ULVR.L and Commerzbank AG $CBK.DE. I closed Commerzbank at €13.59 and a profit of 10.13%. Though thanks to sustained growth in the Eurozone, European exchanges remained largely unaffected by the common currency’s appreciation.

 

In view of the €997 million fine against LTE chipmaker Qualcomm Inc imposed by the European anti-monopoly watchdog, I opened a CFD short position in Qualcomm $QCOM at not particularly lucky $67.44. It is near break even and I will close it soon.

 

Looking at Paris

We closed a buy position in Essilor International SA $EI.PA of Charenton-le-Pont (Val-de-Marne), France, at a small profit and opened a buy in L’Oréal SA at €183.97 – analysts see a target well above €200 for $OR.PA.

 

Green bio-pharma

The two bio-pharma stocks in our portfolio, AbbVie Inc $ABBV of Chicago and GW Pharmaceuticals plc of Cambridge, UK (my second home), are growing well (no pun intended). Before I could get around to readjusting the take profits, our position in $GWPH with leverage x2 hit a take profit overnight. I took the opportunity to open a new position in GW Pharmaceuticals plc without leverage.

 

Have a good weekend and profitable trades!

EU Commission fines Qualcomm €997 million for abuse of dominant market position

Apple was a key customer for LTE baseband chipsets. In 2011, Qualcomm  signed an agreement with Apple, committing to make significant payments to Apple on condition that the company would exclusively use Qualcomm chipsets in its “iPhone” and “iPad” devices. In 2013, the term of the agreement was extended to the end of 2016.

The agreement made clear that Qualcomm would cease these payments, if Apple $APPL commercially launched a device with a chipset supplied by a rival. Furthermore, for most of the time the agreement was in place, Apple would have had to return to Qualcomm a large part of the payments it had received in the past, if it decided to switch suppliers. This meant that Qualcomm’s rivals were denied the possibility to compete effectively for Apple’s significant business, no matter how good their products were. They were also denied business opportunities with other customers that could have followed from securing Apple as a customer.

In fact, internal documents show that Apple gave serious consideration to switching part of its baseband chipset requirements to Intel $INTC. Qualcomm’s exclusivity condition was a material factor why Apple decided against doing so, until the agreement came to an end.

Shortening shares pre-market is difficult and I advice it. Currently Qualcomm’s share price has been moving wildly in both directions pre-market.

It is to be seen if US investors will take Article 102 of the Treaty on the Functioning of the European Union (TFEU) and Article 54 of the EEA Agreement prohibiting abuse of a dominant position serious.

In any case, I opened a CFD short position in Qualcomm $QCOM today at not particularly lucky $67.44.