Micron Tech: Technical Update

 

Micron Tech (MU), daily chart

After issuance of our research report on Micron (MU), a strong rally of about 7.7% transpired, pushing the stock to the first price target of ~$90, presenting a profit-taking opportunity.

Micron has now reversed on high volume amidst the pullback in NASDAQ today. $85 and below will be good to accumulate this growth stock in the face of unprecedented semiconductor shortages further exacerbated by an exuberant, rapid growth of data centers. Prices remain technically supported by the 100SMA, and a bottom of about $83-84 might be observed in the coming trading days. At worst, an entry price of $80 will be possible. It is extremely unlikely for prices to go below $70.

Previous price targets remain unchanged.

CapitaLand Short Report (TP: $3.35)

 1. Price action shows lower lows being formed with triple bearish tops, each top being lower than each other . This shows declining interest in the stock despite the recent CityDev and Straits Trading and TQ5 Frasers Pty rallies. Looks likely that there will be filling of the gap with a fall back to the technical support level of 3.35 within a matter of days or weeks. Prices have already broken the 20-day simple moving average (SMA) and the 20-SMA is now pointing down, signalling a bearish trend. 

2. Broader context of STI weakness and reemergence of COVID will greatly threaten CapitaLand gross profit margins as well as debt position and net income positions. Already, CapitaLand recorded not only a 96 percentage drop in operational profits from 4bn to 180mn pursuant to the FY20 report but also a staggering net loss of 1.6 bn in 2020. Indeed, with property developers like Citydev plummeting from $8.38 to $7.83 recently, there is no guarantee that Capitaland's price will remain supported at $3.7, especially amidst pellucid technical weakness.

3. With net cash position being 9 billion and net liabilities having increased drastically to 35 billion, it isn’t hard to predict that the financial status of the company will drastically decline especially if there is an epidemic resurgence within and without Singapore. There is not enough cash runway for the ailing company. This means a possible equity fundraising exercise or share placement just like Frasers Ppty.

4. The privatisation of the property development arm of Capitaland is not confirmed yet and there isn’t any update from the company on this. Even if the deal goes ahead, Capitaland is a high-beta stock which fluctuates up and down in a volatile manner. There is no guarantee that prices will remain supported at the 3.70 level until the end of the year, which is the supposed date of realisation of the privatisation scheme. There is more than ample time for the share price to dip, before, if at all, rising. There is too much uncertainty in that the scheme is not even prima facie confirmed.

5. With COVID resurgence all around the world, it is unclear how CLIM will be profitable (or as profitable as before). It may even need to raise funds. As such, CLIM may trade below its book value, which means the implied upside to $4+ is just theoretical. As a result of the Sincere saga, we are particularly worried how Capitaland China Retail Trust will perform and how its performance will affect CLIM.

6. With companies adopting a work-from-home arrangement, it is uncertain how useful the CICT (Capitaland Integrated Comm. Trust C38U)  shares will be in terms of unlocking shareholder value. Furthermore, the C38U shares will likely be in odd lots which makes selling them difficult or expensive. We expect CICT as well as Retail REIT prices to drop in coming weeks, in tandem with the rise in share performance of COVID stocks, in light of vaccine ineffectiveness, new virus strains and potential upcoming mis-management of the COVID situation in Singapore and outside of Singapore.

7. Capitaland is not privatised yet until the end of the year. It is unclear how the property development arm will function in light of a COVID resurgence threat in Singapore - with construction suspended and attraction of ABSD as well as cooling measures upcoming, the company's performance is likely to be adversely and severely impacted. These will manifest into Capitaland's price-action so long as the deal has not completely materialised.

8. It is uncertain how the market will reach to postponement of the deal, due to its manifest complexity, or other reasons. 

For the foregoing reasons, an investment in Capitaland is unsound and we expect prices to quickly and substantially decline to $3.35.

SgHuat Research: Micron Tech - A Memory Play (OUTPERFORM)

Micron Tech (MU), TP: $97, $108

What the company does

Micron Tech makes memory chips - DRAM (Dynamic Random Access Memory) and Nand flash memory.   DRAM accounts for more than 70% of Micron Tech's revenue. DRAM functions as the key memory in PCs, laptops, smartphones and other electronic or electronic-related gadgets such as electric vehicles. Nand flash drives, on the other hand, provide longer-term storage.

Who are its competitors

DRAM: Samsung, SK Hynix

Nand flash: Western Digital, Intel, Samsung SK Hynix

Fundamental Analysis

Micron Tech's current PE (TTM) is 30.7 and its average PE (TTM) is 26.4. This may be expected to change (decrease) when its upcoming earnings report gives a clearer picture of the latest developments, particularly in terms of the semiconductor shortage we are seeing globally.

At the end of March, March 31st, Micron beat analysts' targets for its fiscal Q2, and MU soared 4.8% on the news release.

This is Micron Tech's fourth quarter of sales growth on a YOY basis, after five quarters of suppressed sales. Its earnings have risen for the third consecutive quarter, after six down quarters.

Significantly, in mid March, Micron indicated that it will stop developing 3D XPoint, which has low profit margins and has affected its earnings negatively. Upon release of this news, the market rallied 3%.

Company's debt position is healthy, with total assets of $53.68 bn (2020) and total liabilities of $14.68 bn (2020).

Technical Analysis

Lower lows on the weekly with engulfing bearish candles. Sellers have obviously been in control since 13 April 2021 and the stock is currently down 12% from its all-time high of $97. Possible entries into Micron Tech will be at: $84-85, $83 and $80. If $80 breaks, MU will hit $73-75 (corresponds approximately to the average PE TTM of 26.4). This is extremely unlikely given the strong tailwinds (chip shortage).

Take partial profits at $97, implied upside of about 15% from last traded price ($85.03). Consensus price target is $108, so a secondary profit taking region can be between $100-110.

Positive Catalysts

Earnings report demonstrating stronger-than-expected financial performance. Continued chip shortage given the rate at which digitalisation is taking place in developing regions and given the burgeoning middle-class in China & India. More contracts and renewal of contracts with big players such as Apple. Disruptors such as Work-from-Home (WFH), AI, AR, 5G, Data Centres and Cloud Computing and Internet of Things (IOT, eg smart-homes and improved tech-heavy Industry 4.0 processes) may bring sustained rise in demand for chips amidst continued technological disruption. Continued prudent management of CAPEX (capital expenditures) due to the semi-permanent nature of cleanrooms and fabs as well as the volatility of memory-chip prices in response to supply/demand forces (company should, with Samsung and Hynix, not over-supply the market - this can lead to razor-thin margins).

Investment Risks

Stiffer competition from other memory providers, resulting in reduced profit margins. As a result of stiffer competition, non-continuation of key contracts. Over-supply of the market with memory chips, akin to the situation in 2019.

Conclusion

A safe and rewarding long-term investment due to continued technological demand for memory chips, despite possible short-term risks in terms of memory chip ASP (average selling price) volatility.

Disclaimer: The writer holds 6 shares of Micron Tech and is looking to significantly scale up his position as the price falls. 

Diginex - Addendum to Investor Brief

Key highlights from SgHuat's communications with Investor Relations team 

1. Most clients are institutional at present and institutions have been keen on the cryptocurrency trading and asset management solutions that Diginex is offering, particularly as a result of its focus on regulation, transparency and security. One of the products is Diginex Access: front-to-back trading, portfolio, risk management solution that enables trading of cryptocurrency and derivative instruments over various platforms. It is powered by Iviti's Tbricks platform. 

2. In terms of the retail space, there are increased options for retailers being rolled out continuously: increased array of coins including Bitcoin, Ethereum and their autochthonous EQO token,  greater range of fiat/withdrawal currencies, a mobile app and lending (margin) options. This will greatly increase retailer uptake and present a significant competition within the cryptospace.

3. Diginex has broken into Asia and EU, and is now targeting USA market. A significant revenue stream is EQUOS, Diginex's cryptoexchange platform. Commission-based fees are also generated from OTC Trading and Diginex Access. Diginex relies on a diversified revenue stream. Other revenue sources: Bletchley Park, a multi-manager fund, Digivault - a digital asset custody solution, and EQUOS Capital - a digital securitisation and advisory firm. Diginex's revenue streams are complementary, yet diversified.

4. With monies raised via convertible bond/listing late last year, Diginex balance sheet is cleared of debt and with the recent Share Warrants exercise, as well as recent $30 mil+ private placement at $15, Diginex is flush with case, and therefore there is less risk of share dilution in the coming months.

5. Coinbase is different from Diginex because Diginex offers institutional-focused derivative trading options, advanced asset management and structured products. Diginex believes that derivatives will enable it to pull ahead of the competition. Cryptoderivatives market is only a few times of the spot market, but for FX, the derivative market is 100x of the spot trading volume.  Bitcoin Perpetual Futures contract has been launched in Jan 2021, with volumes reaching US$25 mn/day. ETH Perpetual Futures contract launching shortly. 

6. Full licence application to SG's Monetary Authority Singapore submitted in May 2020. In HK, they have Type 4 and 9 licences. In fact, Diginex is already operating in most parts of the world, except a few countries, in particular, the United States.

Diginex (EQOS) - Investor Brief - The dark horse runs today

Update: More will be published on this counter tonight in terms of the investment thesis.

Currently trading pre-market: $11.67

Entry point: $10.50 - $11.5

Target Prices: $20.50 as first exit point, $23 as second exit. Over the long-term, we are looking at $62, $100.

Diginex (Ticker: EQOS, listed on NASDAQ) is an institutional-grade cryptocurrency exchange with headquarters in HKG and SG. While the focus is on institutional clients, there is a growing pool of retail clients all around the world. Their address in Singapore is: 6, Eu Tong Sen Street, Singapore 059817 (at Clarke Quay).

Investment Highlights:

1. Experienced management team. Chairman of the company is ex-UBS CEO, Mr Chi Won-Yoon. He had previously worked at 22 years with UBS, and has also worked with Merrill Lynch & Lehman Brothers (HK, NY). As Mr Yoon is Korean, he has been instrumental in pushing Diginex within the Korean market. They have a Telegram group which is actively managed: https://t.me/equoskr. At this juncture, it is also noteworthy that the executive team is very proactive in engaging customers on their 10000+ member-strong Telegram presence: https://t.me/equosio 

Indeed, the management team is very experienced, with many of them having distinguished careers in the accounting and finance sectors. This means that they can easily leverage on connections to establish Diginex as a leading cryptocurrency exchange in Asia and beyond.

Independent director Lisa Theng is Managing Director of an established law firm in Singapore, CNP Law and has been practising law since 1991. It is the duty of independent directors to flag out potential conflict-of-interest situations and other red-flags. She holds a Bachelor of Laws degree from NUS.

Director Andrew Watkins was partner with PWC in HK and Mainland China for 20 years. Director Paul Smith was CEO and President of the CFA Institute from 2015-2019. Prior to which, he was holding senior positions with the Institute. Smith is a fellow of the Institute of Chartered Accountants of England & Wales. Richard Petty works in academia and has been a key adviser to corporate projects in Asia. Petty holds a CPA (Australia/NZ). As far as the executive team is concerned, CEO Richard Byworth has 20+ years of experience in the financial markets, holding important positions in the Blockchain industry.  Being able to speak French fluently will grant Diginex potentially unfettered access to the French-speaking markets, in France and beyond.

2. Availability of crypto-derivatives such as futures and perpetuals. Diginex is the first NASDAQ-listed cryptocurrency exchange which offers crypto derivative trading on their institutional-grade trading platforms. There are Youtube videos which document the elaborate trade management and technical analysis systems that Diginex has to offer. Many cryptoexchanges, however, are very basic, with only spot trading options.

3. Coinbase IPO tonight, 14 April 2021. This widely-expected debut of the world's largest cryptocurrency exchange potentially means an unlocking of Diginex's value as the market discovers how to price cryptocurrency exchanges on NASDAQ.

4. Based on our discounted cash flow valuation (DCF), Diginex should trade at a minimum of $62. This unlocking of fair value can happen in a burst tonight, and then progressively over the next few weeks.

Figure A: Discounted Cash Flow valuation of Diginex, with very conservative internal rate of return, perpetual growth rate and with a 50% margin of safety. It is of note that we used 1/3rd of Management's forecast for their future revenue growth. This returns a fair value of $62.

5. Diginex has partnered with Treasury Management International recently: https://www.diginex.com/news/treasury-management-international-engages-diginex-to-put-bitcoin-on-balance-sheet/ This opens the door for Diginex to be the cryptocurrency exchange and cryptoasset storage facility on choice for companies who want to use Bitcoin as part of their treasury assets. A prime example is Tesla. We are likely going to see waves of corporates choosing to hold Bitcoin as a treasury asset, instead of cash.

6. From the technical charts, it is clear that higher lows are being formed. It is also evident that Diginex is a very powerful stock, able to move 30-50% within a matter of days, as a result of its small market capitalisation and low market float.

7. Diginex is operating in Singapore under an exemption under the Payment Services Act (under the Monetary Authority of Singapore). They have a parallel application with the MAS for a Major Payment Institution licence to enable Diginex unfettered access to the Singapore market. This will greatly unlock the value of the Company.

8. Increased 24 hour trading volume on the EQUOIS exchange, fast approaching US$100 mn/day. Note that this is before penetration into the retail US market.

9. The only NASDAQ-listed company which is producing their own crypto-token, EQO. EQO is an alt-coin and has reached an all-time high of $1.5. You can trade USD/EQO and/or get it when you trade more on the Diginex crypto platform.

10. A proactive executive team with great customer service is essential for retaining and attracting retail customers. This is evident on their Telegram group and their active engagement with users on Twitter. If this is how they help retailers with their requests, it is pellucid how they will (similarly) treat their institutional customers and their investors.

Investment Risk:

1) Competition from other cryptocurrency exchanges. However, this is mitigated by the fact that Diginex is domiciled in Singapore, a jurisdiction which puts a premium on regulation and consumer safety, and this is just one of many factors which show the company's emphasis on a fair, secure, transparent and secure cryptoexchange system which is institutional quality. Indeed, this is the differentiating factor which differentiates Diginex from other crypto-exchanges: security. transparency and quality.

Technical Analysis:

1. At an entry point of $11, Diginex will present 110% returns if it goes to $23. Considering our fair-value estimate of $62 (bear in mind that this is after 50% margin of safety), this investment can easily 5x your capital.

2. EQOS is currently trading above the Kijun line and below the Tenken line. So far as Diginex goes past the Tenken line (around $11.64), we can see a push up towards $14.20 (SSSA line), $15 (static support/resistance line), $16.50 (SSSB line), $20.50 (static support/resistance line) and finally to reach our eventual first target price of $23 (110% upside)

Figure B: Projection to reach the second target price of $23. An implied upside of more than 100%.

Conclusion:

 EQOS is a highly differentiated company within the crypto industry with diversified revenue streams. It prides itself upon fairness, transparency, security, service and institutional-grade performance. We are fully convinced that the market will continue to realise the potential of this Company and as a corollary, that the stock performance of this counter will soar. The unlocking of value of EQOS (Diginex) might happen over a few days, weeks or months. This is hard to predict. But the stock's performance has to reflect financial reality. So long as management can provide results, we will see the stock price reach $30 eventually (and even $100).

SPH - Upgraded TP $2.29

 1H FY21 Results Summary (Half year ended 28 Feb 2021)

- Revenue decreased 4.2% YOY to $460.3 mn

- Operating profit increased 16.6% YOY to $119.8 mn (contributions of $15mn from JSS)

- Continued decline in media arm, with revenue falling from $253.8 mn (1H FY20) to $193.1 mn (1H FY21). Profit before tax dropped from $10.6 mn to $3.1 mn. Without JSS, the pre-tax loss will be $9.7 mn.

- Print advertisement revenue dropped 29% YOY (partly due to COVID), with falls in display and classified ads.

- Digital revenue growing, with digital circulation contributing 31.6% of total digital revenue, increasing from 23% a year ago.

- Total circulation now comprises 53% digital, showing a clear shift towards digital circulation.

- Revenue for SPH's retail and commercial division (SPH REIT) increased 4.4% YOY to $154.6 mn, with tenant sales in Paragon and Clementi Mall (SPH REIT's Singapore properties) reverting to normal as COVID restrictions eased.

- SPH REIT launched Woodleigh Residences in Feb 2021, with 62% of total units sold to-date, with PSF prices increasing

- Net profit for SPH's retail and commercial division therefore remained flattish, dropping 1.4% YOY despite COVID.

- Student accommodation in UK showed strong revenue growth, rising 24.2% YOY to $35.3 mn (Student Castle portfolio), despite the COVID situation (students deferring studies and lower occupancy rates in general).

- Net profit before taxes for the Student accommodation division was $22.4 mn

- Orange Valley nursing home and Japan aged care facilities showed a small profit before tax of $0.3 mn for the half year

- Investments portfolio showed significant gains: iFAST (SGX: AIY) and Coupang IPO (NYSE: CPNG). Both iFAST and Coupang doing well in the market. 

- Strategic review to unlock shareholder value, with Credit Suisse appointed as group's financial advisor.

- Interim Dividends doubling from $0.015 a year back to $0.03.

Upcoming Catalysts

- Strategic review to unlock shareholder value, such as privatisation of its print and media arm

- Swing into profitability owing to increased focus on digital divisions; and owing to investment division and aged care facilities reaping fruits over time. This will also be aided by further easing of COVID restrictions, with possible resumption of tourism: SPH REIT (Clementi and Paragon malls), UK Student Accommodations being key contributors to profit

- More positive announcements pertaining to its venture capital division; its investments into new and promising companies should reap fruits over time (one example was Coupang)

- Further increase in dividend payout ratio and yield

- Further indications as to how SPH plans to diversify away from its ailing print and media arms and take further steps to become a diversified conglomerate

Technical Analysis

Weekly chart: When sghuat first discussed SPH, SPH was trading in the $1.2x range and has since burst up almost 50% to $1.78

Key support levels to accumulate SPH in increasing batches: $1.72-1.75, $1.6 and $1.5

First Target Price: $1.95

Second (Final) One-Year Target Price: $2.29

Every loss is an important lesson

 "The willingness to accept responsibility for one's own life is the source from which self-respect springs" Joan Didion

Whenever we make a mistake, it is important that we learn from it. No different is this in the stock market. Bad investment decisions can wipe you out quicker than you think, obliterating the profits you have painstakingly accrued over months or years. That is why risk management is key to investment success. Even the most promising of investment theses can end up very badly.

If you are losing money in stocks, then it is crucial to re-examine your investment strategy so that future losses can be minimised:

1. Are you taking profits too soon and taking too long to cut losses?

2. Are you  cutting losses too early without letting the stock have a chance to recover? As the saying goes, you can die of a thousand paper cuts.

3. Are you trading on emotions when you have a PNL target to meet or after a huge loss or series of losses?

4. Did you do your due diligence before hitting the "buy" button? "Hot stocks" and hype is not a substitute for thorough research into the company and its prospects

5. Do you have the discipline to cut losses and manage your risk when it comes to that? It is my belief that for investments in which you are less confident of, a 15-20% cut loss margin is appropriate. On the contrary, for blue chips with strong fundamentals, there may be no need to cut loss until the 30-50% mark, by which time you should thoroughly re-consider whether it does in fact have the strong fundamentals you think.

6. Since a 15% cut loss margin is used, do you ensure that you let your winners run past the 15% mark so as to generate positive expectancy? The worst mistake investors make is to take profits too soon and to let their losses run too long.

7. Is your investment approach suitable? If you tried day trading and it did not end up well, then maybe you are more suited to swing trading or long term dividend investments. Examine your personality and disposition, risk profile, investment goals and then decide which investment approach is most suitable for you and your lifestyle. A swing trading approach may not be suitable for you if you find that timing the market does not work very well for you - in that case, try to reduce market timing and instead focus on trade management strategies (eg, taking partial profits on your winners and re-investing it in batches in laggard low-valuation stocks) or even a more passive investment approach.

8.Are you chasing the highs? Too often, we get too excited when a stock is trading high but for fundamentally sound companies, it is best to buy low for maximised margins. Examine whether contrarian investing suits your personality (eg, buying the lows in fundamentally sound companies, preferably blue chip stocks)

We are always learning and as long as we take responsibility for our mistakes, and not push it to bad luck, stock market weakness, and so on, we can reduce the chance of making the same mistake again. 

As Rayner Teo, an esteemed investment guru has mentioned, a big gain is fine, a small gain is fine, a small loss is fine, but never a huge loss which will wipe your portfolio out.

Until then, safe trading!

Executive Summary: Nationalisation of Tencent, Alibaba and other Tech Titans. What will be the practical effect?

The upcoming opinion piece will make several assertions and analyse various important issues surrounding the increase in regulation in the Tech sector in China. If one were familiar with politics in China, this was more or less expected, with the Chinese government prudently (or cunningly) choosing this period of stock market turmoil due to heightened interest rates to make key changes, so that the public finds it hard to dis-entangle the effects, viz: the market's fear of nationalisation and regulation and its impact on the companies' financial growth moving forward, versus the effect of general stock market weakness on the stock movement as a result of higher interest rates.

In the upcoming opinion piece which will more fully examine the issues in greater detail (with the relevant sources) than this executive summary, I will examine several key issues, ad seriatim:

1. The Nationalisation Thesis

The Chinese government is very likely to at least quasi-nationalise - covertly or overtly - the tech giants Tencent and Alibaba, as well as other potential targets like JD and Pinduoduo. Looking at historical precedent (in 2020, there was a spate of nationalisations), and judging by Xi Jinping's (the Chinese Premier) control-focussed character, I will examine why this is very likely as the CCP seeks to stabilise political control over the country (the Internet - and new media - poses the largest threat to the CCP's dominance and they have been cognisant of this since its inception). The CCP wants to nip any potential political threat in its butt (especially when Jack Ma candidly mentioned that the Chinese government is now "weak" as compared with corporate China in the light of these Internet giants' growth). The CCP might also want to accomplish social goals - eg, reduce gaming addiction, reduce debt rates and "bubbles",  foster patriotism and love for the country, etc.   Parenthetically, could this increased regulation and quasi or semi-nationalisation also be a floated balloon to see how strong the new US President Joe Biden is?

2. The Tango

The Chinese government was likely slapping fines on these technology giants to send a clear message to the public as to who is the boss; the focus here is to retain social control and avoid the destabilisation of Chinese society just like how the USSR collapsed from the inside as China watched in horror. It is important to note that these fines were minuscule in comparison to the Tech giants' revenue. Therefore, they are merely symbolic in nature. Could it be that the Chinese government wants to prevent jeopardising these companies' future and investor confidence because they are looking at - in the short-term - overtly having a large shareholding and/or stake in these companies and building up these companies to be emblems of CCP pride, spreading Chinese culture and Chinese products and services across the world ("the Overt Nationalisation Thesis")? Or could it be that there is some behind-the-scenes friction whereby company executives are displaying signs of resistance (in resisting regulation, however subtly) but the CCP is losing patience (to me this is unlikely, given how Pony Ma, as contrasted with Jack Ma, often toes the party line)? Or could it be that China is in essence nationalising these companies by having immense controls within the company (this is nothing new but perhaps the controls are being stepped up dramatically) but at the same time wants to give the false impression that they are not in-fact nationalising these companies and are - in theory - separate from the corporate governance of such companies? This slightly more moderate approach will not lead to repercussions from America. ("the Covert Nationalisation Thesis")

3. How will the suggested Nationalisation Process impact these Chinese firms' growth?

If nationalisation were to proceed in an overt manner (the Overt Nationalisation Thesis), there is likely to be increased support from the CCP, thus fuelling these companies' growth and also spearheading the country's GDP and economic indicators. Many nationalised companies have done well - better revenue growth than when they were "private" (and many of these new state companies were not doing too badly before the nationalisation decision was taken - ostensibly as a result of national interest). These humungous state-owned companies can then be a clear symbol of how Chinese communism and socialist control can marry capitalism in a symbiotic manner - and that Tech is not an exception. Even if nationalisation proceeds covertly (the Covert Nationalisation Thesis), it is likely that there will be greater support from the CCP in a quid-pro-quo manner since the tech giants fearfully respect Beijing's decisions and receive Beijing's approval at every stage. Nationalisation and greater state controls - whatever its form - can definitely be a win-win process eventually in terms of China's (and the companies' long-term growth within the context of China) and even lead to better corporate governance and less corruption (this is probably one the CCP's chief concerns). Of course, the main worry investors have will be that nationalisation might lead to decreased revenue growth and earnings visibility as a result of the company pursuing ethical and nationalistic agendas (the company often having to perform "national service", thus reducing its revenue as compared to what could be without nationalistic control) and as a result of how the Chinese government seems intent to prevent power being concentrated in a single company.

If one were to re-examine history closely, the ball started rolling when Xi Jinping took over as Premier. However, the key catalyst - which turned this into an avalanche and some would think a total fiasco - was very likely Jack Ma's characteristically blunt comments during the Ant IPO speech which resulted in the cancellation of the IPO the next day as a clear signal to Chinese society who remains in control. 

Now that the process of nationalisation is likely to begin anytime soon (assuming that agents within these Chinese companies attending board meetings and giving suggestions, and so on, does not constitute nationalism), existing shareholders will have to patiently wait with bated breath and depending on their risk profile and assessment of the risk-reward ratio of this situation compared to other investments, either:

(1) take defensive measures if necessary (eg, downsizing, disposing or freezing their positions until there is greater clarity);

or (2) offensive measures if one thinks that this is a great buying opportunity and that nationalisation will put an end to poor market sentiment (eg, scaling up on long positions within these tech stocks).

Prospective shareholders who are eyeing investments in the Chinese tech sector are well-advised to thoroughly consider the political risks of such (an) investment(s) especially in light of other lower-risk investments in the Singapore and USA markets, which fully embody laissez-faire democratic principles and the rule of law (as well as (to a large extent as compared with China) non-interference in corporate affairs).

Indeed, with such political risks and uncertain regulatory climate, it is almost impossible to derive a proper forward-looking valuation (Discounted FCF, EPS growth, etc) of such companies and thus, it is no wonder that the market has been in a range for the past few days, waiting for greater clarity.

Disclaimer: The above constitutes the writer's personal view and does not constitute investment or financial advice. 

Not over yet.

 The Nasdaq Composite Index took another tumble late evening in New York, in reaction to ever-increasing 10 year Treasury notes, closing at 13,116.17 (3% down). The SPX closed 1.5% lower at 3915.46, with volatile trading seeing stocks like Amazon, Apple and Netflix falling more than 3%, and Tesla falling almost 7%.

Notable movers include:

ARKK (Down -5.86%, closing at $119.98) - Breaking $120 is significant. Highly indicative of a deeper market correction going on

AAPL (Down 3.39%, closing at $120.53) - This is the lowest AAPL has been since 12 March

TSLA (Down 6.93%, closing at $653.16) - The last time we see prices in the range of $650 was 10 March

PLTR (Down 4.90%, closing at $23.98) - PLTR has been trading above $25 in recent days and the fact it broke $24 and $25 is indicative of a deeper US correction

Micron Tech (Down 5.21%, closing at $89.82) - Again, this is significant since Micron Tech tested $95 recently, and was trading at $93 as markets opened today.

NIO (Down 6.97%, closing at $41.64) - This is significant as well, as NIO has been trading well above $44 in recent days

NVIDIA (Down 4.64%, closing at $511.20) - This brings us closer to the critical $500 mark for NVIDIA

These significant developments indicate that a deeper market correction is underway, even as we approach earnings season in April. It is hoped that the correction will be short-lived and that markets will rally as we approach early April in anticipation of good earnings.

The next few weeks and months will likely be turbulent. Members of my investment class have been advised, not to cut loss unnecessarily because the market can swing in the opposite direction the next day. Members have also been advised to take profits (or at least partial profits) every now and then because the correction is going to last some time. Take profits and wait. Buy the stock lower. Don't be a Kanchiong Spider.

Until then, if it hurts too much to see your portfolio, just turn off the brokerage screen and focus on other ventures and activities. Take good care of your health as staring at the screen is not going to do any good.

Set-up a plan to average down into your stocks as the stocks further correct next week. Take some profits off the table as and when there is a mini-rally. And do not chase after the prices as price-weakness is set to continue in the next few weeks (corrections typically last a few weeks to a few months).

From a charts perspective, the price-action in the next few days should be pretty bearish so hang on tight and HODL (Hold on Dear Life). Do not sell your securities unless it is to take partial profits. 

Until then, stay safe!

Dealing with the next US correction

For the Singapore market, which moves more slowly, the defensive practice of selling your securities and buying back lower can be executed rather safely. However, in the American markets, such a practice might be dangerous. Therefore, many long-term investors suggest buying and holding - adding to those positions as the prices find new bottoms. This is especially so for fundamentally strong companies which you have conviction for. It is very important to have conviction for the company you own, as otherwise, your hands will be paper-hands and it is terrible to die of a thousand paper cuts (In Singapore, we call them "cut -loss experts": stop loss on positions just because of a slight-moderate swing in stock prices, only to see prices rally against you later - especially stronger and fundamentally strong counters).

Indeed, by the time emotions lead to you selling your securities, they have found their daily bottom and you might be pressurised to add back your positions at a higher price in the ensuing hours or days (sell low, buy high) only to be fooled by the fake market rally (usually initiated by experienced contrarian funds and day traders), with prices diving down further again after these market participants have left, amplifying your losses further.

This matter is complicated further by the US post-market and pre-market system, such that selling a security and averting some losses initially (and not buying back, in the hope that the prices will find new bottoms in the ensuing days) can lead to disastrous consequences the very next day (and the swing can be much more massive than in Singapore), with stocks trading much higher in the pre-market and regular trading hours initially (in such a case, one is advised not to buy pre-market or in the first hour - if there is a positive market reaction, it is typical that prices will rocket up before plunging within the first hour because the experienced contrarian day traders start to short the stocks which have flew up too fast (over-extension of stock prices) in a weak corrective backdrop).

If one has bought into positions at key support levels, the most prudent thing to do is to hold and add to any possible fall - treating it as an opportunity to buy good stocks at discount prices. This is especially when the stock and/or index has tested and appears somewhat to be supported by the key static or dynamic support. 

In terms of hedging with derivates like ProShares UltraPro Short QQQ (counter: SQQQ) , it is only wise to start hedging at the initial phase of a stock market correction or crash. The ProShares UltraPro Short QQQ is a 3x leveraged inverse ETF which tracks the NDX (Nasdaq-100). It is meant to be held intra-day and not meant to be a long-term investment because there are expenses which are incurred daily, and these will eat into your returns. Hedging using derivatives should be done such that there is still a positive expectancy if and when the stock market recovers (it is likely the market will recover). Treat it as a form of insurance - best applied in the initial high momentum phase of the stock market correction and not during the later post-bottom recovery phase. If you have applied a hedge using the SQQQ (or other derivatives) during the initial strong downward correction phase, there is no need to rush to cut losses against a counter-trend upwards move if there is general market weakness (but do remember to lock in profits - as little as they may be, else profits can quickly turn into losses when shorting a security).

Once you have more than 50% confidence that stocks have resumed their uptrend, as indicated by momentum indicators like RSI, ADX, MACD, etc, one should avoid hedging (and take profits from their short positions) because the trending move (recovery upwards) is going to be stronger than the counter-trend corrective pullbacks and hiccups the stock or index may encounter in the coming days. By continuing to hedge or by initiating a hedge, one is limiting the profits he/she gets. If it is a speculative hedge, such that the hedge applied is more than the capital one holds, then one risks losing money.

As such, the general guidelines for dealing with the next US market correction are:

1. Hold your shares and use the opportunity to add new positions along key supports - they may be fixed supports or dynamic supports like the 50, 100, 150, 200 SMA (Simple Moving Averages). The US market is typically very strong and will likely bounce back up again. Alternatively, one may wait for the first green daily candle to appear on high volume, and add positions. This is safer as it limits the losses that you may have to endure - particularly those who cannot stand to see red. 

2. Once positions are initiated in (1) or when existing positions are added to the initial positions based on (1), one should HODL - hold on to your dear life. Not every market reaction deserves a response and over-trading should be avoided, especially if you are new to the US market. The US market is very volatile and over-trading can lead to amplified losses, especially with the immense possibilities in terms of political news which can lead to immense (and possibly temporary) swings either way and the extended trading hours in the NYSE. More money can be lost preparing for and handling a correction than the correction itself.

3. A hedge position can be rather safely applied, if it is less than the capital sum of your long positions - especially during the initial phase of the downturn. Confirm the initial phase of downturn using indicators which measure the strength of a move, such as the ADX.  Once you have initiated a hedge position, try to hold it as there is general market weakness, and only close the short position when there appears to be some support at the key levels. Do not initiate hedge positions after the initial corrective phase appears to be over. 

In summary, the US market is very volatile and normal technical analysis may not apply in light of rapid changes in macro-factors as well as news that can cause massive pre-market and post-market movements. 

As such, it might make better sense, especially for a new market participant not used to the US market, not to actively manage a correction and use the opportunity to buy on the dips at crucial support levels in batches, especially after one has done research on stocks which one has conviction to hold for the medium-long term as they are fundamentally sound companies which have unfairly been punished during the correction as a result of over-reaction or bearish market sentiment. Use the opportunity to get a rest and do some quiet research on equities (turn off the brokerage screen if you need to focus or rest), so that you plan which to buy - and make sure these are stocks you have thorough conviction in - otherwise, without a thoroughly researched investment thesis, you might experience immense psychological pressure to sell them as the stock starts dropping badly (only to have the stock rebound against you sharply after you have sold it!). Also, if you did not research carefully into the stock, and insist on holding it with diamond hands, you may be shocked a few days or weeks later to find that the security has plunged tremendously and will never rebound. 

Only buy fundamentally sound companies if you want to make money. As value investors like Buffett and Lynch suggest, when you buy shares of a listed company, you are actually owning a small  (or large) part of that company. You want to grow with the company - the market respects over the long-term (though there may be rapid swings up or down in the short-term) increasing earnings per share (EPS), free cash flows (FCF) and the true value of a company will gradually be unlocked in a few months to as long as three to five years.

And when the market price has sufficiently rallied, it is time to sell half or all of the shares gradually as prices start to increase if, taking a long-term or moderate-term view, the stock is now "expensive" or "too high" (one must be careful, of course, not to sell his winners too early).

At all times, perhaps it is best to take note of Warren Buffett's prudent advice that the stock market is a great device for transferring wealth from the impatient to the patient. 

What are some key levels to accumulate TSLA?

 

With TSLA facing immense downward pressure, it is suggested that accumulation of TSLA should be at much lower vital support levels: $480, $450, $360, $185.

While it is unlikely that TSLA will test $185, it all depends on the intensity of the interest rate spike. Indeed, the fiscal stimulus may lead to over-spending and greater inflation, which may in turn lead to higher interest rates, and a more bearish tech sector.

Given that TSLA has rallied some 500% since 1 Jan 2020, it is advised that readers are cautious when trading TSLA as there can be significant downside. Indeed, even at $185, the pre-split price for TSLA will be $370. At $480, which is a suggested buying point for the first tranche, TSLA is trading at a whooping $2400 in terms of its pre-split value.

NDX Recap

 

NDX100 daily chart showing that the Ichimoku cloud support has been decisively broken. This indicates serious downward pressure for some time ahead.

After staging a strong rebound, the NDX100 is re-testing the 150MA dynamic support. NDX100 was unable to touch the Fibonacci retracement levels 0.5 and 0.618 which forebodes a very weakened index. 

NDX100 5 mins chart

NDX100 opened red before bleeding further and eventually staging a partial rebound at 2230 (GMT+8). However, subsequently, the price attempted to test the crucial 12700 resistance two more times (having tested it twice the earlier trading day) and failed to break through. Being rejected twice, and having formed a bearish double top, prices broke the ascending triangle pattern and rapidly plunged with a gravestone doji being formed after midnight, foretelling an immense sell-out on Monday evening in New York.

The NASDAQ Composite closed 2.41% down losing 310 points, closing at 12609.16. The NDX closed at 12299, losing 369 points, or 2.92%. While the NASDAQ includes almost all stocks listed on the NASDAQ stock market, the NDX-100 lists only the top 100 largest non-financial companies on the NASDAQ stock market (making up 102 securities). With the NASDAQ closing at increasing downward velocity as we approach the end of the day, it is anticipated that technology stocks will face further sell-offs.

Upcoming pivots for the NDX include: $12200, $11800 dynamic support, $11000 and $9600. 

As for the NASDAQ Composite Index (IXIC), upcoming key levels are:$12400, $12000, $11800, $11000, $10500, $10250 and $9760.

NASDAQ Composite (IXIC) showing severe selling pressure

With the 20-year treasury bond fast approaching to test $136 again, it is anticipated that the tech sell-off can last another few days at least. At the next major support, the NDX100 will have lost at least 20%, making it the largest correction in recent months that the NDX has faced.

Investor Brief: What is Alibaba's Fair Value?

In this investor brief, I will expound partially on the investment thesis for Alibaba - a Chinese e-commerce enterprise - or rather, a Chinese conglomerate which is rapidly expanding into many exuberant sectors. Alibaba is dual-listed on the Hang Seng index and New York Stock Exchange. In this first post on the cash-rich company, I will focus on the quantitative valuation of Alibaba. Suffice to say that the valuation has been very clear-cut in light of Alibaba's rapidly growing FCF and Cash Position, EBITDA, etc, and healthy debt position, in spite of the COVID situation which rapidly unfolded in China last year (affecting its bottom-line somewhat, though it has bounced back since then).

Alibaba's strong FCF growth of 28% in 2020  despite a slight decline reported in 2019

Alibaba's rapid growth in net income, with record levels being declared in 2020 (68% increase)

Alibaba's rapidly increasing EBITDA 

It is pellucid from the above that Alibaba is growing at a historically tremendous rate, with the market over-reacting to political risks, and indeed, a qualitative analysis of BABA's earning visibility and growth prospects will bring us even closer to support the quantitative valuation of BABA below.

1. Valuation based on Graham's formula 

Benjamin Graham is an esteemed value investor and professor, who has written best-selling investment classics such as The Intelligent Investor and Security Analysis. While he is a value investor,  his 1962 editor of Security Analysis briefly digressed into the valuation of growth stocks, via the use of forecasted future earnings (this has since been removed from later editions of Security Analysis). While this is extremely tricky and debatable, as nobody can predict into the future and all extrapolations are at best guesstimates, a 'margin of safety' has been incorporated in this valuation in addition to the use of conservative estimates as parameters. (See more here on Benjamin Graham's approach to investing in growth stocks; indeed, Graham is also known for his seminal Stock Selection Framework - a set of guidelines to select "safe" stocks to invest in, which arguably provides capital protection benefits; this will be discussed in future blog posts) 

Given that Alibaba follows the fundamental pre-conditions before application of Graham's formula,

EPS: 9.31 HKD; Projected Growth Rate: 15%; Corporate Bond Yield (AAA): 4.5%; Intrinsic Value: 351 HKD

EPS: 10.44 HKD (normalised); PGR: 15%; CBY: 4.5%; Intrinsic Value: 393 HKD

EPS: 8.91 HKD (TTM); PGR: 15%, CBY: 4.5%, Intrinsic Value: 335 HKD

Average: 360 HKD

After 20% Margin of Safety, Alibaba's Fair Value is at least: 288 HKD

After 30% Margin of Safety, Alibaba's Fair Value is at least: 252 HKD

The values obtained above are highly conservative as Alibaba's EPS is growing at a rate much faster than 15%. Indeed, Alibaba's EPS growth from 2019-2020 was 59%, from 2018 to 2019 was 27% and from 2017 to 2018, it was 58%. Therefore, this forecast is being extremely pessimistic, and weighs heavily (probably even to the extent of over-weightage) the fact that Alibaba is expanding rapidly and therefore CAPEX might weigh slightly on Alibaba's EPS. 

Indeed, in using an EPS which is much lower than Alibaba's average EPS growth over the years (15% versus 38%), and obtaining a valuation which is still higher than the last-traded stock price, even after 30% margin-of-safety, tells us that Alibaba is extremely undervalued on standard valuation measures.

2. Valuation based on Discounted FCF Model (Exit: 2025)

Being conservative, assuming:

Steady tax rate of 28% (tax rate in China is now 25%); discount rate of 10% (WACC for Alibaba is 6%); EV/EBITDA multiple of 21.5x; a conservative perpetuity growth rate of 3%; constant CAPEX; 5 billion HKD increase in NWC from 2021 to 2024; gradually decreasing EBIT from 20% to 10% over the next few years; increasing D&A of about 10% each year; the calculated equity value per share is 808 HKD. 

Applying a 20% Margin of Safety, Alibaba's Fair Value is at least: 646 HKD

Applying a 30% Margin of Safety, Alibaba's Fair Value is at least: 565 HKD

3. Intrinsic Value of Alibaba (US)

Taking the average of the above two valuations to reconcile, Alibaba's fair value is 467 HKD (20% Margin of Safety); 409 HKD (30% Margin of Safety).

As Alibaba's closing price on 5 March 2021 is 227 HKD, Alibaba shares are trading at a steep discount to its fair value.  The potential upside for Alibaba (9988.HK) is at least 80%. Indeed, Alibaba's US counter is likely to be significantly undervalued as well.

This can be reconciled with another analyst's estimates of BABA's (NYSE) fair value of between US$408 to US$988.

To further confirm my findings, I refer to the average 12-month price-target that analysts provide for Alibaba (US) of US$323, which represents a 38% upside over the last-traded price on NYSE of 234 USD.

Are bearish market sentiments over-weighing political and legal risks to Alibaba? To add wound to salt, there was a very recent correction in the US markets, which might have led to further selling-down of Alibaba stock on both the HK and US exchanges.  We will discuss more on behavioural finance in future blog posts. Indeed, if it is any comfort, it seems that the bearishness has lifted based on what is seen on BABA's price charts (a reversal candle) as well as BABA's short-sell volume ratio (of 1.43% last Friday on the NYSE). This implies that shortists are of the view that there is "not much meat left" to short and BABA is in the over-corrected region. Indeed, a simple technical analysis using Bollinger Band supports this analysis.

Alibaba (US) daily chart, showing over-sold condition on the Bollinger Bands as well as bullish divergence on OBV. A more technical treatment of Alibaba will be provided next week but suffice to say that Alibaba is trading (as of Friday's close) at a very attractive valuation now, being at a crucial pivot point.

Indeed,  as can be seen from the daily chart provided above, in Oct 2020, BABA (NYSE) traded at US$318 - what justifies the 28% discount to Alibaba's share price? Surely nothing much has changed quantitatively. Probably as Buffett has hypothesised, the markets are not very efficient as there can be periods of "over-reaction" whereby stocks are under-valued.

4. Qualitative Aspects

In the next post, I will discuss the qualitative aspects of the investment thesis, including the following arguments:

(1) Alibaba's rapid growth into various sectors as a Technology Conglomerate. They are taping into new sectors and new ventures, some of which are already immensely successful, such as Alibaba Cloud. Several sectors Alibaba is tapping into include financials (Ant Group), health (AliHealth), new media (Bilibi), real estate (EJU), to name a few.

(2) Unlikely that China will want to jeopardise the capitalist economy it now has - Alibaba is a huge company which brings immense tax returns for the government. Even if they nationalise Alibaba, which is unlikely, there is likely not to be much change in the valuation.

(3) Jack Ma only has a 3% stake in Alibaba, having trimmed his stake from 6%. He has stepped down from the day-to-day management of Alibaba and it is unlikely that the Chinese government would significantly "rock the boat" since there are other much larger majority investors such as SoftBank (SoftBank is a Japanese conglomerate). At most, Jack Ma could be forced to liquidate his shares; in this worst case scenario, there might be a slight market shock before it is realised that this should not have a material impact on Baba's valuation inasmuch as Jack Ma had been focussing on leadership renewal and has more or less stepped aside from de facto control over the company. Indeed, it is likely that the Chinese government would make full use of this well-known corporate vehicle to increase its influence worldwide. Alibaba would serve as an exemplar of the success of the Chinese model of capitalism, hopefully making it easier for Hong Kong to transition peacefully beyond the One Country, Two Systems paradigm. Indeed, inasmuch as there may be (and I am speculating) bad blood between Xi Jinping and Jack Ma, both men are wise enough not to let it over-escalate and jeopardise strategic goals and interests.

In the next post, we will discuss the qualitative aspects of an Alibaba Investment Thesis. You will like what I've got for you!

Disclosure: The content creator owns 300 shares of Alibaba, purchased at 222 HKD (200 shares) and 250 HKD (100 shares). He also holds an insubstantial amount of SocGen Daily Leveraged Certificate (5x Long) for Alibaba (Underlying security: 9988.HK).

US Market Outlook for the Week Ahead

Personally think: most likely scenario for markets to rebound to a Fibonacci level before downtrending further as it has broken 100 SMA (Simple Moving Average) dynamic support with unexpectedly high velocity. Furthermore, corrective counter-trend candles do not seem to be gaining strength and have encountered significant early resistance. The ideal case should be stopping volume before uptrend but there was no stopping volume but rather a very impulsive  (but convicted) rebound which weakened over time.

The Fibonacci level we are looking at will be at the 13200 region for the NASDAQ Composite and NDX-100. However, if $13220 breaks successfully on NDX, it is strongly indicative that the correction is over. 

Hence, a defensive posture will be to take partial profits or partial losses at $13220 or initiate a hedged position on your stocks as we approach $13220 via options trading. You can close the put once the main index has rallied past $13220 and/or when your stock has broken key resistance levels. However, if it is clear the direction of the stocks is down, then you can sell off all positions and wait for Wave 3 to terminate. Wave 3 is going to be quite serious as Wave 3 is often significantly more corrective than Wave 1.

Possible catalyst is the passing of the fiscal stimulus, which will mean cushy unemployment benefits - though the worry is that interest rates might go higher, such that the key 1.6% level for Treasury 10-year is challenged. Furthermore, fears about inflation and a strengthening USD may lead to more bearish momentum as we move ahead. After all, the NASDAQ has broken the 150MA in a very sharp move, and the rebound has shown signs of weakening, despite the encouraging fact that the strong rebound was staged as interest rates were going up slightly on the daily charts. As interest rates soar further (if they soar), the market may over-react further and this can send technology stocks down and drag the SPX down with it as well - investors may soon realise that no stocks are safe, not even the cyclicals and correction ensues across SPX, DJIA and NDX. The other scenario is for the correction to be limited to Tech stocks in the SPX and NDX while sector rotation continues to cyclicals and defensives. Some think that there is definitely some room for defensives and cyclicals to grow further.

Some think that the NDX may crash, bringing it 30% down to the key 9600 support. This will mean the complete downtrend EW series from EW1 to EW5, with a slight rebound along the 200SMA. 

A crash, however, in the S&P, DJIA and NDX, is extremely unlikely given:

1. Strong employment report in February
2. Steeply declining COVID cases
3. CPI Consumer Inflation data expected to show little inflation
4. Fiscal stimulus and Fed's promise to keep interest rates low as the economy is not ready yet (though as spending increases, interest rates may edge up higher)

 

If one is moderately optimistic, then, prices will rebound at around the 200SMA and the EW terminates at EW3.

Of course, if one is very optimistic, the worst is over.

As far as the ultra-bearish scenario plays out (NDX correcting to 9600), and as far as the moderately optimistic scenario is possible (correction to 200SMA region and terminating at EW3), we have with us a very exciting buying opportunity into the US markets. If you would like to buy with us, at key support levels close to the fundamental valuations of key US blue chips and large-cap stocks, do contact my business manager Wes @ 9820 1686 to join our investment class's second intake.  The investment class is organised by Apex Education Private Limited and spans 8 lessons, with 6 months of trading support. See you there!

The Great Reset - Invest now and Reap Benefits Later!

As I warned in the last post,  a US Tech Market Meltdown was imminent. We will time several entries into these US Tech stocks, after a careful analysis of their fundamentals (and some basic valuation to ascertain fair price) as well as careful charting of proper entry points. I have also prepared a PDF file to indicate the support levels which will be good to buy these Tech Stocks for investment class members. 

Next possible support level for NDX-100 is $12000, having broken dynamic support at 100SMA

Having sold 100% of my US Tech Holdings on Thursday evening, here are some stocks that my investment class is looking at very excitedly to ride the rebound.

We will be loading in at least 2-3 tranches though we will try our best to time good entry points via Technical Analysis as well as Fundamental Analysis:

1. Micron Tech - Semiconductor

2. Apple - Computer, Software, Smart Gadgets and Wearables

3. Adobe - Software giant; Animation, Motion, Video and Photo Editing, PDF, Digital Marketing Management

4. Microsoft - Software giant which also does personal electronics 

5. AMD - Semiconductor 

6. PLTR - Big data analytics

7.  NVIDIA - Automotive chips, Graphics Processing Unit, Cryptocurrency Mining Processors

8. PayPal - Online payment giant

9. Facebook - Social media giant

10. Square - Financial services and mobile payment

11. NIO - Electric Vehicle giant from China

12. TSLA - Electric Vehicle

13. TSM - Taiwanese semiconductor giant

14. TWTR - Social media giant

15. AMZN - E-commerce

16. TIGR - Brokerage firm from China

17. ARKK ETF - Diversified Exchange-Traded Fund

More to be updated...

Investing in these tech stocks should be part of a balanced portfolio heavy on REITs and shock-absorbing SG and HKG blue chips. 

We will be focussing on a few of the stocks above as part of our focussed diversification strategy.

To learn more about the investment class, please refer to this link here and/or contact my Business Manager Mr Wes @ 9820 1686.

The next intake of the class starts this Sunday morning over Zoom, so do register early.

See you!

A Market Meltdown?

Reasons for standing aside for now and not buying any stocks until more bleeding has occurred:

1. Technically, NASDAQ has shown signs that it will break the dynamic support (100SMA). While the support has not been broken yet, and indeed, signs of strength are coming in (bullish pin candle on closing), the 4 hourly chart shows that any rebound (if any) is likely to be short-lived because the dominant trend now is down-trend. 

NASDAQ daily chart showing that there is significant bearish momentum as well as many long bearish sell candles

NASDAQ 4 hourly chart showing how a down-trend has been initiated as the moving averages cross and serve as resistance now. It is also evident that the dominant trend is down-trend with slight pull-back upwards. Multiple candles with long bearish upper wigs are also noted.

2. Earlier thesis for holding NASDAQ was that the correction would only be limited to 10% as in previous corrections but there is increasing evidence to indicate that there is probably at least 5-10% more correction for NDX. This is due to rising bond yields and the fact that many investor's margin accounts will be called in the coming days, triggering a further cascade of stop losses. The deep incursion to low 12000s level supports the thesis that the correction is longer-lived than previously thought.

3. A look at Capital Flow of key 'leader-stocks' such as TSLA, AAPL, NIO, MSFT, indicate further bearish momentum. Indeed ARKK lost nearly 10% today, indicating serious fear in the markets. This is just the beginning and we look forward to buying into weakness in the Tech Sector.

NIO - net capital flow out, and big outflows quite significant compared to big inflows despite the cheap valuation

Tesla - net outflows and net big outflows. I use TSLA as an indicator of market sentiment.  TSLA MACD and OBV does not look good. The fact that TSLA even challenged $600 is not a good sign and is indicative of further weakness to come.

Even MARA is not spared, closing at $32 (down 13%). Note the high big outflows.

Micron Tech, previously spared from correction even though Nasdaq was pulling back - the big outflows are more significant compared to big inflows. Net capital outflow is significant.

AAPL Capital Flow 

4. Gold is also dropping. This is reflective of the market preferring the thesis of a higher interest rate environment moving forward. Sanctuaries of safety are shrinking. People are realising that cash is the preferred position currently.

Projection of Gold Prices on Daily Chart

5. On the 4-hourly chart, VIX, which is a measure of fear in S&P500 index, is set to break $30 as the 20MA crossed bullishly above the 50MA.

VIX daily chart showing immense emotional swings in the market

6. Despite Powell's re-assurance to keep interest rates low, there was no significant market reaction: feds-powell-to-take-questions-on-job-market-interest-rates-bond-yields-11614872817 

No market reaction at about 2.30 PM GMT+5

7. SPACs like VIH and penny stocks which reflect market sentiment are reaching incredibly low levels as investors pull-out.

With BTC/USD supposed to continue its uptrend, and currently trading above 48k USD, it is surprising that VIH dipped significantly today.

8. Generally bearish market sentiment across the board as investors pull back into cash positions. Pockets of hotness are also starting to show strain, such that no stock is safe: even American banks like Goldman Sachs, JP Morgan & Bank of America. All sectors are pulling down. 

Metals daily chart shows weakness - this is a sign of a bear market coming

Metals, testing 50SMA and then 100SMA

SPX looking set to challenge 100SMA

DJIA went down, but seems somewhat supported by the 50SMA for now

Silver trending down, before it goes up to serve as a defensive

'

WSB stock not performing as well

WSB stock not performing as well - huge red-flag that no stock is safe now

Only oil (XIF) remains somewhat bullish, but can see a long upper-wig already, which is a bearish sign.

9. Reduction of fund flows across all asset classes, including fixed income.

Source: ICI

10. Surge in fund flow into the SG stock market recently. SG often treated as an under-valued safe-haven by funds.

SGX Fund Flow Report (Retrieved 1st March 2021)

All in all, we have to wait to see if the indices are supported by their dynamic supports. If not, a market meltdown is going to transpire soon.