Markets in turmoil, what's my game plan?
So last Friday we received enough bad news to make a funeral look fun. Jobs numbers were less than half of expectations, Yields for some of government bonds for problem countries in Europe like Spain are approaching an unsustainable 7% and major sources of growth in the past like China and Brazil are slowing significantly. Basically the world was ending according to news related to the equity markets. So what now? What do I plan to do in such a questionable market?
To start with, where am I now from where I was over a month ago (wow, I've really been slacking on the blogging world)? Not much has changed, actually. I didn't sell any of my Citigroup stock at the points I was thinking of because it dropped so fast from the JP Morgan ordeal. I suppose I could've had a stop in place, but considering the rate of decline, I think this is the better option. Citi's price to book is close to half when the norm is actually 1 - 1.5 on average. When (not if) the markets find some stable footing, you'll get one heck of a deal. Deere just recently entered into my buy range and considering new stats I'll be going over, my strategy has changed slightly. Oh, and I suppose now would be a good time to admit that I got the whole "Facebook lifting the markets some in May" thing wrong. I have no problem admitting that, I've learned a lot from the experience.
Now for the game plan. When the macro has as much impact as it does right now, it doesn't matter how good the stock you hold is, it's likely to go down. However, that means if your stock truly IS good, it's going on sale and it's going to be time to buy. So now I'm trying to predict where my stocks are going to drop to. To do this, I'm going to do something I haven't done much of in the past and look at very simplistic technicals. The reason why I'm doing this is because the fundamentals just don't matter in a chaotic market like this, so I want to have an idea of where support from more influential powers might be since they pay more attention to technical values than I do. So for now what I've been doing is looking at 1 year charts and am finding the next point below the current price where the stock had bottomed and turned direction. This is where I'm getting my rough buy-points from as I will show you along the way. Just so it's known, I'm looking to fill my position in Citi, Pepsi, and Deere. I want to put paid Dividends to work with Encana, and if the right opportunity strikes, I might add to some of my ONNN position, but I'm in no hurry and still need to go back and review the last quarterly report (stock has plummeted since the report despite beating estimates). I still say I don't buy Honeywell unless it drops below what I sold for last. So here goes...
Citi - I've drawn a couple lines in the graph below. This is the range I expect it to fall into. The first line is at 25 and we're basically there already. With the ongoing bad news in Europe and the JPM mess that started, I expect to see C fall farther unless something big happens real soon. Citi pushed down around 22 last year through the summer of the Euro crisis and I really expect it to be the same all over again. However, I won't buy only on the price alone - something big has to happen that indicates positive outcomes for the stock. That may mean buying up just a little, but that will be ok all things considered. I had wished I filled my position around 22 last year, not it looks like I may get my chance.
To start with, where am I now from where I was over a month ago (wow, I've really been slacking on the blogging world)? Not much has changed, actually. I didn't sell any of my Citigroup stock at the points I was thinking of because it dropped so fast from the JP Morgan ordeal. I suppose I could've had a stop in place, but considering the rate of decline, I think this is the better option. Citi's price to book is close to half when the norm is actually 1 - 1.5 on average. When (not if) the markets find some stable footing, you'll get one heck of a deal. Deere just recently entered into my buy range and considering new stats I'll be going over, my strategy has changed slightly. Oh, and I suppose now would be a good time to admit that I got the whole "Facebook lifting the markets some in May" thing wrong. I have no problem admitting that, I've learned a lot from the experience.
Now for the game plan. When the macro has as much impact as it does right now, it doesn't matter how good the stock you hold is, it's likely to go down. However, that means if your stock truly IS good, it's going on sale and it's going to be time to buy. So now I'm trying to predict where my stocks are going to drop to. To do this, I'm going to do something I haven't done much of in the past and look at very simplistic technicals. The reason why I'm doing this is because the fundamentals just don't matter in a chaotic market like this, so I want to have an idea of where support from more influential powers might be since they pay more attention to technical values than I do. So for now what I've been doing is looking at 1 year charts and am finding the next point below the current price where the stock had bottomed and turned direction. This is where I'm getting my rough buy-points from as I will show you along the way. Just so it's known, I'm looking to fill my position in Citi, Pepsi, and Deere. I want to put paid Dividends to work with Encana, and if the right opportunity strikes, I might add to some of my ONNN position, but I'm in no hurry and still need to go back and review the last quarterly report (stock has plummeted since the report despite beating estimates). I still say I don't buy Honeywell unless it drops below what I sold for last. So here goes...
Citi - I've drawn a couple lines in the graph below. This is the range I expect it to fall into. The first line is at 25 and we're basically there already. With the ongoing bad news in Europe and the JPM mess that started, I expect to see C fall farther unless something big happens real soon. Citi pushed down around 22 last year through the summer of the Euro crisis and I really expect it to be the same all over again. However, I won't buy only on the price alone - something big has to happen that indicates positive outcomes for the stock. That may mean buying up just a little, but that will be ok all things considered. I had wished I filled my position around 22 last year, not it looks like I may get my chance.
Pepsi - This one gets interesting. In the graph below, You'll notice that Pepsi hasn't broken it's current up trend yet - it's right at it's current support levels. If it breaks through, though, the two horizontal lines are the next points of possible support. Pepsi may or may not break support. It has a solid yield that it just increased again this year and it's a traditional "Safety stock" despite its international exposure. I could see this dropping the $2.50 and hitting my potential buy area, but as you've seen in the past, it could fall through that and go even lower yet too. Current plan is to watch for the $65 area and see if it gets support or if it falls through. At $65 Pep will yield 3.3% which is enticing, but if it drops even further to the 62 - 64 range, you're really getting a steal.
John Deere - With markets in chaos, commodity markets should start to see some propping up from the price drops which have been going on. Despite a decreased growth rate abroad, DE is breaking records and has raised their guidance. I don't have a lot of worries here and I'm already in my initial buy area. So now I need to see the stock get support so I can complete my position. This one has a very broad range to play with and considering I already think I'm at a good price, it's a good time to play this one easy. The first support level is around $68-70 and I'm pretty sure we hit those levels in tomorrow's market. After that, we get close to $65. I can see this dropping to between $65 and $68, but I'll take it easy there to see if it goes down further. I'd rather buy the stock as it passes back through 68 on the uptrend than getting it at 65 on the down trend.
Encana - This hasn't changed at all. I didn't get the price I was looking for before, but maybe that will change. I have expanded my range to $17 - $19 considering the recent jump to over $20, however, I will wait patiently to get as low as I can to scoop up my Dividend reinvestment shares.
On Technology - Like I said, gotta do my due diligence here before I even think of pulling the trigger. In fact, I might've already held what little I have for too long as it is. However, if the thesis is still good and I have the right opportunities, this could be purchased for a steal as well. I had to go a little different on this stock. As you can see in the graph, this thing has sold off in one VERY big hurry in the month of May (Tech - sell in may and go away for until Sept usually). In fact, it's sadly at new 52 week lows, which is scary. So I had to expand to a 3 year weekly chart. The lowest this stock has been since the rebound in 2009 is right around $6.07. From what I'm seeing right now, I see no reason why it won't test those lows again. Depending upon the quarterly conference call, this could be a steal if it reaches/breaks these levels, however, if the call has some bad forecasts for future quarters, all bets are off and I might have to sell as fast as I can.
Petrovich9