Master Rider Blog

Tech Sector II

September 5th, 2007 NW Teong

US markets surged yesterday mainly due to the same factors i.e. the ease in sub-prime loan saga and the expectation of interest rates cut by US Fed. This expectation is further strengthened by the latest ISM survey of the manufacturing sector, it registered 52.9 in August versus 53.8 in July. Investors cheered on this number, why? Reason: economy continue to slow down (hence Fed can go ahead to cut the interest rates without the ill effect of stimulating the economy too much so as to stir up the inflationary pressure) and at the same time not slowing down at a greater speed so as to have a recession. (For those who do not know how to interpret ISM data, please refer to my e-book, “The Essence of Stock Investment”, via www.master-rider.com)

Nothing really new at this juncture, as you can see investors are dancing with just two key issues at this moment: interest rates cut vis-à-vis sub-prime loan saga. What changes constantly is the expectation of the investors with regard to these two items, hence, the gyration of the markets.

Today, I would like to share with you this interesting and important feature: Nasdaq

At yesterday closing of 2,630, it had convincingly broken up from the down trend. Not only it had broken up the down trend, it had also pierced through its 50 days SMA of 2,595 as at yesterday close. It is very interesting to monitor for the next few sessions. If it can rise to 2,640 and maintain at least at that level, it has a great chance to re-test its recent peak of 2,720 registered on 19^th of July. Frankly speaking, tech stocks (refer to my blog yesterday) purchased yesterday are already in the money! However, it will be prudent to accumulate along the way as the valuation remains attractive even at today’s level.

You see, there could be only two scenarios from now till 18 Sept, i.e the date for FOMC meeting where Fed need to decide on its interest rates policy. Scenario one is that markets are pessimistic and markets will fall to an attractive level. Under this scenario, I have better load up stocks that I want all the way before 18 Sept. Scenario two is that markets will surge substantially due to high expectation of interest rates cut. Under this scenario, I would still accumulate stocks along the way (but not as aggressively as scenario one). However, I may lock in my profit either right before 18 Sept or just after 18 Sept. It all depends on how crazy markets were at that time. My view is that, for scenario two, if markets have surged a great deal till 18 Sept, they may (or may not) get a last hurray right after Fed announced a cut in interest rates. I am prepared to lock in my profit under this scenario, why? 1) I think markets may correct if they have surged a great deal all the way till 18 Sept (hence I need to monitor the quantum that markets have moved), 2) There is still a certain degree of risk that Fed may delay the cut, especially if stock markets have done well, and 3) I still would like to sleep well knowing that there is still a Black Monday to bother investors about one month from 18 Sept!

Again, it is good to buy some insurance (hedge against own portfolio) in the form of Put options or warrants at this juncture. Cheers!

Master “The Essence of Stock Investment” and ride towards the journey of your financial freedom! Be the “Master of Your Own Destiny”!

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Entry Filed under: tech sector, Stocks