Silicon Valley Bank

Chart 1: Silicon Valley Bank chart (created using trading view)

Recently, the failure of Silicon Valley Bank (SVB) made headlines, with 209 billion in assets. However, this is still relative smaller (especially after factoring inflation over the years) compared to Washington Mutual's collapse in 2008 with 434 billion in assets. SVB's specialization in tech and start-up sectors made it less diversified than other banks, leading to its inability to cope with higher-than-expected interest rates, which resulted in a need to raise 2.25 billion to improve its balance sheet. This led to a downward spiral, and start-up clients withdrew deposits, causing a bank run with 42 billion in withdrawals. To prevent a systemic panic, the Federal Reserve (Fed) devised a plan to backstop depositors, creating a new Bank Term Funding Program. The market reacted positively, with strong rallies in the Dow Jones and cryptocurrency prices.

It's important to note that Singapore banks, like DBS, UOB, and OCBC, have diversified lending to real estate, business, agriculture, and construction etc, making it unlikely for the contagion effect from SVB's collapse to spread to Singapore, for now. The Fed's plan has prevented other institutions from collapsing, leading to positive market reactions. However, future interest rate hikes and inflation rates must be considered to prevent systemic panic. Robust measures must be in place, and it's vital to monitor market data and inflation rates.

A Glance at US Indices

 A glance at US indices as of 9th Mar 2023 

Chart 1 : DJIA 

Chart 2 : QQQ Nasdaq

Chart 3 : SPY (S&P500)

* chart created using trading view

The Road Less Traveled: Navigating the World of Microcap Investing

Microcap stocks, generally taken as companies with a market capitalization of $50 million to $300 million, can provide significant investment opportunities for those willing to do their research. In this blog post, we'll explore an investment philosophy centered around identifying high-growth, small-cap companies with strong business models, experienced management teams, and significant growth potential.

The investment approach emphasizes focusing on the company, not the stock price. Strong fundamentals are more important than the current stock price. It also emphasizes finding companies with a sustainable competitive advantage, such as a strong brand, unique technology, or high switching costs. Additionally, investors should look for companies that have the potential to grow significantly due to their ability to target a large and growing market.

Investing in experienced management teams is critical to the success of a microcap company. A long-term view is recommended since microcap stocks can be volatile.

Microcap investing can offer several advantages for investors, including potential for high returns, diversification benefits, less competition, and more information available.

However, investors should also be aware of the potential risks and pitfalls of microcap investing, including high risk, lack of liquidity, limited analyst coverage, and higher volatility associated with these stocks. As with any investment, it's important to do your research and be prepared for potential risks.

How would Jesse Livermore trade in 2023

Jesse Livermore was a famous trader who lived in the early 20th century and made a fortune in the stock market. While it is impossible to know for certain how he would trade in 2023 if he were alive, we can make some educated guesses based on his trading principles and the current market conditions.

* Follow the trend: Jesse Livermore believed that the trend is your friend and that it is essential to follow it. He would likely look for stocks or assets that are trending upward and trade with the trend.

* Stay disciplined: Livermore was known for his discipline and adherence to his trading plan. He would likely set strict rules for entry and exit points and stick to them regardless of emotions or external factors.

* Focus on risk management: Livermore understood the importance of risk management and would likely prioritize it in his trading strategy. He would likely use stop-loss orders to limit his losses and avoid overexposure to any one asset.

* Keep an eye on market sentiment: Livermore was a master at reading market sentiment and would likely pay close attention to it in 2023. He would look for signs of market euphoria or panic and adjust his trading strategy accordingly.

* Utilize technology: Livermore was a pioneer in using technology to improve his trading, and he would likely embrace the latest tools and platforms available in 2023. He may use machine learning and artificial intelligence algorithms to identify trading opportunities and make more informed decisions.

In summary, if Jesse Livermore were alive in 2023, he would likely continue to follow his timeless trading principles of trend following, discipline, risk management, market sentiment analysis, and technology utilization.

US Market Sentiment - Week of 27th Feb 2023

 

chart created using trading view

source: cnn business

source: cnn business

The Art of Averaging Up

Investing in the stock market can be an excellent way to grow your wealth over time, but it comes with a certain level of risk. One of the strategies that investors use to mitigate that risk and maximize their returns is called "averaging up", when applied correctly, with experience. In this article, we will explain what averaging up is, how it works, and its advantages and disadvantages.

What is Averaging Up?

Averaging up is a trading strategy in which an investor buys additional shares of a stock they already own, but at a higher price. This is done when the investor believes the stock's price will continue to rise. The idea is that if you already own a stock that is performing well, then buying more of it at a higher price will increase your overall return when you eventually sell it.

Averaging Up vs. Averaging Down

Averaging up is the opposite of averaging down, which involves buying more shares as a stock falls in price. The idea behind averaging down is that if you buy more shares at a lower price, then your average cost per share will decrease, making it easier to eventually turn a profit. However, it's worth noting that averaging down can be riskier than averaging up because there's no guarantee that the stock will eventually recover.

Advantages of Averaging Up

One of the biggest advantages of averaging up is that it allows investors to capitalize on an already successful investment which imply that the view or investment thesis is correct. If you've already made money on a company's stock and believe that it will continue to perform well, then buying more shares at a higher price can be a smart move. It can also help to reduce the overall risk of your portfolio by focusing your investments in companies that are already performing well.

Disadvantages of Averaging Up

While averaging up can be a smart strategy, there are some risks and downsides to consider. One of the biggest risks is that the stock may not continue to rise as you expect, especially when one is not watchful. If the stock's price starts to fall after you've made your additional purchase, then you could end up losing money if your eyes is not on the ball.

Another potential disadvantage of averaging up is that it can increase the concentration risk in your portfolio. If you invest too heavily in one company, then you're more vulnerable to any negative news or events that could impact that company's stock price.

Finally, averaging up can be psychologically challenging for some investors. Buying more shares at a higher price can feel counterintuitive, especially if you're used to buying low and selling high. However, it's important to remember that investing is all about the long-term perspective, and that short-term fluctuations in price are just part of the game.

Conclusion

Averaging up is a trading strategy that can help investors maximize their returns and reduce the overall risk of their portfolio. By buying additional shares of a stock at a higher price, investors can capitalize on already successful investments and potentially increase their overall return. However, there are some risks and downsides to consider, and it's important to weigh the potential benefits and drawbacks before implementing this strategy in your portfolio. It's important to conduct thorough research on the stocks you're considering, and to have a clear understanding of the market conditions and trends that could affect their price in the future.

Ultimately, there is no one-size-fits-all approach to investing, and what works for one investor may not work for another. Averaging up can be a useful strategy in certain circumstances, but it's not without its risks. 

note:  As with any investment strategy, it's important to be aware of your own risk tolerance, investment goals, and overall financial situation before making any decisions.

The Wyckoff Method

The Wyckoff method, also known as the Wyckoff trading method, is a technical analysis approach that aims to identify trends and anticipate potential price movements in financial markets, particularly in stocks and commodities. The method is based on the work of Richard Wyckoff, a prominent trader and market analyst in the early 20th century.

The Wyckoff method is grounded on the principle that the market is driven by supply and demand, and that the behavior of market participants, as reflected in price and volume data, can reveal their underlying intentions and sentiment. Therefore, by analyzing the patterns and signals in price and volume charts, traders can gain insights into the market's dynamics and make informed decisions about buying, selling, or holding positions.

image source: wikipedia

The Wyckoff method involves several key concepts and techniques, including:

* Accumulation and distribution: Wyckoff believed that markets move in cycles of accumulation (when smart money buys assets at a discount) and distribution (when they sell at a profit). By identifying these phases and their characteristics, traders can anticipate reversals and trends.

* Price and volume analysis: Wyckoff emphasized the importance of analyzing the relationship between price and volume, as they reflect the actions of buyers and sellers. For example, high volume and low price fluctuations may indicate selling pressure, while low volume and high price fluctuations may signal buying interest.

* Chart reading and analysis: The Wyckoff method relies on the interpretation of chart patterns and signals, such as trendlines, support and resistance levels, price bars, and indicators. These tools help traders identify key levels and trends, as well as potential entry and exit points.

* Stop-loss and risk management: The Wyckoff method stresses the importance of risk management and minimizing losses. Traders are advised to use stop-loss orders and to adjust their positions based on market conditions and developments.

Overall, the Wyckoff method offers a systematic and disciplined approach to trading, which can enhance the accuracy and consistency of decision-making. However, it requires knowledge, skill, and experience to apply effectively, and may not guarantee success in all market conditions.