Thursday 4 October 2012

Investment Strategies for October

Dear Friends,

This Friday will be an indication whether October is an up month or down month. From the historical statistics in election year, normally the last 3 months of election year tends to be positive. Let us see if this is true this year. If it is, the pause these few days would prove to be some opportunity to buy after Dow Jones dropped 6 out of 8 straight days.

On Wednesday, Dow recovered to close in the green when ADP employment report is better than expectations. ADP employment is also a jobs report, just that they are compiled by a company called ADP, a private company report. This isn't similar to the Friday Non farm payroll report, which is a government report that has more significance. The enterprise report, Institute of Supply Management (ISM) proves to be good on Monday too. In fact, so far this week, all the ISM reports are better than expectation, even for the ISM non-manufacturing and ISM Manufacturing Prices.

To put it in simply, that means the enterprises are doing well this month, reversing last month's fortunes! The main reason is probably that enterprises are now increasing their production to keep up with the demand of the festive season in November and December. For those who are worried we are going into a recession with the bad enterprise and production figures last quarter, be prepared to be disappointed. There probably won't be a recession.

As an investor, we need to know the cycles of production. It is normal that companies slow down in the third quarter. Not for the fourth.

The strategy now is to probably wait for Friday's Non farm payroll report. If Friday is good, market might stage another rally this month.

Investment Strategies for this month

1) If Friday's Non farm payroll is better than expectations, we suggest investing in some stocks. We expect November and December to be bullish also, given the festive season.

2) If Friday's Non farm payroll is worse than expectations, it is best to remain in the sideline. Wait for opportunities to buy when confidence is back. A good indication would be a triple digit increase in Dow Jones.

3) Be prepared for earnings season where most of the companies will issue their earnings reports. For short term players (less than 2 weeks), be prepared to liquidate all your stock position before earnings as it involves risk to hold through the earnings date. For US traders, expect not a good 3rd quarter earnings results from some companies.

4) For this quarter, invest in companies that beat its earnings expectations. These are the companies to watch this quarter. One simple way to know is that the stock goes up on earnings day. For singaporeans, do call your brokers to find out more about the dates of the earnings.


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