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Waiting for the bounce #finance #investments

When share prices fall, there is often a bottom and then a bounce back. The same is often true of the value of the pound or the oil price. The growth of the whole economy can fall and then some action leads to a bounce back upwards. The same can be said of the reverse of these trends, share prices that suddenly soar to new heights will bounce back and go lower the next day as people sell on the high. We can take advantage of the low and if there is sufficient bounce, we can sell for a quick profit. Small traders find this difficult because of dealing fees but fund traders do this all the time.

stock market bounce

Bounce

My stock market portfolio has been like a train wreck just lately. This is partly because all the best investments were sold at a profit as the market risks increased because of Brexit and partly because I wanted more cash in the bank when I changed my car. The market has generally been more erratic in the past couple of months. Carillion was a disaster for me but I have diversified and that should have protected me. Solo Oil soared and then bounced back when they invested in Helium One. Then came the consolidation and they lost more ground. Both my pharmaceutical dropped rapidly and then bounced back a little,  but still sustained losses. Even the AA saw big falls for no reason and then I saw a bounce back.

Judgement

When things aren’t going well, you have to use judgement and look for opportunities. There are buying opportunities but uncertainty caused by Brexit has increased risks. I am trying to look at the economy and in particular the value of the pound and inflation. Rising inflation suggests the Bank of England might increase interest rates. Interest rate increases draw money away from the stock market because traders are more likely to invest in bonds. An interest rate rise would benefit the banks so I would make gains on my Lloyd’s Banking Group shares. One economist takes the view that Brexit caused panic and when the panic dies down next year the economy could recover. He could be partially right. If overseas investors see the UK as stable again, money will flow in and the pound will rise and the stock market will bounce back.

The Pound

I am watching the value of the pound because if it starts to rise then that would indicate inward investment and be a forerunner of a rising stock market. It is worth watching the oil price too. BP now breaks even at $30 a barrel and so they are making a profit. I was tempted to buy BP this week. One reason I haven’t bought BP is they make their money in dollars. A rising pound would cut their profits (in pounds). I think we might see a rising oil price with the pound rising in parallel then oil companies could be worth looking at. Premier Oil is riskier but the would make big profits from a rising oil price. Even Solo Oil could benefit eventually from a rising oil price. Their main income is from gas in Tanzania but their assets would increase in value if the oil price rose. The bounce back in the oil price is caused by OPEC restricting supply and some US companies using fracking cutting production because it is no longer economic.

Interest rates

The Bank of England decided to do nothing yesterday and kept interest rates the same. They will watch and wait and I’m inclined to do the same. Looking through broker ratings I get the impression they are favouring companies that earn US dollars such as BP and the big pharmaceuticals. I am invested in promising pharmaceutical  Immupharma which plunged this week on a sell-off. It looked like an institutional investor off-loading stock. Then came the bounce and I am back in profit, but only just. If their new drug passes all the tests and is ready for market, that is a big dollar earner and the share price will soar, either on a takeover bid or on the promise of huge earnings. I’ll watch and wait. Verona Pharma shows similar promise and they are also listed in the US. An interest rate rise won’t favour these companies but won’t do them any harm either.

Sectors

Finally, we need to monitor sectors. A shaky economy will cut advertising and affect FTSE 100 companies like ITV and WPP. Government cuts will affect the healthcare sector. The insurance tax is affecting that sector and so on. The economic mood can see people tightening their belts and borrowing less and that affects the banking sector. Good news, even a prolonged heat wave can see people spending more on leisure and borrowing more.

That’s it for this week. Yesterday saw a big rise for Aminex and they’re up over 7% this morning. Solo Oil owns a chunk of Aminex so I’m hoping Solo will soar later! I think will just watch and wait even though it is tempting to buy on the lows. If you like my investing and finance ideas why not subscribe? Just enter your email address at the top of the sidebar or follow me on Twitter for updates. You can also find links on my Facebook page.

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