Investment Strategies, Commentaries and Ideas

What's Your Market Sentiment

2010-07-14T14:24:00.005+08:00

some time ago. a friend and I had a conversation about market price movement... in his wisdom, i was reminded that fundamentally price movements are caused by none other than the first principal of economics, demand and supply... this is not an unfamiliar concept to many of us here...although we often forget ...

"market sentiments" as a concept is intimately tied to "demand and supply" principal.

often, we hear people asking : "how is it that just last week, when the world thought the european nations are collapsing under its debts, that this week, the euro currency is soaring? is the problem over? is it true that the issues are all resolved?"

i think, in this case above, euros soared, bcos the buying pressure exceeded the selling pressure; 1st principal of demand and supply, which my friend talked about...

that puzzles us as to why the demand is now stronger than a week ago, when obviously the financial crisis cannot have mutated for the better in over a few days....

imo, the problem by itself, is not the main reason for the price gyration... it is the collective reaction to the problem, the consolidated opinion of the market players, that sway the price one way or the other....

market players can and are often wrong about any given situation...Lehman, Bear Sterns, Dot gone, length of recession, etc... this could be due to the lack of info, misinformation or simply a wrong assessment.... and as information streams in, market opinion will eventually more accurately align itself with the reality of that problem... this is what "market sentiments" is all about...it is no more than an aggregated opinion on a situation.

market sentiments on a situation, create the demand or supply for that relevant traded instrument; such as eur/usd was actively traded when Greece threatened to go bankrupt ...
the financial crisis over at Greece probably hasn't changed much in the last 2 months; very likely, they are still in huge debt and have very little ability to pay for their loan obligations by themselves... yet, the Euros have stopped losing value since it hit a low of 1.18..today, it is about 1.27 against the greenback.
so, if Greece's problems are still around, then what has changed?

i say to you, it is the Market's opinion that have changed. it perceives that Greece is no longer an imminent threat to the global financial system, now that those rescue packages from IMF and ECB have flowed into Greece.

with this change in Market Sentiment, the demand and supply equation is now re-written....

in summary, problems do not get solved in a short timeframe and it almost always stays problematic over a short timeframe...what has changed is the market players' opinion, collectively known as Market Sentiments... and that causes the relevant instruments to change in value...

Piercing Candle - A Reversal ?

2010-05-23T16:15:00.002+08:00

Piercing Candle - kennynah May 2010

you will see such a piercing candle formed last Fri, 21May2010, on SPX daily chart...

it is important to understand that not all candles formations will pan out exactly the way textbooks state them... just like any other technical indicators, some formations will fail at times ... nothing is guaranteed... but they serve as a guide to be complimented along with other TA indicators for better decision making...

particularly, even if this piercing candle reverses prices, we must still consider the macro picture...we should not read candles in isolation without putting that in context to the overall daily/weekly and monthly price actions.. that said, it means, that price could reverse, but for how far up is not addressed by candle studies... so, it could go up and shortly afterwards, revert back down again...yet, that reversal did take place and will be applauded by candle technicians that it has done its job..

but for the candle rookie reader, he might not take profits as the candle hit higher and see it turn back down later.. and then say candles didn't work for him...

so, in other words, once the candle signal gets into play, keep that earlier signal in mind, dont get all too hung up on it because you want to start looking for the next candle signal/formation, that either augment or negate the earlier candle signal...

in this sense, candle reading is a post mortem technical study..

your thoughts? thanks.

Trading/Investment Review

2010-05-16T16:32:00.000+08:00

Trading/Investment Review - kennynah May2010

The way to improve, is to get better at what you do. Doesn't that sound just rhetorical?

Employees receive periodic job performance reviews by peers and/or their supervisors. Behavioural science professors from ivy league schools write thesis about this subject. MNC HR departments implement such reviews. Employers spend resources and must be getting some real benefits out of such performance reviews.

So many people can't be so wrong about the need to review work performance.

For those who trade, especially professionally, there's no such formal review system. We are on our own. We have no work peers nor supervisors. There isn't such quarterly or yearly performance reviews.

So, how do we know if we are trading optimally? How will we know if we could have traded better or avoided those mistakes? We won't, until we actually review our trades.

The only way to fully understand our trading performance is for us to review our past trades. But unlike corporate reviews, done quarterly or yearly, we must do this more frequently. It is individual preference as to how frequent this happens. The objective is to stamp out any bad trading habits, acquire good ones and improve as fast as I can. It's my money on the line, not some shareholders' money.

It is said that we make better traders, when we spend more time thinking than actually trading. I think, there's some truth to this. Afterall, repeating bad habits frequently, wont make trading badly more profitable.

How should we go about this reviewing process?

Personally, I like doing this every week, usually over the weekend. I go through my trading log, capturing entries and exits, profits and losses for each individual trade.

I reflect on each of them, recalling the reasons and the accompanying emotions that motivated me to open and close off those positions.

I not only focus on what went wrong but also what went superbly well.

Sometimes, when I screw up big time along the week, I stop trading momentarily. I find a quiet spot and immediately reflect the entire episode. After Action Review is best served when the memory and emotions are still lingering. I pen them down. It could be "lacked discipline" or "snatched price" or "impatience" or "there was no signal to initiate", etc... I remind myself not to repeat those mistakes.

When I pen these trades, I also relook at earlier weeks' entries. The purpose is to check if I have recommitted earlier spotted errors. I am aware of my personality to know that I repeat errors. So, I have to make every conscious effort to eradicate them.

By reviewing past records, I get to reinforce my correct trading habits too. I get more motivated to seize those successful trade setups.

Summing It All Up
In a gist, we must review our previous trades periodically, so that we can improve on what works, remove bad trading habits and hone our overall trading skills. No one will sit us down to check whether we achieved our KPIs. We are our boss..we check up on us, ourselves.

There's an adage "It takes 3 days to learn to be bad, it takes 3 years to acquire good traits". It has to be a continuous review effort, if we hope to benefit from this exercise.

Happy trading

14May2010 - PreWeek SPX Review

2010-05-15T16:24:00.002+08:00

15 May 2010 - Weekend SPX Review

The anecdotes within the Charts explain my outlook...but in summary :

a) Daily bias : Bullish to Mildly Bullish - Trading Market; Scalp Sell on high print and buy on dip .. range bound between 1100 - 1185
b) Weekly bias : Mildly Bullish; Swing Long at 1100 region
c) Monthly bias : Neutral; no position for me yet; but a break below 1100 could signal Position Bear

Your thoughts, please... thanks.

Stop Loss as a Invested Capital Management Tool

2010-05-09T20:47:00.000+08:00

Stop Loss as a Invested Capital Management Tool - kennynah May2010

Often we treat stop loss as a form of limiting our losses before those adverse trades kill off the trading account. There can be no further truth to this concept.

Now, an extension of this concept can be applied to money management, to ensure that we keep those trading profits close to our chests.

Let's use numerics to expound this idea.

Starting capital : S$10K
End of week/month/quarter : S$15K
Profits : S$5K

It's now the start of the trading week and you are deciding what stop loss you are willing to accept for each position you initiate. This is definitely the right approach.

However, I suggest that you take into consideration, how much of the profits you are not willing to lose, as a factor as well. Instead of simply having an arbitrary % cut loss.

In this example, let's say, I am willing to lose no more than 20% of the profits accumulated thus far. This means I'm willing to risk 20% x $5K (or $1K) for my new position. I then correlate that $1K to the amount of price adverse movement accordingly and put in my stop loss exit order. In the worst situation, I'll lose $1K and no more.

I would still have $4K of profits remaining and have 4 more attempts in making money from my later trades. This means, I can withstand a total of 5 continuous draw downs of $1K each, without dipping into my original investment capital. In any case, if I had a string of 5 losses, I think it wise to stop trading momentarily and take stock of the negative events.

Now compare this to setting a 10% cut loss of total capital; ie 10% of S$15K (or $1.5K per trade of cut loss). 5 such drawn downs = $7.5K. I would have damaged my original investment capital.

Agree that allowing $1.5K of stop loss will allow for more room for the underlying asset price to gyrate. It is all about understanding your underlying price movement that is key to making the decision on which is a preferred cut loss amount.

Nevertheless, playing to win and preventing giving back profits in anyway possible, is the name of the game. Otherwise, in the long run, you wont be able to accumulate more profits, if you keep chancing your original investment capital amount at risk.

Your thoughts?

Chart Your Success

2010-05-01T22:02:00.002+08:00

looking at this daily chart (eur/usd), i can't help but get reminded of the similarities to Home Builders ETF (XHB) chart...

the similarities are so stark, it makes me sick to my stomach for not having realize them earlier.

you see, Charts do not ever lie.... in fact, they sometimes foretell a situation before the market or news agencies catch wind of it... as in this case with eur/usd and also XHB.

in the case of XHB, the chart exhibited very clear signs of a slumping housing market a good 6-9 months before before anyone heard of subprime mortgage issues...i'm not attaching this chart here bcos if you were serious enough, you need to do fish this out of the pond.

the same phenomenon is seen on this eur/usd chart....

so, if there's a secret to successful investing/trading, it can be found in charts..dont't leave home without them...

by the time the world is aware of this crisis, eur.usd has slid from 1.52 to 1.32....

even if eur/usd gets to 1.28, there's just bones left....bulk of the shio ba meat gone....aside from this, this trade now becomes a higher risk one...

A Trading Plan....

2010-04-11T22:42:00.001+08:00

my simple idea of a trading plan... - by kennynah

i'll put them down in point form...simple english... no unnecessary pulling of wool over eyes...

a) know what you are trading....know as much as you can lay your hands on....eg. you choose Citibank as a stock you wana buy or sell... know C's business, know how it's making money and how it lost billions recently...know that indian chief...know C's price from the day it started trading...know when C will be announcing dividends....know the historical dividend payouts...know the employee size worldwide...know what are the common products/services C is offering to consumer clientele....better still, know how they syndicate major loans to corporates...know C like you know your girlfriend...you are afterall spending money on this trade...know C as if you wana get into C's pants...
if you trade futures, know the rules of the game...start time, end time, what econ data move the futures, know the daily volumes, know the price volatility, know when it expires, know what happens if you left the position into expiration, etc...
if today, your friend propositions you to invest $10K in his business, i bet you will sit him down for days asking him all sorts of questions about this investment...right down to knowing if his mother is also invested in this venture.. so, why would you do any different when putting down $10K on a trade position?
you want to know everything you can know about your choice of trading vehicle...

b) have an entry and exit plan....well before you commit a position, NOT after.... by doing so, you would not have to react to news/unexpected events that move prices...

c) know how much you are willing to lose... if you set a predetermined amount of losses you are willing to accept, you will be better prepared to handle such losses when they occur and they will.. this is as assured as death itself...no one ever not loses on some trades...

d) know how much profit you want out of the position.... very often, traders will stare a substantial paper profit deplete as price reverses...stoned cold...and finally cut off at breakeven or even at a loss.... why does this happen? 2 words...planning and greed.... rather, the lack of planning to exit when profit reaches a target....and greediness clouds the mind of the trader thinking that price will shoot for the moon in a day....
let's face it...no one will ever know where prices will go to... maximum profits will be known only in hindsight...
so, it's ok to exit a position when a target profit is reached...even if after that, price continues to choo choo on.... the job and objective is reached...be contented and move on to the next trade...

e) know your trade timeline.... scalp? swing? position? coffin trade? each different approach has its different tactical approaches and considerations...know them all very well....don't make the mistake of using a fork to drink a bowl of soup...

f) 3 strike rules.... just as in baseball, a batter is allowed only 3 strikes before he gets thrown off the plate... similarly, if you find yourself stuck in a rut and losing streak...step away...dont force the issue... you are not at your best psychologically to make a good next trade....take a break...a day or a few days...go bowling...go watch a movie...take a short trip....read a book....do anything that is not remotely connected to trading...let your brain reboot and your emotions heal....
some people start the day with a preset loss amount...if that happens, all trading stops...some set weekly loss amounts...and if that is reached...next week is a self imposed holiday...
the markets is a almost a 24/7/250 affair....it'll wait for your return....as long as you still have the ballistics to throw at it...

g) keep the objective in mind... different people trade for various reasons...for most people, the only objective is to make money...and if this is the reason, start the trading day reminding yourself of this ....before you finger trigger happily hit the "order' button... have good reasons to make that trade...use fundamental or technical reasons, it dont matter...but jolly well have good reasons for making that trade...
at the end of the day, be grateful and happy if you make some money.... you've attained your objective....but if you made a loss, was it within the parameters? if so, be grateful, you had been disciplined to fight another fight another day....

h) don't be obtuse..be flexible... often, we take it personally when market proves our initial trade opinion wrong...we may even feel inadequate if we get a string of losses...we may begin questioning our abilities and skills...while it is good to be mindful we need to improve, it is not necessary to harbour any anguish within ourselves... it is debilitating and self destructive...adds no ounce of good to our endeavour to profit from the market.. we must be mindful of our ego and emotions when trading...leave them aside...we must try to be as emotionless as we possibly can...granted that it's a difficult task... we must train ourselves to see that at times, we are utterly wrong and accept the fact... you are your worst enemy...conquer this and you conquer your worst nemesis in this market...
there's no such thing as paiseh..no face...supposing i said the market will tank..but for the last 3 months, it went rocket up.... i want to face up to the mistaken opinion...and move on... so what if everyone else laughs at me? as long as i bring the bacon home...i've done my job as a trader...

finally, know that this is a business that requires a lot of effort and continuous learning....and to be successful at it eventually, you must have very good reasons to believe this is worth your time, money and perseverance....you must enjoy this process...

HUat HUat everyone

your thoughts? additional comments? i want to learn from you....thanks in advance...

Market Reverses after my Stop Out...Frustrated?

2010-03-07T15:53:00.002+08:00

very often, our losing trades get stop out and price promptly reverses, distressing us immensely. happen often enough, we start losing confidence. we begin imagining that the market has singled us out to be the sucker of the day, week, month.

after a while, we outsmart ourselves, by reversing our trade positions once we get stop out only to see price again going against our this next trade. we cringe, get more frustrated and throw up our hands in disgust and despair.

so, what do we do when we encounter this situation?

for the case above, where i put on a short term trade...and get stop out, do i open an opposite position? it depends....

but let's first deal with the stop outs... stop outs are capital preservation mechanisms and a way to profit from the market in the long run... it is a cardinal rule of trading...without this risk management in place, soon, the trading account will be depleted and emptied...

thus, a stop out is either to limit losses or a way of acknowledging that my market outlook is wrong...

a) if it is a stop loss mechanism, then, my market outlook could still be correct, except that my entry point was flawed...if so, i may look for a re-entry based on indicators...

b) if my stop loss was activated becos data supports to invalidate my original market view, then, i may look for a entry point in opposite trade...

but, from experience, jumping from a long to a short, just becos my stop was reached, should be avoided for one main reason.... emotions... very often, we allow the stop loss to emotionally cloud our decisions and we click the mouse before we have time to re-evaluate the situation bcos we are bent on wanting to recoup that earlier loss... this is very human...we want to stem the pain from the first loss...usually resulting in adding fuel to the burning fire...

if we only begin a position by being able to accept that pre-determine loss, it is one way to be less emotionally affected by that loss, when it arises.

some things we can read all we want... but until we actually try it out, we wont ever really appreciate the written text...

so, i would suggest that you start off with small positions, allow time and trades to guide you to become a better trader... no amount of reading can offer you the real experiences that only the passage of time can... good luck...and stay positive...

we must stay positive becos rookies and seasoned players alike, we will also make mistakes... the differences between those who bring money to their bank and those who lose their houses n the long run will only be

a) having risk management
b) patience
c) technically more skilled
d) life long passion for this business to overcome the immense pain of losses at the beginning..

Greed, Fear and Arrogance

2010-03-01T21:09:00.001+08:00

Greed, Fear and Arrogance
1Mar2010 1740h +8 GMT)
by kennynah

Very often, the novice trader/investor enters a trade, giving it plenty of upside potential and insufficient attention to downside risks. This is a very natural, afterall, who ever enters a trade hoping for the worst to happen.

Still, the way to winning in the long run, is really to foremost measure the downside risks to every single trade before the proverbial counting of the chicks before the eggs hatch. It is counterintuitive but a necessary skill that every trader/investor must first acquire, if there is to be a chance of winning in this investment game. Simply put, learn how to lose before learning how to win.

To tackle this issue of learning how to lose effectively, one must come face to face with our emotions that accompany our trading/investing journey. We are humans, and as such, we are emotional beings. To imagine that we can truly remove emotions within ourselves is not realistic. Still, trading/investing while we are emotional can only hurt us more than benefit us. Thus, how then can we ever hope to resolve this conundrum within.

The simple answer is that we don't try to remove these emotions but manage them; the Fear, the Greed and the Arrogance within us. I am suggesting that trying to isolate such humanly features will be similar to attempting to stop breathing. We will suffocate. We just cannot hope to remove our humanly emotions. It is just not possible.

But we can successfully harness these emotions to our very benefit. We just need to first recognize them and come to accept what these emotions do to our trading/investing habits.

Let's begin with Greed.
How often do we allow winning trades turn into losses, only because we refuse to take profits off the table. How often, do we impose our beliefs that the market ought to reap us more profits than it would. It may not surprise you that often times, we allow Greed to dictate our trading/investing approach.
Given that SP500 futures on average move no more than 15 points within a day during low VIX reading, it is unrealistic to expect unrealistic gigantic moves. They do, at times, but we cannot trade based on unrealistic profit targets.
So, instead of allowing Greed to push us into believing that our winning positions can go on gaining, the moment we “feel” Greed creeping in, it is time to be alerted. It is time to quickly evaluate the technical/fundamental indicators and decide quickly if we should close off the position and take those rewards.
There is nothing worse than turning a winner into a loser. Allow Greed to signal you internally to sit up and look at the market intensely.

What about Fear.
Just like Greed, Fear can work for us, than against us. Fear is nature’s way of keeping us out of dangerous situations. Imagine that you are crossing the road and your attention turned to your ringing mobile. You answer the call and momentarily get totally absorbed in the call, unaware of your surrounding. Suddenly, in the corner of your eye, you see a flash and hear a loud horn. Chances are, you don’t freeze on the spot, you bolt and run across the road, regardless if it was really an oncoming vehicle speeding towards you. Your instinctive Fear takes over and you react to remove yourself from a precarious situation, even if that was really a tourist flashing his camera and the ice cream vendor on the sidewalk hawking his business. Of course, this is an exaggerated example, but hopefully, you get my drift.
If you get into a position that went adversely against you, you begin to feel Fear. Instead of turning that emotion to Hope; hope that the price will start moving for you, recognize the Fear as a signal for you to bolt out of your position. This feeling of Fear could save your account from certain death. Don’t second guess your instincts.
There are many opportunities for other profitable trades/investments, so long as there is still funds in your trading account. Learn to lose, before you learn to win.

Arrogance is not just a sin, it is a trading flaw.
We may get away with arrogance at work or with friends and family, but in trading, this characteristic will burn your trading account, very unforgivingly.
How do we identify this negative trading habit? It is easier than we imagine.
After we establish our trade, the position suffers a loss. The loss is not as large as to be stopped out by our predetermined loss exit point. We hang on, allowing the market to gyrate as it always does. But there will come a point when our stop loss is reached and if it wasn’t pre-ordered in, such as a hard stop but a mental stop, and we begin to waiver, that’s when we are being obstinate. We are being arrogant. We refuse to accept that the market is gently informing us that we have been wrong in our original outlook. We begin fighting against the market. We think we can telepathically turn the market around to our favour. We begin moving our mental stop loss exit, again and again, until the pain is so great we exit at a much larger loss than we originally intended.
Therefore, identifying arrogance in its multifaceted forms, such as being too eccentric about our imposed views of the market direction, will help us to realize when we are being obtuse. Arrogance is far worst a trading trait than Fear and Greed combined. Arrogance blinds us from becoming winners but very damaged losers.
Lose the arrogance, by knowing when we have become one.

Good luck !!!

Stop Loss

2010-02-27T23:13:00.001+08:00

i think it can only make sense with discussing stop loss quantum, when viewed from a bigger picture...

the common Stop Loss Exit methods:

a) Long stock $1, stock drops x% => exit
b) Long stock at $1, willing to lose 50cents, stock drops 50% => exit
c) allocate $1 to purchase stock, buy and hold, as long as stock doesn't drop to $0, => no exit (% portfolio theory)

and perhaps there are other variations to the above....

whichever the method stipulated above and the variations to them, it is incomplete until the trader/investor also considers the chances potential rewards... let me elaborate...

take for example, GE shares....in the 2 years between 2005 and 2006, the price gyrated something between $33 - 37 (give and take a few cents)...and we are now in 2007, not knowing where the price will head too, except that i am convinced GE is a great investment and I buy some ... now, do I adopt a), b) or c) stop loss exit plan? the answer really can be a), b) or c).

but i am suggesting that it is not a comprehensive trading approach to choose any of the above conventional methods, without considering the Historical Volatility (HV) of GE price. clearly, GE price exhibited very low HV, something like <7% annualized in 2005 and 2006.

now, does it make sense to adopt :

A) 10% loss exit when GE drops by 10% in price?
B) losses of ~$17 per GE share, which represents 8.7456% of your total investment capital
C) willingness to accept the risk of losing all of ~$35/share of GE (% portfolio theory)

to me, this is how i rationalize the following options above :

A) GE shows me that it has only a ~7% historical volatility...why would i be willing to lose 10% of the share price, when the possibility of making at least 10% is not statistically present? it's foolish to adopt this stop loss option

B) just becos I am willing to lose 8.7456% of my total investment, doesn't mean I need to structure my trade that allows for this possibility, when the investment shows me no reason that it can give me more than $17/share of potential profits. unless, i truly believe hat GE can approach it's "dot.com" high of ~$60/share, i should be aware of my chances of making that potential profit, and risking no more than that amount...

C) again, just becos I allocate 2% of my capital to buy $35/share of GE, doesn't mean I need to allow myself to lose all of that 2%.... % portfolio allocation theory is NOT even a Stop Loss Methodology.... it's for those with no idea how to invest their money except to defray their capital and hope for the best ....

Hogwash - Portfolio Allocation Theory

2010-02-27T17:35:00.002+08:00

Hogwash - Portfolio Allocation Theory
27Feb2010 1725h (+8 GMT)
by Kennynah

quite frankly, i do not agree that a 5% allocation to one trading position is a feasible plan, if one has a small investment capital...

for example, if investment capital is S$10K, 5% allocation is a mere $500. even if this becomes a very successful investment and becomes a multibagger, say 5 times. the overall profit for this position adds $2000 to your account. that's 20% of the investment capital. let's face it, how often do you get a 5x return on your investment. if you are lucky, a rare few times in your entire investment career...

but then why do journalists swear on their ancestral graves that it is wise to allocate no more than 5% of total capital on 1 single position? imo, for 2 primary reasons:

a) they are referring to investment capital amount that is astronomically large; say 100s of millions to billions...think WB, Soros, Pimco category....

b) it's their day job to regurgitate articles to meet their publishing quota

but let's step back and think for a moment.... have a sip of kopi-o, teh-o, pu-er, tia guanyin, diet coke, etc...and ponder....

ponder why we get filled with articles day in and out, people proposing 5% portfolio rule.... why 5% or in essence, why a minuscule fraction of total investment capital ?

you guessed it... it's everything to do with managing risks... by allocating a small % of the total investment capital, one is minimizing risks. and as we know, with little risk, comes little potential profits... and if the total investment capital is small, that small potential reward won't ever make you wealthy...

those with less than $50K investment capital and stick to 5% allocation per trade, imo, are plain lazy. lazy because they know that no matter what, they will never lose more than 5% capital if their investment absolutely belly up...eg, the stock they used 5% capital to buy goes to $0.

let's be honest with ourselves here, if you have the knack of picking stocks that constantly nosedive to the abysmal $0, i think you need to re-evaluate your investment skills...

so, while there is always the chance that your choice of stock can become totally worthless, that chance ought to be tiny. if you believe this, you should not have to worry too much about increasing the allocation amount to more than 5% per asset investment.

instead, you should focus on how much you can afford to lose as your primary determinant on how you trade/invest. in other words, if your risk appetite dictates that you are willing to lose 5% of $50K, then your stop loss exit for any position should be $2500, and NOT allocating a mere $2500 for that position. in fact, you could allocate a substantially larger capital than $2500 and still not risk more than losing $2500, if you possess the knowledge and skills to protect your position beyond losing $2500.

of course, i don't advocate allocating 100% of your capital to one single position. however, minute the chances of this investment going to zero, there's still a chance. and if you invest/trade long enough (and here, i mean decades and numerically very large numbers of trades), it might just occur to you.

in a gist, allocating 5% is not advisable if you want to have a chance of making some real money, neither is it wise to constantly bet the ranch. a balance is needed here. what that balance is, depends on your risk appetite and expected returns.

the biggest advantage in adopting this approach is that this larger capital allocation can reap you a more meaningful potential reward....which is what every trader/investor seeks. remember, you invest/trade not for fun, but to make money....

next time, your friend tells you about his great 5% allocation theory, just smile and talk about the weather....either this or better be his closest buddy; he could be that tycoon you didn't know you knew...

US Overall Market Pre-market Review

2009-11-12T14:09:00.001+08:00

12Nov09 - Pre-Market Review

I was looking for clues on any possible exhaustion of this rally...who isn't, right? And decided to check out almost all of the industry sectors' ETFs. This means, i looked at Agri, Industrial, Transport, Telecom, Financials, Biotech/Healthcare, Retail, Precious Metals, Oil&Gas, Construction, Consumer, Builders, Energy, Alternate Energy, Technology, etc...

Technically, a few of them did look like they rolled over about 2 weeks ago. But along with the rise in main indexes over the last 8 sessions, most of these charts now look much stronger. By that, I mean, most have either surfaced above the MA50 or made new year highs. Where a few once cut below the head&shoulder neckline, they now re-emerged above it. It was difficult to locate any particular ETF that gave an assured negative bias.

Among the major indexes, brief technical readings are :

a) $INDU - new year high formed last night
b) $SPX - continues to challenge most recent year high
c) $COMPQ - near year high
d) $RUT - hit MA50 resistance as of last night (this is thus the only party pooper)

MACD - all indexes show increased momentum as prices increase

Obviously, this does not mean that the rally will continue without impediments. There are clear and near resistances for all them. It merely highlights that the internals across the board, technically at least, are supportive of the rally of this last 8 days.

So, then, how should we play this market? Your thoughts are most welcome....

MacroView of Market Strength

2009-10-10T22:47:00.004+08:00

10 Oct 09 - MacroView of Market Strength

As we head into the last quarter of 2009, one outstandingly clear pattern is seen across almost all major ETFs representing all industry sectors including financials, transportation, mining, O&G, consumer, industrial, basic materials, biotech/pharma and with the exception of alternate energy and technology sectors... and that is, none of their rallies since Mar09 was accompanied by significant increase in trade volume....

In fact, these last 7 months of increasing prices have been at constant reduction in volume. This is a point that has been highlighted on several occasions and it is my opinion that we must constantly remind ourselves that without the necessary high octane purchasing by institutional investors, almost all rallies will eventually lose steam and crumble under its own weight.

Of cos, if we have stayed inflexible and maintain this age old system of not trading/investing under such circumstance, many would have failed to capture substantial profits in the last 7 months.

We simply have to be acutely aware that when and should indexes start relinquishing its strength, it can do so very swiftly. It is thus critical that we adhere to methodical money management as we continue to tread in thin ice environment.

As with my earlier suggestions, I have no other reason to see an immediate turn of events given present technicals. However, from henceforth, I am increasingly vigilant of turning points.

7Feb09 Where Do We Go From Here ?

2009-02-07T13:47:00.000+08:00

7feb09 - Post Market Review

SPX rose above 850 immediate resistance region to 869 and promptly stopped at MA50 resistance at the same value. Volume was slightly thinner than Thurs' session but was still 2nd highest registered for last week's session. Both RSI and MACD suggest a possible continuation.

Naz also registered a nice upward punch to a trendline resistance at ~1590-1600 region. What is significant, was that Fri's rally took out Jan28's high rather convincingly, lending some strength to the surge yesterday. Volume was also thinner compared to Thur but overall higher than the average of the week. MACD is gaining rally momentum but daily RSI is suggesting reaching an over bought region. Watch this trendline resistance at ~1590-1600 region carefully; any breakout can cause market participants to possibly fuel rally further. Naz index has been coiling tighter into a triangle pattern...
However, given both an over bought situation and the immediate resistance, it may not be surprising that index may be retarded in the short term.

DOW ended the week at 8281 and is still considered to be in a short term bear trend, since Jan09. The volume increased over Thur's session and is considered an "accumulation" day.
It needs to go higher than 8375 to technically "kill" this short term down trend. This ~8375 hence is now the next immediate resistance that DOW must convincingly clear to attempt the next resistance at ~8450....and the next at 9050, the first of several fibo retracement resistances. Frankly, all indexes will have many obstacles ahead... DOW will need alot of redbull, and really sexed up to possess the energy to clear the SOC (standard obstacle course) ahead....

Overall, as indexes climb higher, the upside risks will increase. Some quarters will suggest buying after resistances are broken, which technically, is not a wrong advice. However, given we have a very contentious economy to worry about, I'd rather sneer at this technique for the moment. If I should be bullish after now, my entry would be at relevant supports. Remember, we make money with bullish positions by buying LOW, not higher prices (something, which I do not agree with CANSLIM approach)

Good luck and HUat HUat !!!!

Are The Bears Retreating?

2009-01-16T13:27:00.005+08:00

15Jan2009 - PostMarket Review

my take on the US indexes for Fri... whilst clearly, spx and dji have both crossed below some important support, the situation is really oversold (on the hourly basis), which is poised for some rebound. and this was what happened last night. after mid day, all indexes staged a very powerful rally...i say powerful because that rally that started around 1pm was relentless in the upward surge.. it was very clear and decisive. some short term resistances found on the hourly, were easily subdued...again a sign that bears retreated to the woods... this means, the sellers were exhausted...and the buyers took reign (see below)

SPX - 15 Mins Chart

what is critical here is that, for the SPX, my TA indicates an important resistance of ~850 that needs to be cleared..

if today, we get to clear this....then momentarily, the ominous cloud will disperse paving way for some clear blue skies for next week...

a quick review of DJIA also shows a long term support holding up indexes from free diving further, at least this happened on Thurs session. this is good news for the bulls.

DJIA - Daily Chart

and finally, it might surprise that the VIX coincidentally reached MA50 and fibo 50% retracement resistance at ~54 and promptly retarded to close at ~51....all this is saying, is that panic and fear may be contained.

if you compare the VIX reading when spx and djia were at this level last year, VIX was ~70. today it is ~50....same index level, less fear...this is what VIX is telling us of this market even with a week's worth of negative index readings.

VIX - Daily Chart

so, i really, will not want to be too bearish at this stage...not unless, i am betting that last night's rebound is purely a short covering... but really, not likely, market short covers from 1pm until close...
in fact, given last night's performance and the above indicators, i am more inclined towards being neutral to bullish bias.
of cos, the deciding factor will be tonight's performance. this is terrific timing for me. options will expire today.
so, next week, i can look back and trade alongside the market direction.

good luck and i wish you all HUat HUat !!!!

Kennynah (Singapore)

DJIA - Testing Long Term Support !!!

2009-01-16T00:23:00.002+08:00

15Jan2009 - Intraday Review

Tonight, we turn our attention to DJIA.

See annotation within Chart.... what happens can make a difference, a big difference in trading strategy going forward...

DJIA needs to hold up at ~8010

DJIA - Weekly Chart

15Jan09 - PreMarket Review (SPX ~850 Support Broken !!!)

2009-01-15T17:06:00.002+08:00

15Jan2009 - PreMarket Review

SPX crossed below my TA target support of ~850 and stayed below. To make things worst, volume picked up. Does it mean that SPX will continue to tank further ??

I have little choice but to be bearish bias now, since technically, the rally that started in Nov 2008, has finally ENDED !!!

However, it has happened before that "fake" break outs or downs occur, the most recent being late Nov08. Don't mistake this for not accepting what is written on the wall so far. The intention is more to confirm the situation. Afterall, the last thing anyone of us wants happening is to be whipsawed..ie., entering a Bearish position only to see Index starts rebounding.

SPX 15 Mins Chart

It is therefore, necessary to be cautious about jumping the gun to start entering bearish positions. Let the index confirm itself for another session or two. But of cos, if you were an aggressive trader/investor and willing to stomache the risks, it is no better time than soon, to begin shooting pool and guzzling beers with the bears...

For me, I wont yet bet the ranch on being too short now, well, at least not yet

Good luck and Huat Huat !!!!

Where's SPX Heading in Short Term ?

2009-01-14T21:11:00.003+08:00

Over the last 5 trading sessions, SPX trended downwards.
This gives rise to the "feeling" that major US indexes should continue with this trend. It might, or it might not. Frankly, I don't know, but if you know, please tell me :)

Let's then review the TA of SPX daily chart below....

There are 3 signals of particularly interests to me :

a) SPX index dipped below the trend support trend line. There's no argument here that this is a pretty bearish signal. If that support had held up, my TA view would be bullish bias, undoubtedly.

b) However, life is not so simple and so is TA. Trendline supports/resistances are just but ONE indicator. And in this case, there's a second support that must be breached, before I begin to be a whole lot bearish. This is the support at ~850 region, established by in Dec 2008. If you scrutinize the chart, you will notice that on 2 occasions, this low was tested and index held up. Everyone and everyone who is a TA practitioner, will be looking at this level, and determine the next course of action.
So, if we soon test and fail to break this ~850 region support, lorryloads of traders, may decide to go Long for the short term.

c) Giving some indication on the strength of the downward movement over the last 5 sessions, we turn to MACD. Clearly, this daily MACD shows that momentum is just beginning to build along the downward thrust. BUT, it is not if you again look under the magnifying glass, RSI tipped just ever so slightly upwards. This helps mitigate MACD's suggestion for a further downswing. Overall, we must respect that MACD is suggesting some continuation on the downside.

Overall, I would need to see how 850 region holds up or not. But for now, I wont be surprised if SPX will trend toward 850 region in the very short term.

If it successfully supports SPX from falling, I will begin looking at bullish bias positions for Feb, while keeping in mind the limited upside potential, given murky outlook on economy.

If SPX breaks support at 850 with authority, which means, i will need at least 2 - 3 continuous downside sessions to confirm this, obviously, I will turn rather bearish and strategize my trade accordingly.

I welcome you TA comments, especially, if you disagree with any of my comments above.

I wish all HUat HUat !!!!

Kennynah

Weakness in US Indexes ?

2009-01-10T16:11:00.006+08:00

10Jan09 - Weekend Review

What was obvious in last week's trading, was that both SPX and DJIA indexes reached some technical resistances and promptly retarded downwards.

However, the volumes on the down days last week, did not suggest any panic, even though 4 out of 5 days, these indexes lost grounds.

In fact, VIX remained ~40, give and take. 40 for VIX might have been considered as a "buy" signal in the few years prior to 2008, but now, it would be misguided to think VIX is aggressively indicating Long positions. To me, it is not.

When you review the 2 charts below, I hope to receive your TA reviews as well.

For the following week, I will be more bearish than I would be bullish biased. However, I am also mindful that the upside risks is more imminent than downside ones; to restate it, i mean i expect indexes to stay range bound and go lower....but beyond 1 week...who knows...we will just need to see the price/volume action again next week.

Good luck and HUat HUat !!!

DJIA - Daily Chart

SP500 - Daily Chart

Fibonacci is Alive !!!!! DJIA Repelled at ~9040

2009-01-06T15:16:00.001+08:00

6Jan09 - Market Preview

Just when some of us think Fibonacci is masak masak....

Here's just some proof, of its usefulness...

DJIA Daily Chart

5Jan09 - Intraday Review

2009-01-06T01:55:00.000+08:00

There's only ONE indicator, which's telling me tonight, that we might not be seeing very large wild swings on prices like in 4Q 2008.

That indicator is none other than VIX. Right now, it has come down to a decent level of ~38. Technically, VIX's chart can be read just like any equity charts. And technically, the next support level is at ~35...

what does this mean? it means, that the market is comparatively calmer now than 3 months ago. it also means, that option premiums are now relatively cheaper and traders have less incentive to Write options. it means that lesser people are buying Puts to protect their stock portfolio.

contrary to popular folklore that when VIX gets lower, market will rally. it is not an accurate way to define VIX indicator nor a correct usage of this indicator. many have argued that VIX is a better used as a temporary market "bottom" index, and i tend to agree. this means, that VIX is more informative when it is very high, like when it hit 90 recently. that signaled a temporary bottom, of cos, this is all in hindsight.

now that it is ~38, does it bear meaning that US Indexes will rally onwards, maybe and maybe not. i dont want to use VIX in this manner. it makes no sense to me. rather, i simply read current VIX level as being indicative that sellers are not panicking and lelonging. with no aggressive and panic selling, price should stabilize some what.

however, for markets to swing upwards, buyers must come en mass... otherwise, indexes will have a hard time climbing further.... and VIX does not give us any clue here... only Price/Volume action will tell us this....

so..... i'd be focusing on Volume for the rest of this month.....

good luck all....happy trading !!!

Turning $5K into Millions? You're kidding, right?

2008-12-28T00:14:00.001+08:00

Now, let's take this mathematics one step further...

Assuming, we modestly target our annual % rate of return on capital at 30%. you'd think, that's quite a tall order, considering that S&P500 index historically made some 10-15% annual increase over a long time (well that's my impression from what i've read). Technically, if you are a one directional investor, namely a Long oriented investor, then naturally, to outperform S&P500 index, will be a challenge indeed.

Thankfully, it is NOT as difficult as it appears. BUT only if one learns to be flexible. To be flexible here means, having the ability to go both Long and Short AND also to profit in a range bound market. I'm afraid, there's really no other way to outperform the S&P500 index returns, unless and until this flexi-skill is learnt ! Think about it. If you can profit only by going Long and S&P500 tanks continuously, as it did for the last 12 months, how in the world can you make a profit? No brainer, right?

Let's get back to that 30% annualized return. To achieve this 30% annual return, all that is required is to make a very modest 2.2% profits every single month for 12 months. For the geeks, here's the math... 0.022 (to the power of 12) = 0.3 or 30%

2.2% of $5K is $110. To be precise, if you went Long 700 shares of Citibank at $7 (an investment requiring $4900) and exit at $7.16, that would make a profit of ~$110 (commissions excluded here). A mere 16cents upswing, is this impossible? Of cos not, in fact, it is quite common to see Citi making a 50 cents daily move on certain days.

Now suppose, we raise the monthly target return to 4% on a $5K capital outlay, which would mean making a monthly profit of ~ $200, we would effectively get a 60% annualized return on capital. Is it difficult to profit $200 in the initial month? Not too difficult, i think. It would be, if you only knew Long stock trading strategy.

Seriously, is making $110 or $200 or even $400 each month very difficult? Absolutely NOT ! Yet, if this is so easy, then, why aren't there millionaires everywhere?

Mathematics, comes easy to you and me, mostly. We can't say that of the concept of RISK.

And RISK, I say is the ultimate reason, many of us fail to achieve that 2.2% or 4% monthly returns consistently. To crystalize this point. Let's say, I lose $200 on the first month. To make up for this loss and still achieve my original 30% annual profit target, I will need to profit ~$440 (the 1st and 2nd months target of ~$220 + that $200 losses) by the end of the 2nd month. Recall, I only had to make $110 per month, now, due to an earlier loss, I now need to make $440, or 4 times the original target, in ONE month. Now, this is tough !!!

This is the reason why we MUST MUST and I repeat MUST cut our losses short and/or trade limited risks positions. We MUST know what we will be willing to lose even before we put on a trade. Every loss will impact the ability to arrive at that final intended % rate of return !!! Hence, if we allowed our trade to lose $1K, then it would literally take 9 months of $110/month profits, just to break even. Then, the entire year would be fuck off .....

We WILL inevitably lose on certain trades. If you don't believe this fact, you need to go back to the School of Reality. Ergo, the idea is to make an overall profit from a portfolio of trades constantly. This is the ONLY way to get ahead; there's no other way, amigo.

Achieving that 2.2%, 4% or even 8% monthly profit bottomline, is not as tough as we think. It only requires alot of planning, risks management, knowledge, skills and some lady luck. We can do this, only if we stop inhibiting ourselves psychologically.

But above all, we MUST work on our ability to manage RISK successfully. This remains the key to become Millionaires or even Billionaires in a realistic time frame...

Now, you know why we had to study mathematics in school....

Thoughts are very welcome....especially, opposing ones...thanks.

$5K is all it takes to be a Millionaire

2008-12-28T00:12:00.000+08:00

let's ponder over this for a moment...

this is the scenario...

if you and I had just an extra $5K for investments in 2009 and if we aim at achieving a certain fixed annualized % return on this additional investment capital for the next 10 years...

let's look at how the target % return on capital will make a huge difference in the end.... here's the math...

$5K, 30% ROC, 10 years
end of 1st year (2009), $5K becomes 5k x 1.3 (60%) = $6.5k
end of 2nd year (2010), $8K becomes 8K x 1.3 (or 5K x 1.3 x 1.3) = $8.45K
...and so on so on...until we arrive at
end of 10th year (2018), $5K x 1.3 (power of 10) = ~$69K in your pocket book

$5K, 33% ROC, 10 years
end of 10 years, $5K becomes 5K x 1.33 (power of 10) = ~S$86.5K

Note that by raising the ROC from 30% to 33% (ie 10% increase), the actual dollar return is drastically increased. Restated, by increasing the target Rate of Return on Capital, we will exponentially increase the actual returns. The next example should drive home this point

$5K, 60% ROC, 10 years
end of 10 years, that original $5K capital, will become (5K x 1.6 ) ~$550K

and if you press on for another 3 more years.....(don't blink now)
end of 13 years = $5K x 1.6 (power of 13) = ~$2.25 million

What important lesson can we draw from these examples above? We learn that choosing a higher % annualized returns AND the longer the investment time frame, yield much much more actual dollars...heck, then why not aim at annualized 80% return on capital over 13 years($5K, 13 years at 80% returns = $10.5 million)? i guess, it is all about our own investment psychology and abilities.

Another way of saying this.....the key variables involved above are :

1) % Rate of Return
2) Length of investment timeframe

Is the amount of initial capital outlay as important? No, it is not....surprised? Afterall, one would logically imagine, if my original amount was twice as large; ie $10K, that would make also exponentially increase my eventual actual returns, just as items 1) and 2) above would, right? Wrong !!! Let me show you...

$10K, 60% ROC, 10 years
end of 13th year, $10K x 1.6 (power of 10) = ~$4.5million in your pocket book

$4.5MM (using 10K outlay) vs $2.25MM (using 5K outlay), represents 2 folds. But that's it, just 2 folds. If the original outlay was $15K, the returns would be 3 folds, and so on... it's just pure mathematics...no magic here.

The Conclusion:

It is not the "size" of the initial capital outlay that affects as much the eventual size of leprechaun's pot of gold.... What counts, are just 2 incredibly simple variables; target % rate of return on capital and length of investment period...

and oh...HOW do we do this? that's some homework for the remaining days of 2008 (*wink)

So, Where Are We Now on SPX ???

2008-12-23T13:31:00.005+08:00

Let's dissect and see where we are with SPX index, this week....

SPX - Monthly Chart

On monthly chart, my opinion, "Bearish".....how else to technically view this chart... if you possess a different technical opinion..i am all ears...

SPX - Weekly Chart

On the weekly chart, it is totally quite the opposite to the monthly outlook. Technical signals show "bullish" bias and quite a bullish one indeed.

SPX - Daily Chart

But on the daily chart, we have a contentious situation developing. We see a "head and shoulder" pattern formation, BUT the rally that started in Nov08, is technically still in play. That is, as long as the ~850 region support holds up (denoted by the green dotted line).
In addition, RSI and MACD are still in upward momentum, although granted, MACD seems to show a slight tilt downwards.
However, the MA10 is clearly moving upwards to meet with MA50, and all in all, index are coming to some sort of "equilibrium" pricing, which can mean a tight trading range for some days ahead. This also coincides with the current lowered VIX reading at about 44.5 (suggesting lowered volatility)

Nevertheless, it is important to accept the fact that the "neckline" of the Head & Shoulder formation has been "breached". The ONLY consolation is that H&S formation is usually potent on primary bullish and toppish price scenario, one which SPX hardly qualifies herself to be at this moment. Still, let's respect this "bearish" formation. Respect means, manage our potential downside risks accordingly.

Technically, if this H&S is valid, then the technical target drop for SPX is at ~770 (ouch !!!) or about 100 points down from current level...

The Top DOW Approach

2008-12-13T11:36:00.005+08:00

This being a Saturday, I suppose it is timely to review through one major Index from the top down approach....starting with Monthly (macro view), Monthly(slightly more micro view), Weekly and finally Daily Chart of the DJIA

The purpose is to form a Technical opinion on how to trade this index going forward 4 weeks.

DJIA - 20 Year Monthly Chart (Macro View)

DJIA - Monthly Chart (Micro View)

DJIA - Weekly Chart

DJIA - Daily Chart

And so, what can we conclude ? :) How should trade given the technical perspective (with a gigantic assumption that they are correct, in the first place)

Your thoughts, please....thanks.

Some Life to This Recent Rally ?

2008-12-06T10:44:00.001+08:00

USD/SGD - Upward Trending

2008-11-26T20:40:00.000+08:00

no reason to buck the bull trend that's underway

USD/JPY - Land of the Rising Son

2008-11-26T20:32:00.003+08:00

SPX - It's A Tough Rally Ahead?

2008-11-25T14:43:00.002+08:00

Thankfully, the Oct's low at 760 was not tested on Monday, thanks to Citi's bailout package announcement over the weekend.

This took all major indexes into the positive territory throughout the trading sesson on Monday and ended with a 2nd day rally, something not seen in months.

SPX - Daily Bar Chart (a couple of resistances ahead)

Do Commodities and US Indexes Move in Opposite Directions?

2008-11-24T15:07:00.002+08:00

Let's use POT as an example for posterity learning....

POT - Weekly Candlestick Chart

POT - Daily Candlestick Chart

SPX - It's Crunch Time

2008-11-24T13:57:00.004+08:00

The trend is our friend, so says the adage commonly mouthed by traders and investors alike.

Hence, identifying a trend is an important trait that all traders must have to survive in this business.

Pricing trends are formed over time. That could be 5 mins, 30 mins, 1 hour, 1 day, 1 week, weeks, months, years...

The longest trending period can last for >20 or even 30 years. Such trends are called "Secular Trends". SPX, for example is in a Secular Bull Trend, since its birth ~100 years ago.

A Primary trend can last for months to years. This bear market which we are experiencing since end 2007 until now, is considered a Primary Bear Trend.

A Primary Bear Trend can exists within a Secular Bull Trend; this is known as Price Correction.... Of cos, unless, we view SPX in its entirety, it is difficult to understand that what we have been witnessing, is an index correction, rather than a secular bear trend....

See this chart below, to better realize that, for the 1st time, in the history of SP500 Index, it is challenging its own Secular Bull Trend at ~760 level.

We are living the moment where history is in the making...

Cherish this moment and survive it !!! So that one day, you and I can share this unforgettable moment with new traders, or wife/wives/mistresses/girlfriends/colleagues/children/grandchildren/adopted children/etc.

Enjoy....

SPX - 30 Years Monthly Candlestick Chart

Wyeth - Is Support Holding Up ?

2008-11-23T20:25:00.001+08:00

by the way.... ~$27.5 is also a long term neckline of a double top..... which means, prices really better hold up at this level....

VXN - Resistance Reached ?

2008-11-23T20:10:00.001+08:00

Unlike VIX, VXN's recently rally was retarded by a few existing ceiling points established in 2001.

VXN - Monthly Bar Chart

VIX - "Bull"ying Investors

2008-11-23T19:34:00.002+08:00

DJIA - Tango Time

2008-11-23T19:11:00.003+08:00

Did DJIA +ve ~500 points rally in the last hour of trade on Fri, 21Nov08, signal a technical bounce off a 7500 region support? Can't tell yet, imo. Recall, I mentioned about fake support breaches. This could well be one of those.

But, it happened, and that's what is significant. Sure, we are in a Bear trend, no denying. It's all about timing a Bearish entry, even if this appears to be a safe bet at this juncture.

That 7500 region support, is seen by everyone who practices TA. It might not be a coincident that the market players "supported" this believe, especially when the bruit for that last hour rally was that Obama selected Geitner as the next Treasury Sec...and what's that got to do with equities values anyways?

DJIA - Tango Time ? (Daily Bar Chart)

21Nov2008 - US Index Post Mortem Review

2008-11-23T15:48:00.001+08:00

21Nov2008 - Post Mortem Review

I fully agree that the indexes have all broken long term support and consequently should force every trader to accept that the indexes have a high probability of continuing in their current direction; down !!

I can hear this coming from some of us " this support breach could be a fake one, which has happened from time to time, and so, why not hope that yesterday's index drop is one of those fake ones" and I can empathize with this sense of hope.

But there's a huge difference between pure hope and watching the index actions in the next session or two, if indeed one persists on wanting a confirmation. Just know that the risks of further downward metastasize action, compounds, if this turns out not to be a fake breach.

I quote the Journal of the American Statistical Association (Volume 20, Issue 150, June 1925. which says :

The chart is a post mortem and not a diagnosis, it is a result, rather than a cause, and its occurrence is an afterward rather than a beforehand

TA practitioners expect to learn about the future behaviour from the patterns of past behaviour. And since we have just witnessed a meltdown of the indexes beyond some perceived critical support level, we expect that in the future, the pattern will continue to be exhibited. This pattern could either be a continuation of a meltdown or that of a fake breakdown. Hence, you can understand when I said earlier that confirmation from another session or two could lead to much better clarity.

Having said this, I opened a couple of SHORT Put spreads last night (bullish strategy), when the DJIA was still above the support line of ~7900, it was a bet that the support at ~7900 would hold, and I knew full well that it could turn out nasty. Clearly, these positions got reasonably whacked. Would I hold on with a hope that yesterday could well be a fake support breach; sure, I would hope so, but that could be very costly (well, at least those Short put spreads have limited losses but still losses that I have the ability to mitigate, if i take corrective actions very soon). When I opened those Short Put spreads, it was decided beforehand that I would take actions (to hold or to fold) 2 days afterwards. Thus, given the limited losses risks, being the nature of spreads, I have the small luxury of "wait and see" how the indexes perform by end of Monday next week.

Also, I was very aggressive last night in putting on a Naked Short Put position as well. This, I will not wait longer than tonight to remove from my portoflio, as this is an UNLIMITED risks position. Fake or no fake, I accept that my bet was lost when support failed last night.

Good luck to one and all, and take care !!!

DOW - Is The Triple Deuce Still in PLay ?

2008-11-21T02:23:00.001+08:00

DJIA - Support at ~ 8000

2008-11-20T10:59:00.002+08:00

even with yesterday's plunge of some 428 points for the DJIA, the current index is still a little above Oct's low. Technically, DJIA has NOT yet made a newer low.
Thus, we are still within the range bound action...

BUT more crucially, I hold the opinion that the 7900-8000 region may be supported by that LONG term support line...

DJX - 20 Year Monthly Bar Chart

Most folks will close off whatever leftover options position by today and may start establishing new ones... and since this technical level of ~8000 has come to me...I may then decide to adopt those positions I mentioned before.

Good luck to one and all....

Intraday Bearish Outlook for DOW

2008-11-19T01:38:00.001+08:00

I would prefer to await for DOW index to approach nearer to 8000 region before opening new positions.

DJX - 15 Mins Bar Chart

SPX - Triple Bottom Formation

2008-11-18T23:38:00.003+08:00

i would play the support and take on bullish option spread positions going into Dec's expiration... since VIX is relatively high at about 67, this means option premiums are comparatively "expensive". Consequently, it makes more sense to be a seller of options at this juncture.

A bullish option position can mean a Short Dec Put Spread on stocks, futures or indexes...make sure that the short option position is strongly supported by your perceived TA support price. If that fails to hold up prices in future, admit that the bet is lost and cut losses by closing out the position or at least consider damage control actions via adjustments.

Another possible play is to Sell Dec Call Spreads beyond the perceived Resistance line...this is actually a bearish position...

and when you combine both these Short Dec Call and Dec Put Spreads, one effectively opens a Iron Condor position...which then means one is epecting a range bound price action going forward 30 days or so...

I wish all of us luck on this expiration week...remember, there is a tendency for "Pinning" effect on your short option positions, so watch out for this and dont get assigned exercised unexpectedly...

how would you play this market now?

Gold - Is It Still That Glittery?

2008-11-15T02:06:00.002+08:00

Since Mar 2008, gold price started its downward move. This bearish trend continues until today....

Mini Gold - Daily Bar Chart

EUR/USD

2008-11-07T13:57:00.002+08:00

it surprises me that the USD could strengthen so much over a 6 months period. given the financial crisis in USA, EURUSD weakened from 1.6 to current 1.27 ???

is this sustainable ? perhaps, usd is soon experiencing some blockage ?

SP500 - Faced with a Fibo Resistance

2008-11-06T13:27:00.001+08:00

Housing Sector....Can We Still Expect Downside ???

2008-10-31T23:19:00.001+08:00

HGX is the Philidelphia Housing Index, an aggregate of Housing related companies' health. This index tracks companies such as Tol Brothers, LEN, etc...

Based on what is shown on the Monthly Chart, it is clear in hindsight that this index gave indications of the housing problems way in advance before the US Indexes started collapsing last Dec07.

It is worthwhile to periodically follow the chart pattern of HGX in order to gauge when the housing sector will start showing signs of recovery...

HGX - Monthly Bar Chart

DOW - Upside Resistances ....

2008-10-30T17:58:00.003+08:00

when rallies of 900 points occur and followed by an attempt to rally yet again, can be bewitching an experience.... some may decide to move aLONG....but i caution the bear trend that is still largely in place...

a Long position now must be with a long term view as the economic crisis is far from over. rate cuts can help with liquidity in system, but risks is not abated as a result of easy money.

i prefer to sell into major rally days, by either adjusting existing positions to capture High IV or enter fresh bearish positions at my predetermined resistance points..

good luck to all....wish you HUat HUat !!!

DOW - Weekly Bar Chart

DJX - Immediate Resistances

2008-10-28T01:09:00.002+08:00

some resistances sighted in the immediate term....

DJX - 30 mins chart

DXD - Ultrashort DOW ...Anything Special ?

2008-10-28T00:09:00.003+08:00

there is an identified "breakway" gap recently formed.... it's now the 4th week since it occurred and still, this gap has not been "covered".... this leads me to suspect that it might be covered in the near future.

DXD - Weekly Chart

next noticeable pattern, is the formation of a triangle...and judging by the angle of the apex, it appears that there's a good chance it will move out of this triangle in lesser time than expected... my personal suspicion, is that it could be as early as 1st week of Nov, if it is to continue on the bullish path... otherwise, i would imagine this DXD to be supported at about 70.5

DJIA does look like it is faced with steep challenges ahead to reverse her bearish....

but hey, let's not get too carried away and start staging new bearish positions or piling on more risks than one is able to accept.

good luck all...

Hello ? Are You Still Around???

2008-10-27T22:59:00.003+08:00

is anyone there ....or can we expect the voice recording machine for some time to come...?

Is SP500 Index at Support ?

2008-10-23T00:27:00.001+08:00

Art DOW Out of The Woods?

2008-10-15T14:27:00.002+08:00

In all TA, no 1 single indicator can provide meaningful signal on possibility of price actions.

by looking at 2 very common technical indicators; namely MA and RSI, we see a clear pattern

annotations within this 20 year DJI monthly bar chart explains.

equally critical is the last bar on this chart. it shows a long tail, a very expeditious and large recovery of from it's earlier losses. however, since we are only 1/2 way through the month of Oct, it is too early make a judgement call as yet.

should Oct's bar end with as a doji or a hammer, then, it maybe a strong indicator that a reversal can take place in the months ahead.

however, we must recognise that taking a bullish position now is counter action to an establish bear trend. and so, positions established must be managed for risks.

Vodafone Revisited

2008-10-10T13:31:00.002+08:00

SPX - Mother of All Supports Breached ?

2008-10-10T12:20:00.002+08:00

Will US Indexes Continue to Free Fall ?

2008-10-09T11:42:00.002+08:00

it appears that DJIA is experiencing acceleration to the downside without any apparent support to be found ...yet

DJIA - Monthly Bar Chart

BUT....

when we open up DJIA as far back as 20 years...there's a ray of hope that DJIA may experience some form of support at 8100 region; that's >1000 points on the downside.

recently, we have seen -ve 800 points swing to the downside in single trading days, hence, this may not be as unthinkable in current moods.

i am still a proponent that when FEAR is at its height, we must adopt a longer term timeframe bullish positions, even though the left brain hemisphere is suggesting otherwise. however, in short term, it does appear that the downtrend is seriously intact.

so, let's trade/invest smart and be risk averse in our undertakings without being paralyzed.

20 Years DJIA

DJIA - Facing Resistance from Intradady Chart

2008-10-03T23:59:00.001+08:00

10850 neighbourhood shows resistance

DJX 30Mins Intradday Chart

Vodafone - VOD

2008-09-30T17:24:00.001+08:00

i like patterns, especially those that play out like clock work.

such patterns give me confidence when forming a view and plan a trade.

TXN - Approaching Long Term Support

2008-09-30T16:53:00.002+08:00

A long term support line established from 1996 pricing, shows a support coming up at ~$20 for TXN
Volatility is at the highest now, at 56%, since a year ago. More over, there's a +ve put/call skew currently but only for the Oct chain. Oct has only 17 days to expiration. Unadviceable to enact front month. Disadvantaged by too little time.

WFMI - reaching long term support

2008-09-30T16:35:00.002+08:00

caught my attention....
maybe wait a bit more for price to dip further... then perhaps a bull call spread it..

RIMM - One Word

2008-09-30T16:25:00.001+08:00

WTF !!!

lost 50% of it's stock price value in ONE month...

this is really a break and bury case...

SP500 - 2 Words

2008-09-30T15:37:00.002+08:00

2 words

RSI and Support

WMT - What's The Deal ?

2008-09-28T17:06:00.005+08:00

I like simple things, as much as I am put off by unnecessarily complex characters I meet, fortunately only very occasionally.

Trading is in itself complex enough, no need to add more complications to that.

If I had only one word to describe WalMart, it would be...... "NTUC". It is nothing more than a successful group, with superior purchasing and hence bargaining power, and they sell almost anything you'll need in the cause of living; well almost everything.

So, if I think WMT is nothing more than the our version of NTUC, would I buy into its stock as an investment? Yes and No.

Yes, if I am in it for the dividend, for the income, strictly speaking. But No, I wouldnt add any WMT into my investment portfolio, if I am looking for year in year out profit growth, consistent top line revenue generation year on year.

So, my decision to invest will be based on my intentions of my investment. Is yours?

WMT - Monthly Chart

SBUX - Is The Business Still As Aromatic ?

2008-09-28T16:21:00.003+08:00

SBUX took drastic actions in 2008, namely to reduced the number of coffeeshops they operate worldwide. Seems a reasonable tactical strategy to adopt to counter the expected fewer people buying their expensive kopi; better lower their operating costs if they cannot expect sufficient top line revenue in the immediate future to defray static costs.

The founder obviously lost faith in his CEO employe when he decided to take over the helm. I like this move, because this means Schultz hung up his fishing rod, folded up his sleeves and got back to work... when the founder gets involved again, he either makes it a real success or he will lose his original passion for starting the business and it will not survive challenges.

SBUX - Monthly Chart

Buying into SBUX, to me, is the classic case of buying into a believe of a man, Howard Schultz. If you believe he can restart, rebrand and reinvent SBUX's business, that ~$13 support level should help you to decide if you wana go long haul with howy.

ps : some possible plays

a) long term calendar spreads (at least 6 months)
b) short Oct 13Puts

good luck....

SPX - Possible 1170 Support ?

2008-09-16T19:58:00.003+08:00

It's been sometime that I have posted any charts on major US indexes.
Frankly, the reason has got to do with my inexperience in reading indexes that have been doing major see-saws over the last 1 month or so.

The exercise almost became futile, with candles indicating a possible reversal one period and then totally kaputted on itself the next period.

Trading this market is tough, especially suicidal when one-directional bets are placed.

Nevertheless, it is timely to review the most crucial index, SPX, but reading the chart using a very long time frame. This way, I try to avoid being whipsawed in my opinion.

The annotations within suggest that SPX appear to be heading towards some major and long term support.

1st Support : 1172 region
2nd Support : 1110 region

SPX can continue to tank as it did yesterday, with a hefty 4.7% loss. Market internals was so bad, it "outperformed" Oct 19, 1987 when the losers outpaced winners by 16 to 1. Last night, NYSE and Nasdaq did a 20 to 1 decliners' volume /advancers' volume and with decliners/advancers at 19 to 1 !!! That's how much selling occured and it could have only been achieved with institutional selling; ie. even they cannot tahan anymore.

These very bad sentiments could really drive prices lower still and if that happens, and the 2nd support fails at 1110 region to hold up, no sane person should be looking at Longing the market without consulting a psychiatrist !

But having said that, a very Long Term view shows that SPX is still in the upward swing...I mean, looking back 20 years... and that's when these supports come into play.

Over time, one learns that Bulls will have their reasonings and Bears will have their arguments. Pointless exercise. Traders will form their own view after a healthy dosage on reality check. Put on a game plan, execute and manage risk and profits. That's how it was done successfully 80 years ago, and that's how it should be done now.

Therefore, position risks must be managed at all times, especially now, since equities markets are like pretty fickle young things... one moment hot, next moment cold. Dont put all your emotions in one basket and risk being permanently hurt :)

I would be very careful, at this juncture, not to take single directional bets; like Long or Short stock, Long or Short options.
Possible positions will be to take advantage of the HIGH VIX at this time, which stood at 31 as of 15sep's close. Some Short Volatility examples, could be Short Call Ratio Spreads (lower risks as one would not expect a big extended rally at this time) or Long Condor (giving a wider range of success with limited risk exposure) or even a Calendar Spread (unless u believe the volatility will last for a long time).

I wish all Huat Huat !!!

NDX - Looking Weak

2008-09-09T11:25:00.002+08:00

Perhaps, like the Naz Comp, after having been a leading index for sometime, it's now time to be led by the other indexes...

DOW - Formation of The Morning Star

2008-09-09T03:38:00.003+08:00

This could be a potential key reversal point for DOW to rally.

Nothing is for certain, it's all about probability. So far, in candle charting, the morning star formation is one of the strongest bullish indicators... the combination of the candles are shown within the chart below.

Might be an idea to lighten up on bearish positions in anticipation of a further rally.

4sept08 - DOW Technically Dismembered

2008-09-08T20:26:00.001+08:00

DOW - Potential Morning Star Formation (A Reversal)

2008-09-08T19:46:00.003+08:00

SPX, DJI and COMPQ indexes are registering the possibility of a key reversal candle pattern as of last Fri's closing bell.

However, it is equally important to note that the bearish signals are over-riding. The annotations within the chart suggest the various technical breakdown of DOW and the same can be said other 2 indexes.

Hence, the weekend govt announcement to "bail out" of Freddie Mac and Fannie Mae, which can cost treasury about usd100bil each, it is hardly good news. the only good news, is perhaps that more people are being saved from being thrown out onto the streets if their houses are foreclosed. Yet, this cannot mean that the financial turmoil has gone away. At the macro level, it's a redistribution of wealth; the rich subsidising the poor (and the foolish), if this bail outs are to be financed by taxations.

For us traders, we need to know what to do Monday when the bell sounds.

If I had buliish positions set up last week and did not sell out on the Thurs' massacre and again on Fri's bounce, I'd be wise to sell into this morning's rally; a gift !

If by the ending minutes of Monday's trade, we see a strong +ve closing; meaning recovering at least most of what was lost last thurs, then possibly we are seeing the formation of a key reversal candle pattern. The Morning Star. If this happens, it's never too late to re-enter those bullish positions again. Remember, preservation of capital/maintaining an acceptable loss is by far the single most important discipline for long term success.

So this morning, it's a rare chance to redeem a screwed up prior bullish position, be grateful instead of being greedy. Get out first and then reassess later on the trading day.

After getting out on a possible strong rally thanks to fred and fannie, and subsequently holding no position can only guarantee one result; ie. no trade, means no losses possible. Isn't that a nice proposition, until a clearer signal is confirmed for up or down.

Nazdaq100 - Supported at 1825

2008-09-04T03:38:00.002+08:00

On 1st Sept, we speculated that NDX may correct a little more to the 1285 region...

Today, it behaved like clock work, reaching the support level and rebounded...there's hope for a upward push in the next sessions...

Nazdaq Composite - Appears Bullish in Short Term

2008-09-03T19:55:00.002+08:00

2 conflicting signals...

With a longer outlook, a double bottom was clearly formed, giving rise to a technical view that, Nazdaq may have bottomed.

However, for short term trades, keep in mind several bearish technical signals. note that RSI @40 is in no man's land, making it useless at this juncture.

Thus, if one has no position, and insists on entering market, it appears that a short term bearish position could be more logical; eg Long Put Spread, Short Call Spread, Long Put Ratio Spread, or even a Long Put Tree.

I would avoid the flies and condors, which are more for volatility plays. and given erratic volatility; sometimes low and sometimes high, no point getting suckered on multiple commissions.

I feel that it mught be better to stay sidelined, as it is not exceptionally clear in which direction the market is headed towards...

Finally, accounting for the double bottom and a longer view, i am decidedly more bullish bias...as such, better to open Short Puts than Short Calls.

Good luck everyone...and best of luck !!!!

Bull Spread - Short Put Spread

2008-09-03T05:01:00.005+08:00

Bull Spread

Short Put Spread

When to use : Neutral to Bullish Trend (this captures 2 out of 3 possible scenarios)
How to establish : Short a Put and Long a lower strike Put
Debit or Credit : Credit
Margin Requirement : Yes
What is the Maximum Profit : Amount of credit received (limitted)
What is the Maximum Loss : Amount between the 2 strike prices less credit received (limited)

Example :

GOOG is currently at $466.10 in early Sept
You expect GOOG to rally and have reasons to believe that it is well supported at $450, in the near term.
You choose options as it is too capital intensive to pay $46,610 for 100 shares of GOOG.

You could just simply sell a Sept 450Put option on GOOG and receive a premium(credit) for this sale. If GOOG's share price stays rather stable until option expiration, you benefit from time decay; ie you gain theta as time passes. If it rallies, then you profit from the decline in the Put's value.

But, you are worried that GOOG's shares price may suddenly drop drastically below $450, you will suffer (theoretically)unlimited losses. In fact, should GOOG's shares price ever drop catastrophically to $0, your losses will be equivalent to losing $450 per share. So, if you had sold just ONE contract of 450Put, your losses will be $45,000. This is no joking matter. But it would be a joke if GOOG shares become worthless.
Remember that one should not consider Short Put positions, if one is not prepared to purchase the stock at that Short strike price

Therefore, all naked short positions, whether Put or Call, and especially Short Call, can be HIGH risk trades. Traders must very closely monitor all naked (aka uncovered) Calls and Puts.

Hence, to mitigate the risk of a naked Put, you purchase a Sept 440 Put (just in case shit does hit the fan). The risk is mitigated because you will be insulated from further downside beyond $440. Your Long 440Put effectively serves as a "protective Put". This combination of Long and Short Puts, is known as a Short Put Spread.

This Short 450 Put position, obligates you buy GOOG at $450 and the Long 440 Put conveys you the right to sell it at $440. In return for this seemingly unfavourable trade, you receive a premium (equal to the amount of credit paid to you). In this example, the credit is 2.70. This credit compensates you for the risk involved in potentially buying high and selling low. Hence, a reward this risk assumed when you establish this Short Put Spread.

Position yields maximum profits when GOOG shares are at or above 450 at expiration, because this will render the all the Puts worthless. The maximum profit potential is the credit received; ie 2.70. The breakeven point for this trade, at expiration, is 447.30 (450 - 2.70). Hence, at expiration, if GOOG settles anything below 447.30, a loss will incur. The maximum losses is limited to 7.30 (450-440-2.70) because when GOOG trades below $450, you would be obligated to buy GOOG at $450 and have the right sell it at $440, a potential loss of $10. But, since you have already been credited $2.70 for this Short Put Spread, the maximum damage is reduced by this amount.

((an important note about Short Put Spreads : Consider that GOOG shares subsequently trades below $450 but higher than $440 anytime before and up to expiration date. You will very likely be assigned 100 shares for every ONE contract of 450Put option sold. This means, you will need to have $45,000 in your account or if your broker grants you some leverage, a smaller amount is still nevertheless required to buy this 100 shares of GOOG at $450/share.
If this happens, you will end up with LONG 100 GOOG shares and a Long 440Put option position. If GOOG rebounds without going below $440, then your Long 440Put will expire worthless. This makes sense because you will most certainly not want to exercise your right to sell GOOG at $440 when you can sell them in the open market for a higher value.

In other words, for all Short Put Spreads, there is always the chance that you will be assigned with shares you are obligated to buy at a higher strike price, yet you may not necessarily want to exercise your right to sell those shares at a lower strike price. Please understand this assignment risk very well))

Profit/Loss Explanation :

((you will just have to assume that these option premiums are accurate))
Credit (means you receive) for Short Sept 450 Put = 8.60
Debit (means you pay) for Long Sept 440 Put = -5.90

Total Credit = 2.70

Maximum loss = 7.30 (440 - 450 + 2.70)
Maximum Profit = 2.70
Breakeven point = 447.30 (450 - 2.70)
Profit Range = anything at and above 447.30

Risk/Reward Ratio = 6.30 / 2.70 = 2.7; ie you risk 2.7 for a profit potential of 1.00 (but remember, you win in 2 of 3 scenarios. in fact, you can still profit if shares drop slowly but stays above 447.30. hence making the probability of a successful trade in 3 out of 4 cases)

The profit and loss is illustrated using the chart below

Bull Spread - Long Call Spread

2008-09-03T01:32:00.006+08:00

Bull Spread

Long Call Spread

When to use : Bullish Trend
How to establish : LONG a Call and SHORT a higher strike Call
Debit or Credit : Debit
Margin Requirement : No
What is the Maximum Profit : The distance between the LONG and SHORT Strikes (limitted)
What is the Maximum Loss : Amount paid (the debit) for the spread (limited)

Example :

RIMM is currently at $121.10 in early Sept
You expect RIMM to rally and have reasons to believe that it will have the potential to increase its share price to a maximum of $130, in the near term.
You then contemplate a bullish option position, since it is too capital intensive to pay $12,110 for 100 shares of RIMM.

You could just simply buy a Call option on RIMM, which will give you unlimited profit potential if RIMM price rallies extraordinarily. However, you are concerned about time decay on this position that is soon expiring. The current implied volatility is also high given a volatile market in the recent days. These 2 GREEKS will work against a simple Long Call position. Besides, it is also expensive to just buy a Call option.
Fyi, 1 contract of option is equal to right to trade 100 shares of the stock.

So, you decide to purchase a Sept 125 Call and sell a Sept 130 Call option spread. This is effectively, a Long Call Spread.

This Long Call Spread, gives you the right to buy RIMM at $125 and the potential to sell RIMM shares at $130, for which you pay a premium (equals to the amount of debit paid for this spread)

This position is similar to a Long Sep125 Call, but limits its upside profit potential when RIMM reaches $130. Consequently, for this reduced profit potential, you pay a smaller debit for this spread, and hence reduce your risk for this trade. Makes sense, since lower reward must be matched by a lower risk.
In this example, the premium(debit) of this spread is 1.50 (i shall only use unit rather than actual $ amount in all my examples)

Position yields maximum profits when RIMM shares are at or above 130 at expiration. The maximum profit potential is 130 - 125 net off debit paid. The breakeven point for this trade, at expiration, is 126.50 (125 + 1.50). Hence, at expiration, if RIMM settles anything below 126.50, a loss is experienced. The maximum losses will be limited to the premium of 1.50 paid and happens RIMM shares falls below 125 at expiration.

Profit/Loss Explanation :

(you will have to assume that these premiums are accurate)
Debit (means you pay) for Long Sept 120 Call = -3.30
Credit (means you receive) for Short Sept 130 Call = 1.80
Total Debit = 1.50

Maximum loss = 1.50
Maximum Profit = 3.50 ( 130 - 125 - 1.50)
Breakeven point = 126.50
Profit Range = anything at and above 126.50

Risk/Reward Ratio = 1.50 / 3.50 = 0.43; ie you risk 0.43 for a profit potential of 1.00

The profit and loss is illustrated using the chart below

Nazdaq100 - Forming a Triangle

2008-09-01T10:33:00.004+08:00

and hopefully, by the time, NDX drops to 1825 level, RSI would be in the oversold area...then, more impetus for a bounce off that support line...

Index of Option Spreads

2008-08-29T19:14:00.005+08:00

many a times, we can make sound assessment on where an underlying maybe heading towards but quite lacking the correct skillsets to capitalize on that judgement.

for most investors/traders, buying or shorting stocks, indexes, ETFs, even commodities are just about the only ways to engage the market.

fortunately, Options as the derivative, can be deployed in more ways than one, either to manage portoflio risks, obtaining acceptable risk/reward returns, or simply to profit, and thus may be used as an alternative investment vehicle to trading the actual underlying.

over time, i hope to dwell into each of these Option Spreads and strategies, postulate when each can be deployed under different market conditions, their associated risks, rewards and profit potential.

meanwhile, below lists the various Option Spreads and suggests which ones can be deployed under 4 different market conditions.

a word of caution. not all option spreads are suitable for the retail trader/investor and some may have associated unlimited loss potential.

hence, it is not wise to begin trading any of the above option strategies until one has sufficient knowledge about options trading.

SPX = Mother Resistance Up Ahead 1320

2008-08-29T16:05:00.001+08:00

XLF - Big Time Call Buying

2008-08-29T03:11:00.002+08:00

i get very worried whenever i see a very lobsided affair...and it's becos, the pigs always get slaughtered. better to err on the side of caution...

XLF.... beautiful rally for the last 3 days

a peek at the Put/Call Ratio of this ETF....my, my, my it is 0.218; ie. for every Put on XLF, there are 5 Calls on it. Very aggressive option buying happening here, anticipating the financials to rally going forward.

DOW - It's Never Easy To Rise to the Top

2008-08-29T02:05:00.003+08:00

As anticipated, the coiling triangle gave way to a rally this morning on all Indexes, including the DOW.

We've also noted since some weeks ago that all major indexes have several hurdles(resistances) to clear on any attempts to ascend.

It is not surprising then that the DOW has now 11700 resistance to clear; this being the immediate challenge. It's been attempting to clear past this level since late morning and it does not appear to be succeeding at this time (210pm US time).

If DOW is able to clear this 11700 convincingly, the Bulls will have reason to be joyful, as the next level of resistance appears to be at ~12000 or about 300 points further north.

In an earlier post, we mentioned the need to go easy on Short volatility positions. I hardly think a burst out of the gate with a 3 digit register, a mild market. This morning showed how aggressive indexes can become after a slight nap.

So, it now appears to be showing some signs of bullish bias, judging from the direction in which the DOW index moved out of the triangle apex, BUT only if this 11700 hindrance is very quickly overcome... Hence, adjust your positions accordingly...

it is not a time to hope, if one should be fearing.

good luck to all !!!!

Massey Energy (MEE) - Why Implied Volatility is Important Factor

2008-08-28T22:09:00.004+08:00

MEE, an energy company, in recent weeks have come under pressure from the sector sell off. This has been reflected in its shares, which is currently trading at a discount of >30% of its high of ~$95 in Jul 08

IKH, a TA technique recently introduced by a friend and a fellow forummer, Grandrake. I have been intrigued by this tool and have been expensing some time at it.

Base in IKH indicators, I gather the following opinion on MEE.

So, what then of this opinion? What use is it if we simply form an opinion, sit on it and sleep over it? It can only be useful, if we act on them with 2 objectives : 1) Risk Management 2) Profits

It can be said that just about any trades must have these 2 objectives encapsulated, in addition to other trading agenda; which could be hedging or income generation.

As for MEE, one possible option strategy may be to SELL a Call Vertical.

In this case, the following trade can be considered :

SELL MEE Sep 70Call and BUY MEE Sep 75Call for a credit of $1.60
(See analyse of this trade below)

Risk and Profit Potential of this trade :
Maximum loss of $3.40 ( a probability of ~49% of this happening)
Maximum profit of $1.60 ( a probability of ~51% of this happening)

This simply put, means, one is risking slightly a little more than $2 for $1 potential profit. Does not sound like a great proposition, does it ? Indeed, this is not a good strategy.

But more importantly, why is this happening?

The reason is in the current Implied Volatility (IV) of MEE's price action. The current IV is at ~70% as compared to ~95% in late Jun08. As a consequence of a lower IV, the premiums on options have all become "cheaper".

When choosing any SELL option strategies, it is vital to do so when IV is at the HIGH end of the historical volatility.

The reason that HIGH IV is a friend of options sellers, is because of the GREEK VEGA...but we shall leave this VEGA topic for discussion at another time, where it can be demonstrated that VEGA is capable of impact the value of option price significantly.

HENCE, is deploying the below strategy meaningful ?

- 1/+ 1 MEE Sep 70/75Call

IMO, the risk/reward is not justifiable.

FXP - An Indication of a Chinese Rally ?

2008-08-28T04:26:00.002+08:00

i've not looked into FXP Ultrashrt Xinhua 25 Proshares before since i dont focus on chinese bourses.
however, this chart just caught my attention recently.... hope this helps the folks who are trading chinese markets...

good luck all...

DOW - Coiling Tighter Than Ever (Ready for a Break)

2008-08-28T02:21:00.002+08:00

perhaps, DOW is getting ready for a decisive move.... see the triangulated movement for the last 1 month.
repeatedly, whenever resistance was reached, index was retarded, and when index reached support, it also promptly rebounded.
this cannot go on forever.
given the low volume, and a p-c ratio = 1 on the DJX index options and the midway RSI, coupled with DOW trading right at MA50, it appears, no particular bull or bear camp has an upper hand.
however, i strongly suspect that the majority of the sideliners are getting ready to pounce, whichever way the index breaks out of.

it is, hence wise, not to have any range bound positions; such as a Neutral Option Position, a Short Straddle or Strangle in the portfolio in the days ahead. if there is any ratio spreads, be certain to lighten up on the Short side if the ratio is >2:1, you wont want your Short options to suddenly get ITM via gap up or down in the succeeding days ahead.

good luck and wish you huat huat !!!

BroadCom - BRCM (Where Might be a Good Entry)

2008-08-28T01:08:00.004+08:00

Although BRCM is currently sitting on the MA200 support line, there have been instances where this MA200 line did not support well.
In addition, the price is currently in no man's land where Fibonacci immediate support and resistance is.
A noteworthy point is BRCM's Implied Volatility. It is currently at ~41%, and this is a low IV when compared to it's recent historical high of ~67% set in Jun08; ie it is more meaningful to consider some form of Long position for this counter

However, the "fanning" out of the price shows that it might be better to await for price to reach either side of the Green Lines.

Alternatively, these positions could be established...although not ideal as IV is pretty low.

Position #1 - Credit Spread
Sell Sep 26 Call and Long Sep 27.5 Call

Position #2 - CRedit Spread
Sell Sep 24 Put and Long Sep 22.5 Put

ie...an iron condor position.... which must mean that, one has to be pretty sure, this share is going no where from here but be ranged bound...preferably between $24 and $26...

the analysis of this iron condor position looks like this...

a picture

2008-08-27T04:16:00.003+08:00

DOW - Late Afternoon Action (Ichimoku Kinkyo Hyo)

2008-08-27T02:47:00.003+08:00

what does IKH tell me ???

BEARS everywhere ? unsure, as i have just started toying with this new TA tool...

DOW - Testing Crucial Support

2008-08-27T02:29:00.002+08:00

DOW - Blocked at 11600

2008-08-23T00:04:00.000+08:00

few days ago, there was a highlight on the need to be cautious on Long when and should DOW recover to 11600 region...becos of a GREEN Monster...

that resistance point is here...who knows if this resistance will stop and retard advancing index.... we wont know until later...but what we can do is to either lighten up on Longs or get ready to go Short...this is all short term trades...

DOW - Broke Channel Support

2008-08-20T21:39:00.000+08:00

looks like weakness prevails for now..

sillypics

2008-08-20T14:45:00.001+08:00

Will Doji Reverse The 8 Month Downtrend?

2008-08-20T01:42:00.001+08:00

here's an indicator that this major index may turn around soon. soon, in the context of a 10 year monthly chart. so, it's not tomorrow or next week, but the next successive 2-3 months ahead. by the time, it is clear that the DOJI formed in Jul08, is indeed a reversal candle, a significant rally would have taken place by then, perhaps taking DOW up beyond 12000 level.

any TA is only good if it is to be used in conjunction with trading/investment strategies.

now, i usually trust the TA tools i use. occasionally, i rely on candles. so far, there has been enough evidence that japanese candles do wonderfully well, in especially on long term charts. this is actually evidenced in the following 10 year monthly chart, where time and again, dojis pre-signal some form of directional change in the index.

however, since nothing is ever guaranteed, exercising caution in money management, trade executions and risks control will always be in order.

given the very clear Doji formed in Jul08, i will be hesitant to be mid term short. this is not to say, i wont trade a month long short positions, i may. but i would be sabotaging myself if my trade strategies include 3-6 months SHORT side.

given so much bearishness in current sentiments, and my unwillingness to be too Short for too extended a timeframe, perhaps, i would consider the following :

a) Selling Puts on stocks that I am willing to buy into at a specific low entry price
b) May Sell Verticals; ie credit spreads
c) Credit Ratio Spreads; perhaps even > 1:2 ratios for meaningful credit amount
d) Covered Call strategy, but only for stocks that I am willing to hold until at least Jan 09

good luck everyone and wish you Huat Huat !!!!

picture perfect entry for dow?

2008-08-19T01:01:00.000+08:00

15Aug08 - DOW is still in Rally Mode

2008-08-15T03:47:00.000+08:00

DOW Hourly Chart

15Aug08 - SPX caught in between

2008-08-15T00:33:00.000+08:00

Selling Put Options - Get Paid to Wait

2008-08-14T22:21:00.000+08:00

How To Profit from Selling PUT Options?

In a bear market situation, no one should bottom fish. But sometimes, for most of us, having cash idling almost feels sinful.

Do you want to get paid for your cash idling in your trading account while waiting for your target buy price to be reached?

Then, perhaps you should consider SELLing Puts options!

There are several good reasons for Selling Puts.

1) You are being paid to wait for price to reach your intended buying price
2) You pay a lower price for a stock that you wish to add to your account
3) You stay disciplined in not "chasing" after price rallies and get rewarded

To understand the above, one needs to understand what Selling of Put options entails.

In a gist, selling or known as WRITING a Put option is an act of undertaking an obligation to purchase the underlying stock at a predetermined price. See option chain on Citibank as an example.

Suppose, you WRITE 1 contract (equivalent to 100 shares) of Citi $15 Put Strike Price to expire in Sept08, then you will receive $0.45 credit or $45 (100 x 0.45) into your trading account.

The 4 scenarios that can happen by Sept08 expiration are as follows :

Scenario #1 - C Price Remains Roughly Unchanged
Since C price is above $15, then you will keep all of the $45 premium.
Static return is 45/1500 = 3% (there are only 36 days to expiration) or 30.4% annualized (3% x 365 / 36)
The reason I chose $1500 as the denominator is because this should be the money you should have in your account, standing by and ready to purchase C at $15. While this amount is not actually utilized, it should not be redeployed or else a margin call can occur, if C price tanks drastically. In actual fact, your brokerage will not require you to post 100% as margin. But it is always safer to ensure you do not bet using money you do not have.

Scenario #2 - C Price Rallies
Since C price rallies, your WRITE Put option will never be exercised. Similar to scenario #1, you keep all of the premium credited into your account.

Scenario #3 - C Price Drops Modestly
If C price drops but stay in this range $17.81 > C > $15, again this Put option that you sold, will expire worthless and again you keep all of the $45; ie 30.4% annualized returns.

Scenario #4 - C Price Tanks Below $15
Suppose C price drops very quickly and even before expiration date, C price went well below $15. What happens then. It is very likely you will be assigned 100 shares of C at $15. Why? The reason is because, when you WRITE 1 C Sep08 15 Put, you have assumed the obligation to be assigned (BUY) 100 shares of C at $15 from someone who LONG that C Sep 15 Put. That person has a right to sell to you 100 shares of C at $15 as and when he chooses to do so. Remember that in american style options, assignments can be done at any time before and up to expiration date.
Since now C has dropped well below $15, obviously, he will sell you 100 shares of C at $15 and goes to the exchange and buys C at a lower price, hence making a profit from the differential.
Does this then sound silly? The answer is NO. The reason is simply because you had wanted to purchase C only at $15 originally and not any higher. Now that C has come down to your price target, why would you lament about being a proud owner of C at $15? In fact, you are[/] not [b]paying $15 but actually $15 - $0.45 = $14.55 or a total of $1455 for 100 shares of C. This is a discounted price!

Hence, in WRITING Put option, the 1st premise MUST be that you already had the intention of purchasing that 100 shares of C at $15. If you do not have such an intention, then you should not be writing that Put option.

The Probability of Success
In 3 of 4 scenarios described above, you make a 30.4% annualized return. This strategy offers a 75% chance of success ! Isn't this a good strategy? It is, if you know exactly what you are doing.

The Icing on the Cake
Now that you are a proud owner of 100 shares of C, what next?
Refer to my earlier post on Covered Call Writing; ie, you can begin Writing Covered Call on your 100 shares of C....and should your Covered Call be exercised, meaning you have to deliver those 100 shares of C, this is a happy "problem". Remember that if you 100 shares of C are "called away", it only means that C price has moved up. You have C shares and it can only mean profits for you if C price rallies. The "if-called" return is always very good return on investment. If your Write Covered Call is not exercised, then you simply keep the premium. You win again.
Repeat WRITE Put Strategy detailed in this post and when you should be assigned again, repeat the Covered Call strategy once again. Do this exercise repeatedly.

If you stay disciplined and choose the correct Strike Price, Expiration Month, understand the Greeks and Implied Volatility, you will be a successful investor of your money in the long run.

The biggest misconception about Options Trading is that it is all about Long Call and Long Put. It is not. The most successful investors combine both stocks and options to maximise their capital.

I wish you success and HUat HUat !!!!

Buy/Write - A Covered Call Option Strategy

2008-08-14T22:17:00.000+08:00

Reasons for Writing Covered Calls or a BUY/WRITE

I will attempt to explain the reasons why Writing Covered Calls is essential in maintaining a more wholesome investment strategy

For a start, any and all investment strategies must achieve 2 main objectives; namely a primary objective to Profit and a secondary objective to Conserve Capital Invested. Hence, when we open an equity position, our aim is to close off that position with a predetermined profit or loss.

Writing Covered Calls can achieve these 2 specific objectives.

The simplest explanation of a Write Call option, is the act of SELLING a Call Option at a specific Strike Price and at a specific month.

Since most of us are more accustomed to LONG positions, the chosen example shall be LONG stock and Write Call option. This is classically known as Buy/Write position.

Let's use Citibank as an example. See what C is trading currently and the Option Chains(the choices of Calls and Puts) available.

Supposing you decide to LONG 100 shares of Citibank and Write a Sep08 20 Call. Fyi, 1 contract of option = 100 shares of stock.

You would be Buying 100 shares of C at $18.54 and SELL 1 Contracts of Sep08 20 Call. You would have paid $1854 for the 100 shares of C and receive into your account $85. Your net outlay for this Buy/Write position is $1769.

When you establish this Buy/Write position, you have effectively enforced 2 very important principals of trading.
#1) You have predetermined your selling price. In this case, you have decided the target price of $20 as your selling price
#2) You have also predetermined a margin of error, which the risk of this trade

Let me explain further by citing 4 scenarios that can happen once you enter this Buy/Write position.

Scenario #1 - Citi Rallies Mildly
By the 3rd Fri of Sept. If the price of 18.54 < 1769 =" 4.8%" style="font-weight: bold;">47.4% when annualised. In other words, if you do this month after month, theoretically, you would have made a handsome 47.4% on your investment. Not bad.
More importantly, your primary profit objective is achieved

Scenario #2 - Citi Remains Roughly Unchanged
By some stroke of chance, C remains roughly at 18.50 region by 3rd Fri of Sept.
All of Scenario #1 applies; ie. you still obtain 47.4% of annualized return on your investment

Scenario #3 - Citi Price Falls
Any astute and long term stock player will know that taking a loss is part of the game. But the question is when to take a loss. Setting too tight a stop loss can result in unnecessary wastage of commissions paid and not allowing sufficient price whipsawing effect. Yet, setting too large a stop loss can result in depletion of investment capital. So, where is a good balance?
Using Buy/Write strategy, you allow yourself to absorb up to ~$85 of paper losses, without actually incurring a real loss. How so?
Remember, you paid $17.69 for shares of Citibank at a price trading at $18.54. Effectively, you have given yourself acceptable paper loss of $0.85 downswing on C before a REAL loss is incurred. Therefore, if C price drops to $17.69, and you sell off your LONG C stock at this price, you would have accepted a loss of $0.85, or did you? In reality, you did not. This is because you have been credited $0.85 at the moment you WRITE Sep 20Call and received $0.85 credit. Although you would have suffered a loss from selling C at a lower price, you have already gained from Writing a Covered Call option. This results in a net neutral balance in your account (less any commissions). It provides you with a safety margin.
This is a disciplined way of ensuring your 2nd objective of Conservation of Capital is achieved.

Scenario #4 - C Rallies Past $20
What if by 3rd Fri of Sept, C price trades past $20.
This is wonderful ! It is a happy problem.
What will happen is that you will be assigned on your WRITE Sep 20Call. What this means, is that you will be obligated to deliver 100 shares of C to someone. This is done via selling your LONG 100 Shares of C at $20. Is this a problem? Absolutely NOT.
Remember that your original "purchase" price of C was at $17.69. If indeed C price zooms past $20, you would have profited handsomely.
Your return (known as "if-called" return) is calculated as
2.31 / 17.69 = 13% or 129% annualized... this is a bagger !

Happy trading everyone...and I wish you HUat HUat !!!!

13Aug08 - Possible LONG for Macy's?

2008-08-13T23:39:00.001+08:00

12Aug08 - DOW (Rally Still In Tact?)

2008-08-13T04:18:00.000+08:00

~11,370 needs to hold up else Jul's rally is considered dead...
meanwhile, today could be seen as a correction...

12Aug08 - SPX (Looking Good for Higher Grounds)

2008-08-12T10:49:00.000+08:00

One additional not captured in this chart is $VIX.
It briefly dipped below 20 on 11Aug. Upside risks increases as VIX crosses below 20...

11Aug08 - BKX (Banking Index) Showing Some Strength

2008-08-12T04:10:00.000+08:00

dunno why there is strength, could be lower CL price, could be govt's interventions to try solve banking problems, could be USD strength, could be a whole lot of effing reasons...who knows...it shows strength...so be it..

noteworthy is obviously, the resistance is coming up NOW...

11 Aug 08 - XLF - Testing MA200 Resistance....

2008-08-12T03:18:00.000+08:00

this is a first attempt at MA200...and quite expectedly, given that we are in a long term downtrend, that this attempt is failing (at least today)... however, given all the weak financial situations (Freddie, Fannie, ABS buy backs, SEC's probes, etc), it is still amazing that XLF has risen to where it is....and yet still actually showing some strength.

the sellers of financials have either dried up or decided it is high risk to short financials, the fact remains that the sellings have slowed drastically.

as soon as XLF breaks out of MA200, this can be a very bullish signal for funds to enter Long into financials...

11 Aug 08 - Retailers - Getting Strong from the USD Strength

2008-08-12T02:16:00.001+08:00

at this juncture, eur/usd has gone below 1.492. this is the first time that usd has strengthened to below 1.5 since at least Mar08.
CL has also plummeted to below 115pbl and that is despite a war in Georgia !!! the oil sentiment is undoubtedly very bearish and has been for some weeks now.
hence, as a result, the retailers are given some attention as the stronger usd can translate to better overall bottom line.

11Aug08 - XHB (Breaking Out?)

2008-08-11T22:31:00.001+08:00

iShares DJ Transportation (IYT)

2008-08-11T21:16:00.000+08:00

If buying only one sector in the market, healthcare (biotech, medical devices, pharmaceuticals) may be the best place to deploy your funds right now. However, transportation is another industry that's starting to pop. Last Friday, we initiated a new long position in iShares DJ Transportation (IYT), after it rallied above resistance of its recent consolidation. Moreover, it is also trading above its 20, 50, and 200-day moving averages, so there is much less overhead resistance to contend with. At just 5% below its all-time high, it would not take a lot of buying pressure in the broad market for IYT to zoom back up to test that level. The daily chart of IYT below illustrates the breakout:

Fibo - This Wonderful TA Indicator

2008-08-07T20:02:00.001+08:00