Hidden inside every chart is a story. A story about where the price has been and where it might go in the future. Some stories are obvious. Others are a little more difficult to figure out.
Indices Updated : 06:59:05
Sunday, April 29, 2007
KLCI, MKLAND, COMINTL
KLCI Set to test resistance 1,335. Overall, the bias is: Upwards. Short term: moving. Intermediate term: trending. The projected upper bound is: 1,375.39. The projected lower bound is: 1,277.77.
MKLAND As requested by RICK (Pointed by Anonymous) Holding well above resistance 1.10. Immediate target 1.40/1.55. Stop Loss 1.10. Overall, the bias in prices is: Upwards. Short term: Prices are moving. The projected upper bound is: 1.39. The projected lower bound is: 1.09.
COMINTL As requested by RICK. Set to test resistance 0.95/0.96. Overall, the bias in prices is: Upwards. Short term: Prices are moving. The projected upper bound is: 1.04. The projected lower bound is: 0.77.
"Hit and Run Trading II" contains17 newly revealed trading strategies - readily identifiable patterns you can count on consistently212 fact-packed pages in a big 8 1/2 x 11" format 22 fully illustrated chapters with 120 sample charts of actual trades. His best learning sheets over the past year from his daily trading service - he acts as your personal coach on a daily basisPlus answers and insights to the most frequently asked questions about short-term trading.
Section I - Momentum Continuation Patterns
Chapters 2 through 9 show why and how: Hot IPO Pullbacks are an especially lucrative strategy for today's sizzling market. Flat-Top Expansion Breakouts separate false alarms from the real thing. (This alone is worth the price of he book.)Reversal New Highs Method provides a rare but exceptionally lucrative set-up. Intraday Relative Strength Trading Strategy exploits the magnetic pull between big-cap NASDAQ stocks and S&P futures.Extended Level Boomers put low-risk, high-payoff moves on well-rested stocks.Non-ADX 1-2-3-4s reliably trigger up to 15 point gains within days.Jack-in-the-Box set-ups let you climb aboard a pullback and ride it to new highs.V-Thrusts expose stocks that are thrusting higher after they've taken a dip.
Section II - Advanced Stepping-In-Front-Of-Size Strategies
Chapters 10 through 12 show you how I step in front of momentum players before they dogpile in or stampede out. You will learn the newest and most advanced ways to move in front of institutional buyers before they push a stock higher (or lower). If you ever wanted to make a great living trading the stock market, this is the best way to get there.
Section III - More Reversal Strategies
Among the things you will learn in Chapters 13 through 16 are the many ways to profit from panic buying and panic selling as stocks reverse.
Section IV - Techniques of a Professional Trader
Chapters 17 through 22 focus on vitally important (yet often ignored) aspects of trading, including money management, stop placement, exiting positions, daily preparation and other areas that separate top traders from everyone else. In this one section alone you will learn:Which set-ups consistently produce the biggest gains.Why surprises almost always happen in the direction of the trend.Why the biggest profits are made in a falling market. How to increase your gains by narrowing your focus.When to hold a position overnight, and when to exit before the close.How to prepare a winning plan of attack for each day's trading battle.How good money management will save you during dry spells and choppy markets.Why stepping in front of size is the best way I know to get back on track.Why you should never, NEVER trade off the media's advice. Why your biggest mistakes can lead to your biggest wins -if you're willing to admit them.
About the Author
Jeff Cooper has been a professional equities trader since 1982 and is the author of three best selling books on trading: Hit & Run Trading I, Hit & Run Trading II, and The 5 Day Momentum Method. Cooper's financial markets experience started in 1981 at Drexel Burnham, working for his father, a private hedge fund manager. During this time, he discovered a love and fascination for the financial markets and the forces that move prices. He started trading for his own account in 1983 and left to exclusively trade the markets in 1986. Cooper has been a trader and author ever since, working out of his home in Malibu, California.
Shell-shocked investors have lost patience with the traditional buy-and-hold approach to investing. All About Market Timing arms investors with simple, easy-to-use timing techniques that they can use to enter rising markets, exit (or go short) falling markets, and make consistent profits in both market environments while protecting against catastrophic losses.
Compelling arguments demonstrate the superiority of basic timing over buy-and-hold, while step-by-step instructions show how uncomplicated timing can be. Specific investment vehicles are recommended that fit well into most timing strategies. Investors who want to time the market using their own strategies are provided with information on available software and Web sites. And those investors who are looking for advisors to help them are provided with unbiased rating services to help them select the advisor that is best for them.
KLCI ends down 0.3% at 1317.50 in thin volume of 1.46 billion shares, weighed down by profit-taking in blue chips and most heavyweights. Market breadth mixed; decliners beat gainers 454 to 417. Sell-off triggered by weaker U.S. stocks overnight, higher crude oil prices, lack of positive catalysts on local corporate front. KLCI tipped in 1300-1320 range Wednesday with downside bias as investors unwind positions ahead of national holiday Thursday. Investors are likely to sell into strength tomorrow as they would be reluctant to hold open positions over the holiday.
BIPORT Breakout Resistance. Next Target 6.00 Overall, the bias in prices is: Upwards. Short term: Prices are moving. The projected upper bound is: 5.96. The projected lower bound is: 5.27.
TOMYAM SHOPPING LIST
TODAY AYAM TALK
PNB To Buy Rest Of Island & Peninsular; MYR2.35/Shr
Sell Country Heights On Rally-TA Securities
ECMLibra Starts Supermax With Buy, Tgt MYR3.18
OSK Keeps Buy On Pantech, With MYR2.73 Target
OSK Keeps Tek Seng At Buy, 63 Sen Target
GPA A Sell Based On Charts - MIMB
S&P Keeps MBFH At Sell, Cuts Tgt To 55 Sen
K&N Cuts Reliance To Hold, Target To MYR2.56
Guocoland May Breach MYR1.80; Tgts MYR2-Charts - OSK
ARANK Immediate Target 0.87. High risk due to low volume.
Overall, the bias in prices is: Upwards. Short term: Prices are moving. The projected upper bound is: 0.90. The projected lower bound is: 0.72.
MULTICO Testing Resistance 1.85. If breakout, next target would be 2.40 Overall, the bias in prices is: Upwards. Short term: Prices are moving. The projected upper bound is: 2.01. The projected lower bound is: 1.66.
KONSORT Holding well above 1.35. Target 1.70 still valid. Overall, the bias in prices is: Upwards. Short term: Prices are moving. The projected upper bound is: 1.63. The projected lower bound is: 1.31.
PRESTAR Well supported above 0.90. Buying zone between 0.96-0.92. Overall, the bias in prices is: Upwards. Short term: Prices are moving. The projected upper bound is: 1.07. The projected lower bound is: 0.88.
Barry's chart patterns & trading tactics have been used by professionals for years. These skills can reap great rewards. At last! A real book from a real trader! This doesn't belong on your bookshelf, but under your pillow. Rudd's book illustrates chart patterns of top traders. They provide a solid foundation in technical analysis for day trading.
Book Description This book describes the trading strategies used by a professional stock trader in his own trading. The ideas come both from friends who are successful traders as well as his own experience with SOES trading. The collection of trading patterns described represents one of the first full-fledged books of instruction on short term, swing and day trading in individual stocks. The author's intraday trend trading approach and his scalping method are both described in detail. He uses the setups daily in his own trading. This manual should prove valuable to the thousands of short term stock traders who seek to make their living from speculating on short term price swings. It is a toolbox for finding high probability trades for success as you trade the stock market. The technical ideas are primarily crafted around the personality of the NASDAQ market but may also be implemented in New York trades.
About the Author Barry Rudd, a native of Dallas, graduated with a BS in Psychology from Texas A&M University. Barry worked in the area of pharmaceutical sales after college. Over a ten-year period he traded stocks, options and futures on a part-time basis and finally became a private full-time investor. He currently day trades stocks, primarily NASDAQ issues, for a living. He has studied all forms of technical analysis and has found "Simplicity is your friend. I rely primarily upon specific daily and intraday price patterns to trade."
KLCI ends down 1.7% at 1306.36, off 1291.64 intraday low, in moderately active trade on broad-based selling with plantation, property stocks leading decline. The market was also weighed down by the weaker sentiment in regional bourses. The index is expected to break below 1300 support Friday given pre-weekend profit-taking, weak technicals.
A negative stochastics divergence and a break of key support on technical charts of the Kuala Lumpur Composite Index suggests that the rally in Malaysia equities could pause following 22% gains since start of this year.
Negative divergence by daily stochastics - a classic sign of a change in trend - coupled with a break below important support of 1325 on the index's uptrend line from early March suggests the rally is losing momentum.
Furthermore, the index this week looks set to post a bearish shooting-star pattern on weekly candlestick charts - a weak signal at highs, while daily traded volume has shrunk from its peak of around 4 billion shares per day to less than 2 billion since last week.
A reasonable target for coming days would be the February high of 1285, which is quite strong support for the index, and it wouldn't be surprising if the KLCI embarks on another leg up from this support. And the long-term outlook remains bullish as long as the almost decade-long uptrend line from 1998, currently at a level of around 1100, holds.
However, a break below support at 1285 would confirm upward pressure had eased, opening the way for support at the 30-day moving average of 1251, slightly above 1240, which represents the 38.2% retracement of the index's rise from early March. Subsequent support is at 1211, the 50% retracement level.
TODAY'S AYAM TALK:
Telekom Malaysia To Buy 7.4% Of Excelcomindo For $113M
The Securities Commission (SC) has published a list of more than 50 companies which are not approved or authorised to deal in securities.Most of the companies listed have websites and a few are involved in pyramid schemes.
i. IPO Timeline Q : How long does it take an IPO to be listed after subscription opens? A : The minimum time needed is 13 market days for an IPO where the retail public portion is less than 20 million shares, 16 market days where it is between 20 to 50 million shares and 18 market days where it is 50 million shares and above.
Q : Can an IPO timeline be longer than mentioned above? A : Yes. The stipulated timeline is the minimum established. The IPO Issuer may choose to have a later listing. For example, subscriptions may open for more than the usual 5 market days, in which case the listing timeline will be longer.
ii. Share Application Forms
Q : Where can I obtain copies of share application forms? A : Copies are available at the offices of most stockbrokers, merchant banks and selected banks. In addition, copies are also available at the office of the IPO Adviser (normally a merchant bank or universal broker) and at MIH (Basement 1, Menara Multi-Purpose, Capital Square, Jalan Munshi Abdullah, Kuala Lumpur). Application forms are also printed in major newspapers for Main Board IPOs.
Q : How else can I apply for shares if I can't find share application forms? A : You may make use of Electronic Share Application if you are an account holder of one of seven participating banks (see Electronic Share Application FAQs for details) or an account holder with access to internet financial services facilities offered by an internet participating financial institution (see Internet Share Application FAQs for details).
Q : Must I have a CDS Account? A : Yes. Your application will also be rejected if you fail to provide your correct CDS account number.
v. Electronic Share Application (ESA) Q : Which banks offer ESA services? A : The Participating Financial Institutions are AmBank Berhad, Bank Muamalat Malaysia Berhad, Bumiputra-Commerce Bank Berhad, HSBC Bank Malaysia Berhad, Malayan Banking Berhad, OCBC Bank (Malaysia) Berhad and Standard Chartered Bank Malaysia Berhad (at selected branches only).
Q : How do I qualify for the ESA facility? A : You must have an account with a Participating Financial Institution and be issued with an ATM Card.
Q : I have not used the ESA facility before. Is it a difficult process? A : No, doing an ESA transaction is a simple process. Just follow the step-by-step instructions on the ATM screen of your Participating Financial Institution.
Q : After completing my ESA transaction, the ATM will issue a transaction slip. Do I have to send the slip together with a share application form to MIH? A : No. The transaction slip is for your retention as a personal record of your transaction. No share application forms are required for ESA.
Q : Is the ESA transaction slip the same as an ATM Statement obtained for IPO applications? A : No. The ATM Statement is a mode of payment in lieu of a bank draft, and just like a bank draft, must be attached to a share application form for submission to MIH.
Q : If my ESA application was not successfully balloted, how do I get my refund? A : MIH will inform your Participating Financial Institution that you have not been successful within 2 business days from balloting. Your Participating Financial Institution will credit your account within 2 business days after hearing from MIH.
vi. Internet Share Application (ISA) Q : Which institutions offer ISA services? A : CIMB Securities Sdn Bhd at www.eipocimb.com , Malayan Banking Berhad at www.maybank2u.com.my and RHB Bank Berhad at www.rhbbank.com.my
vii. Status of Share Application and Refunds Q : When will my share application be returned to me, if it is not successful during balloting? A Your share application envelope A with your payment draft intact will be mailed to you within 1-2 days after balloting.
Q : How will I know whether my share application has been successful during balloting? A : A notice of allotment of shares would be mailed to you prior to listing of the IPO.
Q : Are there any other ways I can find out whether my application is successful? A : You can check the status of your application on this website (IPO Results Enquiry), call your stockbrokers to check your CDS account or call MIH Enquiry Services at 03-26932075 ( 10 lines) during normal office hours.
Q : Why is it my unsuccessful share application is sometimes returned to me later than 1-2 days after balloting? A : Your application although not successful, could have been picked as a Reserve application during balloting and kept for a few more days in case it is needed to replace a successful application which is subsequently rejected. Being a Reserve application you still have a chance of being successful instead of being outright unsuccessful.
Q : Why do you need Reserve applications? A : Reserve applications are needed to replace a certain percentage of successful applications which are found to contain errors pertaining to payment, CDS account numbers and other irregularities during processing.
Q : Why is it my payment draft is cleared and yet I am unsuccessful? A : Although every endeavor would be made to avoid presenting an unsuccessful application draft for payment, this is sometimes unavoidable. An example would be when an application is initially successful, in which case the draft would be banked in and later an application error is detected e.g. wrong CDS account after verification by Bursa Malaysia Depository Sdn Bhd. For this reason, it is an IPO condition that no application shall be deemed successful by reason of the remittances having been presented for payment.
Malaysian shares ended up 0.6% at a record high closing level Tuesday, recovering from an intraday low as late fund buying overcame some profit taking activity, but off a record intraday high of 1334.44.
Gains on Wall Street overnight, the ringgit's continued strength against the US dollar and a healthy set of quarterly results from state-owned power producer Tenaga Nasional and banking group Public Bank set a positive tone in early trade.
The ringgit was up against the U.S. dollar late Tuesday, trading between MYR3.4340 - its strongest level since MYR3.35 in February 1998 - and MYR3.4390, on continued speculation that the Malaysian unit will soon be tradable offshore.
There was fairly strong buying momentum in early trade, but investors turned slightly cautious following losses on some Asian markets, while technical indicators suggest the market is overbought.
KLCI expected to trade between 1320 and 1340 points Wednesday with a downside bias as investors are expected to turn cautious ahead of the release of March inflation data. A recent government move to raise the ceiling price on steel billets and bars by 20% to ease domestic supply shortages and a growing black market is also expected to weigh.
However, companies in the steel sector were hurt despite the government allowing a 20% hike in the ceiling prices for steel bars and billets to MYR1,884 a metric ton and MYR1,553/ton respectively, against industry requests for an approximate 38% increase of MYR600/ton. Global steel prices are now around MYR2,200/ton.
This move will help earnings improve, but it will not be proportional to the rise in ceiling prices, steel makers will still have to absorb a loss, albeit a smaller one.
TOMYAM SHOPPING LIST
(Click to enlarge)
TODAY'S AYAM TALK
GM Still Interested In Tie-Up With Malaysia's Proton-Exec
Malaysia Ups Steel Ceiling Prices On Shortage Concern-Bernama
S&P Cuts Sdred To Buy From Strong Buy
Steel Stks Fall Despite Ceiling Price Hike
Crescendo A Strong Buy Based On Charts-MIMB
S&P Ups Priceworth To Buy; Target To MYR1.12
CPO Futures Down Slightly On Profit-Taking
Time Eng Uptrend Targets 95 Sen - Chart OSK
MS Stays Overweight On Tenaga, Tgt MYR14
MS Ups AirAsia Tgt To MYR1.80;Keeps On Equal Weight
CS Ups Evergreen Fibre Target To MYR2.3,Outperform
KLCI ends at all time high in term of close when +1.1% at 1322.91 in average volume of 2.0 billion shares, last time high was on 5 January 1994 (high 1,332, Low 1,314, Close 1,314). Today's market breadth positive with gainers tipping decliners 558 to 354. Firm foreign buying interest in plantation, property and select blue chips continues to keep market buoyant. From the current level, the only resistance level left to be tested by the market is the historic intra day high of 1332.04.
KLCI Breakout resistance 1,310. Next Target 1,370. For 16/4/2007 the index closed at 1,322.9100. Overall, the bias in prices is: Upwards. The projected upper bound is: 1,374.50. The projected lower bound is: 1,276.67.
KLCI fail to break the 1310 resistance. The Stochastic looks very bad. Technically, bearish wedge chart pattern on the KLCI is likely to trigger more selling interest; this will grease downside toward 1285, the February 26 peak. As for myself, I do not plan to take any position just yet. However, still got some stocks to monitor as in the my TOMYAM SHOPPING LIST. Happy Hunting.
KLCI For 13/4/2007 the index ckose at 1,308.2000. Overall, the bias is: Upwards. The projected upper bound is: 1,359.43. The projected lower bound is: 1,262.04.
"Good book if you have mastered the basics, if not then good luck my friend cause there is no methods that can really stand alone in this book. But this book will really help you if you have a good method but just want to improve it." - TS
Book Description
DeMark has been a most-valued advisor to such financial barons as Leon Cooperman and Laurence Tisch. He and his models have shaped the investment strategies at some of the largest and most successful trading operations in the world, including Tudor Group, Odyssey Partners, and Warburg, Pincus. His word is gold among decision-makers at such investment giants as Goldman Sachs, Citibank, Discount Corp., and Criterion Fund. Now, at last, Thomas DeMark has decided to go public and share with traders and investors everywhere the proven forecasting techniques that have made him one of the most potent behind-the-scenes forces in the world.
In this, his long-awaited first book, technical analysis guru Thomas R. DeMark describes the sophisticated market timing models, which he developed over the course of nearly a quarter century, devoted to the study of market trends and forecasting techniques. Rigorously scientific, rather than 'artistic' or intuitive, the empirically based approach used by DeMark eliminates reliance on gut-feelings and guesswork and serves as the rational foundation for dynamic systems that mechanically generate buy and sell signals. Proven to work with every type of market and all forms of data, these systems, along with a number of new and highly effective indicators which he introduces for the first time in this book, will dramatically improve your trading capability and versatility.
The New Science of Technical Analysis is sure to be ranked among the rare handful of books that irrevocably transform the way business is done around the world.
KLCI ends +0.1% at 1307.19 in volatile trade, after trading between intraday 1313.27 high and 1298.53 low as profit-taking alternates with light buying. The market is getting more volatile as bulls and bears tussle for control; this is not a healthy sign, index to trade in 1290-1320 range tomorrow; also notes KLCI futures consistently trading at 12-13 point discount to cash market, which suggests market may be on downtrend. Plantation stocks continue to shine for third day on stronger CPO price outlook following supply shortage. As for me, I'm totally out of the market. Just want to get a good sleep during weekend.
TOMYAM SHOPPING LIST (click to enlarge)
AYAM TALK TODAY
LBS Bina Charts Point To MYR1 Target - OSK
Hwang-DBS Ups TH Plant Tgt MYR4.31 vs MYR3.64, Forecasts On JV Deal
Boon's Trade Bursa Malaysia Blog & Cow Don't Trade Blog
Haiiyahh! forgot to mention that a few dayz ago I had added links to these very informative blogs under my "Active Trading Blog" list. Feel free to visit them at:
KLCI ends down 0.01% at 1306.22, off 1316.13 intraday high (also year's high) in moderately active trade, as profit-taking erases earlier gains; Initial support at 1300 followed by 1285 (Feb 26 peak). Volume at 2.3 billion shares while falls lead rises 531 to 381. Plantation stocks up on stronger CPO price outlook following supply shortage; property stocks gain on speculation government to announce further measures to boost sector soon.
GUOCO Ready to test resistance 1.80 For 4/11/2007 the closing price was 1.7200. Overall, the bias in prices is: Upwards. The projected upper bound is: 1.91. The projected lower bound is: 1.54. The projected closing price is: 1.73.
AIGB Breakout resistance. New potential target 2.90. Overall, the bias in prices is: Upwards. The projected upper bound is: 2.90. The projected lower bound is: 2.37.
PSIPTEK Potential immediate target 0.96 For 4/11/2007 the closing price was 0.8900. Overall, the bias in prices is: Upwards. The projected upper bound is: 0.96. The projected lower bound is: 0.82.
KLCI +0.4% at year high of 1304.71 in moderately active trade, led by gains in property, technology, plantation stocks; may head up to test 1310 resistance. Although we do not discount bouts of profit-taking to emerge, the market looks poised to move up to test the all-time high of 1332 (1994's peak). Property stocks likely to continue to attract interest tomorrow on talk government to announce further measures to boost property sector.
TOMYAM SHOPPING LIST
TODAY'S AYAM TALK:
Citigroup Keeps Buy On UEM World, Tgt MYR5
VW Reiterates Plans For Proton Talks, No Details On Timing
PMETAL Breakout Resistance RM1.05. Next Potential Target 1.43/1.60. For 6/4/2007 the closing price was 1.22. Overall, the bias in prices is: Upwards. The projected upper bound is: 1.38. The projected lower bound is: 1.08.
JOHAN Breakout Resistance 0.28/0.29. Next Potential Target 0.35/0.40 For 6/4/2007 the closing price was 0.3000. Overall, the bias in prices is: Upwards. The projected upper bound is: 0.35. The projected lower bound is: 0.26.
Dr. Elder's books are best of breed. He doesn't peddle dreams. He tells you straight-up exactly what you are up against in becoming a successful trader. He defines in depth realistic objectives and methods.
Come behind closed doors and see real trades made by real traders. Dr. Alexander Elder leads you into 16 trading rooms where you meet traders who open up their diaries and show you their trades. Some of them manage money, others trade for themselves; some trade for a living, others are on the semi-professional level. All are totally serious and honest in sharing their trades with those who would like to learn. You will meet American and international traders who trade stocks, futures, and options using a variety of methods. All are normally very private, but now, thanks to their relationships with Dr. Elder, you can see exactly how these traders decide to enter and exit trades. Each chapter illustrates an entry and an exit for two trades, with comments by Dr. Elder. With this book as your guide, you can get closer to mastering the key themes of trading—psychology, tactics, risk control, record keeping, and the decision-making process.
KLCI ended +0.5% at 1277.48 in moderate volume of 1.73 billion shares as profit-taking from yesterday's 1.2% gains capped benchmark's rise. Market spread remained negative throughout the day with little follow through buying but last hour gains in government-linked stocks and select heavyweights helped to lift benchmark into positive territory. The KLCI has a reasonable chance of rising to test 1285.15 (year high) tomorrow but pre-weekend selling is likely to narrow gains.
GOLDIS Resistance Breakout. Potential Target 2.45 For 5/4/2007 the closing price was 2.2500. Overall, the bias in prices is: Upwards. The projected upper bound is: 2.45. The projected lower bound is: 2.10. (Stop Loss Point)
TOMYAM SHOPPING LIST
AYAM TALK TODAY:
Glomac, UAE's Al Batha To Build MYR450M Office Tower
CPO Futures Down, But L/T Uptrend Seen Intact
Land & General's Charts Point To More Weakness
SKP Resources Down 4.9%; Support At 18 Sen
Hunza Properties May Hit MYR2.50 - OSK
MIMB Has Strong Buy On Puncak Niaga
TA Keeps Buy On Proton; MYR7.50 Target
Matsushita Electric Begins Producing LCD TVs In Malaysia
Malaysian market is not isolated anymore. The previous uptrend was due to excess of liquidity. Foreign funds are in and out almost every trading day. So I think we should monitor closely the mother of all liquidity - YEN CARRY TRADE (the movement of USD/YEN, DOW JONES and NIKKEI).
From observation (pls correct me if I'm wrong + some good reasons):
If USD/YEN dwn + Dow Jones dwn + Nikkei dwn = Bad news (KLCI might also turn south)
If USD/YEN dwn + Dow Jones up (vice versa) = no significant effect on Nikkei & KLCI
If USD/YEN up + Dow Jones up + Nikkei up = Good news (yiipie kayea for KLCI).
Neither Shanghai, Hang Seng/STI/KOSPI nor Greenspan leads the KLCI - but the DJ, USD/YEN & Nikkei.
Yen Carry Trade 101
The Bank of Japan’s zero interest rate policy since early 2001 has created an incentive to borrow in Japan at close to nil interest rates and employ the borrowed money to buy high yielding assets such as US 10 year Treasury Notes. For instance, an individual borrows 106,200 Yen from a Japanese bank at 0.5 per cent interest rate, which he then exchanges for US$900 (the exchange rate is 118 yen per US$).
He then uses the $900 borrowed money together with his own $100 to invest in US Treasury Notes for a yield of 4.5 per cent. After one year the $1000 becomes $1045, implying that after interest expenses of $4.5 our investor makes a profit of $40.5, which amounts to 40.5 per cent return on his $100. As long as the dollar stays stable or does not fall against the Yen our investor is going to make a hefty return on his money.
However, the whole thing could reverse very rapidly should the US$ depreciate against the Yen. Let us say that the Yen has appreciated against the US$ and it is trading at the end of the year at 115 Yen per US$. In this case on the maturity date, one-year after, our investor must repay $928 — this means that his profit falls to $17, or 17 per cent. Obviously should the Yen to appreciate much more, let us say to 112 Yen, then his repayment to the Japanese bank in dollar terms will amount to $953 implying a loss of 8 per cent.
So it is not surprising that most Yen carry trade players have become very fearful of the recent appreciation in the Yen against the US$. (On Thursday March 8 the price of US$ in Yen terms fell to below 116 Yen against 118.44 Yen at the end of February). Most analysts maintain that the Yen carry trade has boosted world liquidity and this in turn has given a boost to asset prices in all parts of the world. It is held that as a result of the strengthening in the Yen an unwinding of the Yen carry trade is likely to ensue, which in turn could lead to the decline in the world liquidity. A fall in world liquidity in turn could pose a serious threat to financial markets and to world economic activity, so it is held.
I'm a hardcore Technical Analysis Trader in the Malaysian stock-broking industry. This is a personal weblog, reflecting my personal views and not the views of anyone or any organization. THIS BLOG ALSO DEDICATED TO MY SUBSCRIBERS WHO HAVE ENCOURAGED ME AND TO THE THOUGHTFUL TRADERS WHO DESIRE TO FOLLOW PRACTICAL RULES FOR TRADING INSTEAD OF GUESSWORK AND GAMBLING METHODS.
