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, December 30, 2007
Try to Close High
KLCI ends +0.6% at 1447.04 in thin volume of 663.2 million shares, with decliners edging out gainers 425 to 415. Last minute buying support from local funds local funds cited for market's gains. The benchmark's rise is largely due to year-end window dressing by local funds. A number of heavyweights and index-linked stocks posted last minute gains in thin volume. Tips index to trade in 1440-1460 next week, but cautions, profit-taking in holiday-shortened week may keep benchmark at lower end of range.
KLCI ends +1% at 1437.82 in moderate volume, with gainers outpacing decliners 478 to 345 as year-end window-dressing continues to buoy the market. Plantation stocks led the market higher on record high CPO prices while local funds continued to prop-up blue chips and government-linked construction stocks. Tips benchmark to trade in 1430-1450 range Friday but cautions profit-taking ahead of weekend may narrow gains toward close.
KLCI ends +0.1% at 1424.02 after staying in narrow range throughout the day in sluggish trade. The lack of fresh leads and weak investors interest because of the holiday season has been a recurring theme since last week and will likely to persist until the end of the year. Advancers outpace decliners 490 to 320, with profit-taking on select blue chips offset by rise in plantation stocks amid record high CPO prices; KLCI tipped to stay in 1415-1430 range tomorrow.
An ancient knowledge unlocks the mysteries of the Universe as well as the secret of market behaviour.
CAN AN ITALIAN MATHEMATICIAN'S 13th century discovery really make you money? Most professional traders would agree. Fibonacci was an obscure mathematician born into a family of merchants who wrote a number of texts, which played an important role in reviving ancient mathematical ratios. One of these timeless ratios is the foundation for behavioural technical analysis. It is the Golden Ratio first mentioned by philosophers such as Aristotle of ancient Greece and known by builders of the Egyptian pyramids.
This ratio was demonstrated with many examples from nature in his mostimportant text known as Liber Abaci, written in 1202. In this book, Fibonacci detailed the mathematics and revealed the mysteries behind the construction of the ancient pyramids of Egypt. He proved that the Golden Ratio was applied by the engineers, developers and building contractors to every stage of pyramid construction.
What is more amazing is that the finished pyramids were in actuality manifestations of golden ratios.
The Golden Ratio is the heart of Fibonacci analysis. It is based on the ratio 1.618. And is based on the number sequence, which is known as the Fibonacci sequence: 1,1,2,3,5,8,13,21,34,55,89,144 and so on.
Each number is added to the preceding number. For example 1 +1 =2, 2+1 = 3, 3+2 = 5.
As the sequence expands, dividing two consecutive numbers will give the ratio .618, the reciprocal of the golden ratio 1.618. For example, dividing 89/ 144 = .618.
WHAT IS THE SIGNIFICANCE OF THIS RATIO?
It is found in nature in the structure of flowers. The sunflower is a good example. The seeds are distributed over the flower's disk in Fibonacci numbers. The human body has 1000s of Fibonacci ratios and numbers. For example, our hands have five fingers and three joints in each finger, which are Fibonacci numbers.
The Golden Ratio can also be found in the shells of soft-bodied mollusks such as snails and oysters. The Golden Ratio patterns on their shells reflect the changes in their annual growth rates. Application to stock markets also show this Fibonacci growth pattern
FIBONACCI AND NATURE
The Fibonacci sequence can be found in the universe. Each arm of a galactic spiral has a logarithmic shape, which conforms to Fibonacci numbers. Nature finds it easiest both to structure itself and grow in a manner specified by the Fibonacci sequence. In fact DNA is structured in a Fibonacci sequence.
Nature implants in all living organisms the Fibonacci sequence. Trees and plants exhibit this Fibonacci growth pattern as branches and leaves grow one at a time.
THE MARKET AS A LIVING ORGANISM.
As markets reflect the hopes and fears of human beings, it is reasonable to say the Fibonacci sequence of numbers and the golden ratio could be found in markets.
Fibonacci math works through crowd behavior. A rally builds a common structure of participation. When it finally ends and starts to unwind, shareholders try to predict how far price might fall before the underlying trend resumes. The unconscious mind first sees the proportional one-third retracement as a good reversal point. New buyers do emerge here, but the subsequent bounce often fails through the prior intermediate low. This terminates the crowd's greed phase and begins a period of reason.
W D GANN'S 50% RULE.
The great master trader and multimillionaire W. D. Gann described in 1930 a trading rule that can be applied to get rich.
It was after he had gone to India to study the secrets of numerology from prominent wizards and gurus. From this instruction he gained wisdom about the mysteries of human nature and how they could be measured and applied to earning profits in the market.
When he returned from India to the US he applied these methods to his trading and became more rich.
It was the 50% rule. He advised to wait for markets to make new highs and correct 50% from these highs and then buy. He also mentioned the .618 level as a buying opportunity. He also advised to place a stop loss level under the swing low.
Conceptually this is a powerful method and is in fact used by most professional swing traders as it defined a small risk under the Fibonacci retracement with the opportunity of a large profit to be taken at the swing high.
This article is an introduction to the power of Fibonacci. It works because it is founded in human behavior and emotion, just like swing trading. I suggest you use your MetaStock Fibonacci retracement tool and apply it to your trades. It should improve your results.
You have a great site and wonderful blog. It is refreshing to know that you are passionate regarding the topics you discuss.
Here at FORA.tv we are passionate about bringing the best political, social and cultural content from the world's leading forums.
I wanted to share today's video, "The Asian Financial Crisis: Ten Years On".
A decade after the Asian Financial Crisis, the region seems to have largely recovered and economic growth is as strong as ever. But what lessons have been learned from the past and is the region prepared for another financial shock? Have reforms instituted after the crisis been far reaching enough and what changes still need to be made? How can Asian countries lessen their dependence on export led growth and their vulnerability to slowdowns in other regions?
Hope you enjoy it and share it with your readers. We can't wait for you to come check out our new site and discuss your thoughts on this program in our forums.
Malaysian shares end 0.5% lower at 1403.41 on profit-taking ahead of weekend, though overall trading activity sluggish; Lack of cues from Wall Street prompted most investors to stay on sidelines. Investors were also watching to see if the 1400 psychological support could hold. Now that it has ended above that level, a sign of the market's resilience, buying interest may return next week; tips KLCI to stay within 1385-1425 band in coming sessions; decliners beat advancers 453 to 347.
Asian Shares End Down; Investors Fear China Rate Hike
Most Asian markets fell Friday on a mixture of regional factors - ranging from the expectation that China may raise interest rates soon to signs of growing pessimism among Japanese corporate executives.
Lingering worries about the fallout from the subprime mortgage crisis in the U.S., a vital export market, continued to weigh on sentiment.
In Tokyo, the benchmark Nikkei 225 stock index fell 22.01 points, or 0.14%, to 15,514.51 points, bringing its three-day loss to 3.3%.
Investors were disappointed by the Bank of Japan's quarter "tankan" survey that showed confidence at major Japanese companies has fallen to its lowest in more than two years amid worries about the strong yen and higher oil prices.
The survey's most-watched number, the sentiment index for large manufacturers, fell to 19 from 23 last quarter, the lowest since September 2005.
Real estate companies like Mitsui Fudosan Co. were among the decliners.
Banking stocks also fell after Citigroup Inc. said overnight it plans to assume control of the seven "structured investment vehicles" the bank advises to help them repay their debts. Mizuho Financial Group sank 4.9% and Mitsubishi UFJ Financial Group fell 4.78%.
Meanwhile, the dollar's recent recovery against the yen helped lifted exporters like Matsushita Electric Industrial Co. and Nintendo.
With no major market-moving news expected next week, traders expect the Nikkei to be volatile.
"That's what is likely to happen while the market lacks domestic catalysts," said Hitoshi Yamamoto, CEO of Fortis Asset Management Japan.
In Hong Kong, shares fell on continued concern about the U.S. economy and expectations China might raise interest rates this weekend to curb inflation.
The blue-chip Hang Seng Index fell 180.81 points, or 0.65%, to 27,563.64. It has dropped 6.8% since it closed at 29,530.32 last Thursday.
Traders said the correction may not be over yet and selling pressure will remain in the near term on continuing concerns over the weakening U.S. economy.
"Trading has become lethargic with no positive leads now," said Castor Pang, a strategist at Sun Hung Kai Research.
Banks were under pressure Friday on uncertainty over the impact of the sub-prime crisis. China Construction Bank dropped 2.4%.
Many mainland Chinese companies fell on expectations China's central bank may raise interest rates over the weekend to curb accelerating inflation.
But on the mainland, stocks rose, led by strong gains in liquor makers who are expected to benefit from higher food prices. A rebound in property developers also helped buoy the market.
The benchmark Shanghai Composite Index gained 1%, or 49.86 points, to 5,007.91.
In currency, the dollar was trading at Y112.42 at 0750 GMT Friday, up from Y112.21 late Thursday in New York.
The euro edged down to $1.4625 from $1.4627.
Elsewhere, Thailand's main stock index rose 0.4% to 836.40.
Indonesian shares fell amid the general risk aversion clouding regional markets. The main stock index dropped 0.6% to finish at 2,740.1.
Malaysian shares declined in profit-taking ahead of the weekend, with overall trading activity sluggish. The Kuala Lumpur Composite Index fell 0.5% to 1,403.4.
Philippine shares tumbled, hurt by foreign selling as stock markets retreated around the region. The Philippine Stock Exchange Index fell 2.4% to 3,538.7.
South Korean shares fell as stock of companies with business in China were dragged lower on worries about higher rates and that new Chinese labor laws will make it more difficult next year on foreign companies operating there. The Korea Composite Stock Price Index, or Kospi, fell 1.1% to 1,895.1.
Singapore shares dropped for the third straight session on the enduring worries over the U.S. economy and as markets dropped throughout Asia. The Straits Times Index lost 0.4% to close at 3,466.4.
Australian stocks fell on broad selling as traders fretted about how Wall Street might react to more news on the U.S. subprime lending crisis. The benchmark S&P/ASX 200 index dropped 1.6% to 6,491.7.
Taiwan's main stock index fell to a four-month low on continued concerns over rising labor costs in China, where many of the island's companies have operations. The Weighted Price Index of the Taiwan Stock Exchange shed 0.9% to finish at 8,118.1.
New Zealand stocks rose slightly as worries over problems in global credit markets, high domestic interest rates and a strong local currency kept investors on the sidelines. The benchmark NZX-50 gained 0.2% to 4,008.7.
KLCI +0.2% at 1428.28 in thin volume, led by Telekom Malaysia +2.7% at MYR11.50, Bursa Malaysia +1.9% at MYR15.80. But market breadth negative, with decliners leading gainers 431 to 245. Last hour buying interest from local government-linked funds may lift broader market, while expectations U.S. may cut interest rates tonight likely to keep market buoyant. Tips index to stay in 1425-1435 range. Intermittent profit-taking may hamper upside, but the thin volume traded makes it easier to prop-up gains due to lack of selling pressure.
Malaysian shares end down 0.6% at 1425.13 on profit-taking, with trading activity subdued as investors await outcome of Fed interest rate decision Tuesday; market breadth negative with decliners beating gainers 522 to 246. The combination of cautiousness ahead of the Fed decision and a lack of corporate developments sapped investor interest. The market will probably stay in the 1415 to 1440 range in the near-term.
KLCI ends down 0.4% at 1434.04 in thin volume, off intraday and record high of 1449.70, as pre-weekend profit-taking drags market off highs. Market breadth turned negative with decliners leading gainers 554 to 285. The pull-back not surprising as market had gained almost 5.5% over the week following listing of Sime Darby. Market tipped to trade in 1430-1450 band next week. All eyes will be on the Fed's decision on interest rates next week. Local government-led funds may also start window-dressing activities ahead of year-end book closure and this could keep the market buoyant.
Asian markets were mixed Friday as caution crept back into some bourses despite another strong showing on Wall Street on the U.S. government's plan for dealing with the country's credit crisis.
Benchmark indices in Hong Kong, Indonesia, Malaysia, South Korea and Thailand lost ground as investors took the view that an expected cut in Federal Reserve interest rates next week had already been factored into their markets.
Japan's benchmark Nikkei 225 average, though, hit a one-month high as Japanese investors were heartened by the renewed confidence in the United States, a key market for Japanese goods.
The Nikkei added 0.5% to close at 15,956.4 points, marking its highest finish since Nov. 7.
The Dow rose 1.3% Thursday on the view that companies hurt by the housing crisis will benefit from the U.S. government plan to help financially stretched homeowners.
Investors also widely expect the U.S. economy to get additional relief from a rate cut when Fed policymakers meet Tuesday.
"Japanese stocks have been left relatively undervalued. They should keep rallying back toward the end of the year," said Shigeharu Shiraishi, managing director of Societe Generale Asset Management.
The broader Topix index, which includes all shares on the exchange's first section, added 0.61% to finish at 1,561.8.
Meanwhile, Hong Kong's benchmark index tumbled 2.4% to 28,842.5 as investors sold property developers boosted recently by the expectations of a U.S. rate cut.
The benchmark measure had gained 8.6% over the last seven sessions as investors looked ahead to the Fed meeting next week, when the bank is widely expected to cut it key rate for the third time this year.
But, "unless we are more confident that the Fed will continue cutting interest rates, I don't see any new reasons for the index to be pushed up above 30,000," said Castor Pang, a strategist at Sun Hung Kai Research.
Property developers fell as investors took profit after their recent rally.
Sino Land fell 9.5%, New World Development dropped 7.3%, and Cheung Kong dropped 4.3%.
Bucking the downward trend, PetroChina, which will join the Hang Seng index on Monday, gained 1.8%. China Shenhua Energy, which also joins the blue chip ranks on Monday, rose 0.9%.
China Railway Group made a strong Hong Kong debut and finished 27% above its initial public offering price on expectations of strong demand for infrastructure in China.
In Tokyo currencies, the dollar was trading at Y111.26 yen at 0750 GMT Friday, down from Y111.40 late Thursday in New York. The euro fell to $1.4614 from $1.4633.
Thailand's main stock index fell 0.5% to 841.4 ahead of a long weekend. Thai financial markets will be closed Monday.
Indonesian shares fell as profit-taking reversed gains chalked up in the morning session. The benchmark stock measure fell 0.6% to 2,778.9.
Philippine shares climbed on hopes the central bank will cut interest rates next week. Gains were limited as some investors began pocketing gains from a seven-day rally. The Philippine Stock Exchange Index rose 0.3% to 3,745.4 in a volatile session.
South Korean shares retreated as investors grew cautious over recent sharp gains despite continuing upward trends in the U.S. and other Asian markets. The Korea Composite Stock Price Index, or Kospi, fell 1% to close at 1,934.3.
Chinese stocks rose as expectations of stronger demand boosted buying of steelmakers, though trading remained thin ahead of major initial public offerings. The benchmark Shanghai Composite Index gained 1.1% to finish at 5,091.8. The Shenzhen Composite Index rose 1.6% to 1,318.6.
Singapore shares rose, but most of their earlier gains were wiped out as investors remained cautious ahead of the release of U.S. November non-farm payroll data. The Straits Times Index finished 0.2% higher at 3558.0. It hit 3,621.8 during the session.
Australia's benchmark stock index hit a four-week high, buoyed by short-term optimism as traders await the U.S. non-farm payroll data and the expected rate cut from the U.S. Fed. The benchmark S&P/ASX 200 index gained 0.8% to close at 6,654.7.
Taiwan's stock index rose to a 3-week high on the overnight Wall Street rally. The Weighted Price Index of the Taiwan Stock Exchange rose 0.32% to 8,722.38, its highest close since Nov.16.
The expression "biting the bullet" is an idiomatic phrase meaning to enter with resignation upon a difficult or distressing course of action.
The expression is also used in the stock market to mean folding a losing position.
The Hunt
Incidentally, many investors find biting the bullet hard to learn even after being in the market for some time.
For them, biting the bullet is like drinking the farewell cup that results into one's own death. It evokes horror and a feeling of regret similar to the testimonies of people on the verge of death.
Speaking from experience, cutting losses is really difficult. One loses self-respect. It makes him feel less not only materially but psychologically as well. And for that alone, cutting losses is an act difficult to follow. That's why many actually don't seem to learn how to cut losses and, worse, don't know when to do it. Sometimes, they feel they should have done it earlier, before they became totally broke.
More successful stock traders and investors say the emotional and psychological trauma of cutting losses in a losing position can be avoided by using some mechanical tools.
Some price triggers are all that is needed to make stock trading more mechanical than mental. This is by the use of so-called protective "stop orders."
Secrets of the past
Stop orders are really needed when trading in the stock market. It's a common experience that when the market goes against one's trade, critical judgment is weakened and false hopes rule. Some investors even paradoxically go into risky gambles to avoid taking certain losses.
The first of these protective stops is the stop order. It's an order to buy or sell a stock when its price reaches a particular level.
This ensures a particular entry or sell price. It also limits the investor's loss and locks his profits.
This stop order is also referred to as the stop-loss order. Professional traders use this type of stop order to protect their position when going on an extended vacation, during which they cannot watch the progress of the market and their stock positions.
Another type of stop order is the stop-limit order. It's an order placed to buy or sell at a specified price after a given stop price is reached or passed.
The limit price is the trigger to execute the order. This stop order is effective and applicable when buying a stock that is going up.
The most interesting stop order is the scale order. It's a type of trading order that comprises several limit orders at incrementally increasing or decreasing prices.
Like in the scale order to buy, the limit orders will decrease in price, triggering buys at lower prices as the price starts to fall.
With a sell order, the limit orders will increase in price, allowing the investor to take advantage of increasing prices, thereby locking in higher returns.
To illustrate, if the investor wants to purchase 100,000 shares of stocks, he may scale the limit orders so that 1,000 shares are bought for every P100 fall in price.
There is also the limit order. This is an order to buy or sell at a predetermined amount of shares at a specified price or better. The limit order may also limit the time an order can be outstanding before being canceled.
Limit orders typically cost more but are beneficial because when the trade goes through, the investor gets the specified purchase or sell price. In practice, limit orders are useful during low volume of highly volatile stocks.
The most popular among the stop orders is the buy stop order. It's a price above the current going price. The buy stop order starts to work when the price exceeds the price the investor has set.
In that event, the buy stop will automatically trigger a market order. The buy stop is particularly applicable when the investor correctly anticipates a rise in stock price.
The reverse of the buy stop order is the stop loss order. The principle is the same except that instead of watching out for prices on the uptrend, the point of trigger is when prices start to go down.
Lastly, when a stock price decreases and, consequently, an investor's stop order is executed, one is said to have been stopped out. In other words, when you place a stop loss order to sell when the price of the stock moves below P50 per share, and it does, you are said to have been stopped out.
Insider lies
Corollary to the stop order is the concept of averaging down and averaging up. The former is buying stocks at prices lower than previous buys. Averaging up is the opposite, where one buys as the price of the stock goes up.
In the former, you get more shares for every peso spent, while in the latter, you buy fewer shares for every peso spent.
Averaging up is said to be the better trading strategy since of the four cardinal rules in risk management in stock investing, the first is to never average down.
So what are the ideal stop prices? They are usually the prices found just below major moving averages, trend lines, swing highs, swing lows or other key support or resistance levels.
(The article has been prepared for general circulation to the reading public and must not be construed as an offer to buy or sell any securities or financial instruments referred here or otherwise. Moreover, the public should be aware that the writer or any investing parties mentioned in the column may have a conflict of interest that can affect the objectivity of their reported investment activity. You may reach the Market Reader at densomera@yahoo.com)
KLCI ended +0.9% at new record close of 1427.77 in moderate volume, led by gains in government-linked companies (GLC) and index linked heavyweights; buying interest largely due to local funds; market breadth positive with gainers leading decliners 602 to 241. KLCI expexted to trade in 1420-1440 range tomorrow. Despite a lack of positive leads, the market remained buoyant. Local funds supported GLC stocks in a show of support for the government and policies implemented for the transformation of GLCs. Adds, market boost may renew foreign investor confidence after recent political ripples.
KLCI down 0.6% at 1411.31 in thin volume, off intraday low of 1408.35; selling continues to weigh market, but gains in select government-linked companies (GLCs) helping to stall decline. Decliners continue to outpace gainers 470 to 244. Among gainers, Telekom +2.7% at MYR11.60, Tenaga +1.6% at MYR9.85, Proton +4.3% at MYR3.90 and Commerce-Asset +0.9% at MYR10.90. Index tipped in 1408-1415 range for rest of day. Decline in plantation stocks and a number of construction heavyweights continue to weigh on the market. Foreign funds are net sellers, but some nibbling by local funds helps mitigate decline.
KLCI ends +1.6% at 1419.34 in moderate volume, with gainers edging out decliners 416 to 406; dealers say rise largely due to gains in government-led companies including Sime Darby +4.6% at MYR11.80, Telekom +4.6% at MYR11.30, Tenaga Nasional +4.9% at MYR9.70 and Proton +3.9% at MYR3.74. KLCI may test and breach historic high of 1423.18 tomorrow in follow through trade but caution gains may not be sustainable. Buying interest was not broad-based. Depending on the performance on Wall Street, there may be a fresh attempt at a new record high (for the KLCI) but profit taking into strength may narrow gains. Chartwise, KLCI convincingly broken out of a downtrend channel, dating back to early November. Although indicators on daily charts, including stochastic and MACD, have turned bullish, volume trade remains sluggish. Without any significant catalysts in the near term, the market could slip into a consolidation pattern within 1400-1423 range, if not reverse to test technical support 1391.
There are two methods commonly practiced in investing or speculating in stocks. The first is the use of external or fundamental information such as the profit outlook of an individual company or an economic forecast.
This is known as the bottom-up or top-down strategy. Many make use of it to guide their decisions and it is replete with success stories.
The other method uses internal or technical information that ignores fundamentals and focuses instead on the actual price patterns created by actual buying and selling activities in the marketplace.
As I have said, we would be turning our attention to the various indicators of technical analysis. Compared with the tools of fundamental analysis, they are regarded as more reliable in timing the market. They are persuasive pieces of evidence showing their better practical value in market timing particularly for professional market players.
The various tools devised for studying price trends and cycles have arise from the technical analyst's preferred method of forecasting and timing the market. This is why you may get startled with this question from technical analysis purists: "Are you a picker or a follower?"
What on earth is a picker or follower, you may ask. Let's tackle that. First, who is a picker? Well, a picker is someone who tries to pick the bottom or the top price of a stock. He focuses on predicting the bottom or top prices.
The idea of being a picker is captivating. The trick is to get in (buy) before the price of the stock really goes up and get out (sell) just before the price of the stock goes down.
For being faithful to this type of discipline, one earns the designation of a picker - a bottom or a top picker.
Pickers can be easily spotted by the way they talk. By their language, you can see them in the crowd like I have learned to identify them earlier on in my long years of stock trading. You hear their patent call "This is it, now's the time to buy (or sell)." When the stock price appears to have sunk very low, you will hear this familiar exclamation from bottom pickers: "It can't go any lower!"
So who is a follower? The follower is someone who, rather than trying to catch the entire move, from top to bottom and vice versa, is more concerned about getting confirmation that the price of a stock is indeed trending in one direction. Then, and only then, will the follower jump on board to buy or sell the stock.
The follower is somewhat more conservative. He watches price movement trends. So, he is called trend follower and is better known for the philosophical saying that "By being late, you will be actually ahead in the market."
There are many computerized programs commercially available for trend followers and bottom/top pickers. Trend following indicators include moving averages, MACD (moving average convergence-divergence), MACD-histogram, the directional system, on balance volume, accumulation/distribution, and many others.
For bottom/top pickers, there are many exciting computerized packages for oscillators. Oscillators are cycle-measuring tools that identify turning points, such as when the stock is overbought or oversold. They include momentum or rate of change, stochastic, the relative strength index, Williams %R and other exotic price cycle analysis tools.
A classic reference book on technical analysis is the one written by Robert D. Edwards and John Magee, Technical Analysis of Stock Trends. Another good read is one by Victor Soperando and T. Sullivan Brown, Principles of Market Analysis and Forecasting and the one by William F. Eng, The Day Trader's Manual.
There are more books on the subject written in simpler presentations. Scan the Internet, if these are not locally available.
November ended as another volatile and disappointing month. But November's last trading week was a special treat as Wall Street proceeded to go on a four-day rally that buoyed the Philippine Stock Exchange index (PSEi), even as it closed a day earlier on Thursday in observance of Andres Bonifacio day.
Thanks to this shortened trading week and its resulting long weekend. The market was spared from unnecessarily reacting to the tension brought about by the call of Senator Antonio Trillanes and company for the ouster of the President on Thursday.
Hopefully, we may face better prospects this week. In the US, Treasury Secretary Henry Paulson is expected to announce today the rescue plan for struggling homeowners that investors are pinning their hopes on to help prevent the subprime problem from pushing the US economy to recession.
On the local front, we have new public offerings. The board of the Philippine Stock Exchange has approved the public offering of oil and gas bulk carrier Petrolift, Inc. and mining firm Oriental Peninsula Resources Corp.
Petrolift, with BDO Investments as lead underwriter, intends to offer an average of P3.5 billion worth of primary and secondary shares while Oriental Peninsula, with Asian Alliance Investment Corp. as sole underwriter, has decided on an P894-million initial public offering.
From latest sources, Petrolift has decided to reset its public offer while Oriental Peninsula is set to kick off its domestic road show today. The offering will start on Dec. 5 and end on Dec. 11. Listing is tentatively set for Dec. 18.
(The article has been prepared for general circulation for the reading public and must not be construed as an offer, or solicitation of an offer to buy or sell any securities or financial instruments whether referred to herein or otherwise. Moreover, the public should be aware that the writer or any investing parties mentioned in the column may have a conflict of interest that could affect the objectivity of their reported or mentioned investment activity. You may reach The Market Reader at densomera@yahoo.com).
The market has been very difficult and frustrating. Everything seems to go wrong. No amount of effort to correct the situation seems to work. The more you try, the more it gets awry.
It's funny that in times like these in stock trading, I find myself drifting in wishful thinking like a little boy.
How I wished I can be like the biblical character Joseph the dreamer. He had the talent to interpret dreams and could see into the future.
Because of that, he became rich and most revered. He became the second most powerful person in Egypt, after the Pharaoh, because of his talent.
Fortunately, the memory of my horrible beginnings in stock trading is always there to dissuade me from indulging in such foolish fascinations.
It will do me better to consider the voluminous literature on market timing techniques that are supposed to let you beat the market.
What are these techniques for timing the market? Are they real? Do they really work? Can ordinary mortals like you and I understand it? Can they accurately forecast market prices? Better still, can they show critical turns that give specific buy or sell signals? Again, are they consistent?
Of the many models used to time the market, there are four conceptual platforms where they can be categorized. These are the study of price trends or directions, price cycles or oscillations, the natural law on the order of things in the market, and approximating market sentiment through neural networks.
The charting of price trends is the most popular. It consists of plotting price changes and volume fluctuations. The patterns or formations created are taken to reveal future price trends or directions.
So, we have for example what is called "head and shoulder" patterns represented by the letters M and W, where the former indicates a price downtrend while the latter signals a price uptrend.
There are also wedges, flags and pennant, chart formations of prices that reflect other price pattern concepts that may signal the state of price trends.
Among the popular models applied in trend analysis are the Dow theory, Elliott theory, and moving averages and their auxiliary models.
But these indicators are methods that are only helpful in identifying trends. They can only indicate when a trend has generally changed. That means it could be too late to know.
At that time, there were those unsatisfied with what trend analysis could do. The various trend-following models are short of being timely.
This gave rise to the use of oscillators and price cycle theories, including the study of the underlying principles or structure (whatever that is) that give order to the universe.
Oscillators are considered by many to be more superior as a market timing device. They claim it does not only help find trends; it can identify turning points critical to generating specific buy or sell signals that will help traders better time the market.
Thus, we have the most admired price momentum or rate of change theory and their variations like the stochastic and relative strength index.
These methods are devices that measure the pulse of the market, or state of market psychology. They interpret market sentiments and their inclinations.
They focus on finding price turning points such as overbought or oversold situations and price divergence points. Most regard them as reliable instruments of timing the market.
All these models, however, are said to be retrospective. They are more accurate on hindsight. They are not anticipatory.
One such device that holds promise is neural networks. It is the use of artificial intelligence to predict prices.
Neural networks can identify trends and changes in the direction of stock prices as they are happening, and not after the fact as in the case of the previously mentioned forecasting models.
The only problem is that it is the technology rather than the concept that approximates market psychology or sentiments. The neural network is just artificial intelligence that can be trained to make predictions. But they can only be as good as what you feed them.
Indeed, all forecasting models in use today are empirical tools. They are founded on a posteriori methods that are based on observed facts. Decisions are based on forecasts and analyses using past data such as prices, volume and value of transactions.
But even with this very latent weakness, existing forecasting models remain to be of practical value. They are a faithful bearer of the past that somehow is useful for investors to make valuable trading decisions. Most of these are valid.
On that basis, we will now shift our attention to the review of various technical analysis models currently in use. We will now leave the review of fundamental analysis and its different approaches, which we did at the start of the year.
Familiarity of technical analysis has its practical value in stock trading. So, hang on. Join me in reviewing the different models of technical analysis until the end of the year.
(The article has been prepared for general circulation to the reading public and must not be construed as an offer to buy or sell any securities or financial instruments referred here or otherwise. Moreover, the public should be aware that the writer or any investing parties mentioned in the column may have a conflict of interest that can affect the objectivity of their reported investment activity. You may reach the Market Reader at densomera@yahoo.com)
After sixteen weeks of the trading lab, I believe we have seen the eight most important trading principles one needs to know to get started in stock trading and investment. Let me hasten to add, however, that in order to tip the balance of both winning a trade in your favor and making money in the process, you still need to get a good handle of the nuances of these trading principles, which we will try soon after all the other supplemental trading principles are covered in the trading lab.
With the exclusion of the 8th trading principle, textbooks divide these important principles into three main categories: trading system development, money management (position-sizing), and sound reading of market psychology. The result of the 16th week (February 27 - March 3, 2006) of the trading lab provides a good sample as to which of the three acknowledged categories really matter in winning a trade.
The Hunt: Market Psychology
Last week was a surprising picture of market confidence as it gained 60.45 index points week on week. On Monday (27 February), stocks rose by 19.44 points at 2,089.36 level of the PSE composite index (Phisix) despite a shaky Sunday afternoon that almost led into an uprising against GMA but later downplayed as a simple internal command problem by the Marine branch of the Philippine Navy. Turnover volume and value also stayed strong until Thursday (2 March), with average trade ranging from P333.60K to P365.34K. The Phisix reached a high of 2,137.61 on Thursday before finishing lower on Friday (3 March) at 2,130.37, due to selling pressure attributed more to profit taking.
In the following tables you will notice that, in general, our players did something clearly similar notwithstanding the Rock's slightly stretched effort. Everyone unanimously consigned their fate on what stocks the market would favor and support. Thus, everyone essentially just let their stock picks and risk matrix to stay as is. Why? Let's review each account.
The Samurai did not trade at all during the week but his investments grew to 111.51%. This is his highest and the highest in the leader board. It is also 0.8% better than his best performance of 110.36% ROI reported in the 14th week of the trading lab. This is because "market psychology" (or sentiment) establishes stock prices and price direction. A sound judgment on market psychology, therefore, could lead to winning trades - this explains why you can really "win the trade even before starting it."
The Phantom, being also old in the game, played the way the Samurai did. From a 97.23% ROI performance the week before, he now stands second at 104.73%.
The Rock converted his very small OPM (Oriental Petroleum & Minerals Corp.) holdings into cash. Other than that, he likewise relied on his major stock selection as the main basis to winning his game.
Lastly, the Trading Coach is definitely not also a newcomer when it comes to trading. But as I have pointed out last time when I quoted that endearing line from Spiderman - "Punch me, I bleed" - our trading heroes are just human. He and the Samurai selected LR (Leisure & Resorts) in their stock picks. He also shared PX-B (Philex Mining) with the Phantom as a major stock position.
But LR and PX-B did not recover that well in last week's market rally compared to others. I could, however, almost hear an echoing retort: "The game is not over yet." And why not, LR and PX-B prices may just soar soon.
Secrets of the Past
On the basis of their role as keys to trading success, contemporary books place these stock trading principles in the following order of importance: trading system development (10%); money management or position- sizing (30%); and market psychology (60%). Accordingly, the sound reading of market psychology would lead to winning trades while position-sizing would spell the difference on how big or small your profit will be - this is why the Market Reader maintains that "Making money in stock trading does not mean knowing the secrets of forecasting future prices."
Insider Lies
Insiders also would like to add a constructive "lie." Getting a good grasp of market psychology is nearly as impossible a task as forecasting future prices. Make the most of devising a trading system that may have a 35% to 50% reliability success rate, then use position-sizing the way gamblers do, and this will lead to another route to beating the market. This alternative, however, i s no different to "Making money in stock trading does not mean knowing the secrets of forecasting future prices."
The article has been prepared for general circulation for the reading public and must not be construed as an offer, or solicitation of an offer to buy or sell any securities or financial instruments whether referred to herein or otherwise. Moreover, the public should be aware that the writer or any investing parties mentioned in the column may have a conflict of interest that could affect the objectivity of their reported or mentioned investment activity.
This morning I read an excellent post by Brett Steenbarger on his TraderFeed blog called “The Most Dangerous Word in the Trader’s Vocabulary.”
His post discusses a word which indicates that a trader is more concerned with his own market Fiction rather than the Truth of what that market is doing. I won’t tell you what the word is since you should read Brett’s post, however, I do want to talk about trading based on truth compared with trading based on fiction.
One of the dangers for new traders in a completely discretionary approach to trading is that the decision making process of discretionary trading can cause one to develop a focus on being right, on the reliability of one’s setups or high probability entries. For seasoned traders, who know that even the best setups go wrong at times, the high probability entry is seen as just that, an entry that mostly works; which implies that sometimes it does not.
For new traders, the times when the market does not move in a direction favorable to the setup or trade can be very challenging. They often equate an adverse movement with a breakdown in their decision making process. They fall victim to outcome bias and start judging their trading as poor when the outcomes are poor. If this was the extent of the problem things would not be so bad; however, it is the next step which can often be devastating to one’s trading account.
Many new traders, in an effort to protect their ego and psyche, start living in a fictional world where the market is supposed to respond to their clever analysis rather than doing whatever it actually does. In this fictional world, the market is predictable and reliable, therefore a good trader can always tell what the market will do. Trader’s who live in a fictional world, do not get out of the market when it hits their stop price, they move the stops to give the market time to correct to the “proper” level. They become married to their own analysis and ignore the truth of the market’s price action.
Seasoned traders, in contrast, realize that the market is the only truth. It does not matter what you may have planned, hoped, or decided should happen; the only thing that affects your account balance is what actually DOES happen. The market defines the truth. It is up to you to decide if you want to pay attention to this truth, or like many, decide to live in a world of fiction where great traders never have losing trades and where once you understand the markets, everything is easy.
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.
