Thursday, May 31, 2012

Never Let Emotions Overtake Judgement - A take on STI

It is so tempting to make a call that the market sentiments are getting better isn't it? But before you start declaring so, the market turns downwards the next day again. Day and day, you wait to make the call that indeed things are getting better. Has the day arrived when you can claim victory?

The answer is obviously no. The market has almost given up gains obtained on Monday and Tuesday in the last 2 trading days. We know very well that Greece elections is scheduled on 16 June; Spain has been a huge drag on the EU under the shadows of Greece while Italy has seemingly gained some better foothold of its debts; China has been slowing down albeit insufficiently to warrant a timely stimulus that has been on the mouth of many lately. Nothing has changed today as it has 4 weeks again hasn't it?

The STI chart speaks almost the same language as the Dow weekly chart as I have posted a few days earlier
  • MACD - charging downwards with little inclination that it will be changing direction anytime soon. In fact, MACD has just started going below 0 and there is much more room possibly for downward movement.
  • RSI (25w) - has still been hovering around below 50% levels
  • Bollinger bands - latest weekly price is still resting nicely on the lower bollinger bands that suggest a possibility of a short term rebound as discussed in the Dow chart 4 days earlier. Prices are also well supported by a major support line.

Technically, there is good evidence pointing to a short term rebound in prices but an overall continuation of the drag in investors sentiment in weeks to come. The problem here has not been the confusion of technical indicators but the internal emotions that drive our judgement. The facts are present to tell us not to trade unless we can make a quick bet and get out of the market. Then we succumb to greed and stick a while longer.

Will we ever learn?

Monday, May 28, 2012

Weekly Stock Picks - Yangzijiang, Capitaland

The property sector has been rebounding strongly this week, led by counters such as OUE, Keppeland and even s-chips like Yanlord. However, one stock stands out in this property rebound - Capitaland. Instead of following the wide sector consensus, the stock has instead diverged and went against the flow. 

Outlook - Track closely for rebound in the week. Enter and follow market up to around $2.6 and take profit.
  • MACD - Dipped to the lowest levels seen in 2 years. Some suggestions that MACD is about to turn upwards (green histogram bars) but still needs more confirmation in the coming week.
  • RSI (25d) - Touched 30% firmly. Over the last 6 occasions in the last 2 years, whenever RSI did hit 30%, a rebound in stock price usually followed. 
  • Bollinger Bands - Very wide bollinger bands and volatility for profit play. Price of around 2.45 is very close to lower bollinger band providing a greater chance of a near term rebound.

Yangzijiang had been battered badly since March when it reached a high of $1.4. Together with Cosco and NOL, they paint a picture of the malaise that the shipping industry has been facing ever since 2008 without a credible answer to the oversupply situation and more recently, the battering ram of Europe. It is however not difficult to believe that the Baltic Dry, at its current ~1000 levels, as providing one of the lowest support levels of current time. Over 4 years, news have been battering ships - how worse can it get?

Outlook - Buy on the consensus that it is in for a long investment period. Right now there is nothing to suggest that the stock may go any lower than 2011 lows unless incredible mayhem strikes Europe. Risk-defined and just be prepared to hold for a while at current levels. The time where shipping returns again is a guess as good as yours and mine.
  • MACD - Well at 2 years low and crossing over the signal line in the week seemingly.
  • RSI (25d) - Touched 30% 2 weeks back.
  • Bollinger bands - A technical rebound was observed after the stock went below the lower bollinger band to close at around $1 on last Friday.

Are we out of the doldrums yet?

After a 3 months hiatus from the equities market thanks to a timely break to the West, I am back finally to a interesting market situation today. The Great Singapore Sale some call it. Exactly how much of a bargain are we getting from the market today and is this so cheap that we are going to ignore market momentum and news pouring out of Europe?

I prefer to base the analysis with the US Dow Jones chart where there is most liquidity and consequentially the one that gains the most benefit from bank withdrawals happening right now in Europe and ECB liquidity injections.

So what is the Dow chart telling us right now?

  1. Strong US - Evidently, the bull market is still clearly intact and the US has been on a recovery since the crisis in 2008. The plus here is in the market's strong belief as well as healthy statistical evidence that the US is going to be a key player to lead the world out of this crisis. 
  2. No, not out of the woods yet - Contrary to popular belief right now that stocks are at a cheap especially those of commodities that were badly hit this month and ending last, the momentum of this correct is still heavily downside biased. There is nothing to suggest that the Dow has reached really horrendous RSI or MACD levels that a cheap equities market is for the taking. Furthermore, prices are still uncomfortably above the 100w MA and sitting on the 55w MA precariously. 
  3. Volatility has increased but it is still LOW - Again, if you ever heard good traders speak - Anton Kreil is one of them - low market volatility is a boring and poor period to trade. To make good gains with bets (let's face it, however we argue, any stock market trade is but a bet after all) is to trade when volatility surges. In this case, note how the bollinger bands have been squeezing together.
Market Outlook
Despite the bad news still earmarked on most indicators, take light of the small white candlestick that has appeared on the lower bollinger band of last week's market action. Perhaps there might be a short bull rebound to reclaim ~13000 but it really depends on the US job market news to be announced this week. Nonetheless, any small news from Europe and supply of oil is going to further impact the market and drive it downwards further. 
The easiest way today is still downwards; take heed.
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