Wednesday, 17 December 2008

Madoff Money

Once again, greed has reared its head among the big financial institutions.  In case you still don't know what I'm talking about, former Nasdaq chairman and veteran fund manager Bernard Madoff has conned a lot of people out of their money by using the good old Ponzi scheme.  In layman's terms, he used pyramiding to entice everyone.  We've seen this before and unfortunately, hardly anyone learns their lesson even if others made the same mistake.

To sum it up, various banking institutions like Banco Santander, Royal Bank of Scotland, and even HSBC exposed millions, even billions, of their money to this scheme and are now paying for it after being bodyslammed by the subprime crisis.  It is said that the total exposure that Madoff has gotten runs to around $50 billion.

The scary thing here is that no one suspected a scam was in the works as this was being headed by someone who was supposedly reputable in the financial world.  He's a former Nasdaq chairman, dagnabit!  Who would suspect someone like him to dupe institutions around the world?  Alas, they found out about it too late.  They should have suspected something when the promised returns were too good to be true.  Even I would raise an eyebrow at a promised return of 10% per annum even in bad times.

This kind of situation has shown itself time and again in various forms but it all boils down to one thing: the person has enjoyed a particular lifestyle and is having a very hard time simplifying his lifestyle that he has to think of ways to support the high maintenance life even at the expense of others.  Either they were born without a conscience or they threw it out the window after enjoying the lifestyle of the rich and famous.

I guess this now puts to rest the question if many of the banks' actions were well thought out or were they lured by the big returns.  No wonder greed is one of the mortal sins.  It really destroys lives when it's not controlled.

Saturday, 22 November 2008

Standard & Poor: A Fitting Description to the Index

That's right. Not only is the name of the index S&P 500 (SPX) known as Standard & Poor's but that is the best way to describe the condition of the index right now. Why say something like that about the broader based index? Take a look at how the long term chart looks and tell me if you see something pretty.

After rising up to the year 2000, the whole index has gone sideways for more than a decade. No wonder, many have had a hard time making money out of this market. Everyone was trading in a chaotic environment.

What we see on the long term chart is that SPX has formed a double top pattern that has spanned nearly 12 years. The neckline has been pegged at 770. It was breached Nov. 20 but the index has gone above it again on Nov. 21.

It's quite possible that the index will just bounce off this neckline and climb to higher levels. But the MACD tells us that's highly unlikely and that this is bound to breakdown soon as the oscillator has been lingering below the zero line. Once the neckline is broken decisively, we can expect the SPX to drop to a downside target of 375.

What would this all mean? Even if you don't trade the US market, this would affect the other markets that you do trade. It is a known fact that many countries have placed money in various funds that invest in the US markets. Normally, these funds only go long and it would be quite illogical for financial institutions to place their money in a fund that would short sell their investments. Unfortunately, going long in a dangerous market like the US is like playing russian roulette as that means going against the trend, which is downward.

When the index comes crashing down, expect a lot of trouble to come in many economies. In fact, it's already happening with layoffs being dealt left and right, the biggest of which is Citigroup (NYSE: C) with 56,000 job cuts so far. They've even gone as far as considering the idea of selling the whole company.

Remember the biblical saying: Those who humble themselves will be honored and those who honor themselves will be humbled. The time for the US to be humbled is at hand.

Tuesday, 28 October 2008

Double Trouble

You think we're in a lot of trouble now with the DJIA and other US indices moving wildly and widely, wait till you see this.

One of the lesser noticed index, the S&P 500 (SP500 in bigcharts.com) should be a better gauge of how things are doing as this is an index that is represented by 500 issues, hence the name. Because of what is seen here, it's scary to think that this bear market is just the tip of the iceberg.

It is quite clear in the chart that the S&P500 is right in the midst of a consolidation. Whether this is a double top, or a possible triple top, we still don't know. What we do know is that this seems to be a topping pattern that will reverse the previous uptrend. When this will be, we still don't know.

What we do know is that the support of the index is currently pegged around 770. Should this break, we could see the index drop to a target of 383. That's the scary part here. Things are already battered as it is. It appears there's more where that came from.

Notice also how the MACD has been oscillating throughout the whole duration of the chart. It's been consolidating around the zero line, telling us that as early as 1996, the index has been consolidating all this time.

One more thing to note is that the volume has picked up since the downtrend started October 2007.

Things will get more brutal in the coming months. Try to enjoy your Christmas and try not to think about this yet. It seems to be inevitable anyway.

Saturday, 18 October 2008

Frenzied Dow

In what has got to be one of the wildest weeks of trading, the DJIA manages to finish the week higher.  However, it still ended the week on a low note.

This is one week where both the bulls and the bears don’t know if they’re coming or going with the index acting like a bungee cord.  One moment it’s extremely negative, and then give it a few hours, it’s substantially positive.  Go figure.

If we take a look at the weekly chart of DJIA, we’ll notice that the previous week was the worst in the past d

ecade, at the very least.  The selling pressure for that week was so significant that the bar was quite long that this week’s trading is nothing more than an inside bar, meaning that it might succumb to more selling pressure in the coming weeks.   In fact, it’s so bad that the MACD fast line just fell into a ravine.

On the daily chart, it doesn’t show the DJIA settling down anytime soon.  It’s so volatile that a 500 to 800 point trading range is becoming a common phenomenon on a daily basis.  In fact, many investors are now not shocked anymore to see this kind of volatility that they’ve become apathetic to what’s happening and have just decided to let things settle before they even make a move.

At this point, we can only speculate that the market could be starting to consolidate.  The problem is, it’s very hard to see through all this instability to make a firm call.  When in doubt, don’t make a move.

Saturday, 11 October 2008

Rotten Apple

Gone are the days when Apple Inc. (Nasdaq: AAPL) has its share price lording it over its rivals.  From a "measly" $40 back in 2005, AAPL has climbed up, with the help of its innovative products the iPod and iPhone, to as high as $200.  Because of this, many have already regarded Steve Jobs as God's gift to technogeeks.

AAPL dove down to as low as $115.44 before climbing back to the $180 area.  From there, it took around 6 months before it nosedived again.  It started diving steeply in September and hasn't stopped since...until last Friday.  Before its performance last Friday, it formed a double top to create a neckline around the $115 area and it was pointing to a downside target of $65.  Friday's market probably had people capitulating that things seem to have turned around suddenly.

From a start of -$3, it ended the day in positive territory, creating 
a bullish outside day although the volume is a bit suspect.  The MACD is not yet reacting that a rally is in the offing but we could check this out and see if the momentum will carry over into next week.  Should this prove to be the reversal point, a quick 3 to 5% profit won't be hard to get.

All this remains up in the air depending on how the markets react to all the efforts being done to stave off a global disaster from happening.

Thursday, 4 September 2008

Fluc Me

Anyone ever noticed that in the local market, when the price of a stock reaches a certain point, it suddenly changes in increments in its fluctuation? No? Now that you know, did you ever wonder how it came about?

I don't know how or why it came about but definitely it's an aspect of trading that needs improvement. This is one reason why many don't give too much importance to the top gainers or top losers list since many of those in the list happen to be third liners that had a transaction or so that went up or down by one fluctuation. Yet, the fluctuation was quite huge in percentage.

To give you an example, let's talk about OM (I'd rather not but this happens to be the best example). At the current level, each fluctuation is .001 centavos. This translates to roughly 10% immediately, either way. So no one should be amazed that the stock gained or lost 10% in one day.

The pricing of stocks in the PSE needs revisions to make it a more efficient market. We already have majority of people stereotyping stock trading to legalized gambling, we don't need to fuel their assumptions with an outdated pricing scheme.

The system in the US is quite efficient. Every stock, no matter the price, has their fluctuations at 1 cent. Even Berkshire Hathaway (NYSE:BRK.A, BRK.B), Warren Buffett's holding company and the most expensive stock in the US market, fluctuates generally by one cent. This allows true market forces to dictate the real market value of the stock.

If we could apply that locally, this could be a way that foreign funds will perceive this as a way for our market to become more professional. It's possible, but PSE must do a feasibility study on this and implement the rules immediately.

While I'm at it, I might as well write to Santa Claus and ask for a Maybach.

Wednesday, 3 September 2008

Which Way is Up?

(reproduced with permission from Absolute Traders)


We had something unusual that happened yesterday. A confluence of different events resulted to what we didn't expect to happen in the end. So where do I start?

Initially, the futures of DJIA were down due to Hurricane Gustav nearing leandfall and this resulted to oil jumping higher. As the hurricane was lashing the southeast area of the mainland, it became weaker, which also resulted to worries from oil traders being eased and this resulted to oil dropping below $110. This now translated to giving the index futures a big boost.

In fact, when the market opened, it was so strong; it even reached an advance of nearly 250 points. Yet, the final result showed the index dropping by 26.60 points. This was a result of reality setting in (global slowdown) and this set oil rallying higher again.

Technically, this resulted in what we call an outside day. This happens when the day's high is higher than the previous day's high, and the low is lower than the previous day's low. It is said that when this happens, the movement follows where the close occurred. In this case, it closed low.

From our standpoint, we are still bearish with the US market as the DJIA seems to be completing a small head & shoulders formation which would serve as a continuation for the downtrend. The market is still very confusing that a lot of traders get disheartened after seeing winning positions turn into losing ones almost overnight. It's best to stay on the sidelines for the moment.

Recommendation: Wait and see.
Support: 11,333
Target: 10,613

Thursday, 28 August 2008

PSE Trading (Extended Version)

Today, the Philippine Stock Exchange (PSE) has issued a notice that it will extend its trading by 2 hours (2pm to 4pm) in 2009. This is said to coincide with the new trading system that they will implement (click here for the said item).

Is this good news? Before I answer that, let us try to recall what happened when they tried to extend trading back in 2002. If I remember it correctly, the reason the PSE extended the trading back then was to entice more foreign funds to place their money here. Extending the hours was supposed to address the problem of having different time zones at the same time. After eight months of extended trading, the PSE came up with the same result but with longer hours. In short, it was a useless endeavor. They reverted back to the usual schedule of trading at 9:30am to 12:10pm.

But times are different. The PSE board of directors seem to be more aggressive in capturing a bigger audience to place their money into the equitites market. This is also quite evident with the more frequent roadshows the PSE has been conducting in the provinces. They have also opened themselves to partnerships (official or otherwise) with different entities involved in stock market education, like my friends in Absolute Traders. Clearly, the PSE has a long uphill battle to capture even 5% of the total population. It was noted in a study that out of the nearly 80 million Filipinos, only some 400,000 individual accounts are trading the stock market. I'm not even sure if all those 400,000+ accounts are unique or some happen to be multiple accounts of one investor. So, optimistically, exposure of the stock market to the Filipinos is very minute. A little over 0.5% of the population plays the market. This is very disturbing since other developed nations have a substantial portion of their population playing their own market. The U.S. is said to have around half of the people trading, that includes ordinary housewives. In Hong Kong, even taxi drivers know how to trade stocks. So why can't we do it?

Probably we have to bring ourselves back to reality in order to answer the why. First of all, we have to see how our demographics are. A typical Filipino worker takes home minimum wage. As we all know, minimum wage isn't even enough to get by in Metro Manila. They would need to borrow money somewhere to make ends meet. Second, the typical Filipino is not educated enough about the stock market. Third and probably the hardest problem the PSE has to deal with, is that the local stock market's image is that of a rich man's club. I'm not surprised that many see the stock market as something that only rich people can get involved in.

The PSE is doing its best to address the last problem as this has been there since time immemorial. But I feel that they're not doing enough. They still need to be more aggressive in changing their image and educating the public. C'mon, we don't even have 1% of the population playing the market!

The second problem is currently being addressed by a number of groups and individuals. Ateneo has a tie-up with PSE to include market education into their curriculum. Different entities like Absolute Traders have been educating the public about the stock market in their own way. Slowly but surely, the PSE is getting help from different places.

It's the first problem that is almost impossible to solve right now. It's a socio-economic problem where the saying becomes true: the rich get richer while the poor get poorer. It is one problem every regime that has come and gone have tried to solve but to no avail. I think it's more proper to say that it's a problem they try to solve when it's election time but it gets ignored once they sit in Malacanang. When the Philippines gets to elect a government sensitive to this need and conscientious enough to do something about it shall we see lives improve.

Anyway, I'm digressing from the subject at hand. Going back to the question, is extended trading good news for the PSE? I sure hope so. All things being equal, we expect that there should be an increase in capital that's involved in the market. But that's not a realistic situation, it's an ideal one. I fear that we are just going to repeat what happened back in 2002. But as I said, things are different now. 2002 was in the midst of a long bear market. Interest definitely wasn't there. Currently, we're in a bear market too but not as bad as 2002. Traders are wiser now.

I wish the PSE good luck with this move and I hope it becomes successful. Seriously.

Tuesday, 26 August 2008

Mr. BIG

Aside from the usual victims that were the result of the financial mess in the US, or what we normally call their economy, another sector badly hit is the retail sector. It's actually a vicious cycle if you think about it. Oil rises, it hits the sectors that immediately need oil, like airlines and trucking. Since they bear the brunt of the sudden impact of oil price hikes, they have no choice but to pass the burden on to their customers. All that trickles down to the consumers.

If the consumers also feel the worsening economy through their decreasing purchasing power, they have no choice but to cut back on the usual expenses. That translates to lesser expenditures in the retail sector. So why the heck am I talking about the retail sector? Because I found one stock in this sector which could be bucking the trend; this is Big Lots, Inc. (NYSE:BIG).

Taking a look at the 10 year chart, it has been badly beaten for most of the decade. It has moved sideways under $20 for the duration of 2000 to 2006. If you look at how it has performed, it has somehow created a big rounding bottom. Not only has the volume confirmed that this is the pattern for that time, but the MACD also confirms that all that 7 years were nothing more than a consolidation. In preparation for...?

It is very probably that this was a big preparation for what it has been doing for the past 2 years. It is not under $20 anymore but it has ranged from a high of $36.15 to as low as $12.40. More interesting is the formation it has made. From the looks of things, it has created an inverse head & shoulders pattern with an upward sloping neckline. The MACD has followed the movement of the pattern.

So what do we have in store here? If you want to trade this and we base our target from the inverse H&S, our target is around $56.50. That's a projected profit of 58%. This will probably materialize in 8 months' time max. If you're willing to wait longer and want to base your projection on the big cup, then your target would be $61.90 or a possible profit of 78%. But that would also mean that you're willing to wait it out for 4 years.

Slowly but surely, there have been more issues that are showing bullish patterns. The tide for the DJIA may be changing slowly. It may be time to look for issues to go long on.

Saturday, 2 August 2008

Scratch That Itch!

It's been quite some time for many of you since you were able to trade and made a profit. Lately it's either you bought some stock for some reason and it plunged or it's a hands off policy on the market. That trader in you has been wanting to get their hands on some issue to trade again. Well don't give in to that pressure. Especially now when the market hasn't turned around.

Yes, there could be some opportunities that are passing us by. However, you have to think, the chances for us to lose money are greater in these times. So you have to choose, would you rather lose the opportunity to trade or lose the money to trade? I think that's an easy question to answer.

Many say that the bear market will test your patience. Yes, I think that's a valid point. But I think they also miss the more important aspect that will be tested. Your discipline. Many overlook this because greed and fear always come ahead of everything else when the market moves. How many times have we seen this situation or be in it: one of the stocks that you were monitoring suddenly surges upward for no reason at all. Thinking that you're missing the boat, you suddenly call your broker or open your online account to buy some shares. You just have to get some of that and not miss out on the action. Finally, you get your hands on a few shares and you have just proven the old adage, that a sucker is born every minute.

When we let our greed rule our head during trading, we lose all focus on the objective. Our objective is NOT to make money first but rather to make a good trade by finding the stocks which are just about to make their moves and then we get in at the right price. The right price is when it just broke out of consolidation and it starts a new trend. Another problem we have about discipline is that we're not satisfied with small gains when we have them. We always want to have a jackpot in our hands and we want it now! Jackpots come once in a while but never all the time. We need to have that discipline in trading where our first objective is to survive. Never mind if we have a losing trade, but we must remember to keep our cut loss price at a minimum and to keep this tight. Any deviation from your trading plan will spell doom.

So the next time you get that itch to trade, check your discipline first and see if the trade will be worth it. Otherwise, here's some soap for you to wash that itch away.

Saturday, 19 July 2008

Naked Gun

Not in my trader's conscious mind (or even the subconscious) would I have ever imagined that the US market was also prone to some of the dirtiest tricks in the book but to a greater degree.

I'm talking about what they call naked short selling. No, it's not short selling while wearing your birthday suit. That's kind of kinky but that's not what it is. For those who are not familiar, short selling is a legal way for traders to make money in a market that's going down. You will first borrow shares (normally from your broker) and then sell this to the market when you perceive that the stock is going to fall. In order to realize your gains when the stock does go down is you buy back what you borrowed to cover your position. This is the legal way.

Naked short selling is simply short selling short but without borrowing the shares. This is the illegal way and this is what the US Securities and Exchange Commission is cracking down against. There were reports that the biggest victims of this practice have been Fannie Mae (NYSE:FNM) and Freddie Mac (NYSE:FRE), the two biggest mortgage lenders to the American public. Others have been financial institutions like Lehman Brothers (NYSE:LEH). If you noticed, what's common with these stocks are they are all in the financial sector. This industry has been battered starting with the subprime problem, housing sector, and now every financial institution has been slowly reporting that they exposed too much money in the said areas. Fundamentally we know that's a recipe for disaster and that you would expect their shares to drop. But unfortunately, unscrupulous traders have taken it upon themselves to make money out of the situation without going through the proper channels.

It is for this reason alone, the US SEC is said to be imposing a one-month ban on short selling to prevent what could be a massive collapse in the sector which could spill over to the economy.

On the local front, the timing of the PSE seems to be impeccable. They're just about to introduce the short selling program as another tool to spur liquidity in the market. What timing indeed. It's like kicking a man when he's down. The market is already bearish and when this is now introduced, what's going to stop the shares from falling further?

To my knowledge, not all shares will be qualified for short selling. Only selected companies will be part of this. But I believe these are also index issues. There also seems to be a lack of education regarding this program for the investing public. Our investors/traders are not the most mature, some even qualify to be considered goons. So it's quite dangerous to allow these people access to short selling as they could just sell the shares without even thinking of buying it back at a lower price.

The timing of introducing short selling to the PSE is wrong. All investors & traders must be given a proper education about how to use this before it's launched. Otherwise, you could be looking at chaos right in the eyes and it will be translated to anarchy in the market.

Wednesday, 9 July 2008

Cashing In, Even on a Bear Market

Don't believe everyone telling you that there's no way to make money in a bear market. It's just harder.

Take for example Office Depot (NYSE:ODP). Although it's very clear that it's been going downhill for the past year, It decided to go sideways since January. It's been in a tight range until recently. Some view the range as a possible descending triangle. Seeing that ODP has already had a very hard time rising from underneath the moving averages, and the MACD kept pointing downwards, it was only a matter of time before the stock would break down. And break down it did.

As like any good, disciplined soldier, we took to the battlefield of trading 2 nights ago and placed an order to short sell ODP at 10.45. So we went in bravely with both feet and braced a bad news report that ODP's year-on-year sales dropped by 10%. We knew this kind of news would drive the price down but by how much? We were quite pleased to see that we were able to achieve our target and more in just one night as ODP dropped around 40% due to the bad news. We were able to cover our short position immediately around 7.20 and search for a new opportunity.

Once in a while, these jackpots do come, even when things look wrong. Patience is really the name of the game.

Thursday, 3 July 2008

Bleeding Dry

FINALLY! The US has recognized that they are now in a bear market. They had to wait for the DJIA to drop to a 20% decline from the highs before they would acknowledge it. But guess what? According to another article tracking the state of the US market, more blood is to be shed.

Aside from looking at the bigger picture of the DJIA and the other indices, they also look into the volatility index, which is inversely correlated with the S&P 500 and serves as a measure of market uncertainty. The index measures the variability in options prices, which tend to rise as the fundamental backdrop becomes less certain. Of course, this means the opposite is also true: The index falls as complacency sets in, which is conventionally interpreted as a bearish indicator. So in a nutshell, extreme highs are interpreted as a bullish signal, while extreme lows are taken as a bearish indicator. In this case, the volatility index is in limbo. Since it's neither bullish nor bearish, it only means that this downtrend we're currently experiencing is not over. This could only mean that it's possible that we'll see the levels of 10,500 or even 10,000 for the DJIA soon.

A commentator even said that these days, a drop of over 100 points is already not nerve wracking anymore. In order for the market to rebound from this downtrend, what they'd like to see is that there would be a 500 point drop in one day to shock the people into going into the bullish mentality. I guess this would be their way of saying that things would be ridiculously cheap that it's going to be very hard to ignore them.

In our case, we only follow one of the Dow theories. The trend is presumed to be in effect until there is a clear sign of reversal. Right now, there is no reversal signal. So the bleeding continues for the market. To the permabulls, it's best to stay on the sidelines. For the other traders, short the weak industries like airlines and the financial sector.

Friday, 27 June 2008

Baked ALasKa

Almost everything is tied these days to how the oil contracts are performing. The foremost industry that comes to mind that will suffer when we talk about oil is the airline industry. One of the airlines that we're concentrating on is Alaska Airlines (NYSE:ALK).

After peaking at 45.85 in the last quarter of 2006, it has been downhill from there. Most of 2007 was spent on moving sideways but not after suffering a big drop in April 2006 where it has ranged between $21.00 & $28.00. After trading sideways, it broke down below $21.00 in March 2008. Since then, it has consolidated in what looks like a continuation head & shoulders formation inside a descending triangle.

Whatever pattern you are looking it, they're pointing to only one direction: DOWN. The MACD has confirmed the continuation of its downtrend as the lines of the MACD has been oscillating lower under the zero line.

The best time to short sell ALK is at $17.15. The downside target given to us by the chart is $12.57, minimum.

ALK is not an exception. Practically the whole industry is suffering. That has been reflected on the charts of the different airlines listed in the market like United Airlines (Nasdaq:UAUA), and Ryan Air (Nasdaq:RYAAY). The big culprit for this is oil. Rising oil prices have not only made their costs higher, it has forced them to raise prices which also made a lot of people rethink of flying.

With the DJIA suffering its worst June in decades, ALK rides along for its descent.

Saturday, 7 June 2008

What Now, Big Dow?

A lot of people were quite hopeful when the Dow Jones Industrial Average (DJIA) was already at 13,000 and beyond. They were thinking, well that's the end of our bear market. How wrong they were.

After it made its recent high, it's been downhill from there since then. With last night's market, DJIA is back in bearish territory. The last moving average that would've served as a support at 12,500, just didn't hold long enough.

I could be wrong but I think the DJIA formed a rising wedge from end-February up to early May. This rising wedge is giving me a minimum downside target of 11,600 for the index.

Another thing confirming the bearishness of DJIA is the MACD accelerating downwards below the zero line. The bad part here is that the fast line is not letting up yet. Looks like we still have some ways to go down before there would be any kind of rebound.

In this kind of market, there's only two things we can do if we're liquid. Stay away from the market or find a stock worth shorting.

Friday, 30 May 2008

Mallers Rejoice!

It's been some time since I updated my blog and for that I apologize. Unfortunately it was a mix of circumstances which prevented me from posting my studies. Anyway, let's take a look at one of the more resilient local stocks, SMPH.

This index issue has been on a steady downtrend since October 2007. It only started moving sideways this March. What I first noticed when it started moving sideways was the bullish divergence being shown to us by the MACD. This alone told me that something was going to happen in SMPH. Add to that, the sideways movement of SMPH seems like it's trying to form an inverted head & shoulders pattern but that's still a little too early to say since the sideways move is not even over yet.

Assuming that the inverted H&S is what it is, we see the neckline at 8.50, giving us a trigger price of 8.60. Minimum upside target for this points to 9.80. Not bad considering how slow this normally travels.

However, there are some things concerning me for the moment. First of which is the 65-day moving average, which is currently at 8.10. That is also the highest price achieved for today. This proved that for the short-term, the 65MA served as a resistance. Once this is surpassed, the next problem would be the neckline at 8.50. Assuming these are hurdled, the remaining problem would be the 130MA at 9.10, before it should reach its target of 9.80.

Other than this, SMPH seems to be a good candidate to pick up at the moment. Of course, I'd like to be sure that there's significant volume that comes when the neckline is broken before I dive into this.

Saturday, 3 May 2008

Get Ready for a Crash Landing

One of the better success stories as far as discount airlines in the US is concerned has to be Jetblue (Nasdaq:JBLU). It has concentrated its operations mainly on US destinations, but it has also added certain areas like the Carribean, the Bahamas, Bermuda & Mexico. One of the common things dragging the whole airline sector down is the high cost of oil. This sector is definitely bleeding and the end is nowhere in sight.

To see that JBLU is not spared from this common affliction in the industry, all one has to do is take a look at its chart. It reached its all-time high back in 2003 at $31.4345. Its been downhill ever since then. It's been in a slow descent up to the 4th quarter of 2007 and has suddenly dropped in November. It has gone into the consolidation phase since November, creating what looks like a sexy descending triangle, ripe for the picking of short sellers.

It has been consolidating as the MACD will show us as it has been oscillating around the zero line. The price has been dampened and is currently below all three moving averages, which are all in the bearish order.

So what's left for a trader to do? Like a wild animal in the safari hunting its prey, we wait until we see an opening. That opening would be when JBLU breaks the support of $4.39. When it continues its downtrend, we are targetting JBLU to fall to $2.51, giving us a potential return of 42%.

I know I heard the saying that we shouldn't kick anyone when they're down. In business, especially in trading, it's every person for themselves.

Mayday, mayday, JBLU coming in for a crash landing!

Saturday, 29 March 2008

Mega Hopeful

After a long wait, if you can call 6 months long, there is finally a stock in the Philippine Stock Exchange that has shown some signs of probable reversal of fortunes.

Megaworld (MEG) is in a sector battered due to problems in their sector owing more to the problematic housing sector in the US. Talk about colonial mentality. Anyway, from what we can see in the chart, after peaking in October, it has been downhill since December 2007. The number of investors in this stock has multiplied. By investors, we mean people who bought high and never sold because it's just too damn painful.

The good news that we see here is that MEG has gone sideways for the past 2 months showing us what looks like a double bottom. It's a little early to call it a bottom anyway, but just in case it is, I've already set my neckline for MEG at 2.65. I'm looking at 3.20 as a minimum target should this breakout of the neckline wiht significant volume.

Even if it's a little early to call the consolidation a bottom, the MACD has been showing me a positive signal with its bullish divergence. So maybe it's just a matter of time before we see MEG flying higher than current levels.

Of course, this is all speculation for now. Until we get a confirmation of a reversal, which is the breaking of the neckline, I'm not calling a buy on MEG.

So have a little more patience my friend. That's your best asset for the moment.

Saturday, 8 March 2008

Logic Defying

Time and again, I get to encounter people from different backgrounds with one thing in common: the stock market. It is safe to say that these people have been hurting since late last year. They were all expecting that the first quarter was going to give them an opportunity to make money as like every first quarter of every year. Unfortunately, they weren't expecting the lingering credit crunch in the US to last this long.

Lately, I have had a healthy discussion of the goings on in the market with my boss. Without naming names, he just couldn't understand why a certain company involved in the energy sector and infrastructures could be dropping to lower levels. Summing up what he said, the current price action defies logic when the financial numbers show a sound cashflow. Obviously you can see where this is going, a debate between a hardcore fundamentalist and a purist technical analyst. After hearing his logic defying question, I gave him an answer that anyone can understand easily. When the number of people who want to sell outweigh those who want to buy, expect prices to drop, regardless if the financial numbers say it's doing good. I think he found the answer a little too simple to digest.

Sometimes, the answer to certain questions are really simple. Unfortunately, many people cannot accept simple answers as they feel they need to be sophisticated when gathering information. Isn't it that the simple law of economics dictate that when demand is greater than supply, the price will rise? The same goes that when demand is less than supply, the price will fall. That is a simple but absolute truth about how prices move. Yet many cannot accept this.

As a trader, I put my complete faith in the 3 tenets of technical analysis. What I have described above already is a good example of the first tenet that says price discounts everything. No one can be better than the price. Anytime anyone wants to contest this, they are welcome to disprove it by following what the financial numbers say. However, be warned that once you have bought into a stock with a good FS yet the price keeps dropping, expect the price to be telling you, "Thank you for contributing to the winner's fund". The winner being someone else other than you.

This first tenet should also dictate our self discipline as to when we should be pulling the trigger to execute our orders. A disciplined trader would cut his losses once it reaches a lower price that is within his tolerance level (or a higher price if they are doing some short covering). Typical investors don't do this. It defies their logic to consummate a paper loss into real losses. They decide to just hold on to their losing position until it recovers, whenever that is. No one even knows if it will ever recover if the price has gone off the deep end. If we were conscious about computing for the time wasted while holding on to losing stocks, we would say we should consider the interest you would have gained if that same money was kept in the bank after cutting the loss. That's why I don't want to be called an investor, because it is equated to getting stuck with a loser. Of course, I'm only talking about my own personal style. I'm not knocking those whose style differs from mine.

One last thing on this topic, sometimes we have to consider what is our objective? Are you in it to be sophisticated, to be the star of the party, or are you in it to make money? Think about it.

Saturday, 1 March 2008

Charred Grill Burger

Everyone I know loves burgers. Especially when it's the chargrilled kind. Unfortunately, things aren't looking bright for the owners of Carl's Jr. and Hardee's: CKE Restaurants (Nasdaq:CKR).

Ever since June 2007, CKR has been trending downwards. Not only did this pause during August to October inside a descending triangle, when this broke the triangle, there was a role reversal that happened after the breakdown. The support that turned into a resistance, was tested 3 times before it finally dropped to its minimum target and below. Then sometime in December 2007, CKR goes sideways again in another descending triangle with a bigger base. Last night, the burger maker's bottom finally gave way.

The support here is pegged at $11.28, with a downside target of $8.46. Anytime, this should rally back above the support, a cut should be made to preserve the capital. To confirm the bearish sentiment, the moving averages have long been in the bearish firing order since October. Another confirmatory indicator is the MACD. It has been oscillating below the zero line ever since June 2007. Everytime it rallies to the zero line, it has a hard time keeping itself above the zero line.

Since the bearishness is confirmed, there's only one thing left to do: short the sucker! And short it I did. The question now is, does it have enough momentum to propel it down to its target? If only the prices of their products also adjusted downward like the stock price...

The Water's Fine

Many issues in the local market have dropped a lot and are currently going sideways. One exception to the rule is MWC.

MWC has been travelling inside a trading range and right now is consolidating inside what looks like an ascending triangle inside the channel. The good part to this is that this stock is still bullish despite the current downtrend in the market. Should this area of consolidation really prove to be an ascending triangle then we wait for the breakout. One thing noticeable about MWC which makes me wary of entering immediately is the bearish divergence showing in the MACD. Could this be telling us that MWC would be breaking down soon?

If it does then, all who have MWC must be careful when it breaks 17.75. We could see it go down to 14.25. If it should breakout, 19.25 is the resistance for this and we see an upside target of 22.50. That's IF it breaks out. Anticipating a breakout is different from anticipating the breakout but buying into it prior to the breakout. Let's not be idiots here.

Let's play it conservatively when the market is still unsure of its footing. Otherwise, if it was a bull market, I'd be the first one waiting when this breaks out.

Saturday, 23 February 2008

Precise to the COHR?

In this time of great uncertainty for the US stock market, it's a bit difficult to look for issues that one can buy. Fortunately, we found one.

Coherent Inc. (Nasdaq:COHR), a company involved in laser and its applications in business & science, was previously moving in a general sideways movement until a sudden drop happened in November 2007. That lead to a low of around $22.00 in January and it has steadily risen since then.

Currently, COHR has been consolidating in what seems to be a pennant formation. Based on the data as of Feb. 22, 2008, the resistance of the pennant for the next trading day would be at $28.67. The projected upside target is now pegged at $31.00. The cut loss for this would be a break of the support of the pennant at $28.16. The momentum for COHR is still intact as can be seen with its MACD. As for the moving averages, the 100MA is serving as a support at 28.13

So what are we saying here? Despite the prevailing uncertainty and bearishness in the market, there are issues that will be like salmon as they swim against the trend. The question remains if this salmon can survive the resisting force or will it find itself as sashimi?

Saturday, 9 February 2008

DISCA Sucks

Not because the symbol resembles a fad in the 70s that should stay dead but rather of what the price of Discovery Holdings A shares (Nasdaq:DISCA) is currently doing. This company that has involvement in media, has already gone sideways and broken down.

Let's see what the chart tells us. From Oct. 2006 to Aug. 2007, there is a clear uptrend. Then starting from August onwards, it has gone sideways to form what looks like a descending triangle. Based on previous levels, it is safe to presume that there is a support at 22.51. This has already been broken with significant volume. Since prices are already below the moving averages, we already know there's bearishness in DISCA. Add to that, the MACD of the stock has been oscillating below zero since November 2007. This only confirms the bearishness we mentioned earlier.

Should this continue to fall, we see a downside target of 16.22. That's a 28% return! All I have to do here is to short it at the right price and wait for a maximum of around 6 months to reach the downside target, or I get stopped out. Whichever comes first.

So now you know why DISCA sucks. It sucks for those going long on it.

Thursday, 31 January 2008

Drooling Over DROOY

What a funny symbol, looks like either droop or drool. But speaking of drooling, let's check out this chart of the South African gold miner, DRDGOLD LIMITED (Nasdaq:DROOY).

At the start of 2006 up to Oct. 2006, this has just been going sideways. It started descending from that time and again went sideways at the start of 2007. It was only very recently that DROOY broke out. Broke out of what? From what this looks like, it is an inverted head & shoulders formation. Based on this pattern, the breakout point is 10.75 and this is pointing to an upside target of 15.98. The proper time to cut the losses here is once it goes back under the neckline.

One thing noticeable here is that the volume does not follow the textbook requirement of this pattern. The answer to why that is, is because this pattern has become secularized; meaning, it has surpassed the 10-month gestation period and after taht, there are no guarantees that volume would follow what the textbooks say.

Despite a general market sentiment that is quite bearish (check out my earlier post called D-OW!), DROOY seems to be one of the exceptions as it is actually bullish with this inverted reversal pattern. Even its MACD says so as the fast line is already above the slow line and both are above the zero line. This already gives me teh feeling of bullishness for this stock, aside from the fact that there was a bullish divergence during Dec. 2006 to Mar. 2007.

So what are you waiting for? Everyone get on the gooooooooolllllllld train.

Friday, 25 January 2008

The One That Got Away

What do you call the act of monitoring a stock from its setup to the time it moved and you still didn't do anything about it? Stupidity. That's what I call myself for letting Expedia, Inc. (Nasdaq:EXPE) get away from me.

This online travel agent was going up steadily until October of last year. It created what is known as a double top. Seeing that, I was already planning on shorting the issue once the neckline at 27.49 was broken. On Jan. 10, EXPE broke the neckline but where was I? I was out paying my respects to my godfather's father who passed away recently. I'm not making that an excuse, but rather my stupidity was for forgetting about entering a programmed order for a stock that I knew was about to go down. Hence, opportunity lost. For the trader, this is an unforgiveable sin. So now, I can only look at it and hope that it rallies back to the neckline so I can have another opportunity to short it.

But the way it looks, the momentum for EXPE is accelerating downward as can be seen with its MACD. It hardly looks like there would be any semblance of support at current levels. Looks like this is going in the direction of where many airline stocks are also going...

Saturday, 19 January 2008

D-OW!

When it rains, it pours. Such is the case with the US markets for the first two weeks of 2008. Many are still in denial of whether a recession is coming or even that they're already in one. They're still pinning their hopes on Bush & Bernanke to bail them out of the quagmire they're in. I can't really talk much about what lead to the current situation based on all the politics involved but I can show you what has happened to see just where we are with the current situation.

Since 2003, we see that the Dow Jones Industrial Average has been trading inside a range with an upward bias. It was able to get out of the range back in September 2006. It dropped in late February 2007 due to what is now known as the China Syndrome; where China dropped 8.8% and everyone else got spooked including the US where DJIA lost 4% for that day. The curious thing about what happened was that when it corrected, it was respecting the trendline of the range that it broke out of. An obvious sign of role reversal. After that scare, DJIA was able to shake that off and go even higher by reaching 14,000 in July 2007. It corrected down to 12455 but was able to reverse itself immediately and reach a new high of 14,225 in Oct 2007. But at this time, it seemed that DJIA had a hard time making higher highs. True enough, after another correction, the Dow attempted to try to reach 14,000 again in December 2007 but was able to reach 13,850 only and then it dropped since then.

If we look at it properly, DJIA started going sideways since May 2007 to create what looks like a head and shoulders reversal formation. With this, the neckline of DJIA was being tested for a while around the 12,700 area and it was finally broken just this past week. Although the downside for the Dow is 11,200, I don't believe that it will drop to that level immediately. In fact, I was expecting that when DJIA goes down, it will retest the trendline of the range; which is now at the 12,350 area. Retest it, it did, but it didn't take long for the Dow to re-enter the trading range. The next base that it will search is 11,709 (the high on May 10, 2006) and 11,926 (the low on March 14, 2007).

What about the Nasdaq & and S&P 500? Let's also look at the other major indices of the US market.

The Nasdaq has long been inside a trading range since 2004. It tried to break away from this range late last year but it just could not sustain the momentum. Since this market is heavy with technology stocks, and the technology stocks are the ones that are being battered too, it was a no brainer that Nasdaq was also going to fall like DJIA. In fact, it's on its way to retest the support of the range, currently at the 2200 area. Unlike the Dow which is still bullish for the long term, Nasdaq has come off its high (5132, back in March 2000). It has retraced from that level down to the 1100 area back in 2002 and has risen since then although it is still generally a sideways movement with an upward bias.

Last is the broad-based index, the S&P 500. The movement of this index is very similar to DJIA as it has also made a new high recently and it has come from an upward channel since 2004. Yet there is still a difference between the two. Like the Nasdaq, the S&P 500 was not successful in maintaining a breakout from the trading range late last year and has returned back inside the range. This is not the only glaring thing about this index, the other thing is that it seems to have formed a head & shoulders reversal pattern too, much like DJIA. But should the S&P 500 follow what is expected, it could fall to a downside target of 1238, clearly breaking the whole channel.

Things definitely don't look good for the US at this point. For the short term, DJIA is bearish with the head & shoulders reversing its earlier trend. But this doesn't mean that it's bearish for the long term. Despite that outlook, as a trader, I go with the flow. Right now, the flow is going down, so it's time to look for shorting positions.

Thursday, 3 January 2008

The Market Socks it Back to DGTL

New Year! Sorry, I don't think too many people are inclined to add Happy at this point. Still, this blog wishes you the best for the year.

We thought DGTL was like a rocket ship that already lifted off. Turns out that this ship probably had a leak in its booster rockets.


It returned to breach the support at 1.66 momentarily. But this was all the moment a disciplined trader needed to confirm a cut loss. Yes it closed above 1.66 however we need to look at how it performed for the day. The intraday movement wasn't encouraging as it opened high yet closed somewhere in the middle. Add to that that it breached the support.

Will I buy this again? Sure, but it has to be convincingly strong first before I decide to enter again. Buying at a time when the whole market lacked adrenaline is not really the proper time to do it, especially when it closed just above the support but the intraday chart looks ugly.

Be patient. Wait for the right timing. THEN strike!