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majority of people stereotyping stock trading to legalized gambling, we don't need to fuel their assumptions with an outdated pricing scheme.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