Gotta Get Up to Get DOWn

I guess our days of being bullish have been short lived. Although there were bullish signs for the DJIA to push itself to higher levels, it just didn't seem like it was possible as there were some things missing.

The first thing that was missing was the pick up in volume as the index was moving higher. This alone made the rise suspect. Even the breakout from the supposed inverted head and shoulders formation was dubious as there was no pick up in volume on the breakout. Some called this the Goldman Sachs rally. But that's another story altogether.

As seen on the chart, the uptrend support since March 2009 has already been broken a few days ago by the DJIA. Not only did it break through the support, it also broke the 50-day moving average at 10450 and is now currently being supported by the 100-day moving average at 10116. If I were to follow where the DJIA could go to, the index could possibly fall to 9337. By that time, even the 200-day moving average would be broken and things will definitely turn bearish.

However, I think that this has been the correction that many people have long been looking for so that we may now proceed to the next wave of the bull run. In short, we need this correction to go higher. So we should expect the MACD to really look bad when this happens. We shouldn't panic over it. But that's not to say that we won't do anything while this is happening. Lighten your positions. If possible, stay liquid until things turn around.

It's time to stay on the sidelines.

LOTO Fever

Who wants to try their luck and see if they can score a jackpot every now and then? Everybody who wants money, that's who. But we're not talking about people who normally lines up in the nearest outlet for a chance to win an ever growing prize.

We're talking about traders like us. When we buy into any stock, don't we try our luck and see if it gives us a jackpot? But there are many who don't know the difference of trying their luck against pushing their luck. So to avoid pushing your luck, let's try something we normally don't play.

LOTO has made a big run most recently and retraced a good chunk of that. When that happened, I thought this one is finished as soon as it just started. Until today...

Since Thursday last week, it has been following a textbook definition of a flag. 2 day pole, 2 days of consolidation, diminishing volume. Sounds like a flag, feels like a flag, smells like a flag. So now what do we do?

Since 16.50 has been serving as a resistance, we wait until 16.75 is hit and we go in. 18.00 is the minimum target being shown to us in this formation. Should this pattern not follow as expected, and we were already into it, 16.00 is the cut loss for this.

So who wants to try and see if there's gonna be a payday within 3 days?

Singing to a New TUNA

(Original post can be found in Absolute Traders)

I noticed last week that there were two issues that were moving up out of the blue. The first one was PIP, which we won't talk about. The second, is TUNA.

What I remember from this stock since it's listing is that it has been on the downtrend. Even if its fundamentals are telling you a different story, the price performance is something hard to ignore. Because of that, TUNA has long been relegated to the back of my priority list...until now.

Being a lover of flags, TUNA caught my eye when this has moved for 2 days with a total of 20 centavos. This alone made me sense that a possible pole is in the making. For the next two trading days, it consolidated near 1.78. By this time, I have somehow confirmed that it is doing a flag.

That being the case, I see that the resistance of TUNA is now at 1.78. A break of this at 1.80 can be considered a buy with a target of 1.98. If it turns out to be a wrong move, a cut loss at 1.76 is called for.

But wait! This isn't the only play available in TUNA.

On the longer term, it seems that TUNA is in the midst of a reversal pattern. Whether it is doing a triple bottom or a double bottom, it doesn't matter as both are pointing in the same direction: UP.

If we want to play TUNA for the longer term, we are now looking at the resistance of 1.90. Should this be broken, and I think it will when the target of the flag is about to be reached, volume should come in at 1.92. The new target for this will now be 2.65, giving us a probable 38% return.

So after all other popular issues have already made their move, TUNA is a late bloomer that deserves a second look.

FPH Breaks a Cup

(the original post could be found in Absolute Traders)

Another issue has caught our attention by forming a major reversal pattern.

FPH has been going sideways since June 2008 and has formed what we think is a cup & handle.  The cup started on August 2008 and ended March of this year.  Right after that, a symmetrical triangle, which serves as the handle, also formed.  Yesterday happened to be the day of the breakout.  Based on our estimates, 26.50 was the right time to buy.  Should this surpass the resistance of 30.50, we could probably see this reach the minimum target of 44.25.

The moving averages have already turned bullish with the 65-day moving average above the 130 & 260MA.  At the same time, the MACD has been oscillating above the zero line, giving us the idea that FPH is really bullish.

Should there be some correction for FPH, it might be good to pick this up around 26.50.  Happy bargain hunting!

Recommendation: Buy on correction
Resistance: 30.50
Target: 44.50
Cut loss: 23.50

EDC's Worth the Wait

(the original post can also be found at Absolute Traders' website)

There’s still some waiting that needs to be done for EDC but I believe it’s just gearing up for some momentum.

After falling from its high back in October 2007, EDC has rebounded from its lowest point in December 2008, and has reached a high of 4.40 just this April. It is currently continuing its consolidation but this could be a big kick when the momentum shifts.

I’m assuming that the pattern this stock is trying to form is a cup and handle. Assuming that 4.40 is our resistance, and 1.82 is lowest point, we project our difference to 4.40 and we get 6.98 as our minimum target. But since the stock doesn’t move by 2 centavos at that price, I’m readjusting our target to 6.95, not so bad considering that that’s nearly 60% in potential returns.

Our MACD confirms the bullish momentum but has waned from its high. When this stock breaks out, you can bet that the MACD will push itself to higher levels.

Anyone for a cup of tea?

Recommendation: Buy on breakout
Resistance: 4.40
Trigger buy: 4.45
Target: 6.95
Cut loss: 4.35

The Genetics of a Flag

Despite the ultra-bearishness of the US market, there are still some needles found in this humongous haystack.

Case in point is biotech firm, Genentech, Inc. (NYSE: DNA). Just when most issues have been battered off their highs, DNA has shown resilience by posting a very robust flag in the making. Should it fly soon, I have put my trigger buy at 94.45, projecting that this will have an upside target of at least 105.75.

The opposite of this formation could be found in the stock that recently broke down, Abbott Laboratories (NYSE: ABT). Things just look so bad for ABT that I decided to short sell the sucker at 45.50 since that was my trigger price for something that was so obvious in showing an inverted flag. The downside target is at least 42.30.

Opposing directions, yet the concept is still the same. I hope to get out of these trades unscathed.

How Dengue Helped Open My Eyes

No one in his right mind would wish to have contracted a disease that could be as life threatening as dengue fever. However, yours truly was a recent victim of the disease. I'm not sure when and where I got it as I didn't notice any mosquito biting me in my lower leg area. But one thing was sure, my body flared up while I was sleeping on Jan. 4, 2009. I wondered how I got the fever as I didn't feel weak days before. I presumed I must've gotten it from my kumpare, Philip as we had dinner the night before.

Since I woke up with a 39 degree fever with a matching heavy head and aching back, I could not and did not go out of the house the whole day. I was quite sleepy the whole day too and I didn't pay much attention to the fever as it seemed like any other fever. What's worse was all the paracetamol I was taking wasn't helping as the fever wasn't going down. My wife was already wondering about it. The following day, I went to work with the fever hardly going down. I didn't feel weak, just a bit sleepy as I did my work duties. I didn't know I was weak due to the fever until I was going down the steps and I slipped, hitting my head on the wall that gave me an immediate headache and neckache at the same time. Since the I still had some fever on the 3rd day, I decided to have myself checked as to what was going on.

While the doctor was examining me, he already was suspecting I had dengue although the typical symptoms were not present. He asked me to get a complete blood count to rule out dengue. What followed next were days of edginess for everyone in the family. The first result of my blood test came out that I had below the normal platelet count (it was 166 from a normal range of 200 to 400). To be sure that this wasn't an anomaly, I had another test done 12 hours later. While the test was still being processed, I went to my office not knowing that I was getting weaker by the moment. I was quite weak that it only came out when I tried to stand up from my seat and I couldn't do it normally. My legs could hardly hold me up, and I felt very light headed when I stood up. But that wasn't what worried me. Starting at around 3pm of Jan. 7, the inside of my mouth hardly had any saliva in it. It was abnormally dry. I suddenly became dehyrdated. I drank a lot of water and Gatorade but my mouth stayed dry. This was when a little panic set in. At the same time, my wife was frantic on the phone. She was somehow shouting at me over the phone that my platelet dropped to 157. Right there and then, I decided I had to confine myself. This was quite serious.

I knew I was going to be in the hospital for a while so before I left, I had to hug my 2 daughters since I wasn't going to see them for some time. Upon entering the emergency room, I had to wait for a few hours as there were no rooms available yet. However, I had to be given dextrose immediately to prevent further dehydration. And then, the long wait starts...

All throughout the time I was confined, I felt fine since I was being given dextrose. I had no fever, no aches, I didn't feel weak BUT my platelets kept on dropping. I was quite concerned when my platelets were below 110 as I knew I was already taking stuff that should help in my recovery yet it had already been 2 days since I was taking them but there doesn't seem to be any effect.

While being confined, it was then that I learned how much I meant to the people related to me. Of course, I did expect my wife and family to do what they can to help me in my recovery. But it was how they helped that showed me how much they love me, and that is actually a rare sight for me to see. It's not that they're ashamed to show it, it's more of with the daily hustle and bustle of life, we tend to overlook these things.

I also learned who were my real friends during my stay in the hospital. Those who I knew were close to me reinforced my perception of them, and some even more so. Too bad that I also learned that some friends who knew about my condition were disappointing. Oh well, we can't have everything.

I was able to get my platelet back up around late Sunday and I was released by the doctor on Monday afternoon. So this post is actually more of people I want to thank while I was sick.

First and foremost would be to the Lord for giving me a second lease on life and opening my eyes to things that I took for granted. Many thanks also to Dr. Fernando Ayuyao for being able to detect that I had dengue and we were able to prevent anything serious from happening. My wife, Irene, my father-in-law, Jose and especially my mother-in-law, Alicia, for doing more than what was expected. My daughters Ayisha and Ashley for welcoming me back home with open arms. My parents, Sabino & Avelina for visiting me daily and giving me my supply of tawa-tawa leaves. My sister, Belina, my brother-in-law, Bobbie, my brother Brenno, and my sister-in-law, Bea, for visiting me in the hospital. My brother Bronne and sister-in-law Alma, for asking how I was doing. My kumpare, Philip and kumare Tina, for cheering me up while waiting for the good news to come. My kumpare Bernie and kumare Madonna for visiting me at home. My kumare Gel for visiting me in between her hectic schedule, my kumpare Junjun for asking how I was doing. My partners, Gwen, Al, and Danny for constantly checking on how I was. Actually a special mention goes to Danny for doing what he can to help me out. Bro, you're really the brother-in-Christ that I'm glad I have.

If I missed out on thanking anyone else, pardon me for overlooking you. I still thank you for doing what you can for me.

I guess I would now start to look at life differently after treading a possible path back to our Creator.

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.

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.

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.

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.

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.

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.

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

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.

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.

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.

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.

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.

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.