End of Day Market Thoughts 20 May 05

Well, the market was up today again, although not irrationally bullish, but enough to irritate me (becos I was not in it... heheh). My mind seemed unable to get over the bearish 'block' that was caused by:
- selloffs just a couple of days ago, partly due to the downward revision of the singapore GDP to 2.5%.
- the Nikkei and Hang Seng fell while the US was up the night before, and SGP went down as with them.
- the STI only showed a positive reaction on 19May05 to the gains on NASDAQ after it showed 3 strong up days from 16 - 18 May 05.

Signs of bullishness:
- the STI had a doji on the 18th, forming a harami with the preceeding candle (or day or bar). Confirmation of the harami came on the 19th when the harami-high was penetrated.

Favorite buy signals not there:
- because of its reliabilty and good risk mgmt nature, the sequential breakout buy signal is my favourite and one I feel the most comfortable in buying as it reflected a gradual change in sentiment which I feel will cause the participants to push the stock longer. But it were the v-reversals that were coming out and thus made me reluctant to buy. So I'm trying to look into ways to tell/show me that:
a. sentiment has indeed turned around
b. the prior selloff (if there was any) was overdone

What I should have done:
- need to remember that the SG market at times (in fact, I've seen it happen often enough) only move after the US has ran for 2 days or more. Seems like the players need to see more proof to overcome their skepticism.... me, I think I'm more skeptical than the skeptics... heheh. So I've got to drill it into my head that the local mkt will almost always follow suit sooner or later (unless some locally specific news comes out). The Nikkei and ASX200 should provide some guidance to the direction of the day as they start trading earlier.

What I feel may happen:
- because the local mkt took some time to 'believe' its US counterpart, the local mkt might see fewer days of rally as the US side takes a breather. But then again, if the sentiment has become bullish, the local mkt will most likely still rally as long as the US remains flat.

So now I'm kicking myself for missing the move these 2 days, but it has caused me to start thinking of ways to tell if sentiment has turned around, especially for V-reversals. But the problem is that the data that I'm after is only available on that particular day after the market closes and will be written over on the new trading day... so I'm trying to use ASP.NET (i.e. using OP's server) to download and save the data on the server on a daily basis.

Getting started in stock investing

Received a call from a friend saying that he and his friend would like to know how to get started in investing (in stocks basically). So we met up the following day.

The topic is pretty broad and I was a little lost on how to get started... both of them have not invested before and I didnt want to overwhelm them with information. I let the "lesson" play itself out.... much like the presentation I did at NUS. Things just came to my mind to 'link' each topic together. I didnt want to teach them the conventional way of how 'everyone' got started because that's how 'everyone' got clobbered in the market. I wanted to let them in on things that really mattered and yet can be grasped by absolute beginners.

As I was shifting the car to another parking spot, I thought about how I could simplify the process, and what are the things that cause the markets to move. These are the things that I've come up with:

SHORT-TO-INTERMEDIATE TERM EVENTS
1) Actual/Anticipation of Quarterly earnings/loss reports
2) Profit guidance/warning
3) Dividends & Bonuses
4) Share buybacks
5) Stock splits/reverse-splits
6) Upgrades/Downgrades
7) Institutional and other 'Big Fish' activity
8) Insider activity

INTERMEDIATE-TO-LONG-TERM EVENTS
1) Economic/Business cycle
2) Institutional activity
3) Insider activity
4) Monetary policies
5) Liquidity (either generated from within the system or injected from external sources)

The biggest question question in investing is actually what to do in times like the present moment. We've just come from a good run that started in mid'03 and slowed down after the inflation is starting to creep in, causing the FED to start applying the brakes (raising interest rates, and are expecting to continue raising them). This is when the economic data are showing mixed numbers (some good, some bad), and the intermediate-to-long-term investors would usually feel quite bored because things are not really moving.

If you've noticed, I havnt mentioned anything about technical analysis at all. I would probably teach it to beginners at a later stage and show them how it fits into what-ever investment horizon they have as well as its usefulness when the information that's coming in are not giving any clear direction but they can still extract some profit from what the market is telling them.

End of Day Market Thoughts 19 May 05

Singapore stocks finished higher on the queue from US and the regional mkts. Two stocks that caught my attention with Type B divergence on the oscillator were Noble and Comfortdelgro. I found out that the divergence can appear on either on a 10-day setting or 15-day setting.

Offhand, Noble seems to be a better choice due to the lower volume (still room for volume expansion) whereas Delgro has had high volume for 2 days... might see some consolidation as it is still rather far away from the 10EMA.

After 3 days of rally, the US mkt might be taking a short breather soon, with that, Singapore might also consolidate, and hopefully setting up some continuation (RH or Sequential Breakout) setups.

Cosco is actually looking rather attractive in light of the recent sell-off that widened its gap from the target price, giving it room to move again....

Mid Day Market Thoughts 19 May 05

The US indices continue their rally started on Friday night with the NASDAQ taking the lead with 26.5pts. Calculating the volatility for the NASDAQ, it seems like the rally started on the first week of May with bullish divergences on both the MACD and 5,3,3Stochastics. So that's all well and good on the technical front. A year ago, I would have traded on those signals alone.... but as risk averse as I am, I was trying to wait for economic data to confirm the technicals.... but then, none of the numbers that came out had very significant impact. But the market rallied nevertheless, so the news is probably providing a 'floor' for the market to rally upon - but not good if I cant recognise its significance, so I had to turn to other means for confirmation. That's why I still subscribe to the usefulness of TA to understand the market's reaction to the underlying factors that I have no clue about (or have missed.... etc).

The only thing to do now is to try to find means to gauge how long and how far this rally would go. If I knew that the rally would last 10days, then there's still $$ to be made even if the market had already rallied say, seven, days. The next best thing would be to wait for mid-trend buy signals (RHs, Sequential Breaks, TypeB Divergences), but there's still a risk that the rally is so aggressive that they dont apprear, or appear too late....

The put/call ratio was actually on the high side - meaning people were buying more puts than usual. This only showed that the market has sold down enough for a rally to commence, so I can't use it to time my entries. The market internals were not giving any signs as well with new lows still beating the new highs consistently.

Then I thought that I should calculate the volatility to look for further clues. The resulting chart showed that the NASDAQ would rally when volatility peaks (& starts heading down) as the index declined, setting the stage for an upmove. Next would come the signals from the indicators I've previously mentioned, and lastly, momentum (or buying interest).

I was thinking of constructing a price acceleration indicator to filter for momentum, but am afraid that the market would have finished the short-term swing when the indicator flashed a 'buy'. Thus, sticking to the sequential breakout buy still seems like a better idea.... and on the first white high is broken (preferably indicators have crossed too).

On the singapore front, the market gapped higher from the gains of the US, but has since retreated from its high. I dont know if the participants have gotten over the lower GDP forecast but the crazy bullishness of the past months is not evident. But the other regional markets (Japan, Hong Kong & Australia) have all responded well to the US gains. I have yet to sit down to think about how I can use the SSF-stats, price, volume and timesales data of both the whole market and individual stocks to derive a sentiment indicator... but I dont know if it will be worth my while to do so since I've decided to move into options....

All in all, with the introduction of the volatility tabulations, it should now provide for a very robust trading system.

Mid Day Market Thoughts 13 May 05

Last night, all the US indices were figuring out where to go after the Consumer/Retail Spending and Unemployment figures were released. Retail spending came in higher than expected (cant remember how many months in a row was it) but jobless claims increased. From a strictly technical viewpoint, the trend was still down even after the 1-day reversal yesterday. And after the traders came back from lunch, the market sold down into the close (another 100pt slide). Short-term market breadth indicators were already suggesting that the short-term cycle/fluctuation/swing (or whatever you wanna call it) could be turning down. So what happened last night was a confirmation. But that doesnt mean that it should sell down to hit the lower boundary... long position(s) have to be established once the high pivot at 10,400 (for the Dow) is breached... or any earlier buy signal(s) from other indicators are given.

Back to the discussion about economic indicators.... was initially wondering what impact would the higher retail spending be having on the market, 2 things that immediately came to my mind were the works of Joe Dagnino (Profiting in Bull & Bear Markets) and Dave Kansas (theStreet.com) with regards to economic indicators. Joe talked about the components of the leading, coincident and lagging indicators while Dave reckons the Unemployment (Jobless claims) numbers carry more weight than the retail spending data. A quick check on the LCL (Leading, Coincident, Lagging) chart showed that the lagging line is still on the way up.... and would probably continue to go up since the Fed is probably going to continue raising interest rates to the 4.25% mark (market consensus?). So unless the Fed ease up a little or productivity increases, a longer-term rally may still take some time to come.

So while waiting for the big trend to come (if ever), I'm quite content to engage in some short-term fluctuation trading. Well see if the 17May low pivot materialises or not.... in the meantime, I'd better get back to my 'research' on explosive short-term option strategies. Cos the gains from the singapore market with my risk management system isnt very lucrative.... I'll probably starve to death if I became a full-time trader in the Singapore market (with the kind of risk that I'm willing to take).

The first half of the Singapore market is slightly down (normal) together with Hang Seng and Nikkei. Another uneventful day I suppose...

Mid Day Market Thoughts 12 May 05

After releasing news that Trade Deficit for April 05 was the lowest in 6 mths coming in at $60B, the US indices performed a one-day v-bottom reversal to close positive. Amid the positive response, the Trade Deficit for the year is still projected (at abt $696B) to exceed the 2004 level of abt $617B. I had initially hoped that the decrease in deficit would strengthen the USD and bring down the AUD - cos I might be starting my masters program in Australia if I'm unable to find employment.

On the charts, whether this one-day reversal has any effect still remains to be seen as it is still a lower-high + lower-low candle. After previously entering 2 trades after a similar 1-day reversal (when the Fed pointed out that productivity was still good), I saw a 400+ paper profit turned into a 300+ loss.... partly due to my reluctance (or foolishness not) to cut losses.

Today, the market opening saw Deutsche Bank adjusting the Hang Seng warrants up by 2cts in anticipation of a rally in Hang Seng as well as to discourage arbitragers (such as myself and my ex-colleagues) from taking advantage.

To my surprise, Noble was up 5cts and Starhub by 12cts... a sour feeling came over me as these 2 guys were on my warrants watchlist. But then again, I cant complain since I wasnt able to spot them before the move happened and I wasnt keeping my eyes peeled to the monitor this morning, I decided not to feel bad for missing the move, but instead decided to consult the charts to see if there were entry points that I could've taken to position myself before the rally ensued other than the breakout entry which requires me to stare at the monitor perpetually (or if my market monitoring program was completed...heheh).

I consulted 3 indicators (Accumulation/Distribution, MACD & 15,3,3 Stochastics) for both daily charts of Noble and Starhub. The first indicator showed that Starhub had been distributing and there was also a period in the past that Noble did likewise. I would like to see if de-trending the ADV indicator (perhaps by using a regressional average MACD) and slapping on a Bollinger Band would make things a little clearer. The MACD did not provide any obvious clues (I was looking for divergences). Finally the Stochastics oscillator. Besides the usual oversold crossover, there was nothing much as well... but I scanned leftwards to look for divergences (again). An observation made was that Type A Divergences usually show-up as a short/intermediate Wave 1 was about to begin, and Type B Divergences usually show-up on continuation moves. And I was thinking if I should just trade only when either of these Divergences appear as they are high probability signals.

One of the reasons why I was not in Starhub was becos of the shooting stars that were appearing in the charts. I should probably start laying down some rules to signify a nullification of the pattern.

I also looked at the performance of small caps. Magnecomp was up 4cts as well... Bringing up the chart showed that mid-April had a small broad-based rally which 'slapped' me in the face for slacking on the development of my market monitoring program; which would've given me more confidence to know that the small-caps were also moving.

The market monitoring program (if it were completed) would've notified me of these few things:
1. Type A & B Divergences
2. Intraday breakout of daily consolidation (on big-fish activity in T&S matrix)
3. The state of the broad market