Market Outlook

Although i've put up a couple of stock picks recently, i feel there is a compelling need for me to say a few words of caution at this point in time. The market has not been looking very good of late and it seems that it has taken a turn for the worse in the past 2 weeks, though it seems likely that tonight the market is taking a breather from the past 3 days of plunge.

I have been talking about this correction for a while, many who has followed my blog would have known. Just a few hours ago, a fellow trader, Swee Leng has kindly sent me his analysis of the Dow, to which i concur.

As we can see from the above chart on the Dow Jones Industrial Average, the index is forming a prominent Double top with the last day of price action resting slightly below the 50 days moving average. To make the matter worse, the oscillator is turning negative with the DE- above the DE+ and ADX turning above 20, indicating the formation of a negative trend.

There's only been a single instance in february where the index drop belows the 50 DMA since Oct 2006. At this point, with the Dow Jones hanging precariously below the 50DMA with so many indicators pointing to a correction (hopefully not a reversal), it is prudent to hold your purchases until the coast is clear. 13200 is a very crucial support and if it indeed falls below this level, it's likely trigger a massive sell-off. And if you've been thinking of selling something, perhaps you might wanna do it earlier and not later.

Of course, i may be wrong about this and the market continues to power on. So... "WHAT IF I AM WRONG" , i'll sacrifice some returns for capital preservation. Does it matter?.... No, it doesn't!

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The market will always be there for you, but will you be there for the market?

Stock Picks of the Week

Hong Fok has since risen 30 percent and is on track to hit our target price of $2. That'll be the time for me to sell half and put a trailing stop for the remaining half.

Once again, it's back to our weekly stock picks' time. Picks for this week are namely, AusGroup and FJ Benjamin. For illustration purposes, we'll be looking at triangles for a few more times before we move into other chart formations.

AusGroup

• Ascending Triangle with support at 1.8 (20dma)
• Target price of $2.2 based on Fibonacci extension
• Rising metal prices
• Healthy order book expecting more contracts

FJ Benjamin

• Ascending Triangle with a target price of $1
• Support at 50dma of 86cents
• Retail earnings during this GSS recorded higher than last year
• Though effects of GST hike still unknown for future, it has stimulate better sales as consumers bring forward their consumption to beat the GST hike deadline.

Before i logged off, here's one of my favourite song (Perhaps Love by John Denver) for all of you to enjoy

Stock Pick of the Week - Genting International

Hope everybody made money with the last example on Hong Fok. Its currently standing at 1.79, an almost 20% from the price in the last post. That was a very classic Elliot Wave 4 Buy example.

This week's illustration will be on Genting International. This counter has been rather quiet on the newsfront after it made headlines with the International Resort (IR) last year. Stock has retreated to it's current price of $0.94 after it made it's high of $1.2 with the IR news.

Currently, it's forming a very nice symmetrical triangle with the height of the triangle stretching some 6 months long. Support for the stock stands at $0.92 and assuming a conservative price target of the previous high ($1.2), we're looking at a whopping reward-risk ratio of more than 10:1.

In terms of fundamentals, Genting has some very nice cashflow after divesting it's non-core and loss-making asset - star cruise. Business at their resorts in the highland has been booming with close to full occupancy rates during this summer holidays (those who have went there for a holiday with their families would know exactly what i meant). I've went in for 10 lots myself at 94cents a piece but bear in mind, this is not an advise to buy. Do conduct your own due dilligence before any purchases.

Other than genting, friends who know me will also know that i'm also bullish on the marine sector, on commodities and on china environmental stocks. But these will probably be saved till the next time i post ........................... till then,

Happy Trading!

Stock Pick of the Week - Hong Fok

Here's the pick for the week - Hong Fok (HF).

Technically, HF is sitting on a very nice support level at 1.44. It is on a Elliot Wave 4 buy with a projected price of 2.07. Let's be more conservative and assign a target price of 1.9, which happens to be the wave 3 high. This translate to a potential reward-risk ratio of more than 6:1, given my entry price of $1.51 last week..... And yes, i entered a position after i wrote this article.

Volume was low during the wave 4 correction and consolidation period. Prices stayed well above the 100 and 50 days MA, hovering near the 20days MA.

HF is a straight proxy for properties and much more direct than a lot of other properties counter such as capitaland, keppel land etc since there's minimal developments (with developing, there's more variables such as raw material, labour cost which affect margins). Much of the price appreciation in recent months was due to revaluation of their 2 prime properties - concourse building and international building. Furthermore, these 2 prime properties and with a small market cap makes it a choice acquisition target for anyone who intends to develop these 2 pieces of land. With prime office space becoming more and more of a scarcity, the likelihood of this becoming a possibility is increasing.

Above being said, Hong Fok makes an excellent medium to long term property play. The last revaluation happened in Feb 07. The next revaluation exercise could likely be done half a year after, in conjunction with the next earnings report. So, even without a takeover, one could still benefit from the next revaluation exercise.

Trading entails risk... This post does not constitute any advice to buy or sell.

Sell in May and go away!

It's the time of the year where once again you sit down and wonder about that age old saying "Sell in May and Go Away". Are there any truths in this adage? Should we sell off our holdings and take a vacation?

Some of the reasons behind this may relate to patterns in bonuses, taxes, savings, elections cycles and a whole lot more. Most bonuses are paid anywhere from December to April. This is a result of companies basing bonuses on the calendar-year results. This creates a large cash flow for these individuals, and a substantial influx of money into the capital markets. This prophecy is also due in large to hedge funds and mutual funds window-dressing their portfolios for loss reporting tax purposes. These are just some of the repeatable causes that contributes to this phenomenon.

Put it simply, this adage tells us of a seasonal strategy of selling stocks before the six-month bad period (May to October) and buying them back before the good period (November to April). Before i tell you what i really think, let us take a really closer look at some important statistics on this seasonal phenomenon.

According to research done by Kepler Asset Management, for the period from 1969-2001, the average return for the "good" period is 7.5 percent vs. 1.2 percent for the "bad" period in the US markets. The Stock Trader's Almanac has also demonstrated this by tracking a $10,000 investment on the Dow.Money invested in the good periods" and then switched to fixed income in the "bad periods" over 56 years grew to $544,323. But money invested in the Dow in the "bad periods" and then switched to fixed income in the "good periods" compounded to a loss of $272.

Of course, exceptions do and will continue to occur and last year was probably an exception whereby the markets rose past record levels after a tumultuous period in June where we saw the Dow plunge 700 points. As we can see, the biggest problem with timing the market is that deciding when to sell is only the beginning. You also have to know when to buy back in.

Nonetheless, there is no guarantee this pattern will persist and i certainly would not encourage you to sell everything. But if you asked me what i think of this saying, i would rather err on the side of safety (i have been paring down my holdings rather substantially). It has been proven statistically and isn't investment all about statistics?

Now that we've done with the fundamental reasons and statistics behind this, let us look at some technical reason in which i think part of this prophecy would be fulfilled rather soon. Let us take a look at the shanghai composite.

The china markets are certainly the hottest things on planet earth and given how our markets move in tandem with their, it makes a lot of sense to check out this chart. As we can see, prices have stayed within a very strong upwards trend channel with a R-value of more than 0.9. As the channel approaches the 4000 psychological level, we are seeing a Doji star. The last time such a candlestick formation happens at the 3000 psychological level in Feb07, the index plunge 300 points.

Locally, we see a similar Doji happening 2 days back on high volume. More importantly, we see the formation of an white candle on low volume immediately after, which also fails to move above the trendline. Finally, we see an obvious double top formed just shy of the 3500 level.

With so many factors pointing to this and given where we are in the cycle, it may make sense not to rush into investing idle cash at the moment. And if you have stocks or funds you are thinking of selling anyway, this is one reason to do so now instead of waiting until the end of year.

Pre- Budget 2007 Ramblings

Arlow Everybody,


Hope everyones doing alright! I'm not sure if anyone got my hint (posted 4 Feb) and bought Sunpower... If you had, you would have made a whopping 63% in just 2 weeks.

Anyway, since i'm at home having nothing much to do, i thought maybe i could just talk about the budget since it's gonna be announced at 320pm today. So, what about the Budget?

There's been many articles on what to expect from the budget and so, i'm not gonna dwell on that. Rather, i'm gonna talk about expectations and mis-expectations. With all respect to the market, it's not so much what the budget that matters, it's whether the budget meets the expectations that matters.

This line of though stems from the Macroeconomic theory of Rational Expectations and Adaptive Expectations. The proponents of this theory shares the view that the original equilibrium are formed through people's expectations. Deviations from this expectations will then result in shocks to the initial equilibrium. Should the truth be close to expectations, then nothing much will happen.

This theory are used mainly by central banks and the federal Reserve in targeting inflation. Perhaps, we could also generalised it and applied to the budget since both are a form of fiscal intervention. Since the 2% GST increment and the 1% coporate tax cut has already been priced in, any changes to both item in the above magnitude will constitute a non-event and will likely not precipitate any surge or falls in the stock market.

What then are the market expecting?

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This, my dear, is the million dollar question i would like to know too. =)

Getting Inspiration Anywhere, Everywhere

Many people asked me:

How do you know which stocks to buy?

This, my dear, is a million dollar$$$ question. I'm sure many of us have the experience of cracking our head and not knowing what to buy, be it a lack of choice or simply spoiled for choice. However, choosing a stock can be easy if you just know where to look.

I get my inspirations from practically everywhere and anywhere. I get inspiration when i'm overseas traveling, when i'm shopping or even reading a news article. I shall give a very simple example. There's this news report that came out on the Straits Time on Wednesday.

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Ecology: China admits it has failed badly
BEIJING - CHINA has failed to make any headway in the past three years to protect its environment, remaining one of the world's worst nations on the issue, according to a new Chinese government report. The country ranks 100th out of 118 developing and developed countries in terms of 'ecological modernisation' - the same rank it held in 2004, says the China Centre for Modernisation Research (CCMR), a state-affiliated think tank
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What then does this article imply?

Simply said, China based environmental stocks that deals with waste water treatment, industrial gas treatment will go up in the not so long future.

Let's look at this using simple Demand and Supply. On the Demand side, we have China having it's BEIJING 08 Olympics soon. This report will no doubt strengthen the Chinese government's resolution to solve this problem by this year. Very soon, we'll see some drastic measures taken to curb all these. To the Chinese, saving the face (pride) is very important. If you're Chinese, you'll know what i mean.

On the supply side, waste/gas treatment are technologies that are subjected high barriers of entry due to a myriad of reasons such as patents, high cost of R&D, licensing, reputation etc. All these factors simply point to a controlled supply curve.

Now that we've established a theme: Environmental Stocks, comes the question of which company to buy then?

For myself, a few factors come into play. (1) The Charts must look good, (2) the price must be affordable, (3) the financial statements looks healthy. Charting is so profound that i'll probably can't finish explaining in 100 posts. Price affordability is subjective so i shan't dwell on this. So, what is healthy financials? To me, healthy is probably an understatement. I like to see a more than 50% increase in operating profits and at least a 25% increment in earnings per share(EPS). i also like to see some free cash flows.

With that, i shall leave it to your imagination what stock did i buy. Successful Investing is all about knowing what to buy and buying it just before everyone does.


-----Counters------- Qty--Avg Entry --Current-- Mkt value

1. BreadTalk _____30____0.245_____0.4 ______ 12000
2. ThomsonMed __ 11 ____0.35 _____0.535_____ 5885
   
3. Sunpower______40 ___0.225 _____0.23 _____ 9200
   
4. Banyan Tree ___ 10 ____1.50 _____1.62 ______16200
5. GlobalVoice ____ 60 ___0.195 _____0.135 _____8100
6. ChipESeng _____ 15 ___0.315 _____0.42 ______5700
7. FJ Benjamin ____ 20 ___0.568 _____0.725 ____14500
8. Ferrochina _____ 10 ___0.825 _____1.49 _____14900
9. Wilmar _______ 10 ____1.09 _____2.33 ______23300
10. Luzhou _______ 10 ____0.80 _____0.795 ______7950
11. Pac Andes _____ 10 ____0.705 ____0.94 ______9400
12. Celestial ______ 10 _____1.46 _____1.62 ______16200
13. Utac _________ 10 ____0.73 _____0.83 ______8300
14. Wing Tai ______ 5 _____1.88 _____2.49 ______12450