World Market

So, the fundamental sucks but stock still going up. Not logical eh? The few blogs that I'm following, the voice of the bear is getting weaker. Based on today's chart action, any downward movement, in my opinion will not be strong. Any upward movement, generally is not strong too but it is being pulled up by stronger sectors that deals with commodities. The financial sector is still a drag. Anyhow, better trade what you see than trade what you think you will see.

World	Longterm	Midterm	Shorterm
S&P500	Down	Up	Up (+)
DJI	Down	Up (+)	Up (+)
NasdaqComp	Down	Up	Up (+)
Nikkei 225	Down	Up	Up
Kospi	Up	Up	Neutral (-)
SSECI	Up	Up	Neutral
HSI	Up (+)	Up	Up
TWII	Up	Up	Up
STI	Up (+)	Up	Up
SENSEX	Up (+)	Up	Up
AORD	Down	Up	Up (+)
FTSE	Down	Up	Up (+)
DAX	Down	Up	Up
Bovespa	Up (+)	Up	Up

Weekly Review

KLCI Weekly Chart

The last 10 minutes of trade is damn crazy. Tenaga and Sime was pushed up while IOICorp, KLK, Commerze and Gamuda was pushed down. What are the fund managers trying to do?

Looking at KLCI weekly chart, maybe it has 20-30 points more to go. Maybe not. It has gone up like a rocket without any serious correction. The sound of the bears are getting weaker and weaker. This is a dangerous sign. When everyone is in agreement, you can be sure that the turning point is just around the corner.

As this is the last trading day of the month, based on the monthly charts, I formally declare that we are in a bull market! This is no bear market rally that I expect (or most of the bears expect). Low interest rates and massive money pumping have shown its effect. I'm sure those that have missed the train is hoping for a correction for them to get in. For me, I just hope that the correction is not too severe. I must admit I don't have a heart of steel like Mr Buffett that has no problem in seeing the price drop and drop. For those that wants to invest in commodity, look at my options blog to get an idea on what to invest.

Malaysia	Longterm	Midterm	Shorterm
KLCI	Up (+)	Up	Up
Finance	Up (+)	Up	Neutral (-)
Construction	Up	Up	Neutral (-)
Plantation	Up (+)	Up	Neutral (-)
Property	Up (+)	Up	Up
Mesdaq	Up (+)	Up	Up (+)
2nd Board	Up (+)	Up	Up (+)

HSBC

HSBC Daily Chart

HSBC is showing a ascending triangle formation. If it can break to the upside, then maybe can go to 80s. I'm mentioning this because its CW is being traded at a very small premium. So, the reward can be great if it breaks to the upside. However, if the financials start to crash down again, then the loss will be ......you know what I mean.

Disclosure: I'm long in HSBC-C5.

U.S. Inflation to Approach Zimbabwe Level

Marc Faber is very sure that US will enter hyperinflation just like Zimbabwe. Read it here.

AirAsia

AirAsia Weekly Chart

Broke out from 1.25. Let see whether AirAsia can fly.

Disclosure: I'm long AirAsia-CE.

Black Swan Protected Portfolio

Do you know why I mainly play warrants? Well, one thing is the amount of money you can make when you are right. The other reason, I didn't really thought about until I read the book "The Black Swan" by Nassim Taleb. It protects your portfolio when a black swan event happens.

Let me elaborate on this idea. Refer to the table below. Let say you have 100k for investment. . Let say we invest all our 100k in equity. Consider a 50% gain in your portfolio (very good indeed!), you will get 50k. Now, let's consider the use of derivative such as warrants (aka options). Instead of putting 100k into the market, we only invest 10% or 10k in warrants. The rest (90%) is put into a near zero risk investment such as fixed deposit. The 2x warrant means that the warrant gives you twice the return as compared to the underlying share. A 8x warrant almost gives you the same return as using the complete 100k!

Now, what do I say black swan protected? Imagine one that when you wake up, a 9.0 earthquake has hit California or a terrorist has set-off a nuclear bomb in a big city. At the open, the market drops 50%. Look at the percentage loss that you will incur. By using warrants, your loss will be limited to 10k (the value cannot go negative). This is what I call protection from a black swan event.

		Stock A	2x WA	4x WA	8x WA
Investment	Equity	100,000.00	10,000.00	10,000.00	10,000.00
	Cash	0.00	90,000.00	90,000.00	90,000.00
Winning Scenario
50.00%	Value	50,000.00	10,000.00	20,000.00	40,000.00
	Percentage	50.00%	10.00%	20.00%	40.00%
Losing Scenario
-50.00%	Value	(50,000.00)	(10,000.00)	(10,000.00)	(10,000.00)
	Percentage	-50.00%	-10.00%	-10.00%	-10.00%

You will think that I'm crazy of talking about 8x warrant. Look at the price movement of Genting and Genting-CO:

	Genting		Genting-CO		Difference
Initial Investment	3.60		0.070
	4.42	22.78%	0.120	71.43%	3.14x
	4.60	27.78%	0.130	85.71%	3.09x
	5.20	44.44%	0.185	164.29%	3.70x

Let say you manage to catch it at 3.60 or it's warrant at 0.070. At 5.20, you will have already earned 44.44% (ignoring transaction cost). But if you buy the warrant instead, your return will be 3.7x bigger, which is 164.29%!

Now look at Bursa and Bursa-CL:

	Bursa		Bursa-CL		Difference
Initial Investment	4.40		0.085
	5.75	30.68%	0.245	188.24%	6.14x
	6.20	40.91%	0.315	270.59%	6.61x
	7.30	65.91%	0.535	529.41%	8.03x

If you been lucky to catch it at the bottom, the return from Bursa will be 65.91% but Bursa-CL will give you a return of 529.41%. This is 8.03x more!

To achieve this, you need the following:
1. Favorable exercise price and expiration for the warrant.
2. To be able to time your purchase.
3. Your purchase move strongly (i.e. strong trend).

I hope that you get the idea. Of course the theory sounds nice but the implementation is difficult. There are two purposes why I wrote this. The first one is to present the black swan portfolio protection theory. The second is to encourage more people to trade in warrants. Some warrants are really illiquid. The spread is terrible. The volume is terrible. Anyhow, before you jump into the warrants, make sure that you have the necessary knowledge and skills. If you buy a call warrant when the share is on the way down, you will get hit hard! Don't say I didn't warn you.

Deflation vs Inflation

The great debate on what will happen: deflation due to falling demands or inflation due to the action of printing money? I think that whatever that will happen, it will test the decoupling theory. Remember, the decoupling theory didn't work in 2007 and 2008. Will it work in 2009? If the emerging market can generate enough demand to replace the falling US demand, then price will stay high. Let's see what does the chart says.

Cocoa Monthly Chart

The price of cocoa is still at high levels. No wonder the price of Milo didn't drop.

Coffee Monthly Chart

Coffee is starting to creep up. If this continue, instead of Starbucks and Coffeebean, we will end up at the apek's kopitiam.

Corn Monthly Chart

Corn is having a rebound now. The price is still double on what you get in 2006. Expect your meat (chicken, beef and pork) to go up.

Oats Monthly Chart

Oat is also having a strong rebound. No escape for an healthy heart here.

Rough Rice Monthly Chart

This is an anomaly. The price is going down! Good news to the rice eaters in Asia.

Soybean Monthly Chart

Soybean is up. More expensive taufu in the future.

Sugar Monthly Chart

Sugar is heading up too. Better stock up your sugar. Alternatively, drink kopi-o, better for your health too.

Wheat Monthly Chart

Wheat is having a strong rebound. Price is still double of 2001. Your bread will not be coming down soon.

So, my conclusion is, price is still high and heading higher. With more people that can afford eating a better meal, the price will stay high. From the perspective of food, the American consumer cannot not really reduce their demand significantly to cause a price drop. The inflation for food products will stay high and this will hurt us the most.

International Reserves of BNM

From BNM website, I obtained the following:

15 May 2009 is RM321.5 billion (equivalent to USD88 billion)
30 Apr 2009 is RM320.4 billion (equivalent to USD87.7 billion)
15 Apr 2009 is RM320.1 billion (equivalent to USD87.7 billion)
31 Mar 2009 is RM320.7 billion (equivalent to USD87.8 billion)
13 Mar 2009 is RM314 billion (equivalent to USD90.6 billion)
27 Feb 2009 is RM315.9 billion (equivalent to USD91.1 billion)
13 Feb 2009 is RM317.7 billion (equivalent to USD91.6 billion)
30 Jan 2009 is RM316.8 billion (equivalent to USD91.3 billion)
15 Jan 2009 is RM317.2 billion (equivalent to USD91.5 billion)
31 Dec 2009 is RM316.8 billion (equivalent to USD91.4 billion)

It seems that from 15 Apr 2009, BNM reserves starts to increase again. This is around the time where KLCI broke out of the 820-940 trading range. Does this mean that foreign capital are coming back?

World Market

The current theme is USD, reflation and emerging markets. I think that as long as there is no panic in the Western markets, the domestic consumption of the emerging markets will fuel the next phase of world growth.

World	Longterm	Midterm	Shorterm
S&P500	Down	Up	Neutral
DJI	Down	Neutral	Neutral
NasdaqComp	Down	Up	Neutral
Nikkei 225	Down	Up	Up
Kospi	Up	Up	Up (+)
SSECI	Up	Up	Neutral (-)
HSI	Neutral	Up	Up
TWII	Up	Up	Up
STI	Neutral	Up	Up
SENSEX	Neutral	Up	Up
AORD	Down	Up	Neutral
FTSE	Down	Up	Neutral
DAX	Down	Up	Up (+)
Bovespa	Neutral	Up	Up (+)

Currently, the US markets are trying to built a base. As long as DJI is not under 8000, S&P 500 not under 850 and Nasdaq Composite not under 1600, the rest of the world market should continue to hold on or rally.

US is still the no. 1 consumer of the world and there are still deleveraging. Until the emerging markets consumer can replace them, we will have a lot up down movement.

KLCI

KLCI Daily Chart

Still going up, but with reduced volume. Usually, this is a dangerous sign as it indicate less and less people are pushing it up. However, can we take this seriously? The high volume was cause by penny shares like KNM and TA-WB. Maybe now is the big capital turn to rally. Always trade cautiously.

For the past week, I have double-up my IOICorp and Chmobil CW, took a miserable profit on TM CW and since my fingers were too itchy (doing nothing is just too boring), I took a new speculative position on Salcon. From now onwards, I don't think that I would add any more positions as I'm already out of bullets (aka money). Actually, I'm more out of money that I'm willing to put into the market because I still don't believe in this rally but am just glad that I can ride it along. The summary for the sectors are:

Malaysia	Longterm	Midterm	Shorterm
KLCI	Neutral	Up	Up (+)
Finance	Neutral	Up	Up
Construction	Up	Up	Up (+)
Plantation	Neutral	Up	Up
Property	Neutral	Up	Up
Mesdaq	Neutral	Up	Neutral (-)
2nd Board	Neutral	Up	Neutral (-)

World Indexes

Uptrend halted. Is it time to consolidate for the next up move or there will be another panic coming? The answer will be revealed in the next 1-2 weeks time.

World	Longterm	Midterm	Shorterm
S&P500	Down	Up	Neutral (-)
DJI	Down	Neutral	Neutral (-)
NasdaqComp	Down	Up	Neutral (-)
Nikkei 225	Down	Up	Up
Kospi	Up	Up	Neutral (-)
SSECI	Up	Up	Up
HSI	Neutral	Up	Up
TWII	Up	Up	Up
STI	Neutral	Up	Up
SENSEX	Neutral	Up	Up
AORD	Down	Up	Neutral
FTSE	Down	Up	Neutral (-)
DAX	Down	Up	Neutral (-)
Bovespa	Neutral	Up	Neutral (-)

Who will win the tussle?

Bear's arguments: CRE is getting worse. Continue tightening of consumer credit. Jobless number is still bad. Housing price is still dropping. Some major banks are insolvent.

Bull's arguments: Bad economic numbers are less bad. Governments around the world are pumping a massive amount of money.

I think that the key is the USD. The PRC could be buying up world commodities as a way to diversify from USD. We know that PRC is now the 5th largest gold holder in the world. They are also building up their emergency petroleum reserves. With so much money in their pocket, what will they be buying? Anyhow, I wonder what will happen when everyone starts to loose their confidence in the USD?

Weekly Summary

Correction in progress. Nothing much to say but to wait. Hopefully, the correction is not severe.

Malaysia	Longterm	Midterm	Shorterm
KLCI	Neutral	Up	Neutral (-)
Finance	Neutral	Up	Up
Construction	Up	Up	Neutral (-)
Plantation	Neutral	Up	Up
Property	Neutral	Up	Up
Mesdaq	Neutral	Up	Up
2nd Board	Neutral	Up	Up

Trade Ideas

KLCI Daily Chart

The immediate uptrend line support is at 1000-1010. I doubt that this will hold because of the selling pressure in the overseas market. I think the best support is at 950-970. Will the world market goes into a selldown mode like Oct 2008? Based on the formations of the chart, I believe that the probability of happening is low. The market may go down, but not like the panic that we have seen. This is because the majority is anticipating it. Panic only occurs when you are not expecting it to happen. 

I think that the scenario that was mentioned by Marc Faber and Jim Rogers is more probable. The economy may not show signs of growing, but the liquidity available is huge. Honestly, my friends have been asking me what stocks to buy. They have a huge amount of money sitting in the bank that earn negative interest rate. 

My trading theme will be based on the following:

1. The drop of USD
2. The rise of commodity, i.e. oil, CPO, silver

Therefore, you will see I trade in the following:

1. Plantation stocks, i.e. IOICorp, KLK.
2. Crude oil ETF, i.e. USO, DXO.
3. Oil and gas industry, i.e. Petroch.
4. Silver ETF, i.e. SLV.
5. Silver mining companies (still analyzing).
6. Companies with huge foreign borrowing, i.e. Tenaga.

Tenaga is a little bit tricky, because the rise of natural gas will eat into its profit but this will be offset by better exchange rate. 

I don't believe in gold (yet). IMF is trying to sell their gold. And when gold gets too expensive, jewelry sales will go down. 

So, now is the correction time. This will test our mental power. When you see your profit slowly disappear, you will question yourself whether your analysis is right or wrong. For me, my entry and exit is usually sucks. So, I will sit tight and is willing to see my profit goes back to zero. No point to get in and out when the commission is so expensive. 

Finally, big money is only made in the big moves. No point to aim for the small profit. I will get out when the chart says that the market will go for a strong selldown.

Jim Rogers Says Dollar Rally Will End

An interview with Jim Rogers at Bloomberg.

Marc Faber Interview

An interview with Marc Faber. I am amaze that he can describe the key points of a chart without looking at it. He must have everything in his head.

Some points:

• Asian market has bottomed in Oct / Nov 2008.
  
• Copper has bottomed.
• Expecting a correction and another push into July 2009.
• Inflation will be a problem when the economy starts to recover.
• US bonds will be in a bear market in the next 20 years.
• No green shoots, but just less bad news.
• Commodity price will go up higher than equity.
• Low interest encourages speculation.
• Gold will correct to the downside but it is a good buying oppurtunity.
• Mining, natural gas stocks is inexpensive.
• Start nibbling on real-estate in Asia.
• Bush and Obama are disaster.

Part 1 of 2:

Part 2 of 2:

World Indexes

Going up all around the world. Staying cautious. Oil has broken out of USD55.00. I think it can go to USD70. So, better hedge your fuel because the government will have to increase the fuel price.

World	Longterm	Midterm	Shorterm
S&P500	Down	Up (+)	Up
DJI	Down	Neutral	Up
NasdaqComp	Down	Up	Up
Nikkei 225	Down	Up	Up
Kospi	Up	Up	Up
SSECI	Up	Up	Up
HSI	Neutral (+)	Up	Up
TWII	Up	Up	Up
STI	Neutral (+)	Up	Up
SENSEX	Neutral (+)	Up	Up
AORD	Down	Up	Up
FTSE	Down	Up (+)	Up
DAX	Down	Up	Up
Bovespa	Neutral (+)	Up	Up

Weekly Analysis

KLCI Weekly Chart

Looking at the KLCI weekly chart, I must say it is very bullish indeed. Practically a straight line from 840. It has surely caught everyone off-guard. At the moment of this writing, US futures doesn't indicate any adverse reaction after the release of the stress test result. My plantation play is still not moving. Instead, it is the small caps that moved. The small players are surely excited. As usual, which I have been saying for the past two weeks, daily chart shows a very overbought condition. So, be careful.

Malaysia	Longterm	Midterm	Shorterm
KLCI	Neutral (+)	Up	Up
Finance	Neutral (+)	Up	Up
Construction	Up	Up	Up
Plantation	Neutral (+)	Up	Up
Property	Neutral (+)	Up	Up
Mesdaq	Neutral (+)	Up	Up
2nd Board	Neutral (+)	Up	Up

My Apathy

First, they went after the Royals,

and I did nothing because there is no royal blood in me.

Then they went after the Judges,

and I did nothing because I have no affairs with the judiciary.

Then they went after the People's Assembly,

and I did nothing because I was too busy working for money.

Then they went after me,

and by that time, there was no one left to protect me. 

(adapted from First they came... )

The Last Hurrah

The Last Hurrah and Seven Lean Years by Jeremy Grantham. A must read for your investment strategy. 

KLCI

KLCI Daily Chart

KLCI continues to go higher. The strong trend has dazzled everyone. The uptrend line is getting steeper. When will the party end? I have circled a few gaps in the chart: 1192, 1081, 922 and 884. Sooner or later, the gaps will be filled. 

I'm just watching. Still holding my positions. My plantation position barely moved. I'm waiting for oil to explode higher. 

7 May 2009

Kiasu Syndrome!

I bet that those that didn't buy 1 month ago are now feeling beh-tahan. Today's volume indicates that the small investors have the kiasu syndrome. They are scared that they have missed the train. Adding fuel to the fire is this and this. I like the picture from this Star article. You can see the smile in their face.

From the charts, the market is really overbought. That means the risk of a correction is higher. Those who buy at the peak may not have the staying power when the correction sets in.

Anyhow, I think that the current rally is all due to huge liquidity that is cause by near zero interest rate. Almost everyone is earning negative interest rate. Low bank interest rate is forcing the owner to seek a positive return. My friends are so eager to buy. For me, if I cannot find a good entry point, I will just not enter.

I must admit that I didn't expect this rally to be so powerful. But, think back a moment, when KLCI was at around 800, were you eager to get back in or feeling dejected by the stock market? A stock market bottom is usually characterize by the general feeling of dejected. When nobody wants to buy, that is real bottom.

So, enjoy the rally while it last. By the way, tomorrow may be the D-day for the zombie banks. A lot of leaks of the stress test result. Roubini does not to believe the test. Anyhow, what will be the market reaction? I think that it will only affect the banking sector.

Dollar Index Breaking Down

Dollar Index Daily Chart

DX daily chart shows that it has broken the uptrend line. If USD weakens, companies with large USD borrowing will be benefiting, such as Tenaga. I think IOICorp and PBBank also have some borrowings in USD.

Dollar Index Weekly Chart

Looking at DX weekly chart, we can see that it started to drop from 120 (in 2002)  and didn't stop until it reaches 70 (in 2008). During that period, the price of crude oil rises from USD20 to USD145 while the price of CPO rises from MYR1200 to MYR4500. 

So, if USD continues to weaken, will the playbook be the same, i.e. the rise of commodities?

Technical Analysis Doesn't Work

Article from Bloomberg: Stock Charts Fail Forecast Test in Complete S&P Miss discusses about the failure of technical analysis in trading. I would say that the testers have naively backtest the effectiveness of the indicators. Well, if technical analysis is the the magic bullet in stock market, then I guess that we can just have a program do the trading for us and we just need to sit down and watch the money fall down from the sky!

Technical analysis requires years of training in the art of interpretations. One tool doesn't fit all problems. You need to use a combination of indicators to get the best result. A good analogy is the use of a chisel and a hammer. Nobody can produce a work of art without the proper training. It takes lots of practice in controlling your hammering. It takes lots of practice to learn to use the correct chisel size. 

To all wannabe technical analyst, don't expect success to come in easy or early. You will discover that the path is long and hard.

 

Why Sell In May?

It is based on the statistical analysis done on the return for the period after May. Read the reported news here. 

Petroch

Petroch Daily Chart

Petroch has given me a buy signal. Previous high was HKD8.08. How high can it go this time? The CW listed in Bursa is a little bit expensive. But I think it is still tradable.

Disclosure: I'm long in Petroch CW.

World Indexes

Lots of upgrades even in the face of a possible pandemic swine flu (aka H1N1 virus). I guess that bulls make money, bears make money, pigs get slaughtered!

World	Longterm	Midterm	Shorterm
S&P500	Down	Neutral	Up
DJI	Down	Neutral	Up
NasdaqComp	Down	Up	Up
Nikkei 225	Down	Up (+)	Up (+)
Kospi	Up (+)	Up	Up
SSECI	Up (+)	Up	Up (+)
HSI	Down	Up	Up (+)
TWII	Up (+)	Up	Up
STI	Down	Up (+)	Up (+)
SENSEX	Down	Up	Up
AORD	Down	Neutral	Neutral (-)
FTSE	Down	Neutral	Up
DAX	Down	Up (+)	Up
Bovespa	Down	Up	Up

We are now in the month of May, so sell in May and go away. Always be on the look out for a the end of this trend.