Wednesday, January 6, 2010

Last week was slightly bullish with lower trading volume despite being the last week of the year 2009. The FBMKLCI rose for three consecutive days since the previous week but failed to close higher on Thursday. On week-to-week basis, the FBMKLCI still managed to close about 10 points higher from 1260.53 points to 1,271.12 points. The index went as high as 1,275.29 points. Average daily trading volume for last week was 566 million shares, slightly lower than the previous corresponding week. Other markets were directionless except for Singapore, which bucks the trend and continues to make new highs last week.

The lower volume clearly shows that investors were still on a holiday mood. Lack of positive news discouraged investors from trading last week. The talk of the week was in the airlines industry. After Japan Airlines share price fell 24% to a record low because of fear that the company may go bankrupt and the failed attempt to attack a US carrier caused local airlines to decline on Thursday. Malaysian Airlines System shares shed 9 sen to 3% to RM2.91 and Airasia fell 3 sen or 2.2% to RM1.35.

There was no strong positive news on the Malaysian economy except that the Consumer Price Index (CPI) which measures inflation rose 0.3% month-on-month but declined 0.1% year-on-year. Economic indicators were mixed in the US. Consumer confidence index rose to the highest level in three months in December but new home sales in November not only unexpectedly fell but registered the biggest drop since April this year. Jobless claims fell more than expected. Initial unemployment claims for the week ended 19 December stood at 452,000, which is better than estimates at 470,000

The Malaysian Ringgit against the US dollar remains firm at 3.42. The US dollar was strengthening against major currencies for the past few weeks. Prices of commodities were slightly bullish as the US dollar rally halted. Price of COMEX gold futures remains unchanged week-on-week despite a rebound to US$1,100 an ounce earlier but settled at US$1,090 Thursday. Price of crude oil futures in NYMEX increased from around US$76.00 a barrel to US$79.50 in a week. Closer to home, crude palm oil futures in Bursa Malaysia climbed about RM100 per metric ton to RM2,595 week-on-week.

The FBMKLCI managed to close above the short term 30-day moving average. The index has been criss-crossing above and below this average for the past one month. The moving average has been flat and this shows correction in the short term. However, the mid to long term trend is still up as the 60 and 90-day moving averages are still increasing and the index is above these averages levels.

Momentum indicators are showing slight increase in bullish momentum. The RSI and Momentum indicators are making new short term pivot highs and lows and the MACD has recently crossed above its moving average after being below it since late November. There were no changes in market volatility. Average daily trading range remains at 6 points and the Bollinger Bands slightly increased. The market was quiet and directionless for the past one month.

The leading indicator, the Ichimoku Cloud indicator continues to contract and stay between 1,260 and 1,265 points despite the slight bullish effort last week. Based on this indicator, we may not see a reversal until the next one month, that if the Cloud bottom and top lines start to cross.

Market sentiment was weak mainly because there were no strong positive catalyst in the market and the year end holiday season. The good news is that there no presence of selling pressure. I mentioned some time ago that the institutional investors are not able to sell until a significant volume is created by retail investors and most of them brought their open positions forward to the new year. Technical indicators seem to be showing good up trend support, but a reversal is expected some time next month.

With this, I’d expect the market to be slightly bullish in the first week of the new year and with improved volume. The market seems like trying to welcome retail investors who have been very cautious in year 2009. The FBMKLCI may test 1,300 points again but may find difficulty in staying above it. Immediate support level is at 1,230 points. Therefore, be smart in investing and trading in the new year and being smart means having the right knowledge and a trading plan.


Article contributed by Private Trader, Market Expert, Trading Coach and Chief Market Strategist of Nextview, Mr. Benny Lee. For more articles and commentaries from Benny, click HERE.

Monday, December 7, 2009

The market was awakened by the news from Dubai Monday after a holiday last Friday for the Aidil Adha celebration. The market took a small plunge on Monday after Dubai World, an investment company which manages and supervises a portfolio of businesses and projects for the Dubai government across a wide range of industry segments, seek delay in debt payments. This caused fear across markets and investors were seen selling finance and construction stocks relating to Dubai as they were afraid that this may fuel another financial crisis.

On Monday, the benchmark FBMKLCI opened 13.73 points lower at 1,256.88 points. Market was volatile and uncertain that day with the FBMKLCI trading in a range between 1,248.58 and 1,268.98 points before settling slightly higher than the open at 1,259.11 points. The market rebounded in the next three days and closed at 1,272.35 points Thursday, covering Monday’s losses and back to the same level as the previous week. Volume on Monday was relatively higher than the average at 1,100 million shares but the daily average for last week was 906 million shares, just slightly lower than the previous week.

Technical indicators readings were almost the same as last week despite a bearish start on Monday. The FBMKLCI went below the 30-day moving average, which has been supporting the index since April, on Monday but managed to climb and stay above it when the market rebounded. The 30-day moving average is currently at 1,265 points while the longer term 90-day moving average is at 1,221 points. They were no changes in the characteristics of the moving averages.

However, momentum indicators seem to be a little bearish. The Relative Strength Index (RSI) decline below 50 on Monday but managed to rebound slight above it. The MACD indicator continues to slide and the Momentum indicator is currently below the mid-level. All these indicators are suggesting a weakening momentum in the uptrend and this means that resistance is getting stronger.

As the FBMKLCI continue to trade sideways around the 20-day moving average, the Bollinger Bands continues to tighten further. The volatility is getting lower as the market is not moving into any clear direction. The daily average trading range is pegged at 6.6 points, based on the Average True Range indicator. The Ichimoku Cloud indicator continues to stay sideways but slightly thinner. This means that the support for the current up trend is getting weaker.

Daily KLCI chart as at 3 December 2009 using NextVIEW Advisor

The index has already tested the 1,260 points support level because of the Dubai news but went back above it again. With the stronger resistance and lack of catalysts, the FBMKLCI may test the 1,260 points support level again this week and possibly move into the next support level at 1,230 points if the first support level is broken. Be prepared to also face another week of low volatility and liquidity. The crucial support level, which determines the current up trend is maintained at 1,200 points. Resistance level remains between 1,290 and 1,300 points.


Article contributed by Private Trader, Market Expert, Trading Coach and Chief Market Strategist of Nextview, Mr. Benny Lee. For more articles and commentaries from Benny, click HERE.

Thursday, December 3, 2009

Investors in the US were startled by Dubai’s debt problems on their national holiday celebrating thanks-giving Thursday. The panic caused investors to sell on Friday and this caused the DJI to fall 154.48 points or 1.48% to close at 10,309.92 points. The DJI went as low as 10,231 points intraday before rebounding to close higher. On the last day of November, the DJI slightly rebounded to close at 10,344.84 points. The selling pressure was not as bad as expected despite heavy losses in the Asian and European markets when US was on holiday. The selling pressure was buffered by improve consumer spending, improved jobless claims and home sales.

Daily DJI chart as at 30 November 2009 using NextVIEW Advisor

Trading volume was unexpectedly low as investors were not rushing to sell, but prefer to hold on and wait for further developments. The DJI is currently still in an uptrend supported strongly by 60-day moving average. The 60-day moving average is currently at 9,900 points and the DJI is expected to pullback to this immediate support level. Momentum indicators have gone into the neutral zone, but in the long term, the uptrend is still strong because these indicators in convergence with the uptrend. If the immediate support level is broken, the DJI may fall further into correction and find support at 9,700 points. However, if the immediate resistance level at 10,500 points is broken, the market may rally strongly to the next resistance level at 10,700 points.


Article contributed by Private Trader, Market Expert, Trading Coach and Chief Market Strategist of Nextview, Mr. Benny Lee. For more articles and commentaries from Benny, click HERE.

As one of the major financial hubs in Asia, the Hong Kong equity market took a plunge after Dubai announced having problems in paying its debts which caused investors to worry about another financial crisis. The HSI gapped down and fell slightly more than 1,000 points or 4.8% on the 27th November to close at 21,134.50 points. However, the market rebounded at the end of the month to close at 21,821.50 points. In the middle of November, the HSI peaked at 23,100 points, the highest since August last year. Trading volume, which continues to slightly decline in the past few months have been quite high in the last few days in the month of November.

Weekly HSI chart as at 30 November 2009 using NextVIEW Advisor

The HSI rebounded exactly on the 90-day moving average. Since April this year, the HSI was supported by the 60-day moving average but the plunge on Thursday broke this support level. However, the benchmark index is back above the 60-day moving average. The upward momentum for the past three months has been weak. The momentum indicators continue to diverge from the uptrend since September and indicate stronger bearish pressure. This shows strong resistance and there is a little chance for the HSI to move higher above the recent peak at 23,100 points. The HSI may test the 90-day moving average support level again at 21,250 points and if this is broken, the market may continue to move further downwards to the next support level at 20,400 points.


Article contributed by Private Trader, Market Expert, Trading Coach and Chief Market Strategist of Nextview, Mr. Benny Lee. For more articles and commentaries from Benny, click HERE.

Wednesday, December 2, 2009

This article is in two parts. Click here for Part 1

The next most important issue is indicator compatibility. Determining this starts with a visual chart inspection and is based on the first step in analysis shown above. The chart example shows a rising trend from March through July. In this sense it meets the trending criteria we look for in the first question. However, this stock does not meet the indicator compatibility criteria.
Our reader suggested three methods of managing the trend. They were the count back line, the straight edge trend line and the 2xATR indicator. In assessing the trend we would apply only the first two of these. Our preference is to use the 2xATR as a trailing protect profit stop loss only if the trend develops unexpected momentum. The diagram shows the application.

In a steadily developing trend, shown as A, where volatility, or price changes, remain much the same, we apply the count back line and straight edge trend line. These techniques are used to protect capital in the early stages of the developing trade. They are then quite satisfactorily applied to protect profits as the trade develops.

Some trends, shown as B, the price behaviour changes dramatically. The underlying trend remains intact, as shown by the straight edge trend line. However prices bubble upwards in an explosion of unsustainable momentum. The bubble signals significant changes in volatility. Prices behave differently. The collapse from this bubble is often dramatic, and can also cause a collapse of the underlying trend. For traders who own the stock and who have been managing this as a trend trade, this bubble presents an opportunity to take extra profits. The problem to resolve is how to best protect profits. In some circumstances the 2xATR does this most effectively. This is when we apply this indicator. We do not generally use it to manage trades during a stable trend. In a bubble situation we use a combination of CBL and 2xATR to develop the best solution for protecting profits.

The 2xATR approach is used by Chris Tate for general tend management. This is covered in detail in The Art Of Trading.

Indicator compatibility simply means that our preferred indicator has provided an effective solution to managing the trend in this stock in recent past. The chart shows an example of indicator incompatibility. Our preferred trend management tools are a straight edge trend line and a count back line. On the chart extract shown we show the count back line failure points because we want to highlight how indicator compatibility is assessed.

A close below the count back line, shown as the thick black line, signals an end of the trend and a trade exit. Each time a new high is made, the count back line is recalculated. A close below the CBL line triggers an exit from this trade on the grounds that the trend has an increased chance of failure. The balance of probability favouring a continuation of the trend has shifted.

The problem is that subsequent price action showed the trend did continue upwards. The exit signals defined by the count back line were false. We could not know this at the time. Traders have no choice but to exit the trade because the indicator suggests the up trend has ended.

If we were interested in trading this stock using our preferred combination of the count back line and a straight edge trend line then this chart tells us that this stock is incompatible with these techniques. Here is a most important point and it is relevant to any indicator combination we use. The price behaviour of this stock is not compatible with or responsive to our indicator. This does not mean the indicator fails. It simply means it is the wrong tool for this particular job.

Indicator compatibility is about finding the right tool for the job at hand. Home mechanics who use an SAE spanner on a Metric bolt understand the problem clearly. The tool – the spanner – is an excellent tool, but it doesn’t quite fit the job at hand – tightening a metric bolt. In this chart, the price behaviour does not fit the tools we prefer to use – the count back line. If this tool has been incompatible in the past it is unlikely to be compatible in the future.

There is a trend trade with this stock, but it cannot be effectively managed with our chosen tools.

The chart shows how indicator and trade compatibility are bought together in an effective trading solution. The tools we want to use are a straight edge trend line and a count back line. The objective is to join an established trend so this means that we must be able to plot a straight edge trend line with a good level of confidence. We look for a minimum of three rebound points.

Once this condition is established we then apply the count back line to establish if this has been compatible with trend management to date. The answer is yes and this suggests that this technique will continue to be useful in the coming weeks or months. A selection of previous CBL calculation points is shown by the red lines with red * at the calculation starting point.

Once a stock has been selected based on these compatibility factors the traders attention then turns to other factors such as price leverage, volume and the best entry point. Most times traders have to choose between a number of almost identical trading opportunities. The trader’s objective is to maximise the profits for any trade and this is helped by selecting stocks which offer better price leverage. Stocks trading at lower price levels have the capacity to boost profits more easily than stocks trading at $20 or higher.

Although it is human nature to hunt for a bargain, this is not always a good idea in the market. We have selected this stock because we believe it is in a strong trend. We bet against ourselves if we then wait for a price pullback – for weakness in the trend - before buying the stock. If the opportunity arises our preference is to buy the stock as close to the trend line, or the count back line as possible. We certainly do not want to pay the high price of a short term up trend, but nor do we want to miss out on this stock by waiting for a price collapse. The objective is to buy the stock at a reasonable price that is consistent with its recent trading range.

To read more articles and commentaries from Daryl Guppy, click HERE


Article contributed by Private Trader, Market Expert, Trading Coach and Best-Selling Author Mr. Daryl Guppy. For more articles and commentaries from Daryl Guppy, click HERE.

Benny Lee on BFM 89.9

Shares on Bursa Malaysia rose today, with the FBM KLCI gaining 0.6% to 1,266 points on a technical rebound, according to Benny Lee, Chief Market Strategist of NextVIEW. He believes that in the short term, upside potential for the market is very limited and looking at the FBM KLCI there is a strong resistance at 1,290-1,300 points. He advises investors should stay away from the market until the market corrects further.