Straits Asia Resources Limited - strong support and steady reversal

StraitsAsia was listed on the SGX Mainboard on 3 November 2006. The Company was incorporated on 10 June 1995 and is a subsidiary of Straits Resources Limited, a diversified resources company listed on the Australian Stock Exchange. The Company is primarily engaged in thermal coal mining on Sebuku Island, South Kalimantan, Indonesia and currently holds the rights from the Indonesian Government to mine for coal in its concession area until 2027.

Coal mine in Sebuku Island, South Kalimantan. Picture from http://www.straits.com.au/

The Company’s strategy is to be one of the industry’s most efficient and cost competitive thermal coal producers. In addition, StraitsAsia is developing complementary commodities marketing and resources infrastructure businesses. They are also exploring opportunities for new business, investments and acquisitions in the natural resources and mineral and metal extractive industries, primarily in the Asia-Pacific region.

Since November last year, the price was traded in a $2.46 to $4.20 trading range, after enjoying a very bullish ride since its listing on the exchange. The IPO price was $0.67. Currently the price is trading at $2.63, near the bottom level of the trading range after rebounding when price hit $2.43 on 25th of July. The bottom level of this trading range is considered a strong support level as it was supported three times since November last year.

The trend may be down because of the decline since June this year, but the momentum indicators like RSI and MACD are firm. Furthermore, the MACD has cut above its trigger line (The 9-day exponential moving average of the MACD) to indicate a short term trend reversal up. With the firm support and reversal, the price of StraitsAsia is expected to rise.

Here are some recent developments for StraitsAsia. On July 28, UBS cuts target to S$5.20 from S$5.80. On July 7, Goldman Sachs upgrades StraitsAsia to Buy from Neutral, maintains S$4.70 target price. On July 4, OCBC Research maintains target at $4.80. On June 25, Credit Suisse said that StraitsAsia is trading at attractive entry point with $4.10 target. On June 24, CIMB recommends a technical sell with short term target of $3.10 to $3.14.


Daily Straits Asia chart as at 30 July 2008, using NextVIEW Advisor

With a strong support and steady reversal, price is expected to increase further, with a stop risk at $2.40. Technical price has potential to test $3.30 resistance, with a more aggressive target at $4.00. So, the upside potential is higher than the downside risk.

Commentary and analysis by Benny Lee

Yangzijiang (BS6.SG) - Current price looks attractive

Like most of the other counters, the price of Yangzijiang went downhill after October 2007 last year. The average price in October last year was at about $2.64 and after 5 months in March, it fell to $0.80 or 69.5%. It then rebounded and rallied to about $1.18 in May before declining again to settle at $0.805 today after hitting a low of $0.765 a few days ago. Price range was around this price since early July.

The trend indicator, the moving average has been bearish since December last and is still currently bearish. The price is currently near the short term 30 day average while the longer term averages (60 and 90 day moving average), which acts as strong resistance is currently between $0.91 and $0.94. However, the resistance this time may not be strong because it has started to move sideways instead declining since late last year.

The bullish divergences on the momentum indicators like the Relative Strength Index (RSI), MACD and Momentum shows that there is a strong support in the current price action. The trading volume seems to have eased. These are signs that the price may have bottomed out.

Here are some recent developments for this company. On the July 29 international broker UBS cuts its target to $1.30 from $2.65, changing its valuation method from Discounted Cash Flow (DCF) to Price to Book (P/B) value. On July 2, the company said that it secured shipbuilding contracts worth $226.9 million in June. On July 1 King Eng Securities tips a technical sell. On June 30, HSBC starts Yangzijiang at Neutral with S$1.05 target. One June 3, the company said that it secured $514 million in contracts to build 12 vessels during April and May. You can refer to chart below for these developments.

Technically, the current price looks attractive as the downside risk is $0.04 (5%) if a stop is placed at 0.760, which is a new historical low. The price has a high potential of climbing to $1.00, which gives a $0.20 or 25% upside potential gain. A more optimistic target is $1.18. From the previous paragraph, HSBC’s target is $1.05 and UBS target is $1.30.

Daily YangziJiang chart as at 30 July 2008, using NextVIEW Advisor

Commentary and analysis by Benny Lee

There is room for the price of Oil to fall

Oil price continued to fall and is now at its 12 week low. Price of brent crude is currently at US$122.70 per barrel, falling $24 (16.5%) from the high of $147 just 3 weeks ago. The steep decline in the price of oil has boost equity markets around the world. How far can the price of oil fall... or has it already hit the bottom of the correction?

I have mentioned in my previous analysis that "If price breaks below $130 we may anticipate a bigger correction". Price did go below this level and we are expecting a bigger downward correction.

Chartwise, there is still room for price to decline further because the average price in the up trend is at about $103.00. The $103 is defined by the linear trend line (represented by TL on chart below) and the 52-week (yearly) average. These two lines are exactly at the same level.

Based on Fibonacci studies, the conservative retracement level for a correction which is 38.2% is currently at $110.00 while the 50% retracement is at $99.00. (See chart below). The Fibonacci retracement is derived from the up trend rally that starts in early January 2007 to the peak on July 2008.


Weekly Light Brent Crude Oil Sept08 futures contract as at 30 July 2008, using NextVIEW Advisor

Therefore, there is room for the price of oil to fall, and in this case about $20 to $30 (16% to 24%) from the current price. A more aggressive forecast was made by OPEC President Chakib Khelil on Tuesday that oil could fall further to US$70 to US$80 in the long term.

Definitely good news for the equity markets.

Commentary and analysis by Benny Lee

Moving Average Part 1

Introduction

The Moving Average (MA) is one of the most common technical indicator used on price charts. The MA is simply calculating the average price of a data in a specific time frame. There are different ways /methods to calculate the average. A simple moving average is calculated using the “normal” average calculation. For example, to calculate the 3-day simple moving average, add up the prices for the last 3 days and divide it by three. That should give you the simple moving average. There are other types of moving average such as the Weighted Moving Average, Exponential Mowing Average, etc.

Simple Moving Average

A 3-day simple moving average (SMA) on a daily price chart simply means the average price for the last 3 days, including today. The moving average is normally calculated on the closing price. Some use the moving average on the other price data such as High, Low, Open, Typical Price, Median Price and so on. It is called moving because price changes against time.

For example, yesterday’s 3-day moving average may be different from today’s moving average. Yesterday’s moving average does not take into account today’s price in its calculation. There are many reasons why we use the moving average but average is commonly used to reduce some noise in price fluctuations.

Uses of Moving Average

1. Trend Direction

One of the most important analysis on price chart is to identify the trend. The moving average is used because it reduces the noise in price fluctuations. Price can go up and down aggressively and therefore difficult to identify the price trend.

There are different trends, as describe by Dow Theory and we need to know which trend we are trying to identify. There are short, medium and long term trends. We need to use the correct parameter (time frame used to calculate the moving average) to identify the different trends.

A short term trend is normally identified using parameter less than 30 days. A medium term trend is identified using a moving average between 30 to 60 days while long term trends are identified using a moving average above 60 days.

However, different instruments have different price trend characteristics and it is up to us to determine the moving average parameter used in a particular instrument.













From the charts above;

Identifying Up trend:
i) When price is above and stays above the moving average for some time
ii) When the moving average is increasing.

Identifying Down trend
i) When price is below and stays below the moving average for some time
ii) When the moving average is declining

Identifying Sideway trend
i) When price cuts the moving average frequently in a short period of time
ii) When the moving average is at the same level for some time

Two or more moving averages are normally used in a chart to identify short to long term trend directions.


KL Composite Index chart with 30 and 60 day simple moving average

* Charts are created from NextVIEW Advisor.

Click HERE for PART 2: Uses of Moving Averages

Crude Palm Oil Futures: Strong downwards momentum may push the price of FCPO lower.

The weakening demand for food and oil and record levels inventory have caused price of crude oil and crude palm oil to decline. The price of crude palm oil futures 3rd month contract (FCPO), which was in a sideway correction mode since April this year, has started to be dominated by bears. Average price when it was in a correction was about RM 3,570 per tonne and as at 28 July, the price declined heavily for the past two weeks to close at RM3,001 per tonne. This is a 16% decline in two weeks.

The price is expected to remain sideways or decline until inventories start to deplete and with fresh buying from China and India which are main importers of crude palm oil. With the decline in the price of crude oil, demand of bio-diesel is expected to come off a little.

Technically, the price of FCPO is currently in a down trend after it broke the support level of the correction triangle pattern at RM3,500. The triangle pattern (See chart below) was formed about four months ago. With the aggressive decline, the moving averages, both short and long term have started to decline and this signals the beginning of the down trend. Furthermore, the price broke below the long term up trend line which was formed since August 2006 (See TL1 on chart below).

The triangle pattern has a downside target of RM2,850. With the strong momentum downwards, this target may be achieved in the next few days. A small technical rebound is expected to occur once the target is achieved. However, more downside is expected as the longer term correction is expected to end at RM2,300.

Momentum indicators continue to support the current down trend. MACD has gone below zero and this means that the trend is dominated by the bears, so does the RSI indicator, which has gone below the 30 level. The strong downwards momentum may push the price of FCPO lower.


CPOF 3rd month contract continuous weekly chart as at 28 July 2008. Chart from NextView Advisor

Sentiment for FCPO is weakening and this can be seen in declining trading volume and Open Interest. The average weekly trading volume was at about 43,000 contracts in March and April. Currently the average weekly trading volume is about 30,000 contracts. Therefore the decline in weekly trading volume is about 30%.

Therefore, the price of CPOF is expected to decline with a longer term target at RM2,300 per tonne with some support expected at RM2,850. Resistance is at broken long term up trend line (TL1) which is currently at RM3,300.


Commentary and Analysis by Benny Lee

Hong Kong Hang Seng Index (HSI): In a major down trend correction

Like other markets in the region because of easing oil price, the HSI made a rebound after finding support at 21,000 points. It fell short to test the major support level at 20,000 points which I mentioned last month. The HSI rallied 2,000 points (about 10%) upwards before finding resistance at 23,370 points. The HSI pulled back in the last three days and on Monday 28th of July, the HSI closed at 22687.11 points.

The HSI is currently in a major down trend correction. It is between the short and long term averages. The short term 30 day average is currently at 22,250 points and the long term average is at 23,600 points. The HSI needs to break above the long term average level which is currently the immediate resistance to overcome the down trend strength. If the HSI fails to maintain above the 30 day average, the HSI may consolidate further sideways or continuing the down trend. At this moment, the upward rally is supported by good momentum.

Commentary and Analysis by Benny Lee

KL Composite Index: Current rally may not be able to sustain

The KLCI was expected to get some support at 1,150 points but it declined a little lower and managed to find support at 1,090 points. Since then, the KLCI made a rebound and rallied upwards to close at 1,154.09 points. Although crude palm oil futures price have declined aggressively, the KLCI remains strong because of rally in major component stocks in the KLCI like Tenaga, Telekom and Maybank.

The KLCI is still in a major down trend. The KLCI is below the short to long term 30 to 90 day moving averages and these averages are still declining. The KLCI is currently slightly below the short term moving average, which is currently at 1,160 points. The KLCI has not tested or overcome any resistance level yet to continue the upward rally. Immediate resistance to beat is 1,180 points while stronger resistance level is still at 1,300 points. Failure to overcome the immediate resistance would likely going to cause the KLCI to continue the down trend.

The price of crude palm oil futures (FPCO) is currently at RM3,001 and seems to be declining with strong momentum. Technically, the FCPO is expected to decline, further downwards. My price forecast is about RM2,310, with support level at RM2,860. Therefore, it may affect the performance of the KLCI as component heavyweights like SIME and IOICORP prices are expected to decline. Therefore, the current rally may not be able to sustain or even test the immediate resistance level at 1,180 points.

Commentary and Analysis by Benny Lee

Singapore FTSE Straits Times Index: Drift downwards

The FTSTI made a technical rebound last week after drifting downwards as expected, following the decline in price of crude oil and strong rebound in the US market. The benchmark index, however pulled back last Friday after testing the 3,000 points resistance level. Today (28th July), STI failed to turn the rebound into a rally. The STI declined 12.55 points to close at 2,910.36 points.

The underlying trend for STI is still down as the short to long term 30 to 60 day moving averages are still declining. The STI managed to test the short term 30 day average last week but failed to stay above it. The longer term averages level is at 3,050 points. The RSI indicator failed to go above 50 from the rally and this means that the bears are still in control. The STI is expected to test the support level at 2,800 points because there are no new positive factors to sustain the upward rally. Current resistance remains at 3,000 points.

Commentary and Analysis by Benny Lee

Weak follow up on Dow

There was a strong rebound last week when the Dow Jones Industrial Average (DJI) climbed from the low of 10,827.71 points to close at 11496.57 registering an increase of about 668 points or 6% on the previous Friday (18 July). The rebound was caused by the declining crude oil price.

This week, the DJI made an effort to climb higher by moving up to 11,698.17 and tested the 30 day moving average on Wednesday. Amazingly this is also the 38.2% Fibonacci Retracement level from the downward rally since May 2008. These resistances caussed the DJI to pull back aggressively on Thursday and on Friday (25 July), the DJI closed at 11370.69 points, about 120 points lower than the previous Friday.

The DJI falied to stay above the declining 30 day moving average, which I used to determine the short term trend. This shows that resistance exist even in the short term. The long term trend range (using 60 and 90 day moving average) is between 12,100 points and 12,250 points.


Daily DJI chart as at 25 July 2008 using NextVIEW Advisor

To really have a good rally, it has to beat the 11,700 points resistance level. Failure to do so would suggest the DJI to continue its down trend. Current support level is 10,800 points.

Commentary and Analysis by Benny Lee

How to Buy Low and Sell High (Candlesticks introduction)

Candlesticks charting technique has been used for many centuries in Japan and only made popular to the rest of the world a few decades ago. The technique has become more popular among traders as it provides easier identification of chart patterns as compared to the conventional OHLC bar chart.

The principles of the technique are simple. A candlestick chart uses the same as a conventional bar chart but provides more set ups and visually easier to identify. The broad 'body' of the candlestick is drawn between the market's opening and closing prices, like the line on a bar chart only thicker. “Shadows”, or lines, at either end extend to the session's highs and lows.

The body is then filled/coloured to show market direction – filled/black (or blue) blue if the close is below the open, hollow/white (or red) if prices close above the opening level. (See figure 1)



Steve Nison, the west's leading exponent of the method, says there has been an explosion of interest in North America and Europe in the past few years. "Candlestick trading techniques have become one of the most discussed forms of technical analysis in the trading community, both (in the U.S.) and abroad," he says.

The candlestick pattern formation can provide 3 major set ups – the price reversal, continuation and uncertainty. Price reversal is the most important and widely used set up. One of the reason why this technique is so interesting, apart from it being the value it provides in analyzing price actions, is because of the terminology used to describe the set up. A hammer candlestick pattern looks like a hammer on a candlesticks chart is a bullish reversal pattern and a Harami (bullish or bearish) is a two candle formation with a previous candle body much bigger than the current candle body, hence its name Harami, or pregnant lady. (See figure 2).

I have been using Japanese Candlesticks in my trading strategy and it’s far one of the best technique. The candlesticks technique can be applied on all trading instruments including stocks, index futures, commodities, warrants, options and so on. Let’s observe how it magically works on Malaysian stocks. First of all, let’s take a look at Tebrau's chart.



Upstart and Counter Attack on the Tebrau chart above (See figure 3) are bullish price reversal patterns while Engulfing Bear and Bearish Star are bearish reversal patterns. There are also other minor candlestick patterns on the chart like Doji, spinning tops etc. but they are not so significant. Doji patterns are uncertainty patterns and spinning tops are baby star patterns.

Observe that the bullish and bearish reversal patterns occur on most of the reversal points. These are one to two day candlestick patterns and therefore they provide quite fast signals. Most traders use these patterns as an early signal to detect price reversals and confirm with other technical indicators.

If you know about Candlesticks, you could buy Tebrau at about RM0.90 when there is an UpStart pattern, sell at about RM1.80 when there is an Engulfing Bear pattern and made a whopping 100% profits in just about 2 months. You could also make money buying at the Counter Attack pattern and sell it when a Bearish Star pattern shows up.

The candlestick patterns can also be applied on other time frames like the longer term weekly chart (See figure 4), or the short term minutes chart. This enables traders to use them to achieve short to long term objectives.

On the weekly chart below DIGI provides an opportunity for investors to buy when price went into a correction and then sent a Bullish Star Signal on 9 of September. Price then was about RM20.00 and five weeks later on the 24th October 2007, DIGI’s price stands at 24.00. It was a 20% move.



Candlesticks patterns are sometimes not detected on price reversals, but once the pattern is detected, the reversals turn to significant rallies. Therefore, traders can rely fully on candlesticks for entries but cannot rely fully on exits because they may not appear when the price starts to turn to the opposite direction. Other indicators are needed as back up for exiting a trade that was initiated by a candlesticks pattern.

It takes some creativity and research to combine candlesticks patterns and other technical indicators such as support and resistance, Fibonacci, Oscillators and trend studies to get good entry and exit signals. They can be used as a powerful trading strategy once combined with risk and money management.

Article prepared by Benny Lee

WestComb : Buy Valuetronics (BN2.SG)

WestComb starts a buy call for Valuetronics Holdings (BN2.SG) with a S$0.28 target, pegged at 7X FY09 P/E. In a report in Dow Jones Newswire, WestComb mentioned that the company less vulnerable to economic downturn than peers, as about 90% of its cost of goods sold comes from raw material costs, hence most expenses variable; "higher fixed cost and external financing cost implies greater operating risk and vice versa. As Valuetronics has no debt and a lean structure, the company will be able to withstand an economic downturn."

Realistically, it is difficult to trade this counter because of liquidity weakness:

1) Volume is very low. Average at about 100,000 shares traded daily with sometimes only two to five transactions done in a day. With the current price of $0.205 (as at 22 July 2008), the average daily value traded is only about $20,000.

2) The counter is not traded every day (it was not traded yesterday).

Technically, this stock price is in a strong down trend. The short to long term (30 to 90 days) moving averages are declining and price is below the moving average price range of $0.215 and $0.225. Momentum indicators are not showing any signs of weakening down trend momentum. Therefore, there is a high chance of price going lower than to rally upwards.


Trading this counter would be like trying to "milk an old cow".

Perhaps, a better time to look at this counter (remember, you have to trade small because lack of liquidity) is when price goes to the previous support level at $0.17 to $0.18. Or perhaps it's better to look at other "cows".

Commentary and analysis by Benny Lee

Market News Alert Summary

General: Oil falls to US$126, storm concern eases.

1. Malaysia: KLCI up 29.84 points (2.7%) to close at 1,139.41.
i) CPI for June surges to 7.7%.
ii) EPF steps up purchase of stakes in local firms.
iii) Merril Lynch advises buy into commodities.
iv) M'sian steel mills under pressure to halt exports

2. Singapore: STI up 88.32 points to close at 2,978.98.
i) S'pore June CPI up 7.5%, 26-yr high
ii) New benchmark for rental rents on Orchard Road

3. Others
i) South Korea problems as severe as in Asian crisis. KOSPI up 30.53 points (1.96%). Close at 1591.76.
ii) East Asia inflation to rise at twice rate of past decade: ADB
iii) US consumer fears lead to profit warnings.
iv) Vietnam Inflation expected to climb
v) Australia core inflation hits 17-year high
vi) Hong Kong Consumer prices jump 6.1pc in June
vii) Thailand Exports jump to a record high



Current Market Sentiment: FEAR of RAPIDLY RISING INFLATION

Misunderstanding probability can seriously affect your trading capital

One of the main things I look for when entering trades is to have a high probability of having a profitable trade. In other words, because all of my conditions have been met, I enter the trade with confidence knowing there is a fair chance of the trade resulting in a profit. As we know, there are never any certainties.

Probability has its place in money management too, specifically position sizing.

Let’s set the scene. Perhaps we have a trading method that results in half of our trades being profits and the other half being losses or close to breakeven. We start with $10000 and after a few losses, our trading capital has lessened to $9400. (3 x $200 losses in successive trades).

Now, we begin to think that we are behind and need to make up the deficit so we can move forward and begin to make money. As each losing trade passes however, the money we need to make to get back to breakeven (back to the initial $10000) increases and we have less and less capital to do it with, which places pressure on us to perform.

The trap we can fall into is to increase our trade size on the back of successive losses. In the back of our mind are desperation, and the thought that we need to have a massive winner trade soon to get back on track.

Here is where probability enters the scene. As each losing trade passes, we can easily think that the chance of the next trade being a profit increases significantly. It is too easy to think this and with this in the back of our mind, we can be tempted to increase our trade size to get back to break even quickly because the chance of the next trade being another loss is not great.

Let’s explain this scenario with some numbers. The probability of an event is generally represented as a real number between 0 and 1, inclusive. An impossible event has a probability of exactly 0, and a certain event has a probability of 1.

As we have a proven method that is profitable in half of the trades, the probability of having a profitable trade is 0.5. The most common analogy used with a probability of 0.5 is that of tossing a coin. When we toss a coin, the probability that it will land heads up on any given coin toss is 0.5 or 50%, and the same of landing tails. So if we toss the coin 10 times, we would expect that the result will be 5 heads and 5 tails. There is however, no guarantee that this will occur. It is possible for example, to result in 10 heads in a row. The key here however, is that each coin toss is independent. In other words, the outcome of the next toss is unaffected by previous coin tosses, as the coin has no memory retention.

Let's assume I am now tossing a coin. We toss the coin once and it result in heads. For the second coin toss, the probability that heads will come up again remains at 0.5. The second toss now results in another head – that’s two heads in a row. For the third toss, the probability that heads will come up again still remains at 0.5. Guess what? The third toss was also a head – that’s three in a row. Do you know what the probability of the fourth coin toss being a head is? It remains the same probability as a tail coming up.

This scenario is applicable in trading.

If you have had 3 losses in a row, the probability that you are going to have a profitable trade doesn’t automatically shift in your favour. Nor does it continue to shift as each losing trade passes. We like to think it does, but it doesn’t. Perhaps we think, “The next trade HAS to be a winner!” Like the coin, the market has no memory retention and doesn’t keep track of your previous trades, in order to influence the outcome of future trades.

The key message here is that don’t increase your trade size according to these unfounded thoughts. This is a sure recipe for disaster. After a few losses, your trade size should be decreased slightly to reflect your diminished trading capital, even though you don't want to.

Article by Stuart McPhee

KL Composite Index: Another Dead Cat Bouncing?

When the KLCI was at 1,150 points, rebounding from the low near 1,120 points, I commented that the KLCI is like a dead cat falling. The cat was dead and the KLCI went lower than the 1,120 points to a low of 1,089.47 points yesterday. The KLCI rebounded (again) and closed at 1,109.57 points today.

The price rebound yesterday formed a upward reversal pattern (In Japanese Candlestick, it is called a "long-legged candle". The pattern is also almost similar to a "Hammer" pattern). Whatever it is, it indicates that price is being supported at this level and a rebound is expected.

Will this rebound share the similar fate with the previous rebound? Like a dead cat bouncing? Momentum indicators like RSI and MACD show that there is a good upward momentum in this current rebound and therefore, the rally from this rebound is likely going to be higher than the previous rebound. The previous rebound rally was about 33 points.


Daily KLCI chart as at 23 July 2008 using NextVIEW Advisor

The trend is still strong downwards and its down trend line is currently at 1,160 points. Therefore the KLCI is expected to find resistance at this level. Support level is currently at 1,088 points. Maybe, this time, the cat was is dying cat, not a dead one yet.

Commentary and analysis by Benny Lee

Can Singapore STI rally?

The sharp rebound on the DJI last week sent positive energy to other regional markets. The Singapore market only reacted today as the benchmark STI index rose 71.48 points or 2.5% to close at 2919.21 points. The STI is still below the short term average (30 day average) which is currently at 2,944 points while the longer term averages (60 and 90 day average) is at 3,050 points. All short to long term averages are still declining indicating that the STI is still in a major down trend.

However, the STI may have found temporary support now as the Relative Strength Index (RSI) indicator is showing a positive divergence. (See chart below)

It is difficult to predict whether the STI can rally at this point of time because the STI only rebounded today. If the STI is able to go higher and stay above 2,950 points, we can expect a rally to test the 3,000 points resistance level. Failing to stay above 2,950 points may cause the market to weaken further, and probably test the major support level at 2,740 points.

Commentary and Analysis by Benny Lee

Daily STI chart as at 22 July 2008, using NextVIEW Advisor.

HSI rebounded from 61.8% FIB retracement level, may face resistance

About a month ago, I comment that the HSI is heavily oversold and may test the 21,000 points support level and rebound. The HSI did, not only once but twice before moving upwards to close at 22,532.90 points yesterday. I mentioned that the HSI may face resistance at 24,000 points.

The movement today shows a very uncertain price direction after a huge gap up yesterday, following Dow Jones Industrial Average steep increase last Friday. The uncertain "doji" candlestick pattern indicates resistance in the upward movement. The HSI is therefore expected to pull back to about 22,000 points, and is the HSI is able to stay above this level, it may start to test the 24,000 points resistance level.

However, if the HSI is unable to hold above 22,000 points, then we may expect another down trend rally. Commentary and analysis by Benny Lee


Daily HSI chart as at 21 July 2008, using NextVIEW Advisor

Expect Interest Rates to riSE

Earlier, Malaysia's central bank, Bank Negara said annual inflation probably topped 6 per cent in June. Today, in an interview by Reuters, Malaysia's Second Finance Minister Nor Mohamed Yakcop said that "Inflation for the months of June and July... will be slightly high, maybe 7 per cent or so, or even higher".

To cushion his rather "market un-friendly" remark he mentioned that "For the year as a whole it will be contained. My own expectation is not more 5 per cent". Yeah right...

Just be prepared for the stock market to weaken further when interest rates rise. Major indices today closed higher between 2.5 to 3.5 per cent except Malaysia and Japan. The Malaysia benchmark KL Composite Index closed 1.56 points or 0.14% lower.

The weather has been gloomy these days... storms has yet to come...

Price of Crude Palm Oil Futures weakens

After rebounding at RM3,430, the price of Crude Palm Oil futures (3rd month contract) (FCPO)went to a high of RM3,582, falling short of the RM3,650 rebound target I anticipated about two weeks ago. The FPCO price declined and breached the RM3,430 support level. The FCPO closed at RM3,392 last Friday with a low of RM3,358.

Technically, the price of FCPO is still currently in a consolidation period, which started since the middle of March this year. The bears are currently winning in this consolidation and would ambush any bulls that try to cross over them. The Relative Strength Index indicator (RSI) is showing this signs with lower lows and lower highs and the RSI is now below the benchmark 50 level.

A short technical rebound is expected (based on some Fibonacci studies) in the next few days but again, the bulls may get slaughtered by the bears again and then test the RM3,300 support level. Resistance level is RM3,500.

By Benny Lee

Training events this week

1. Opportunities to profit everyday,Regardless of Market direction

This program is designed for those traders who want to learn how to trade intraday systematically in real-time Singapore financial market. The program will highly benefit those who have just started to use charts to make trading decisions and it aims to accelerate the traders trading experience which can cost traders a lot of money by REAL trading experiences. More details click here.

Trainer: Benny Lee

Date: Thursday, July 24, 2008 (7.00pm - 9.00pm) - English
Venue: SGX Auditorium

2. Swing Trading - Opportunities Arise From Volatility

Equity Market is full of volatility and fluctuation. Buy and hold may not always be the best strategy, particularly when certainty emerges. Swing trading is designed to provide a second option for market players to deal with fluctuation of prices. By timing the entry and exit, the participants will learn the ways to potentially profit from the volatility of stocks. More details click here.

Trainer: Alan Hing

Date: Saturday, July 26 and Sunday, July 27 2008 (9.00am to 5.00pm)- English

Venue: Eastin Hotel Petaling Jaya

3. Discover how to trade successfully

This workshop is designed for those who wants to know HOW to successfully trade in the market using trading strategies from charts. More details click here.

Trainer: Benny Lee
Date: Saturday, July 26 2008 (9.00am to 5.00pm)- English
Venue: NextVIEW Training Centre, Malaysia

Price of Crude Oil August futures contract pulled back

Since early of this year price of Light Crude Oil futures (CLC1) price have been bullish from about $90 to the recent resistance level of $145. The steep rising price have caused anxiousness not only among investors but also to general public. The fear of rising inflation, which may envetually cause the government central banks to increase the interest rates, is not equity market friendly.

The price of CLC1 is now at the up trend line support level (See chart below) after trying to break above the $145 resistance level but failed. A technical rebound is expected when price nears the support level. But in this case, the price of CLC1 may just drift sideways because momentum indicators are indicating a weak momentum on the upward trend.


Light Crude Oil August Futures Contract as at 16 July 2008, using NextVIEW Advisor

The CLC1 price is expected to trade sideways in a price range of $130 and $145. If price breaks below $130 we may anticipate a bigger correction. If price breaks above $145, we me see price hitting $157 in the near term.

Article by Benny Lee

Alexander Elder Coming to Singapore!

For those who do not know Dr. Alexander Elder, you may not be trading yet. For traders, this is a rare opportunity to hear amd meet Dr. Alexander Elder personally when he comes down to Singapore some time in October. We will update about the details when the time comes. Keep checking this blog.

For those who do not know him, below is his brief profile:

Dr. Alexander Elder, M.D., is a professional stock trader, living in New York. He is the author of Trading for a Living, Come Into My Trading Room and Entries & Exits, best-selling and well known among traders. First published in 1993, these books have been translated into Czech Chinese, Dutch, French, German, Greek, Japanese, Korean, Polish, Portuguese, and Russian. He also wrote Rubles to Dollars— a book about the transformation of Russia.

Dr. Elder was born in Leningrad and grew up in Estonia, where he entered medical school at the age of 16. At 23, while working as a ship’s doctor, he jumped a Soviet Union ship in Africa and received political asylum in the United States. He worked as a psychiatrist in New York City and taught at Columbia University. His experience as a psychiatrist provided him with a unique insight into the psychology of trading. Dr. Elder’s books, articles, and software reviews have established him as one of today’s leading experts on trading.

"One of the most intriguing characters on the commodity scene is Alexander Elder, MD. He has his fingers in many different pies and does a quality job in all of them. Elder is a living advertisement for the American dream and the place of futures trading in it."
-- Commodity Traders Consumer Report

"How Alexander Elder grew up in Estonia, was educated as a psychiatrist, escaped from a Soviet ship in Africa and became a successful futures trader and head of his own firm, Financial Trading Inc. in New York, would make an interesting book itself"
-- Futures Magazine

"Dr. Alexander Elder offers a unique view on the markets. A New York City psychiatrist and professional trader, he runs Financial Trading, which helps people become better traders."
-- Financial World

"Trading for a Living is not only a good read but it's a fascinating view of life from a guy who's seen most of life's ups and downs, not to mention hearing about many others in his psychiatric practice."
-- Technical Analysis of Stocks and Commodities

SALCON BERHAD

NetResearch Asia, through Bursa Malaysia e-research website which is available to public for FREE on the 15th published a buy recommendation on this counter Salcon Berhad.

Salcon Berhad is a company listed on the Main Board, Kuala Lumpur Stock Exchange. Its wholly-owned subsidiary, Salcon Engineering Berhad, offers value-added services in the design, construction, commissioning, operation and maintenance of municipal potable water and wastewater (sewage) treatment facilities.

The share price has been in a down trend since early 2008 from an average price at about RM1.15 fell 61% to the current price of RM0.44 (as at 15 July 2008). The longer term average (using a 60 to 90 day average calculation) is at about RM0.60.

For the past few weeks, the price action of Salcon has eased and found support at around RM0.425. The support level is well established (in the short term) because momentum indicators like RSI and Momentum has shown a bullish divergence pattern. The bullish divergence pattern shows an increasing upward momentum in a down trend. Therefore, price may start to rebound. Furthermore, the price is relatively oversold.

Technically, price may rebound to the resistance level of RM0.60. This gives a RM0.16 or 36% potential room to move upwards. Using the RM0.425 support level as a stop loss level, the risk is RM0.015 or 3.4%. NetResearch NTA is RM0.56.


Daily Salcon chart as at 16 July 2008 using NextVIEW Advisor

Article by Benny Lee

highest inflation since the early 1980s

More gloomy news for the financial markets... and the economy

Quoted from Yahoo News:

WASHINGTON - The U.S. economic downturn gained steam Tuesday, with a report of the highest inflation since the early 1980s, more bad news for banks and automakers and a suggestion by the Federal Reserve chief that worse days are ahead.

Click here to read more

Automatic Candlesticks on NextVIEW Advisor

Do you know that you can have Candlestick patterns plotted on your chart automatically in your NextVIEW Advisor. This feature helps you to save time figuring out the many candestick patterns and thus saves time on your analysis. After all, we need to make fast trading decisions especially trading in a real time market.

There's only 1 step to plot the automatic candlestick patterns on your NextVIEW Advisor:

1. Click on the "Show Candle Analysis" button (left picture) on the top side of your chart. To remove it click on the button again.

If you still can't find the button, watch the video below:

STI failed to rally last week

The STI was sideways last week, attempting to rebound after few days of finding support. Like the Malaysian market, it may be a dead cat for Singapore as well. The STI failed to rally and the down trend is expected to continue because it is not that oversold, the RSI indicator is above 30. The declining RSI and Momentum indicators suggest that the down trend is strong and therefore there is a high chance of STI falling further.

This is also because of concerns on rising oil prices, which is a main catalyst for inflation. The STI immediate resistance level is at 2,950 points while support may be strong at 2,740 points. By Benny Lee

Short rebound expected, but down trend may resume

The Kuala Lumpur stock market was very uncertain the whole of last week as the KLCI was trading in a very tight range. Since mid of May, the KLCI was in a down trend mode. The trend is still strong downwards, with the moving average indicators (short to long term) is declining and the KLCI is about 8% below the averages.

The momentum of the down trend is strong, with indicators like RSI and Momentum are making lower lows. However, the indicators also show that the KLCI is oversold and therefore a technical rebound is expected but because the down trend is strong, the KLCI is like a dead cat falling. The rebound may be short and the down trend may resume. The rebound may face resistance at 1,180 points and support level is at 1,000 points. By Benny Lee

Interview with Mr. Don Schellenberg

We take this opportunity to ask forex trading expert, Mr Don Schellenberg who will be in Malaysia this month, some questions about trading and the forex market. You can also post comments below to ask questions to Don.

NINE: Don, Thank you for your time to grant us this interview. Now, we all know that you trade and also coaches traders how to trade forex. Why Forex?

DON: The Forex market is the biggest financial market in the world and the most liquid market. The volatility of daily price movements gives me opportunity to make money in even a few minutes! Furthermore, the Forex market is a 24 hour market. It's convenient, like 7-Eleven. Most importantly, I can be anywhere in the world to trade forex, as long as there is Internet connection, because I travel a lot.

NINE: How do you trade Forex?

DON: My trading decisions are soley based on charts, which I think is the most reliable information available. I developed trading plans around these information to get the entry and exit signals.

NINE: ... And what chart technique(s) do you use?

DON: My expertise is in Elliott Wave and Fibonacci studies. I primarily use them to determine my next course of action and I use other indicators to confirm the action. I teach my students how to do it in my seminars.

NINE: Talking about seminars, do you teach the same techniques that you use in yor own personal trading to the students?

DON: Of course. I teach whatever I know to help these people who are passion about trading. I have taught many students and many of them are quite successful. In fact, some of them are more successful than I am!

NINE: Is everyone going to be succesful in trading the Forex market after attending your workshop?

DON: Well, that depends on the effort put in by those who attended my workshop. I can teach them what I know, but the student needs to take the initiative to practice long enough and implement the trading plans in the real live market.

NINE: OK. lastly Don, I need your comment on the Forex market. What do you think of the US dollar?

DON: I think the US dollars is going to continue to be weak, fundamentally and technically.

NINE: Any words of advice to readers here at NINE?

DON: Invest first in your education before putting your hard-earned money in to trading. Don't be impulsive. Follow your trading plan. Come to my coming workshop and I will share with you more.

NINE: Thank you Sir!.

DON: It's a pleasure.

Mr. Don Schellenberg will be in Kuala Lumpur on the 15th of July, 2008 (Tuesday) and in Penang on the 16th of July, 2008 (Wednesday) to conduct an evening forex seminar for those who are interested to trade the forex markets profitably like Mr. Don Schellenberg.

Click here for more information.

CAN A CHART SAVE A DISASTER?

Limit down movements are becoming frequent on stocks trading on the Bursa Malaysia. On Monday 11th May,three stocks, SEAL, GPLUS and one newly listed stock on Mesdaq, C Works limit down. Another stock, FORMOSTalmost went limit down, it actually limit down two days before. Investors and even analyst often cannot explain this phenomenon but put the blame on speculators who manipulates prices, especially if that particular stock price is low and thinly traded.

For the past few months, they were a number of stocks that went limit down. Apart from the few stocks that are mentioned above, other casualties are MAHJAYA, FAJAR, FOUTAIN, SUREMAX, GENSOIL, SANBUMI and others. These are stocks that are normally in the top 20 volume traded in the exchange. Those investors, many of them since they are always traded heavily got caught with surprise with these movements.

This is definitely not good for the exchange. Investors would not be confident trading stocks in the exchange if these happen to frequently. They will have to guess which stocks are going to face the same fate as those stocks. Many would stay out of the market.

Are there any symptoms that a stock may get limit down? Most got caught by surprise, as there are no clear signs that the stock is going limit down. For example, FAJAR has been moving in an up trend with increasing trading volume (See chart 1). This attracts investors as it looks like a good deal. For normal investors it looks like a good healthy trend. For the past few days before the limit down, the stock price seems to be in a correction period.

Chart 1: Daily FAJAR line chart the day before limit down

Another similar example to FAJAR price movement is SUREMAX. It goes in a healthy up trend without any indications of it going to turn down.

An example of a stock that has different price action than the above is SANBUMI. This stock moves sideways for a period of time after a good up trend rally (See Chart 2). This creates interest in some investors who speculate that it is going higher (since it is also always featured in the top volume stocks radar), and start to buy whenever there is a pull back.

Chart 2: Daily SANBUMI line chart the day before limit down

FAJAR for example, shows a bearish reversal pattern called the “evening star”. It indicates that price may reach the top and probably an end to the upward price movement. The indication is 3 days before the limit down, an early signal for investors to take their profits. For the more greedy ones, who thinks that it will go higher face the wrath later.

Chart 3: Daily FAJAR candlestick chart

The same indication is shown on SUREMAX, 5 days before the limit down. (See chart 4). Other stocks that have similar bearish “star” pattern are MAHJAYA on daily chart.

Chart 4: Daily SUREMAX candlestick chart

As for SANBUMI, signs of price reaching tops is indicated by no one, but two candlestick patterns and these patterns was detected at the end of January 2005 (See chart 5). Even if those who did not get out in January, they should when price broke the major support (It kept creating new lows earlier, which also means it was moving in a down trend) on 18 and 21 of March.

Chart 5: Daily SANBUMI candlestick chart

While some pattern may not occur on daily chart, they can be seen on a weekly chart, a longer term reversal pattern. While stocks that have no clear candlestick reversal pattern, a simple breakout on the support level may save the day. For example, GPLUS price broke the up trend support level on the 27th of April and later failed to go back above the support. This confirms the reversal of down trend after the breakout, just before it limits down (See chart 6).

Chart 6: Daily GPLUS candlestick chart

Unfortunately, we are unable to do anything for new stocks like CWorks because there is not enough data to identify anything. That is why most technical traders would not trade IPOs as there is not enough information on the price action. If enough information can be gathered even if the stock is newly traded, like MEXTER, a pattern can be detected. The first 2 days shows a bearish “star” reversal pattern.

Early detection can be detected on price charts and only those who have the discipline to listen what the market is trying to indicate able to react on the information from the chart. One of popular stock that shows sign of price reaching tops are E&O and E&O PROP (See chart 7 below). A few “dojis” appearing in this up trend may indicate price reaching tops and may start to reverse down.

Therefore, beware of stocks that have really high volume (but was previously low all the time) and have very steep upward movement because it may be manipulated, read the signs from the chart/market to avoid being caught with your pants down.

Chart 7: Daily E&OPROP candlestick chart as at 19 June 2005

Article by Benny Lee