Singapore STI : Weak Uptrend

Technical resistance was at 2,400 points as mentioned in my previous article and the FTSI attempted to test this level a few times early June but failed to close above it. The FTSTI went as high as 2,424.52 points and closed at 2,317.95 points end June. The benchmark index monthly performance was the weakest in three months with only an increase of 3.5%. The monthly performance last month was an increase of 20%. Last month, technical indicators were already showing weakening momentum.


Weekly FTSTI chart with volume as at 26 June 2009 using NextVIEW Advisor Professional


Indicators like RSI, MACD, ADX and Momentum are diverging from the FTSTI last month. This means that the current up trend is weak and there is a low chance that the market can go higher. Resistance level remains at 2,400 points but if the index is able to break and stay above this level, then the next resistance level is at 2,680 points. The drastic change in momentum with strong volume early June shows strong resistance in the market. Market confidence started to falter with a declining trading volume. The market is waiting for cues to take action. With the current indications, the FTSTI is more likely going to pull back to the support level at 2,000 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.

Kuala Lumpur Composite Index Futures: Time to go Short?

Last month, there was an opportunity to trade between the uptrend channel. I have mentioned that a long opportunity exist because the FKLI is at the support line of the uptrend channel at 1,050 points. The FKLI went as high as 1,092 points. I also mentioned that there is a short-sell opportunity if the FKLI breaks below the uptrend channel. The FKLI went below the uptrend channel on the 17th of June when the KLCI was at 1,071 points. The KLCI went to as low as 1,031 points before the FKLI rebound immediately to close at the current level of 1,079 points.

The current up trend is being tested when the FKLI broke below the uptrend line channel on the 17th of June. This was expected because of technical bearish divergences on indicators such as RSI and MACD. The bearish divergences simply mean that the uptrend momentum is weak because of stronger resistance. For the first time since mid-March, the Stochastic indicator went to the oversold level when the FKLI went to a low of 1,071 points.

With FKLI currently being high and the momentum bearish, the risk in going short is lower than going long. Therefore a rally creates an opportunity to get ready to go short, especially if there are signs of bearish reversals after a rally. Bearish reversals can be indentified using technical indicators but my favourites are the candlestick pattern formations. There is currently a bearish reversal pattern called the Hanging Man on the FKLI chart. Therefore, a short opportunity exists now with a stop loss placed at 1,092 points. The FKLI would probably test the support level at 1,030 points and break below it.

Market volatility stays firm as compared to the previous month. The current 3 period Average True Range (ATR) indicator averages at 17 points. For those who are trading in the short term, a stop loss should not be placed less than 17 points, or better still a 1.5 times the ATR, which is 26 points. There is a high chance of you getting stopped out too soon if the stop loss is lower than the ATR. Therefore going short at current level is possible.



Daily KLCI chart with volume as at 26 June 2009 using NextVIEW Advisor Professional


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.

US Dow Jones Industrial Average (DJI) – Up trend expected to be weak

In my article last month I mentioned that the DJI has more potential upside if the DJI breaks and stay above the resistance level at 8,600 points. The DJI did break above this level in the early of June but failed to stay above it after two weeks. The DJI went as high as 8,877,93 points before making its way down to close at 8,438.39 points end June. There were no positive catalysts to boost the market further upwards as compared to the month of May. The DJI is currently being supported at 8,200 points.


Weekly DJI chart with volume as at 26 June 2009 using NextVIEW Advisor Professional

The US market’s performance was not as strong as the performances of markets in the Asian region. So far, the DJI has climbed 29% from the low in March where most markets in the Asian region climbed more than 50%. Most markets are already at the 38.2% Fibonacci retracement level while the DJI has only broken above the 23.6% Fibonacci retracement level. The bearish divergences of indicators against the DJI suggest strong resistance and therefore the momentum of the uptrend is expected to be weak. The DJI may test the 8,600 points resistance level again but may not be able to stay above it. If it does, it may test the next resistance level at 9,400 points. Current support level remains at 7,900 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.

Kuala Lumpur Composite Index: Strong Resistance

The Malaysian equity market had a jittery start early this week as the KLCI fell to a low of 1,028.14 points on 23rd of June (Tuesday) but managed to close at 1,044.48 points. The reversal in price provides an opportunity for short term trading. In my analysis last week, I mentioned there is an opportunity when the KLCI falls to the next support level at 1,036 points. The equity market continues to rally for the next two days. It has rallied 4.2% from the low of 1,030 points.

From the performance in the market last week, investors sentiment was bullish as they go on bargain hunting when price falls steeply early in the week. The lack of fresh catalysts to boost the financial market and the spreading of the H1N1 virus did not have an impact on the investors’ bullish sentiment. Sales value of the manufacturing sector fell 26.2% in April 2009 to RM35.9 billion compared with the same month last year. Compared with March this year, the sales value dropped 1.6%. Meanwhile, total employees engaged in the manufacturing sector 7.7% year-on-year and 1.1% month-on-month.

On Thursday, share prices on the Malaysia stock exchange gained for the second straight day, settling just a fraction of a point off the day’s highest level, on positive leads from the regional bourses. The KLCI managed to climbed 19.7 points or 1.9% higher on-week to close at 1,074.11 points on Thursday despite falling steeply in the early of the week. Trading volume continues to be weak with only 1.4 billion shares as compared to 1.8 billion shares in the previous week. The volume has been declining since last month when daily average volume was above 2 billion shares.

After breaking below the short term 20-day Simple Moving Average (SMA) last week, the KLCI was able to be held above the support level of 1,036 points and is now back above the 20-day SMA. The underlying trend is still up as the 90-day SMA is still increasing and KLCI is above it. The leading trend indicator Ichimoku Cloud is still strong upwards but the cloud continues to become thinner. The contraction of the cloud started last week. However, the cloud is still thick enough to provide support to the current trend at least for the next one month.

Early last week, the bears were temporary in control as the momentum indicators went below to the bears’ area of control. The bulls immediately took control again later in the week. The RSI reading is back above the 50 points mid-level at 59.4. Momentum is slightly above the 100 points mid-level at 100.2. The mid-levels are levels that separate the bull and bears area of control. However, these indicators are still showing in divergence with the KLCI which means that the current underlying bullish trend momentum is weak.

Market longer term volatility continues to contract. The Bollinger Bands width is still tightening. The KLCI actually rebounded from the bottom line of the Bollinger Bands and is now slight above the middle line. The contracting bands suggest that the market is still in a correction. However, the short term volatility (daily trading ranges) continues to increase. The 3-days Average True Range (ATR) indicator now reads 16 points, almost doubled from two weeks ago.


Daily KLCI chart with volume as at 25 June 2009 using NextVIEW Advisor Professional

The market is eager to test the high of 1,096 points again. The next resistance level is at 1,160 points but the weakening momentum that indicates stronger resistance may prevent the KLCI from going to the next resistance level. The market is expected to consolidate further. Only if the momentum indicators make new a new high then there is enough strength to move higher. The RSI for example, has to go above 80 when the KLCI reaches 1,096 points. In the long term, the down trend target at 700 points is still valid if the KLCI stays below 1,160 points. The near term support level is at the recently created pivot low at 1,030 points while the next support level is at 1,000 points.

Short term trading opportunities available last week when the KLCI went to as low as 1,030 points like I have mentioned in the previous article. Now it is somewhere between the immediate support and resistance level. The downside risk is almost the same as the upside potential. It is better to stay out of the market this week.

****

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.

Kuala Lumpur Composite Index: Market in Correction

The equity market starts to move into a correction this week with mixed investors sentiments. The concern about the economic recovery comes into question when the Department of Statistics reported that the manufacturing sales declined 26.2 percent from a year earlier. This is the sixth monthly decline consecutively. Other than this, rising commodity prices raises a concern on rising inflation which may lead to cutbacks in consumer spending. According to a release by the Department of Statistics, the consumer price index for the first five months of this year rose 3.3% against the same period last year.

Share prices on the Malaysia stock exchange closed lower Thursday for the third consecutive day on an expanding volume. The KLCI plunged 16.49 points or 1.54 percent to close at 1,054.41 points. The KLCI fell 34.55 points or 3.5 percent on week but 42.4 points or 4.2 percent higher on-month. Trading volume was generally weaker last week with a daily average of 1.81 billion shares exchanging hands as compared to 2.04 billion shares in the previous corresponding week.

Recession in the world’s largest economy, the US is losing steam following a two consecutive months of increases registered in the Leading Economic Indicator and less intense decline in the Coincident Economic Indicator. The recent announcement by US president Obama saying that the government shall set new guidelines to prevent a financial disaster in the future suggests that the current financial crisis is over and this provides a positive outlook for the economy. The US Dow Jones Industrial Average recorded its biggest gain in two weeks on Thursday.

Last week, I have mentioned that if the KLCI is able to maintain above 1,076 points, it may test the next resistance level at 1,160 points. I have also mentioned that the momentum of the upward rally was weak and there is a little upside potential. The KLCI is now below 1,076 points and will the KLCI rally to the next resistance level after this current pullback?

The price trend is still bullish in the long term as the long term 90 day moving average is still increasing and the KLCI is way above it. However, in the short term, the uptrend is being tested because the KLCI fell below the 20-day moving average that has been supporting the short term up trend since March. The gap between the KLCI and the 90-day moving average is starting to close up as the KLCI is now 6.4% above this average, as compared to 11 percent in the previous week. The leading indicator, the Ichimoku Cloud is still strong upwards, but the cloud appears to be thinner in the future. However, this indicator indicates that there should be now major trend reversal in the next one month. Therefore, the underlying up trend is still intact.

Momentum indicators are mixed. The RSI indicator is still above the 50-level equilibrium which means that bulls are still in control. However, the divergence between the RSI and KLCI indicates a weakening momentum in the short term. The MACD indicator has been weak since late May. The Momentum indicator has started to below the 100-points equilibrium after indicating a bearish momentum in the short term since mid of April. These momentum indicators therefore suggests that the bears have started to show its strength to cause a correction in the current rally and because of mixed indications, we have to wait at least for another week to see whether the bulls are going to continue to support the uptrend or let the bears take over.

The Bollinger Bands started to tighten again after expanding last week because price was forcing its way through the resistance level of the bands which measures volatility. The KLCI is now below the 20-day average. And this shows that the buying strength has started to weaken. The KLCI now moves into a correction. The shorter term volatility indicator, the 3-period Average True Range (ATR) has steadily increased in the past few days especially on Thursday. This shows some selling pressure in the short term. The ATR indicates a volatility of about 14 points, higher than the previous week’s ATR of 9 points.

The indicators are suggesting a correction in the market with the momentum indicators at borderlines and therefore difficult to make any forecast at the moment to know whether it can continue the rally to test the next resistance at 1,160 points. If the bulls are not supporting the bearish pressure, then a bigger correction downwards is expected especially of the KLCI breaks below the immediate support level at 1,036 points.


Daily KLCI chart with volume as at 18 June 2009 using NextVIEW Advisor Professional

There may be opportunities in the market if the KLCI rebounds at 1,036 points support level. Traders and investors can identify rebounds on the chart using chart patterns and candlesticks. If the KLCI does not rebound at 1,036 points, the next support level would be at the nearest pivot low at 1,000 points. In the long term, I maintain my bearish view with a target of 700 points as long as the KLCI stays below 1,160 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.

RSI – Probably the most misunderstood indicator

BUY when it is “oversold” and sell when it is “overbought” – this is what most traders, investors and even some technical advisors would conclude when using relative strength index (RSI) in technical analysis. But is this the right approach when using the indicator? RSI is one of the most used technical indicators but probably the most misunderstood.

Although the three main strengths of the RSI indicator are (i) determining overbought/oversold levels, (ii) discovering the positive or negative divergence against the price chart and (iii) centerline crossover, application on the first strength is normally used in a wrong manner!

The first mistake is to strictly stick to one level each for overbought and oversold levels. Yes, the founder of RSI indicator J. Welles Wilder recommended using 70 and 30 as the overbought and oversold levels, respectively. But this does not mean that it must be strictly adhered to.

Are they the correct levels for analyzing a price chart with its RSI having moved beyond 90 on the upside or below 10 on the downside? On the flipside, how are we to analyze another price chart where its RSI never moved beyond the 70 level or below the 30 level?

Hence, there is a need for some flexibility in determining the overbought and oversold levels. It should depend very much on the range of the RSI indicator for a particular stock or index over a period of time. The levels for a stock may be 70/30 as recommended by Wilder but for another, it may be 80/20 or a different combination.

An analysis on Chart 1 (below shows that an investor using an 80/20 preferred level for the stock will not be able to buy or sell the stock using this principle over the last one-and-a-half years although the underlying share price was volatile.


Chart 1, courtesy of NextVIEW Advisor Professional

The second incorrect usage is more astonishing – buy when it is oversold and sell when it is overbought. This makes us wonder whether we should sell a stock after its RSI crosses above the overbought level and buy after the indicator moves below the oversold level.

As if the RSI indicator is able to determine with high possibility the potential peak and the potential trough even before they are formed! If such an indicator is available, I don’t mind paying my one-month pay to purchase it!

By its name, RSI is an indicator which determines the strength of the underlying share price. For that reason, the higher the RSI escalates, the stronger the underlying share price would be. And when this happens, doesn’t it mean that there is a higher possibility for the share prices to move even higher when it crosses above the overbought level? If so, why sell? The opposite is also true. Why buy when the share prices become weaker?

Let us analyze Chart 2 below . If one were to buy upon the RSI going below 30 for the second consecutive day, he would have bought the share on 9 Oct 08 (closing price RM2.70; RSI-14: 29.03) and would have incurred unrealized loss of 40% by 24 Nov 08 (RM1.61; RSI-14: 9.71).


Chart 2, courtesy of NextVIEW Advisor Professional

If he were to sell the share on 13 Apr 09 (RM2.25) just because RSI-14 has crossed the 70 level for two consecutive days (at 82.22), he would have incurred an opportunity loss of 38% in six trading days as the price surged to close at RM3.12 on 21 April with RSI-14 at 92.74.

The question now is –: was Wilder wrong when he introduced the overbought/oversold principle? Certainly not! He has indeed been misinterpreted.

What Wilder had written on this principle is that in general, it is considered bullish for the underlying stock when the RSI rises above 30 and conversely it is considered bearish for the underlying stock if the RSI falls below 70.

He did not say what should be done if RSI crosses above 70 but instead recommended what to do if the RSI crosses below 70. And he did not suggest what to do if RSI crosses below 30 but instead recommended what to do if the RSI crosses above 30. This is also in line with the third strength of the indicator, which is centerline crossing.

Shocking? We should go to the original source and understand the indicators that we use in the right manner.

****

Article Contributed By Ameer Ali Mohamed. Ameer is Director, Financial Research of NextVIEW. He has a total of 20 years experience as a corporate journalist, investment analyst and fund manager, including as research head of two stockbroking firms and CEO/CIO of a funds management company.


Republished with permission. This article was published in the Just Say It column in Shares Investment (Malaysia edition) June 2009. You can get the latest copy of Shares Investment (Malaysia edition) at leading bookstores in Malaysia.

Crude Palm Oil Futures: May test support levels around RM2,100 to RM2,200

In my article last month, I mentioned that there is a strong resistance for the price of FCPO (Crude Palm Oil Futures) at RM2,800 per metric ton and if it is not broken, the price may pull back to its long term average at around RM2,000. That was when the price of FCPO was at RM2,700 and today it is at RM2,400. The news about rising imports and Indonesia tax on CPO did not have impact on the price of FCPO and I was still convinced that the price of FCPO need to be corrected downwards because the price is overbought. The price was quite volatile last month. From RM2,700 it went to a low of RM2,350 before rebounding back to RM2,650. However, the rally was not sustainable and price fell to the current level of RM2,400.

FCPO traders are concerned about the demand sustainability and rising US dollars which may weaken the price of FCPO. The Malaysian Palm Oil Board says in official report that Malaysian crude palm oil exports rose 2.3% on-month to 1.22 million metric tons in May. However, estimates from cargo surveyors expect a drop in export estimates for the first half of June. Intertek Agri Services estimated a fall of 10 percent in exports while SGS expected a fall of 9.4 percent.

Trades have already started to look for positive catalysts to boost CPO price but the lack of strong fundamental data caused traders to continue staying out. Trading volume was relatively weaker as traders are still looking for cues from the market. The cue was pretty obvious last week when price was high and if only they knew how to read charts or this article last month, they would at least know the market vibration and know where it is heading.

The price of FCPO is currently in a correction period but is still in a long term up trend as long as it maintains above the 90-day moving average (90-SMA) which is currently at RM2,260. There is a temporary support level created last month at RM2,350. The momentum in price and volume is getting weaker. The Relative Strength Index (RSI) continues to make new lows while the Average Directional Index continues to decline. These indicators indicate weaknesses in price momentum. Daily average volume in the past one month was 10,900 contracts, 14 percent lower than the previous corresponding month.


Daily FCPO chart with volume as at 15 June 2009 using NextVIEW Advisor Professional

The longer term average for the price of FCPO has increased from RM2,000 to RM2,100 per metric ton. The weak momentum suggests that price may continue to fall and test the support levels. There is another support level that can be defined from the October 2008 to date rally which currently around RM2,100. The price of FCPO may soon test the immediate support level at RM2,350 and if this support level is breached, then the price of FCPO may test support levels around RM2,100 to RM2,200.

Strong resistance maintains at RM2,800 while immediate resistance level is at RM2,650. These two resistance levels can be connected by drawing a linear trend line which defines the current short term down trend and if this line is broken, we may see the price of FCPO going sideways.

****

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.

Technical Analysis of Abterra Limited (Abterra) - SGX

Many stocks below ten cents are traded in very high trading volume in the past few weeks as efforts are being put on these stocks that are currently lagging behind the blue chips. One of them is Abterra limited (Abterra).

Abterra is an investment holding company that primarily trades in iron ore, cotton, coal, chemical, steel and bathroom products. The company also engages in mining resource properties, as well as in the production, transmission, distribution, and sale of electricity. Abterra was formerly known as Hua Kok International Limited and changed its current name in 2005. In addition, it also has operations in China, Australia, India, and Indonesia

The price of Abterra was trading in a range between $0.015 and $0.025 from mid-November 2008 to mid April 2009 with very thin trading volume. Volume starts to increase in May and price shot up as high as $0.085 on the 11th of May 2009. A correction ensued and price is currently at $0.07.

The price trend changed from a down trend to an uptrend when price breaks away from the $0.015 and $0.025 trading range in April and traded around $0.030. The short to long term moving averages started to reverse during this period providing a good opportunity to buy. Currently at $0.070, price is still above the averages and therefore still in an uptrend with relatively high volume. It has been appearing in the SGX top volume chart for the past few days. However, price moved into a sideway correction since the high of $0.085.

The current price momentum is neither bullish nor bearish. The Relative Strength Index (RSI) and Momentum indicators are currently at the midpoint. However, the MACD indicator is already showing bearish momentum on the current trend since 3 weeks ago and there is no indication of it turning bullish yet. Therefore, the uptrend is weak and the next direction should be determined by whether the price breaks below the support level (bearish) or above the resistance level (bullish).

Price is currently at the 38.2% Fibonacci retracement level from the long term bear trend since early 2008 when price was at $0.15. It tested the 50% retracement level at $0.085 but failed to continue. Generally, the Singapore market based on the FT Straits Times Index is at the 38.2% retracement level. There is a low chance of price climbing higher unless the FTSTI climbs to the 50% retracement level at 2,680 points.

Watch for the breakout of the support and resistance level for this particular stock. Traders should run away if price breaks below the support level of $0.06 and continue to hold or buy if the price breaks above the resistance level of $0.07 and if does break above the resistance level, it may start to test $0.085 again and probably to $0.10. The next support level is at $0.05.


Daily Abterra chart as at 5 June 2009 using NextVIEW Advisor Professional


****

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.

Kuala Lumpur Composite Index: Weaker bullish momentum

The KLCI closed at a new 2009 high at 1088.96 points, breaking the 1,076 points resistance level. The KLCI is 25 points or 2.3 percent higher from the previous week. The price trend is still inherently strong with the short to long term moving average still increasing and the KLCI moving higher above these averages. The KLCI is 11 percent above the long term 90 day moving average (90-SMA), another 1 percent higher from the previous week. The Ichimoku Cloud indicator is still expanding strongly and shows no sign of major trend reversal at least in the next one month.

In the longer term, the momentum of the trend is still strong with most momentum indicators like the 14-day RSI, 14-day Momentum and MACD indicators above the mid-point which separates the bulls (above mid-point) and bears (below mid-point) strength. The Average Directional Index (ADX) indicator continues to increase since last week and this confirms the strong up trend momentum. However, in the short term there is a divergence between these indicators and the KLCI. Therefore, the short term momentum of the KLCI is a little weak.

The expansion of the Bollinger Bands continues with KLCI being above the middle band (the 20 day moving average). This is because the KLCI keeps making new highs and force the bands to increase higher. Like the other momentum indicators, the Bollinger Bands suggests that there is still strength in the current uptrend momentum in the longer term. The shorter term volatility indicator, the 3-day Average True Range (ATR)indicator however has declined and this also supports the weakening short term trend. The ATR indicates a volatility of about 9 points, 25 percent lower than the previous week’s 12 points.


Daily KLCI chart as at 11 June 2009 using NextVIEW Advisor Professional

In the long run, I am expecting another strong downward pressure in the 3rd quarter onwards earlier this year with the KLCI probably going to 600 to 650 points and the forecast is valid if the KLCI stays below 1,076 points. Now that it has gone above this level, is the forecast still valid? The KLCI has tested and broken the resistance levels that I have set earlier at 940, 1,040 and now 1,076 points. Last week, I have mentioned that if the KLCI breaks and stay above 1,076 points, there is a chance that KLCI moving into the next resistance level at 1,160 points.

Now, I am still expecting the KLCI to have one more selling pressure but my forecast will not be so low anymore. With the adjustment in the current movement, my technical forecast in the long run (probably end of this year or earlier next year) would be 700 points, if the KLCI stays below the next resistance level at 1,160 points.

In the meantime, it would be risky to get into the market now because of two reasons. First, the market has been overbought for a long time with a steep up trend which is normally not sustainable. Second, the short term momentum is weak and the market may face more resistance and needs strong catalyst to move higher. So there is little potential in the upside.

****

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.

Hong Kong Hang Seng Index (HSI) – May test next resistance

No market in the region shows very strong bullish sentiment like in Hong Kong. The equity market continues to make new highs and breaking a few technical resistances in a month. The HSI closed at 18,697.53 points at the end of the first week of June, surging more than 20 percent in a month. So far, the HSI has climbed 60% from the low in March this year. Investors are confident about the recent economic developments which are expected to improve its economy.


Weekly HSI chart as at 5 June 2009 using NextVIEW Advisor Professional

The HSI becomes very bullish once it broke the 15,900 points resistance level. There was no major pullback in the current uptrend rally despite being overbought for weeks. Investors and traders are picking up stocks at slight pullbacks are most of them do not want to miss the current wave. The momentum indicators are indicating strong upward momentum which means that there is a high chance that the HSI testing the next resistance level at 19,150 points, a 38.2 percent Fibonacci retracement level from the longer term bearish trend since October 2007. If the HSI remains bullish, expect the HSI to climb to the next resistance level is at 21,300 points. Immediate support level is at 17,680 points while stronger support level is at 15,700 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.

US Dow Jones Industrial Average (DJI) – Just broke resistance level

The US market has been moving sideways with a tight trading range last month after breaking the resistance levels of 8,170 and 8,300 points. The DJI closed at 8500.33 points end May after trading between 8,250 and 8,580 points. The DJI has increased about 30% from the March low. Market is a little uncertain because key economic indicators such unemployment rate continues to rise and the mortgage crisis that has now moved toward prime mortgages creates a little fear in investors on whether the economy is really improving. The market was earlier boosted by better than expected monthly corporate earnings.


Weekly DJI chart as at 5 June 2009 using NextVIEW Advisor. Click on chart for larger view.

The DJI has retraced about 28 percent from the longer term down trend since October 2007. The next significant retracement level is the 38.2 percent Fibonacci level which is at 9,420 points. With a strong bullish momentum and sentiment there is a high possibility of the DJI climbing to this level because most markets have retraced near this level. The break above the current resistance level in this trading range at 8,600 points would boost this possibility. However, expect more downside move if the support level of this trading range at 8,250 points is broken. The next support level is at 7,900 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.

Technical Analysis of Midas Holdings Limited (Midas) - SGX

The price of Midas in the Singapore Stock Exchange (SGX) has performed very well in the past 2 months. It has increased more than 70 percent to the current price of $0.675 with a well-established up trend. It has been one of the most active stocks traded on SGX recently. Now that it creates strong market interest, is there a chance of this share price going higher?

Midas Holdings Ltd. (Midas) engages in the manufacture and sales of aluminium alloy products and polyethylene pipes for the infrastructure sector including rail transportation in China. Midas Holdings Limited was incorporated in 2000 and is based in Singapore and was listed on the SGX on the 23rd of February 2004.

Recently in May, analysts from a few broker firms raises target price for MIDAS. DBS Vickers raised the target price from $0.60 to $0.82. Kim Eng also raised its target to $0.82 from $0.62. However, both CIMB and OCBC cut recommendation from buy to hold with a target of $0.70 and $0.64 respectively. In April, Credit Suisse raises target price to $0.75. Based on these analyses, there is a strong fundamental factor for this counter.

Price of Midas is currently in an uptrend as the short to long term 30- to 90- day moving average is increasing at a steady pace. It is currently well above the moving averages. The trading range of the uptrend in the price of Midas can be established using the linear regression trend line as displayed in the chart below. The current price is just below the top line of the regression channel, which normally acts as a resistance level.


The uptrend is supported by a steady bullish momentum. The Relative Strength Index (RSI), Momentum and MACD indicators are in convergence with the price peaks and troughs. This means that there is a high chance of price creating new highs. Compared to the general performance of the market, the stock price for Midas is still a laggard. The STI has currently retraced to about 38% from the major bear trend since October 2007, while the price of Midas has only retraced to 28%. The 38% retracement for Midas is $0.92. Therefore there is a room for price to go higher.

There is a strong resistance at $0.715 and if the price is able to break above this level, then the probability of price going higher to $0.92 would be high but if it is unable to break above the resistance it may correct downwards as the price is currently at the top level of the uptrend channel. Support level is $0.60 and if price goes below this level, it may start to go even lower to the lower line of the uptrend channel at $0.45.


Daily Midas chart as at 5 June 2009 using NextVIEW Advisor Professional

****

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.

Singapore FTSTI currently at resistance level

Market sentiment and confidence in Singapore seems to be getting even stronger by breaking the 2,000 points resistance level and closing at a 7-month high. The benchmark FTSTI closed at 2,329.08 points at the end of May. The index has climbed 56.8 percent from the low in March. Market continues to be bullish despite weaker technical indications. Investors are responding to recent economic developments both locally and internationally. Total manufacturing output of Singapore in April rose 24.7 percent on month but still lower year-on-year.


Weekly FTSTI chart as at 5 June 2009 using NextVIEW Advisor. Click on chart for larger view.

The benchmark index is currently at the 38.2 percent Fibonacci retracement level from the longer term bearish trend since October 2007 which is 2,400 points. There were no major correction from the current bullish trend and the market is climbing exponentially. The momentum indicators are still in divergence which means weaker up trend but there is a high change of the index testing the Fibonacci retracement level above. There has to be more positive catalysts to push the market beyond this level. If the market rallies further, it can only find resistance at 2,700 points. Support level is currently at the previous resistance level at 2,000 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.

TRADING EXPERIENCE, Trading Article by Daryl Guppy

Every time I talk to people after a training class I tell them that even though I am teaching knowledge obtained through years of hard work, there's one valuable part of this knowledge nobody can give to a student. This is experience. Experience doesn't mean having 2 or 5 or 20 years trading the markets. Experience is not necessarily based on the amount of time you spend in the market. I know traders that have been attempting to trade for years and they have very poor results. Experience is not the amount of time you spend trading the market . Experience is the quality of the time you spend.

Most traders wander through the market. They experience many trades. Some trades are successful and some trades are not successful. These traders never learn anything from any of those events. Without a trading plan to follow , it is difficult to objectively determine what they have learned from their trades. Being able to distinguish between a 'good' trade and a 'poor' trade is critical in learning from your mistakes. 'Good' trades are not necessarily ones that make you money once you exit. 'Poor' trades are not necessarily ones that result in losses to your account. A good trade is a trade where the trading plan is followed correctly.

Traders have to go through many different periods in the markets and they will encounter many different situations. How traders deal with those situations shapes their future as traders.

Traders can expect to have losing trades and losing streaks where many trades are unsuccessful. This is all part of the trading profession. If traders intend to survive in the market and become consistent traders, they must find a way to learn from every winning and losing trade. The objective is to avoid repeating the same mistakes.

Ideally, you make a certain mistake once, and you don't make it again. This is very difficult to achieve. Part of developing experience is developing an awareness of the mistakes you are making. Sometimes you have to repeat a mistake several times before you recognise the error. You can quickly identify mistakes as soon as possible if you review all your trades. Then you can stop making that mistake.



Professional traders do not spend 100% of their time trading. A professional trader spends a third of their time preparing for the market, another third actually trading and the last third evaluating the trading results.

The rapid market fall in 2008 shows why it is necessary to have a good trading plan. This market fall is used to improve the quality of your trading experience. Experience doesn't mean having many years trading the markets. Experience is not the amount of time you spend trading the market. Experience is the quality of the time you spend.

After the recent market fall traders will take time to evaluate their success or failure. The answers help to develop quality experience. There are five features.

1) Creating quality experience starts with a Trading Plan. Start by specializing in one or two strategies. There are many different strategies in the market. Many of them are successful, but you must select the strategy that you feel most comfortable with. This strategy will suit your personality so it is easy to apply effectively.

2) Keep a Trading diary. This is a record of every trade. The notes include the reasons for the trade. It includes the trade plan. It includes the trade development and also the reason for the exit. These are brief notes. They help you to find the common features of success and the common features of failure. It is a record of how your experience is developing.

3) At the end of each trading day print the chart of every trade. Make notes about the trade. This improves your learning experience because it teaches you to recognize price and market patterns. It reminds you of what happens when the patterns are successful , or when the patterns fail.

4) At the end of every three months evaluate the information you have collected. This will help you recognize your strong and weak points. Are you more successful with momentum trades or trend trades? Is your entry point effective? Is the stop loss method effective? Do you wait too long to exit a losing trade? The answers will help you develop the quality experience necessary to become a better trader.

5) If you find common and repeated mistakes, then you may need to make changes to your trading plan. First check to make sure all your trades follow your trading plan. If you have many trades which do not exactly follow your plan then go back to step one and develop the discipline to trade your exact trading plan.. If you consistently and exactly follow the correct trading plan then you will develop the quality experience necessary for successful trading.

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

****

Daryl Guppy, well-known international financial technical analysis expert. Appears regularly on CNBCAsia and is known as "The Chart Man". He is an equity and derivatives trader and author of books including Share Trading, Trend Trading and The 36 Strategies of The Chinese For Financial Traders. He has developed several leading technical indicators used by investors in many markets. His weekly analysis newsletters get favorable comment in Asia and Australia.

Malaysian Market News Update

The international reserves of Bank Negara Malaysia amounted to RM322.5 billion as at 29 May 2009, up RM2.1 billion or 0.66% from RM320.4 billion as at 30 April 2009. In US dollar terms, the international reserves of the central bank amounted to USD88.3 billion end May, an increase of USD0.5 billion or 0.57% from USD87.8 billion a month earlier. According to Bank Negara Malaysia, the reserves position as at end May is sufficient to finance 8.3 months of retained imports and is 3.8 times the short-term external debt.

Malaysia's long-term currency rating has been downgraded from "A+" to "A" by International ratings agency, Fitch. Fitch cited the country's growing budget deficit as the main concern. In a statement Tuesday, Fitch mentioned that they are expecting the budget deficit to rise 7.7% of the country’s gross domestic product this year. The budget deficit peaked last year when the government announced a RM67 billion economic stimulus package to deal with the global economic slowdown. They also added that Malaysia’s primary deficit of 6.4% of GDP would be among the worst, after only Latvia, Bahrain, Ireland and Vietnam.

Despite bearish news, the Kuala Lumpur Composite index climbed 3.97 points higher at 1075.76 points.

For more Malaysian, Singapore and US news update, please visit www.nextview.com

****
N.I.N.E.

Be extra cautious

The market once again proved its resilience by inching higher despite lacking positive catalysts for the equity markets and economy. Exports for April declined 26.3% year-on-year and 5.6% month-on-month while imports dropped 22.4% year-on-year but rose 8.8 month-on-month. Total trade in the first four months of this year dropped 24.2% from the same period last year. Market sentiments are mixed and desperately needing stronger catalysts to bring the equity market to new heights. The scenario is the same in other countries.

The recent short term improvement in the economy and weakening US dollar caused commodity prices to increase again. Price of gold soared again to near US$1,000 level. The price of Gold is trading around US$980 per ounce, up US$100 or 10% in a month. Price of crude oil has increased as well. Benchmark crude for July delivery is currently at $68.81 a barrel on the New York Mercantile Exchange. Crude oil price has increased about 37% since last month where price was trading around US$50. Price of crude palm oil traded in Bursa Malaysia is trading at around RM2,600 per metric ton. Two months ago, it was trading around RM1,800.

With the strong bullish sentiment, the KLCI up trend is able to hold. The KLCI is able to stay above the short term 30-day moving average (exponential calculation) and continues to distant away from the longer term 90-day moving average. The KLCI is 9.8% above the longer term moving average, 1% higher than the previous corresponding week. This shows a slightly stronger bullish momentum in last week’s upward move. The Ichimoku Cloud indicator shows no sign of major reversal at least in the next one month.

The 14-day Relative Strength Index (RSI) indicator stays flat after declining for the past three weeks. The bulls, which are currently in control is being able to hold the bears from bringing the KLCI down. Like the RSI, The MACD indicator has also started to move sideways. The 14-day Average Directional Index (ADX) which was declining since mid of May now started to increase slightly. These momentum indicators show that there is still strength in the current up rally.

The contraction in the Bollinger Bands in the previous week was short-lived and has now slightly expanded. There is a slight increase in the volatility of the KLCI movement. The KLCI is above the middle band and this means that the pressure that caused the increase in volatility is from the bulls. The shorter term volatility indicator, the 3-day Average True Range indicator maintains the same volatility between 10 to 16 points in the past three weeks.

There is still a chance for KLCI to climb a little higher because there is still strength in the current upward rally based on the technical analysis above. I have mentioned last week that the next resistance for the KLCI to test after breaking the 1,055 points immediate resistance level is 1,076 points. The 1,076 points level is a 38.2% Fibonacci retracement level from the longer term bear trend which begins in January 2008 to the low in October 2008. It is a crucial level in Elliott Wave studies to determine whether the current rally is a correction in a major down trend or the beginning of a long term bull rally.

There is a concern in the rising commodities prices and this may trigger inflation to rise again once consumer products start to increase. This is going to cause consumer spending power to shrink and thus slowing down the economy again. The weakening US dollar will cause US imports to ease as well. We are in the middle of the year and most companies including institutional funds are closing their books. What we may be watching is a mid-year window dressing because most of these funds were beaten really badly last year and they need to have better figure in their books.


Daily KLCI chart as at 4 June 2009 using NextVIEW Advisor Professional

Once again, investors should be extra cautious and patient and wait for a bigger correction to happen at least to longer term support levels between 970 to 990 points. The risk is just too high to get into the markets now, especially after June. In fact those who trade short term should get out of the market and take profits. Longer term investors may want to dispose some positions and accumulate again after the bigger correction. My Long term forecast of 600 to 650 points is still valid as long as the KLCI stays below the 1,076 resistance level. If the market does break above 1,076 points and stay above it, the next resistance level is at 1,160 points, half way point of the long term bear trend and I shall revised my longer term forecast.

****

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.

Price of Gold anticipated to pause briefly

Two weeks ago I announced that if the market had sufficient strength and momentum to breach R1 (950-960) convincingly, R2 (976) would be the next logical upside target. That target was surpassed and there is now a three month high at 990.

Price is currently at 969.50. I anticipate that gold will pause briefly with sideways activity before a testing the February 20th, 2009, high of 1006. and the March 17th, 2008 high of 1032.50.

A downside break below 930. would force a reconsideration of this outlook.


Daily Gold chart as at 4 June 2009 using NextVIEW Advisor. Click on chart for larger view.

TECHNICALS
MACD – in positive territory with weakening momentum
Stochastic – dropping down from it’s overbought level.
Li’s Sandwich – the top line indicates potential resistance, and the bottom line indicates potential support.
R1 – immediate resistance at 990.
R2 – 2006
S1 – a zone of support from 946-930.
S2 – 912.

****

Article and Commentary by Don Schellenberg. A trader and trading coach, he is a noted expert on Market Structure, Elliott Wave and Fibonacci. He trades the forex market.

FOREX: EUR/USD Analysis

On May 20th I wrote in this column as follows: ‘In any case there is a strong possibility that the market will reach to around 1.4170-1.4200 within the next couple of weeks’.

On June 1st EUR/USD reached and exceeded that level and on June 3rd created a five month high of 1.4338.

Market strength has tapered off somewhat. A few days of sideways correction is very probable. The market has reached a level of potentially strong resistance and fallen back slightly from there. If the market drops below the closest rising trend line marked on the chart, a larger correction could ensue.

On the up-side there are other attractive targets such as the resistance zone from 1.4620-1.4660. That area should be watched carefully as it could be a major turning point. However as long as the rising trend line is not penetrated convincingly, upside targets will still be within range.


Daily EUR/USD chart as at 4 June 2009 using NextVIEW Advisor. Click on chart for larger view.

TECHNICALS

Stochastic – in over bought level.
MACD - rising, but with weaker momentum
SMA200 – flat around 1.3170.
EMA20 – rising
TL1 – the lower, rising trend line.
TL2 – currently the rising trend line closest to price.

****

Article and Commentary by Don Schellenberg. A trader and trading coach, he is a noted expert on Market Structure, Elliott Wave and Fibonacci. He trades the forex market.

Hong Kong Hang Seng: Strong upward momentum

No market in the region shows very strong bullish sentiment like in Hong Kong. The equity market continues to make new highs and breaking a few technical resistances in a month. The HSI closed at 18,171.00 points at the end of May, surging 21 percent in a month. So far, the HSI has climbed 60% from the low in March this year. Investors are confident about the recent economic developments which are expected to improve its economy.

The HSI becomes very bullish once it broke the 15,900 points resistance level. There was no major pullback in the current uptrend rally despite being overbought for weeks. Investors and traders are picking up stocks at slight pullbacks are most of them do not want to miss the current wave. The momentum indicators are indicating strong upward momentum which means that there is a high chance that the HSI testing the next resistance level at 19,150 points, a 38.2 percent Fibonacci retracement level from the longer term bearish trend since October 2007. Immediate support level is at 17,680 points while stronger support level is at 15,700 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.

Singapore STI: Likely to test next resistance level at 2,400 points

Market sentiment and confidence in Singapore seems to be getting even stronger by breaking the 2,000 points resistance level and closing at a 7-month high. The benchmark FTSTI closed at 2,329.08 points at the end of May. The index has climbed 56.8 percent from the low in March. Market continues to be bullish despite weaker technical indications. Investors are responding to recent economic developments both locally and internationally. Total manufacturing output of Singapore in April rose 24.7 percent on month.

The next resistance the benchmark index would most likely be at 2,400 points, the 38.2 percent Fibonacci retracement level from the longer term bearish trend since October 2007. There were no major correction from the current bullish trend and the market is climbing exponentially. The momentum indicators are still in divergence which means weaker up trend but there is a high change of the index testing the Fibonacci retracement level above. There has to be more positive catalysts to push the market beyond this level. Support level is currently at the previous resistance level at 2,000 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.

KLCI: Higher Level of Investors Confidence

The equity market has been on a very bullish mode since March this year. The KLCI went as high as 1059.88 points before settling at 1,044.11 points at the end of May. The KLCI has increased about 24 percent since March. Investors were not taken aback by the weaker than expected quarterly GDP growth. The government announced a 6.2 percent contraction for the first quarter and revised the GDP forecast for the year 2009 to contract between 4 and 5 percent. The rally in KLCI is in tandem with the rally in the regional markets with most of these markets climbed more than 50 percent from the March low. However, trading volume has decreased for the last two weeks of May indicating a little uncertainty.

The KLCI broke and stayed above the psychological resistance level of 1,000 points and this indicates high level of investors’ confidence. The next resistance is at 1,080 points, the 38.2 percent Fibonacci retracement level from the long term bear trend since January 2008. With the current momentum, there is a high chance of price testing this level. To be able to go beyond this level requires more positive catalysts. Technical support level is 1,000 points, the previous resistance level.

****

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.

US DOW: More Upside if breakout above 8,600 points

The US market has been moving sideways with a tight trading range last month after breaking the resistance levels of 8,170 and 8,300 points. The DJI closed at 8500.33 points end May after trading between 8,250 and 8,580 points. The DJI has increased about 30% from the March low. Market is a little uncertain because key economic indicators such unemployment rate continues to rise and the mortgage crisis that has now moved toward prime mortgages creates a little fear in investors on whether the economy is really improving. The market was earlier boosted by better than expected monthly corporate earnings.

The DJI has retraced about 28 percent from the longer term down trend since October 2007. The next significant retracement level is the 38.2 percent Fibonacci level which is at 9,420 points. With a strong bullish momentum and sentiment there is a high possibility of the DJI climbing to this level because most markets have retraced near this level. A break above the current resistance level in this trading range at 8,600 points would boost this possibility. However, expect more downside move if the support level of this trading range at 8,250 points is broken. The next support level is at 7,900 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.