US Dow Jones Industrial Average (DJI) – Trend is still strong and intact

Wall Street was bullish last month as investors were anticipating favourable outcome from the 2-day FOMC policy meeting end September. The DJI climbed 125.90 points or 1.3% in a month to close at 9,665.19 points. The benchmark index went as high as 9,918 points but failed to hold after the FOMC meeting ends and the Fed announced that the US economy is on the road to recovery. Investors were quick to sell on news and the appreciating US dollar which caused commodity prices to decline adds the pressure.


Weekly DJI chart as at 25 September 2009 using NextVIEW Advisor

Despite the selling pressure in the past few days, the technical indicators are still positive. Momentum indicators are on the positive side, slightly above its mid-level. The trend is still strong and intact. The market would remain bullish if it stays above the support level at 9,100 points. There is a support from the short term 30-day average which is currently at 9,550 points. The DJI is expected to test this moving average level and if it is able to stay above this level, we may see the trend continue and make new highs. Earlier, an inverted Head and Shoulder pattern was confirmed with a level objective of 11,600 points.


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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.

FTSE Straits Times Index (FTSTI) – Strong resistance at 2,700 points

The market faces heavy resistance when the FTSTI is at 2,700 points level. The market has been testing this level 4 times in the past one month but failed to break above it. The last test on the resistance level was on the 23rd of September and then fell for two days to close at 2,662.82 points on the 25th. It was another yo-yo month for the Singapore equity market which has gone into a bullish trend correction since mid-August. The benchmark index was still able to end positively month to month with an increase of 44 points or 1.7%.


Weekly FTSTI chart as at 25 September 2009 using NextVIEW Advisor

Technical indicators have been neutral for the past two months but are forming a divergence against the index. The momentum indicators on the weekly chart seem to be more bearish. The market may have peaked at 2,700 points. The FTSTI has increased almost 80% from the low of 1,500 points in March. If the index stays between 2,500 and 2,700 points support and resistance levels, it is still in a correction. If the FTSTI breaks above this resistance level, we may expect the index to test the next resistance level at 3,000 points and if market continues to fall and the FTSTI breaks below the support level, the index is expected to fall to the next support level at 2,200 points.

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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 (FBMKLCI): Market expected to trade sideways

The market opened positively Wednesday with a new year high after the Aidilfitri holiday. The FBMKLCI opened 10 points higher from the closing before the holiday to 1,231.33 points Wednesday. However, the bullish sentiment was not sustainable as regional markets start to weaken and investors lock in profits. The benchmark index then fell to 1,219.07 points. Another 1 point is taken away from the index on Thursday as market sentiment becomes uncertain. The FBMKLCI closed at 1,218.06 points. Average trading volume for the past three days was 813 million shares, surprisingly higher than the average from the previous week of 731 million shares because the holiday mood was still fresh.

Market was uncertain mainly because of the markets’ reaction towards the US Central bank announcements after a 2-day policy meeting which seems to be positive. The central bank said that the fed-funds rate will remain near zero level and economic slowdown is probably over with developments in housing but job market may need time to heal. The Dow Jones Industrial Average fell after making a new year high Wednesday and continues to fall on Thursday. Other markets performances were also weak.

The Malaysian central bank is positive on the South East Asian nation economic recovery. The policy makers expect the Gross Domestic Product (GDP) to grow at the end of the year. Foreign investments into the Malaysian equity market inches up steadily over the past few months. The percentage of foreign trading by value has increased to 24% August from 21% June. However, it is still far below the average in year 2008.

US dollar rebounded against major currencies in the past few days and dragged prices of commodities lower. Light sweet crude oil futures in NYMEX fell US$6 or 8% a barrel from US$72 in the previous week to US$66.00 Thursday. COMEX gold fell below US$1,000 after staying above it in the past one week to US$998 an ounce. The 3rd month futures contract for crude palm oil fell RM67 or 3% to RM2,115 per metric ton in Bursa Malaysia in a week. Price of Rubber futures (RSS3) in TOCOM fell 3.8% from JPY$206 to JPY$198.10.

There is not much change in the trend characteristics of the FBMKLCI because there is almost no change in one week. The RSI, MACD, Momentum and ADX indicators are still making new highs and this indicates that the current uptrend rally is still strong. The FBMKLCI is still above the short to long term 30- to 90-day moving averages. The short term 30-day moving average which supports the FBMKLCI trend well is currently at 1,187 points. The longer term 90-day average is at 1,124 points.

The Bollinger Bands expanded further as the FBMKLCI continues to trade near the top band of this indicator. This confirms the trend strength as indicated by the momentum indicators. However, the index has started to move away from the top band in the past two days. The 3-day Average True Range (ATR) indicator increased from 6.5 points to 8 points in a week and this means that the volatility has started to increase marginally.


Daily FBMKLCI chart as at 24 September 2009 using NextVIEW Advisor

What is being feared now is that the positive economic news and fundamentals were expected and has probably been discounted in the price. The stronger volume but declining market shows some selling pressure. Strong catalysts were not present to boost markets which have already recovered more than 50% from the October 2007 down trend. However, indicators are showing strong bullish indication on the current trend, except for the past two days. The leading Ichimoku Cloud indicator is still ascending with the same width. This suggests that the market trend is still strong at least in the next one month.

With mixed indications, the Malaysian equity market is expected to be defensive as always and trade sideways next week as long as the FBMKLCI trades within the immediate support and resistance levels. The immediate support level is currently at the 30-day moving average at 1,187 points while the immediate resistance level is at 1,230 points. If the support level is broken, the index may correct further downwards to the next support level at 1,160 points. However, if the resistance level is broken, the FBMKLCI may head to the crucial resistance level between 1,280 and 1,300 points.


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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.

OVERNIGHT GAP TRADE MANAGEMENT II by Daryl Guppy

Continued from Part 1...

DAY 2 EXIT

This is a two day trading strategy. Day two is about profits. There is no intention to extend this trade into a third day. Prior to the open our focus is on the order lines. We look for evidence that buying pressure is continuing. There are two ways to determine this.



The first uses the estimated match price. This is set at $0.61 and represents a gap above the previous day’s close. It is not a real gap above yesterday’s high, but it does suggest that the upwards move is likely to continue.

The second considers the balance between buyers and sellers. These figures take into account all the orders in the order line. This includes some very old buy orders which have little chance of execution at $0.42 and lower. However, the balance is tilted very heavily towards buyers with 1,581,150 of buying volume. This includes an undisclosed buyer sitting at $0.57. It is unlikely that prices will fall to this level, but the presence of this large buy order provides additional support for continued momentum during the day. If this buyer is really that interested in PEM then he may well decide to chase prices higher.

If the undisclosed order was on the sell side it sends a bearish signal. The sell orders total 625,625. The line is shorter than the buy line and confirms continued bullish pressure on prices.
Prior to the open we lift the stop loss to the same level as yesterday’s close. At worst, if triggered, this will lock in a 3.45% return.

Exit management calls for close monitoring of intra-day price activity. Early in the morning prices test $0.63 as a support level. Our stop loss is lifted to $0.63, locking in a potential 8.62% return.

During the day prices hit $0.66 on low volume, and then pull back from this level. In the late afternoon sellers flood the market with orders at $0.65 and $0.64. This suggests that the momentum generated by the gap on the previous day is losing strength. Our objective is to do the best we can on the day, and in the face of this selling pressure we meet the bid at $0.64. This exit locks in a 10.34% return. A few trades later, prices drop to $0.63 which would have triggered our stop loss exit.



Prices do climb back to $0.66, but they close on just a handful of trades. The volume traded is not enough to close our position.

These trades return significant short term gains. They are more effective that day trading strategies which rely on buying near the low of the day and selling near the high of the day.

These gap trades reduce overnight risk because they rely on a continuation of demonstrated momentum. When traded with the advantage of price leverage these trades can return 5% to 15% on a 36 hours trade. The strategy is straightforward but the execution calls for well developed trading discipline.

> Related Articles:
OVERNIGHT GAP TRADE MANAGEMENT I
OVERNIGHT GAP SELECTION Part 1 and Part 2

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

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

Kuala Lumpur Stock Market: Sentiment still bullish

The market extends its bullish rally last week as sentiments continue to improve. The FBMKLCI gained for the 4th consecutive week. The FBMKLCI rose another 17.52 points or 1.45% from the previous week to close at 1,218.80 points, another high for this year. The benchmark index traded in a narrow trading range between 1196.46 and 1,220.47 points. With a long break coming ahead of the Hari Raya Aidilfitri public holiday, market volume was slightly but surprisingly higher than the previous week. Total trading volume for last week was 731 million shares as compared to 702 million in the previous week.

Market sentiment was a little bullish following some improvements in the US economy. Jobless claims were lower and housing starts in August was the highest in nine months based on the Labor and Commerce Department findings respectively. Regional manufacturing rose to a 20-month high, according to the Philadelphia Fed Index. The Fed chairman statement that the worst in the US economy is over boosted investors confidence. The benchmark Dow Jones Industrial Average closed at the highest level this year at 9,738.92 points. In Malaysia, vehicle sales rose 2.8% on-year but fell 6.5% on a monthly basis. Normally, vehicle sales would rise before the Raya holidays but consumers are cutting back on their spending and becoming more cautious.

The US dollar continues to weaken and have caused prices of commodities to increase despite some declines in exports from producing countries. Price of crude oil futures maintains above US$70 a barrel and is currently at US$72 in NYMEX. Spot gold has gone above US$1,000 an ounce to US$1,012. Gold was trading around US$950 a month ago. However, price of Crude Palm Oil was almost unchanged since last week. The 3rd month futures contract for crude palm oil is trading at RM2,182 per metric ton in Bursa Malaysia. Price of Rubber futures (RSS3) in TOCOM however, fell from JPY$218 to JPY$206 as the yen strengthen against the US dollar.

Momentum indicators continue to be bullish since the resistance breakout last week. The resistance level for the FBMKLCI was 1,200 points. The RSI, MACD, Momentum and ADX indicator continue to create higher highs in the short term indicating strength in the current rally. The FBMKLCI up trend rally is well supported by the 30-day moving average and the uptrend line since April this year and both these levels are currently at 1,184 points. The longer term 90-day moving average currently stands at 1,120 points. The uptrend is intact as long as it stays above these averages.

The Bollinger Bands are still expanding with the FBMKLCI trading at the top bands for the past two weeks. This indicates that the market was at a bullish more, creating new highs. Despite having higher highs, the short term market volatility has declined. The 3-day Average True Range (ATR) has started to fall after gaining for two consecutive weeks. The ATR reading fell from 11 points to 6.5 points. This shows some resistance in the market, preventing the bulls from charging.

The immediate support level for the FBMKLCI is currently at 1,180 points and the uptrend is expected to continue if the index continues to stay above this support level. The resistance level stays between 1,280 and 1,300 points. The leading Ichimoku Cloud indicator is still increasing and the thickness of the cloud is still firm. The increasing cloud means that the price trend is still intact and the firm width of the cloud suggests that the benchmark index up trend can be supported at least in the next one month.


Daily FBMKLCI chart as at 17 September 2009 using NextVIEW Advisor

There are only three trading days next week as the market is closed for the first two days of the week because of public holidays. Profit taking activities is expected on Friday (this analysis is prepared on Thursday) before the long weekend as short term punters may want to lock in their profits. However, it may not affect the index much because sentiment is still bullish. If there is no selling pressure on Friday, then the market may continue may rise marginally after the holiday if the regional markets turn positive as investors may continue to accumulate.

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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.

OVERNIGHT GAP TRADE MANAGEMENT by DARYL GUPPY

The gap trade may be executed using ordinary stock, or using a derivative, such as a CFD. The derivative increases the return from the strategy. It also increases the risk in the strategy particularly if the CFD is based on bid-line triggers rather than traded price.

Management of the gap trade covers two days. Broadly they can be described as the entry day and then the exit day. The analysis for this strategy does not start until 20 minutes after the open of the market. By the time the analysis is completed the market may have been trading for an hour. This means that prices may have moved well above their open. If we are particularly lucky, price may have experienced a retreat as often happens after an initial market rally.

The important point is to remember that the success of this strategy rests on entering the stock on day 1 with the objective of exiting the trade on day 2. Rather than attempt to buy the bid it is more effective to hit the ask. The order screen shows a bid at $0.57 and the ask at $0.58. Getting a position is more important than haggling about the entry price. We take the entry at $0.58.

In this trade we miss the low of the day set at $0.56. We miss it because we are still involved in analyzing the potential trading candidates. This is significant if our focus is on trading the extremes of price action. It is less important in this strategy as our objective is to capture a portion of the price movement. We continue to stress this because so many traders feel cheated if they miss the price extremes. This attitudes blinds them to many other successful trading strategies.

Success depends upon running a tight stop loss. Using the low of the day we set a stop loss 1 tick below this level. A tick is the minimum price move permitted in the stock. With PEM, prices move up or down by one cent at a time. There are no half cent bids. Our stop loss is set at $0.55. This is an automatic stop loss. This has several advantages. The first is that the stop is executed automatically so you do not need to sit in front of the live screen all day. This automatic execution overcomes the temptation not to act. It is an artificial boost to discipline.



The second advantage is the speed of execution. Traders who use mental stop loss points have to watch the screen all day. Once the alert is sounded as a trade takes place at the stop loss price they must contact their broker. This means ringing, or logging onto the net, bringing up the screen, locating the stock, creating the order, and then clicking the sell button. The time from the stop loss alert to order execution may be a minute or more. In that time it is possible that prices may have slipped several ticks below the planned exit point, creating an unexpected large loss.
There are several critical features of this strategy. Rapid stop loss execution is one of them which is why I use an automatic electronic stop loss order.

It takes time for news to travel through the market. PEM has gapped upwards on the open, but it drifts sideways for an extended period. In the afternoon a new flood of buyers come into the market. They temporarily lift prices to $0.62. Some traders start to take profits at this level, and their selling drops prices back to a close at $0.60. Our objective is to remain in the trade, so we do not chase this rise as a selling opportunity. However, the rise provides the opportunity to lift the stop loss and shift the trade into a breakeven opportunity.

The initial, or morning, stop loss is placed one tick below the low for the period. The afternoon stop loss is placed after prices start to pull back from the high. The objective is to protect our capital. Lifting the stop loss means that the worst outcome is a break even trade – unless prices gap down past the stop on the next day’s trading. However, with a gap open today and a higher close on increased volume this is an unlikely outcome.

In a position trade – a trade designed to be open for days or weeks – it is sufficient to set a stop loss at the end of each trading day. On an intra day, or short term trade, there are significant advantages in shifting a stop loss several times during the day. The first shift should provide total protection for capital. Later shifts should start to lock in profits, and this is the first step on the second day of the trade. Stop loss points are only lifted upwards. They are never lowered.

Will continue in the next article...

> Related Article: OVERNIGHT GAP SELECTION Part 1 and Part 2

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

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