Friday, April 18, 2014

Weekly Chart Update 18/4/2014

The US Market





Since the beginning of March, the US market has been on a rough ride. It passed through the 20 day moving average line as many as 8 times! This shows how unstable the market is. On Thursday, although the S&P 500 closed above the 20 day MA again, but I'm still skeptical about this chart pattern development as the rising prices were accompanied by falling volume. I will step aside and wait for more confirmation on this. Resistance at 1890, support at 1800.

KLCI Market

I did a comparison on the regional markets PE ratios I discovered that KLCI is on a pricey side with 17 times PE ratio. Hang Seng and Shanghai are among the lowest with 10 - 11 times. STI is 14 times while Thailand is 16 times. This probably explains why KLCI is lacking momentum to move higher. Support at 1820, resistance at 1870.



STI Market

Since end of March, STI broke out from the bearish trendline and currently it looks overbought. If you are looking for opportunity to buy into the STI stocks, perhaps you could wait for a pullback to add more positions in it. For long term investors, I always advice invest in stages, or invest during the cycle low months such as February, May, August and November. Support at 3150, resistance at 3300.




Monday, April 14, 2014

Moving Averages and It's Applications


In this video lesson, we learn about the application of the moving averages. It is one of my favourite indicators too.

Tuesday, April 8, 2014

Technical Analysis and Its Applications

Many people think that only traders apply technical analysis in trading and long term investors apply more on fundamental analysis. In this article I will go into the details of the application of technical analysis and show you how it can benefit not only the traders but also long term investors.

Firstly, I would like to clarify that technical analysis can be used for short term, medium term and long term analysis and not short term only. For example, with the help of moving averages we can tell whether the security is gaining a support in the short term, medium term or long term.

For short term analysis, we may use 5 days, 10 days or 20 days moving averages on the chart. If price is above these short term averages, we can say that the security is short term bullish. On the other hand, we may also use 200 day moving average for a longer term analysis. If the security's price is above the 200 day moving average, it is considered long term bullish; If below the 200 day moving average, it would be long term bearish, and we may advice the long term investors to sell their holdings in their portfolio.

Top Down Approach
We may also use technical analysis the way we use fundamental analysis in a top down manner. First we analyse the chart of the market index (such as KLCI) to get the overall view of the market. Then we analyse the sector index such as plantation sector index, finance sector index, and conduct comparative analysis between the company and the sector index or the KLCI index. After we get the overall view of the market and the sector, we can then analyse individual stock, their support and resistance, momentum and the trendline analysis.

Leading Indicator
According to John Murphy, Technical analysis serve as a leading indicator for the economic and business condition in the market. Charles Dow also shared the same view whereby the original intention of his Dow theory was to forecast the business activity at his time.

Technical analysis is built on the assumption that "history repeats itself", by knowing the pattern of the historical data, we can forecast into the future price trend. For people who are familiar with cycle analysis and planetary cycles, you will know that these knowledge will help you forecast years ahead which is extremely useful to any long term investors.

Assist in Price Entry and Exit
Technical analysis is a very useful tool for timing the entry and exit of the market. For example, in a trending market, we may use a simple moving average to help us or to give us signal to buy and sell securities. In a horizontal or sideways market, we may use a stochastic or RSI for the timing of entry and exit. How to execute these trades I will discuss later in my Youtube videos. 

Support and Resistance
Using trendlines and moving averages we can determine the support and resistance zones for a particular security. The support and resistance levels are important in setting your stop loss. Not only traders need stop loss, long term investors are advice to use stop loss too such as the 200 day moving average is generally used for the stop loss for a long term investor.

Momentum
There are many momentum indicators that we can apply from any charting software to give you an idea whether a particular security is still trending, and if it does, how bullish is it? Is it overbullish that it is about to reverse soon? All these information can be answered by studying the momentum indicators like the stochastic and the RSI, or some even more sophisticated momentum indicator like the Average Directional Index (ADX). However, momentum indicators are more for short term application rather than long term.

Finally, I would like to share with you one little story about the Great Depression. In 1929, Irving Fisher, the greatest economist at that time proclaimed that the stock market was in a "permanently plateu". Days later the Dow Jones Industrial Average (DJIA) plunged drastically. Over a period of three years, DJIA fell from 381 points to a low of 41 points in 1932.

This is because during the peak of the economic activity, we see all the rosy pictures and data, based on the rosy data, analysts kept raising target prices for stocks. However, in technical analysis perspective, the market was due for a correction as it was way overbought prior to the crash. In other words, we can say that the stock market reflects the economic condition months ahead, if we can use technical analysis to forecast the stock market, we can really predict the economic condition in the market.





Monday, April 7, 2014

Chart Patterns Part 2


In this video, I continue on a few more chart patterns, they are: Double top and double bottom, rectangle and triangles chart patterns.

Thursday, April 3, 2014

Chart Pattern Part 1


I learn a lot of investing ideas and knowledge from youtube, so now its my turn to produce some learning videos to benefit others. In this youtube video, I go through the 4 principles of chart pattern so that you can understand better and utilise it in your investing.

Tuesday, April 1, 2014

March 2014 Market Report


A monthly report on the US, Singapore and the Malaysia stock markets, as well as the outlook of gold and the palm oil markets.

Tuesday, March 4, 2014

Gold

Since January, gold price has gained 10.6% from US$1220 to the current US$1350 due to the rising tension in Ukraine as gold always favours uncertainties. For people who are still keen on holding gold as long term investment, perhaps you might want to know what is the long term prospect for gold.

Below is the 100 year old chart for gold and silver. As you can see the precious metal seems to follow this repetitive price pattern - 10 years of bull run followed by 20 years of bear run.  Historically, gold spikes in the year 1934, 1979 and 2011. After these spikes gold price would seem to follow some prolonged period of bear trend. The bear trend would start with price slump for more than 50% followed by a few rebounds and then the price would move in a horizontal trend for many years.


If history were to repeat itself, we shall take 2011 gold price peaked at US$1900 as the starting point, divided by 2 gives us US$950. This is quite a scary scenario for gold investors who are hoping that their gold will go back to the historical high of US$1900. Hence, I believe the peak should be over and we are currently in the secular bear market of the precious metal.

Below is another chart to show  the short term outlook for the gold price. In the short term, gold is bullish as it has broken above its 200 day moving average and there was a double bottom formation in the chart. This chart pattern may bring the gold price to the US$1500 level which I think the maximum that it can go as my view is that US$1200 - US$1500 is a reasonable long term price range for gold.



At the moment US$1200 is a crucial support level for gold, should it break below this level, chances are it may move towards below US$1000 level. 

The above are just my personal view on gold price based on technical analysis. I'm sharing this because I think gold is an excellent investment for long term, however we must recognise that it is a commodity which has its own inherent risk. I would advice people to hold not more than 10% of their portfolio in gold, unless the gold price did go below US$1000, then I don't mind to hold a bit more.