Saturday, December 6, 2014

Commodities Cycles

The followings are some slides that I presented to my graduates beginning of this year on January 25th.

Note that the above analysis are based on probablity not 100% guranteed. It is my way of telling readers that commodities go through cycles, just as any other financial assets. If we pay close attention to the historical charts, we can get insights from them.

Finally, one small note on the palm oil prices, although I believe the palm oil price may bottom out in September 2014, however, March 2015 there might be a test of this year's low. If you are thinking of accummulating more on plantation stocks, perhaps you might want to spread out the investment thtoughout 2015.

Saturday, October 11, 2014

A Market Correction or A Bear Market

The stock markets around the world have the biggest selloff since January this year. Many are wondering if this is just a normal correction or the beginning of a bear market. I would like to share with you some of my thoughts.

From the fundamental perspective, in order to initiate a bear market we need to see a “crisis”, it could be a financial crisis, political crisis, epidemic crisis or catastrophic crisis. On top of that, the most important factor is the investors’ sentiments towards the crisis. For example, we have the Ebola, the middle east political unrest and the European debt problems now, whether we view these problems seriously or shrugged off the news depends on our experiences towards these news. If we had similar experience towards certain news, we would probably react bearishly for a shorter period of time than news that are something new for us. Sometimes small news may trigger big reactions from market participants. I had some study on the effect of moon and the psychology of investors, and statistics did show that investors’ sentiments are easily influenced by the faces of moon and the eclipse of moon. If you are aware that we just had a lunar eclipse on October 8th and the stock market reacted bearishly around this date.  In some cases, if the selloff is severe, it may violate important trendlines and once the damaged is done, it is difficult to recover within short period of time.

From the technical perspective, it is “normal” to see a correction in stock prices once in every three month or so. This is due to profit taking when prices moved higher. In addition, in every few years we shall see some bear markets that last for months. In this article, I would like to share with you some simple statistics on a “market correction” and a “bear market”.

Market Correction
A market correction occurs every 2-4 months, and it usually lasts 2-8 weeks, prices may fall from 5%-15%. For KLCI, we hardly had any price correction that is more than 5% this year except in January, the correction lasted for 6 weeks,  and now our KLCI is quite close to the 5% correction.

Bear Market
While a market correction is considered “short term”, bear markets can be “medium term” or “long term”. Medium term bear market lasts for months, long term bear market last for years. The price fall is more drastic, we may see prices fall from 15%-60%. Although by definition, prices drop more than 20% is considered officially a bear market, but I do see 15% price fall that lasts for 6 months which is considered a medium term bear market. (e.g, the US debt crisis, KLCI 2011 Aug – 2012 Jan bear market).

Possible scenarios
I do not wish to speculate if this is a bear market, let’s hope that it is a market correction.
If we believe that we are now having a market correction, we shall see 2 -  8 weeks of market correction started from September 12, and the prices are stated below:

S&P 500: price fall 5% - 15% which is 1920 – 1720.
STI: price fall 5% - 15% which is 3200 – 2868.
KLCI: price fall 5% - 15% which is 1795 – 1606.

Time target: We have past 4 weeks, next week is the 5th week, and by Nov 7th that’s the end of 8th week. 

The above are relevant for index as the statistics are based on the indices historical charts. The study of index chart is to give investors an overall sentiment of the market.

Saturday, August 9, 2014

Correction Mode in the Stock Market

S&P 500: Looking at this chart, there is a bottom forming in August. As I said earlier, cyclical bottoms are months of Feb, May, Aug and Nov. If this low supercedes the previous low, then the whole picture of a bullish trend is in question, at least for the medium term. On the other hand, if this correction can stay above the 1890 level, then we shall see the next top above 2000 in October. In general, cyclical tops are: Jan, Apr, Jul and Oct, with accuracy of + or – one month.

KLCI Chart

STI Chart

STI & KLCI: are in the same boat as the US market which is forming a bottom in this August due to geopolitical unrest in the Middle East and Eastern Europe; the outbreak of Ebola disease in the African countries; and the earthquake and gas blasts in China and Taiwan. Investors are feeling very unease with these developments in the world that claimed thousands of people’s lives.

Locally between Spore and Msia, we are concerned over the massive toll hikes at the causeway that may long term effects on the economies of both countries.   Investors sentiments are dampened, Singaporeans who want to invest in the Iskandar will pull their hand brakes, transport related business suffered the biggest blow as their business cannot survive due to the new measures,  Johor poultry and construction sector will suffer as their costs of doing business have gone up and if they pass on the cost to the end users in Singapore, in the long run, the Singaporean customers will turn to other neighbouring countries for alternate supplies. 

The biggest hit would be the Johor property sector as in the past, the Singaporean investors accounted a big proportion in the sales of the residential and commercial properties in Johor Bahru.  The Singapore government even encouraged their SME sector to relocate from the Jurong industrial estate to the Iskandar region to enjoy the low cost environment. However, the new measures will definitely cause some dampening effect on the relationship between the two countries. 

In short, if we see low volume trading along with low prices, then this correction should be mild, with not more than 10% price correction. 

On the palm oil, currently the price is US$703/metric ton, which is still about 5% from the target price mentioned in my previous article. In terms of time frame, in my previous post I mention the third quarter which is Jul - Sept. Hopefully, it will be bottoming either this month or next month.

Finally, I want to stress that there is no one person in the world can predict the market with 100% of accuracy including myself. What I'm sharing in my blog is for educational purpose. The work that I publish here are my own research. I treat myself as a new student and I'm still learning in this long journey in the financial world.

Saturday, June 14, 2014

Palm Oil Price

Plantation sector indeed is quite a complicated sector to analyse fundamentally as there are a lot of complicated factors such as rainfall, stock pile, global demand, palm oil tree age yield and import duty & taxes that affecting the palm oil industry. These factors are extremely important to analyse individual plantation counters. Usually I don't do the analysis myself but to rely on a few reputable research houses for their indepth analysis. However, if you want to know the bigger picture such as the palm oil price trend in general, perhaps I can offer some help here based on my technical analysis knowledge.

Firstly, let's take a look at the 30 year palm oil futures price chart to establish a long term view on the palm oil price historically. From the chart we can see that there seemed to be a repetitive behaviour in the palm oil price. Measuring from bottom to bottom, the cycle years are either 3 or 4. If we were to take the last bottom year 2011 as a starting point, the next bottom should be either in 2014 or 2015 (3 or 4 years). However, with the trendline analysis, it is quite obvious that the bottom should be this year as that's where the trend line is.

Next, we want to know the price target by measuring from the double top formation formed 2010 - 2012. 
The minimum target is US$668 if we were to take the lower height of the twin peaks and the time frame is probably in the 3rd quarter by looking at the tendline above.

I want to stress that technical analysis is about probability not about certainty. We all want to trade with odds in our favour. Many people think that technical analysis is a hindsight theory, you only see it after it had occured. However, if you incorporate cycle analysis into your analysis, you may even forecast the future price trend with certain accuracy.

I hope this article will give you a good picture of the general price trend of the crude palm oil, for individual counters, you may read up the analyst reports from various research houses. Generally, plantation counters with younger aged palm oil trees (below 20 years) will generate higher yield. In addition, land bank is also an important factor to consider as it can be a great potential boost to the balance sheet should plantation companies revalue their lands. Finally, look not only the Malaysian plantation counters, but also the Singapore listed plantation stocks as well.

Saturday, May 31, 2014

All Time High For The US Market

The US S&P 500 closed at all time high on Friday at 1923 while the DJIA closed at 16,717! 

For the past one week, the S&P reached my target of 1920 and closed at 1923 on Friday. However, the rise was not fully supported by its volume. If we look at the Dow Jones Industrial Average which tracks 30 largest cap stocks in the US, we see that the volume actually decline while the US market was at its all time high. What this tells us is that probably next week we shall see some pullbacks but the pullbacks should be above the 1890 level. Once the 1890 level is secured, most likely we shall see the S&P testing the next level which is 1950 in the month of June.

The DJIA showed divergence between the price and the volume.

The STI Market
The STI market has also reached my target for the past one week. It closed on Thursday exactly at 3300 and on Friday, it closed at 3295. As long as there is no major bad news, the STI is likely to drift nicely in this bullish channel. Support at 3250, resistance 3375.

The KLCI Market
The KLCI market was performing remarkably well as many market participants did not think that our Bursa Malaysia can reach so far. From the chart we see that the KLCI has climbed above the upper resistance line as depicted in the chart below. If our property market is holding well with no major negative external factors, this resistance line may become the support line for many years ahead. However, for next week we shall see some consolidation in the beginning of the week due to the canddlestick chart pattern - a bearish shooting star was formed on Friday with large volume. Support at 1860, resistance at 1890.

Saturday, May 24, 2014

Weekly Chart Update 23/5/2014

This week we look at the GDP figures across the Asian countries. For the first quarter 2014, while Singapore and Malaysia tops analyst forecast with GDP growth of 4.9% and 6.2% respectively, Indonesia +5.2% slowest growth in 4 years, and Thailand -2.1% qoq.

Analysts at first were worried about the Thai Baht and its stock market earlier this week due to the political unrest in Thailand, but turned out to be quite stable as the military coup was no stranger to its people and the rest of the world. Since 1932, this is the 19th times that the army took over the Thai government! 

Despite so, analysts are still concern about the stability in the Thai Baht and its equity market as they want to see whether the military can eventually hand over power back to its people. Otherwise, the country cannot function well and by next quarter, if the economy continues to contract, then it would be in recession and the neighbouring countries in the South East Asia would be affected in terms of investors sentiments.

US Market

On Friday, S&P 500 closed above the 1890 resistant attempting to breakout from this rectangular chart pattern. Next week we shall see if the US market would test the 1920 resistance level.

STI Market

The STI is likely to move higher next week to test the 3300 resistance level. Technically speaking, the STI is still within the medium term bullish channel. We need to see some consolidation as depicted in the chart before it can move higher. Support at 3225, resistance at 3300 level.

KLCI Market

This week I would like to present a different interpretation of the KLCI chart. There are many ways of interpreting a chart, different people will have different interpretation of the same chart, there is no right or wrong answer to it. To me, chart reading is a form of art, I can be creative in drawing those trend lines.

In the following chart, I drew a step-up trend line pattern on our KLCI. The reason for this is because I notice the KLCI for the past 5 years, there was a repetitive pattern of a series of consolidation phase, then followed by a step up in price. According to my chart, if KLCI successfully steps above 1860, the next level to reach would be 1960 provided if we do not have major bad news such as political unrest, or US stock market crash or war in the Asian region.

For next week, the last week of May, we shall see the KLCI consolidation within the 1860 - 1890 level.

Wednesday, May 21, 2014

Relative Strength Index RSI

RSI is a very popular technical indicator used by many traders. In my latest youtube video, we look at the application as well as the principles behind this popular indicator. The principles mentioned here are from Martin Pring's "Introduction To Technical Analysis" which is an excellent book for any beginner in this field.