Weekly Chart Update 9/5/2014

The US market

This week we continue to see divergence in the US market whereby the Dow Jones Industrial Average was closing on Friday at near historical high of 16,583 while the Nasdaq was down 8% from its recent peak since March. The worst hit were the China technology stocks with big names like Sina, Qihu, Bidu and SouFun that lost 20%-50% in 2 months time from Mar till May. Besides the Chinese Tech stocks, the Bio-tech stocks also performed poorly with the Bio-tech index - SPDR S&P Biotech (XBI) fell 30% since March. Social media stocks did badly as well with Twitter even fell below its IPO price at $32 now, its peak was $73 in December 2013.

People began to question whether the historical high of the S&P and the Dow indices are sustainable due to this divergence. Generally speaking, in a healthy bull market, most sectors should be bullish all across especially important sectors like the Technology. But the interesting part is that although the individual counters did badly, the Nasdaq index was still holding at above the 4000 level. If calculated from the peak of 4,371, this correction is not even 10%! Some analysts explained that the technology and internet stocks were ahead too far with PE ratios in hundreds times, and there are bound to due for corrections. Other analysts are concern if this is the beginning of a down trend like the dot com bubble in 2000. It started in the tech sector then spread  on to other sectors like a domino effect. At this moment we can't tell yet because from technical analysis perspective, the S&P and the Dow are still in bullish trends.


STI

As I mentioned last week that the Singapore market is likely to undergo a consolidation phase for this May and June, I think it would be a great opportunity for long term investors to accummulate some good quality dividend stocks during this period.

From the chart below, we can see that the STI is currently bouncing off from the long term trendline at around 3100, and it is still 20% below its historical high of 3900 while our KLCI has already passed that 2007 high as early as 2011!

KLCI

KLCI is operated in an unique environment whereby we have strong local institutional support for the blue chips stocks, while the local retail players tend to favour the smaller cap stocks. As long as we see these 2 groups of people are still interested, there won't be a crash in the market. In addition, if we see that the foreign institutional players are also interested, then that will be a bonus.

Weekly Chart Update 2/5/2014

Information for this week has been overwhelmed that wallstreet participants need time to digest. On Wednesday, the FOMC announced a fourth $10 billion reduction to its quantitative easing (QE) program, reducing its monthly bond purchases to $45 billion and keeping pace with earlier guidance. Everyone was reading every single word that Yellen said, line by line, including myself. The feeling is that she is not so concern about rapid growth for the US GDP, she will continue to observe and measure the effect of tapering on the economy and make changes should the need arise.

In addition, the US GDP 1st quarter 2014 was a mere 0.1% growth, which showed that the amount of money put into the system doesn't work much at all.

Most importantly, the Ukraine crisis has escalated on Friday with clashes between the pro-Russian protesters and the Ukrainian government supporters in the eastern part of Ukrain, Sloviansk. Earlier some pro-Russian gunmen took over some government buildings in this eastern part of Ukraine, now the Ukraine government launched an offensive attack against these pro-Russian protesters to take control of the besieged eastern city of Ukraine. Death tolls are amounting at the point of writing.

The complication of this Ukraine crisis is that despite Russia's denying their participation in this war, the US president, Obama has gathered supports from the EU countries to impose sanctions on Russia. Hence, if this escalates, it will not be a simple Ukraine crisis, it would have a bigger implication to world peace.

US Market

I have re-drawn the S&P 500 chart due to its range bound price actions for the past 2 months. Chances are it will continue on this horizontal trend until further news. The market is lack of direction now, or we call it "Neutral".

STI Market

For the Singapore market, I have drawn a bullish channel beginning from the beginning of February. After 3 months of bullish trend, I think there is a great possibility that it may go through a horizontal trend for the next 2 months based on my analysis on the past trends for this index. Nothing is guranteed, but I forecast based on probabilities that the STI seems to work well with a 3 waves chart pattern. Resistance 3300, support at 3200.

KLCI Market

From the chart we can see that the KLCI is little stretched here. We need new leads to push the market higher. Support maintain at 1840.

Weekly Chart Update 25/4/2014

The US Market
This week we see that the US market S&P 500 did not cross above the 1st resistance of 1890, and it closed the week at 1863 which is just slightly above the 20 day and 50 day moving average. Next week we shall see the market testing these moving averages as support levels, if break below 1860, the next support shall be 1800. Buckle up your seat belt, it is going to be volatile next week!

The STI
The STI market has been performing well since it broke out from the bearish chart pattern end of March. It would be in a stronger position if it can consistently hold above the 3225 level. My favourite sectors are Plantation, Oil and Gas, Technology, Telco, Banking and some property stocks. Buy in stages at cycle low months like February, May, August and November. We never know when is the bottom, but if we buy in stages it can help to eliminate some of the emotional mistakes of investing. My approach for the STI is long term hold with a duration of minimum 2 years. Since its a long term hold, I'm not in a hurry to invest, I would take my time to look for value buy.

The KLCI
As for our local market, our market did not go through a down cycle like the STI since last year May. Hence, we may need to take extra care when investing here. In general, in a new bull, large cap stocks are moving fast, when the bull starts to mature, large caps are slowing down but the small caps are moving. However, when you see that both large caps and small caps are lacking momentum, you should know what to do. Support at 1840 for next week.

Multiple Moving Averages (GMMA)

Personally I find this technical indicator useful in giving me information about the trends and behaviours of the market participants. In fact, I get to know this indicator from one of my students, Mr. Chia who is also passionate about learning various trading skills. I hope you would find this tool useful as well.

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.

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.

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.