Being A Contrarian

I think I am alone on this stand(LOL)

John Kilduff was right for a week and maybe he is going to be correct for many weeks to come. But I beg to differ. I think crude oil has a pretty much strong support at $120 and I am still pretty much bullish about crude oil for many weeks to come. Many "oil topping" articles are starting to pop up but I don't really buy the story actually.


Like I have said previously, oil can form a dark cloud cover and maybe we will see further weakness in oil price. However I still can't stand on the bear side from what I am seeing. I wish to give a firm stand and not a two way stand to protect my a**. I think oil may still go down but it will not be breaking $120. This week can only be seen as a profit taking week after all, inventories were down pretty badly. Also, I believe oil shoots up too fast towards $130 compared to how it broke through the $110, $120 barrier. On a whole, the commodities bull run will still continue even though it is becoming a bubble soon.

Basically the chart does not look like a topping chart to me. I like how oil behaves on friday. At most I can see a three inside down forming and maybe oil will move to $120.


Why I think Dollar will still go down

1. Chart wise, I can only see a three line strike happening. Dollar has been down for three consecutive weeks and this week is just a profit-taking week for those dollar shorters. This is what I derived from the chart.

2. Fed will not increase interest rate. Why? Because inflation data is still not that bad after all, just look at all the cpi reports =D. Of course if you bring in headline inflation then its another ball game.

3. So far so good. Despite all the gloom and doom news about recession, GDP is still positive, in fact it was revised upwards (even though I think US is already in a recession, Buffett also said so).

4. This is a bit of feeling and alot of fuzzy logic. Fed has gone through so much of rate cuts, ignoring everything about oil, dollar weakness in the process. I highly doubt that they will not wait for a clearer picture before raising rates. Consumer confidence is still pretty bad.

What to BUY or SELL?

Ok basically I had a terrible week. Misfiring from everywhere. I will try to rectify those mistakes and hopefully things will start to pick up.


We want to play the oil story. I find movement of SPC very interesting so I take a look at its chart. Somehow SPC always has a consolidation period, where it goes sidewards for a while before breaking up or down. Irregardless of what oil price behaves (I mention above that maybe oil will go to $120), I want to short SPC. I believe it is breaking out of the consolidation part; volume is good as seen by the peak below.

Short SPC for the week. If it hits $6 real fast during the week, cover your short =D. I think I was freaking bearish for Olam last week and it killed in the end.

Nice and short post. Hopefully I can reduce putting lengthy posts in the future as well. Look out for mid week post, I should be posting interesting stuffs.

The only way you get a real education in the market is to invest cash, track your trade, and study your mistakes! - Jesse Livermore

Mid Week Pit Stop #6

The Intelligent Investor

Well I will dedicate another post to our No.1 richest man in the world, Warren Buffett.

I was reading on CNBC's post about Buffett and he brought up a book that I read years ago - The Intelligent Investor. So I decided to look for it and found the pdf format of the book online

Click Here

Honestly speaking you will be freaking bored by the book. I doze off many times while reading it. But Warren Buffett spares us the trouble of reading the whole book.

Warren Buffett: The three most important lessons I learned were all from the same book, The Intelligent Investor. It was written first by (Benjamin) Graham in 1949. They appear in chapters 8 and chapters 20.

"The first is, to look at stocks as pieces of businesses, not as little items on a chart that move around, not as ticker symbols, not as something that might split next week or next month or something of the sort. But, rather, to look at the business, value the business, divide by the shares outstanding, and decide whether you really want to own a piece of that business at that price."

"The second one was his commentary about your attitude toward the stock market. That it is there to serve you rather than to instruct you, and he used the famous Mr. Market example of that. That attitude is fundamental to making money in stocks over time."

"And the final item he talked about was margin of safety. When you buy a stock that you think is worth 10 dollars, you don't pay $9.95 for it, because you can't be that precise in estimating its value. So you leave a considerable margin of safety for both what you don't understand and for the vagueries of the future."

"And those three ideas, which I learned when I was 19 years old, have been the bedrock of everything I've done since."

I got this piece of information from www.cnbc.com. I believe that I have covered quite a lot on the first and final items that Warren Buffett talks about last week. The second item is another thing which I have forgotten about since it is not related to that particular stocks itself. It can be considered the intangible side of Buffett's investology - understanding Mr. Market.

Mr. Market is a imaginary character that Graham uses. He controls the whole market so to speak and goes to a business owner and quotes a value for the owner everyday. By right, he will give him an accurate price so that no one is on the losing end. However he has PMS (I cant stop laughing when I say this but yeah), so at times he will give u a very lousy quote for a business but when he is feeling happy, he will quote u a good and high price. So ideally speaking, your job as a business owner is too buy at a low price from him and sell at a high price. Sounds easy? Well, Mr. Market is not that stupid either, sometimes he will give u some false signals that make you think that you are buying at a good price. He is a very cunning man.

So as a true intelligent investor, you are free to ignore the quotes he gives and you are certainly not forced to sell whatever you have. If you are worried by the quotes that he gives then you have turned into a trader unwillingly. Actually this sounds like Jesse Livermore, just that both of them represent different camps. Great minds think alike.

Graham does not conclude from Mr Market’s wild behaviour that market fluctuations should be ignored. They can be valuable as an indicator that something is going wrong, or right, with the investment. However, their true significance, in Graham’s words is that "they provide … an opportunity to buy wisely when prices fall sharply and to sell wisely when they advance a great deal".

Warren Buffett considers that Graham’s views on market fluctuations warrant "special attention" from the investor.

Nice and short, don't wish to make it too long though. Hopefully I have covered enough.

Quick Update

Well US had a long weekend on monday and resumed trading on tuesday with a modest gain. AMR wasn't doing great because oil was down to $130. Oil slipped even further to $126 as I was writing this blog. Maybe that MF Global guy is really a somebody. I will not dispute his foresight but I definitely can't see it coming last week. We have two more days to go. Hopefully I am right. When oil is not going up, I am pretty much screwed in every ways.

Two more days to go before tradershub challenge ends. I need ManhattanRes to break. It was not going my for the past three days.

I shall end off with one chunk of words from Jesse Livermore =D

"And right here let me say one thing: After spending many years in Wall Street and after making and losing millions of dollars I want to tell you this: It never was my thinking that made the big money for me. It always was my sitting. Got that? My sitting tight! It is no trick at all to be right on the market. You always find lots of early bulls in bull markets and early bears in bear markets. I've known many men who were right at exactly the right time, and began buying and selling stocks when prices were at the very level which should show the greatest profit. And their experience invariably matched mine - that is, they made no real money out of it. Men who can both be right and sit tight are uncommon. I found it one of the hardest things to learn. But it is only after a stock operator has firmly grasped this that he can make big money. It is literally true that millions come easier to a trader after he knows how to trade than hundreds did in the days of his ignorance."

Jesse Livermore

Down Dow

Honestly speaking, I think my title is cool for the week. Ok straight to the point first.

Boiling Oil

Well, I have mentioned last week that oil is the key right now. Oil up = everything down for US.

"The big question is how high can oil prices go? Goldman Sachs says the average for the second half of the year will be more than $140 a barrel. Boone Pickens this past week said he expects it to hit $150 this year.

M.F. Global's John Kilduff, a CNBC contributor, says he thinks the oil market may have formed a top this past week. "With the week over, the weekly bar chart for crude is looking like a pronounced blow-off top," said Kilduff. " Quoted from CNBC

Well, I dont wish to question that MF Global guy, but a pronounced blow-off top from the weekly bar chart. I wonder how he sees it.

Yeah it is obvious that oil will come back down one day. However, does this week show a topping sign? NAH. But he is from MF Global, I am a nobody from Singapore. LOL of course I dont discount a Dark Cloud Cover happening next week and only then will I call it a topping sign. Not this week alone definitely. Oil is up about $5.90 for the week, closing at $132.19.

Other Highlights Of The Week

1. Well AMR closed at $6.32. I shorted at $9.30, closed at $7.2. Shorted again at $6.8 closed at $6.3. I had another short at $6.2 (bad timing). Did pretty well I guess. Finally catching up with the leader, Mr. X

2. Speaking of Mr. X. He shorted Home Depot. I was talking to him just now and I liked his logic for shorting Home Depot.
No Home = No furniture. That's how he decided to short Home Depot on its earnings week. Nice logic there.

3. Gold played nicely into a three white soldier which I mentioned last week. =) Up $26.60 for the week to close at $925.60.

4. Needless for me to mention about US dollar I guess. Well I have given up hope with CNBC. They don't allow shorting and their currency trading is still facing difficulty.

5. Olam is at $2.68. Actually IF you still have not shorted Olam, I don't know about shorting Olam on monday. I will probably see Olam at $2.5 on monday. Close to a 20% drop. Well everything is falling, so its quite common sense to short some blue chips last week.

6. Celestial was not very good though. It only hit a high of $0.93 before closing at $0.885 on friday. Flat for the week. Took a small profit over there.

In conclusion, my stand is pretty much the same. Oil will still climb towards $140. Gold will head to the $1000 level again. Ouch. For AMR, I am afraid of a bounce actually though I am still negative about this stock. Maybe you wish to short a small portion of it and short everything when it breaks $6. If you are still holding it, have a stop at $7.1. For Olam, I think we will be reaching our target pretty soon. Last but not least, Down Dow =)

Important Next Week

I am currently trailing at 3rd position on Tradershub.net. Need to pull off a 25% gain next week because it is the last week of the competition.

So, I will have to look at non-blue chips, especially those penny stocks.

I come down to two stocks - ManhattanRes and Mercator. Shorting them is a hassle to me because I need to short them exactly at 900am. I can key in the order before hand.

I have played this chart formation before but it is a daily chart. This is the weekly chart of ManhattanRes. It is a two black crows on the daily. Notice that it was on a three white soldiers before forming a long gravestone doji. Actually together with the white candle, they form a bearish evening star. I will probably short ManhattanRes everyday. I am more inclined to this compared to Mercator which I intend to short in case of weird things happening with ManhattanRes.

History repeats itself

Ah, I forgot to add this to this week's post. Hopefully you will still come back and take a look. Well, basically this is the daily chart of NOL showing a chart formation that I like a lot - Dark Cloud Cover. Though I call myself a chartist or technical analysis kind of person, I don't really believe in pure technical analysis that includes numerous indicators such as MACD, RSI and etc. I merely use charts to obtain a better picture of price movement.

Dark cloud cover, as suggested by its name, shows an impending doom, not really a doom but a bearish outlook. The whole formation goes like this in a layman explanation.

Price of this stock has been rising for quite a while. On one particular occasion, the price gaps up, showing some signs that the stock still has some strong buyers flocking around it. However things are not looking pretty for some reasons, buyers begin to disappear and the price comes tumbling down way into the trading prices of previous day. Generally candlestick practitioners use the mid of previous candle as a guide to justify strong selling pressure. So at the end of the day, the stock closes down at the mid of previous candle or below it. Somehow, there is a lot of selling pressure and it is very likely that it will still continue for the next period of time, in the NOL case, a day.

As you can see, somewhere in Feb ( first red box), NOL was pretty bullish due to some merger rumours. It rose to $4 and if you had studied properly, NOL tumbled down pretty badly after it broke the long term support of $4 during early Jan. Well its all in the picture, not really chartist point of view, just some logical thinking in fact. So $4 could be considered a very psychological barrier, be it a support or resistance. Here we considered $4 as a resistance. A dark cloud cover formed at this very resistance level and as expected, the next day after the dark cloud cover formed, price of NOL continued to fall badly. A 10% shorting gain in a day. Not bad.

Things aren't over yet, somehow someway, NOL's earnings was good but outlook wasn't. Most people ignored that and NOL was again seen rising towards the LEGENDARY $4 barrier. In fact, it broke $4 and closed at $4.08. But if you have been analysing the environment or READING what I have said about oil being the stock's market greatest enemy, you know we are going to see a nice sell off in the US market. NOL gapped up as $4.15 before closing down to $3.96. AH, below the legendary $4 barrier. A lot of psychology in play down here. Indeed, NOL gapped down the next day at $3.87, showing a lot of selling pressure. It climbed up to $3.98 during mid day and really collapsed at the end of the day.

With a nice paper profit, you may even wish to hold on your shorts to the next day for a nice 3 Black Crows. Of course, for the first dark cloud cover that we analysed, there was no 3 black crows in the end but most of the profits could still be retained.

When I buy stocks for a rise I like to pay top prices and when I sell I must sell low or not at all.

Jesse Livermore

Mid Week Pit Stop #5

So far I have talked about three main aspects of trading - mentality, emotions and money management. I realise that some part of this blog should also be catered to those who wish to invest rather than trade. For those who wish to purchase rock solid stocks and just ignore the market completely and only to come back and realise that they have made some good money off those stocks after some years. Does this style appeal to you?

We all know who to look up to when it comes to investing - Warren Buffett.

There are tons of books out there written about Warren Buffett and in my opinion, none of them emphasizes enough on the key essence of Buffett's investing style. Trust me, I have read many books about Warren Buffett before.
As Buffett would often say about Graham’s teachings: “The basic ideas of investing are to look at stocks as business, use the market's fluctuations to your advantage, and seek a margin of safety. That’s what Ben Graham taught us. A hundred years from now they will still be the cornerstones of investing

Two key phrases here - "stocks as business" and "margin of safety". However I will emphasize only on "stocks as business" partly because I don't think that I have grasped the concept of margin of safety. It sounds like "buy at the bottom" LOL. Doubt I can explain it properly either.
"If you understood a business perfectly and the future of the business, you would need very little in the way of a margin of safety. So, the more vulnerable the business is, assuming you still want to invest in it, the larger margin of safety you'd need. If you're driving a truck across a bridge that says it holds 10,000 pounds and you've got a 9,800 pound vehicle, if the bridge is 6 inches above the crevice it covers, you may feel okay, but if it's over the Grand Canyon, you may feel you want a little larger margin of safety..."- 1997 Berkshire Hathaway Annual Meeting

Maybe I will try to explain it a little. It is something like, "You know DBS is a rock solid company but it is not good stock to buy when STI is at 3800 and DBS at $24 and people are buying like there is no tomorrow. Get it?"

Basically to a small extent, be a contrarian and buy when people are selling. That's how you squeeze out your margin of safety. Of course you dont buy in a bear market. Argh... it is quite difficult to explain. I guess I will stop here.

Most of Buffett's success should be contributed to his ability to identify "superior companies". Value investing and searching for bargains merely give him enough stakes to plunge into these "superior companies" and this is exactly the difference why you can never be a Warren Buffett. To understand this, we have to look at three companies - Coca-Cola , Gillette and American Express.

He began buying Coca-Cola stocks in 1988. Within few months, he had amassed stocks up to 7% of the company at about $1.02 billion dollars. Well the rest is history. Before I proceed, I will like to throw a question to you guys. What is considered a good business?

The answer is a "Monopoly". He sees the intangible value of Coca-cola. That for many years down the road, everyone will drink a can of Coca-cola. I don't know how Coke tastes like in 1988 but I believe it is the very same taste that I get from 7 eleven. If I were to put a can of Coca-cola and a can of Pepsi in front of you, what would you choose? Throw this question to all your friends and tell me the answer. This is exactly what he sees for many years to come. Coca-cola is so close to a monopoly. It is in a league of its own. I like Sarsi though =D. But still, Sarsi is under Coca-cola! In 1988, he can see what millions of people simply cannot. The intangible "monopoly value" of Coca-Cola.

Same thing goes for Gillette. He can imagine every men in the world holding a Gillette shaver in the morning in the future when he was about to purchase Gillette stocks. In fact, every women in the world may follow as well (not every morning obviously lol). In a way, Gillette is also very close to a monopoly. It is this ability to see the intangible value that made him bought the stock and separated himself from all the other financial wizards on the street. If you say you can only understand a business and see it prospering for 10 years, Buffett can see it for 50 years.

Honestly if he understands techonology stocks, I am pretty sure he will buy Microsoft. After all it is his good friend's business.

Lastly we have American Express. I think this stock sums up his investing theory. Buying good stocks at cheap prices. Due to a massive scandal, the company incurred a large one time loss which caused panic selling of American Express stock. While the world was doubtful of American Express’ prospects to survive, Buffett thought the contrary. It was said that he stood behind a counter and observed customers signing off bills with AmEx credit card. He probably knew that US was going to be or already a "Credit Nation" and sooner or later, everyone would be using credit cards.

Most people classify these companies as growth business citing reasons that as more people exist, more of such products are wanted. However, they fail to highlight why are there only few companies created to seize a small portion of the market share. It is this intangible side of the company - the monopolistic side of it. Most books talk a lot about the cheap price that Buffett buys his stocks at but they never emphasize the characteristic of those stocks enough.

Look at companies like Apple and Google. Google search engine vs Yahoo search engine. Apple gadget vs everyone's else. What are the intangible side of these two companies? Maybe you want to think of what I have mentioned and looked at these companies again.

Quick Update

Hmm, things are looking good for me this week. Oil is good and pushes dollar down, which brings Gold up even further. What a connection that is. Olam is also showing some weakness closing at $2.85. I don't know what happened to Noble, it plunges 15% on Monday. Celestial is now at $0.91.

AMR is probably the best call I have made so far. Plunges another 10+% today. It is now at $6.8. I covered all 9 lots at $7.2 which were bought at about $9. Shorted them again at $6.8 because I think oil will march pretty fast. Kinda expected oil inventories to fall short today as oil touched $130 pretty easily in the morning. Well, I have to credit AMR call to Mr. X, one of my good friends in America. He told me about the US airlines situation. The customer dissatisfaction was already widespread long before the survey was out.

If you are holding stocks, hold on tight, I believe the oil super spike is here and we are going to plunge real hard, as least to the bottom trendline of the range that I have talked about previously.

“Wide diversification is only required when investors do not understand what they are doing.”

Warren Buffett

The Big Picture

Looking back at previous post, I realise that I have been writing a lot. Maybe I am not being concise and getting straight to the point. So hopefully I can change that.

Again, before we determine if this is a market bottom, we have to look at the big picture and the economy.

1. Is inflation worry really there? Gasoline prices were actually down 2% in April because of "seaonally adjustment". Huh? I also like this view on gasoline prices

2. Are we going to avoid a recession or are we already in a recession? Retail sales were in line with expectation at -0.2%. If you were to exclude autos, they blew past expectation at 0.5%. Inventories increased only at a slow pace of 0.1%. Even housing starts increased above expectation. Everything was very good in fact but market response was decent. Dow was up about 2% for the week. However, volume was low thus showing that rally was weak. Apparently, most people out there believe that we are already in a recession just that technically (numbers wise) we are not.

3. Like I am mentioned on the previous post, the big picture now rests on oil prices. For the first four days of the week, I was pretty down because oil was not going my way, so were currencies. Gold was a pain in my ***. It was until friday that my mood started to lighten up because of Goldman Sachs. It's kinda amusing that when oil prices seem to be going down, Goldman Sachs will issue some bullish report about oil. That's twice in a row and oil went very close to $128. Gold was up $22. Because of stop loss issue, I have to close out my Gold contracts at $880. Maybe I should change my stop loss to become the bulk of the margin. I will try to figure out that soon.

4. Well the same story applies for currencies as well. Everything was against me until friday when oil spiked. I was back to square one after friday. Luckily, the currency trading is not working on CNBC and I think they ban ip addresses outside US.

Week Ahead

I will try to be more concise this time. My overall stand is still the same. I don't believe in this rally and I think we are going down. The catalyst that will bring us down - Crude Oil.

Market did well for the week and if you look back at my previous post "Gloom, Doom, Boom and Foom~", I mention that if S&P500 does break through the 1400 barrier, we should be seeing a nice rally to 1450. Just trying to refresh your memory for short term view of the market.

Some Commodities


This is the week chart for Gold. Well I see a possible three white soldiers play for next week. I hope you know what is three white soldiers by now. Germany's growth provides a reason for ECB's stand with holding on interest rates. So, I like gold for long term and also next week. Its a very self fulfiling prophecy kind of thing. Its like "Gold will reach $1000". This kind of notion will be embedded in everyone's mind. Just like "oil will hit $100". Its the same.

I can't see any big movement on crude oil though. But it looks like we are heading $130 though. No catalyst can be seen. I consider "Goldman Sach" as an unforseen source.

Currencies


Well, this is weekly chart of Dollar. See that it hit the index level of 74 twice for the past two weeks and failed to rally past it, before closing down lower for the week. Two black crows here. So what's next? Seems like dollar is still going down.

Stocks

Well, I am still positive about shorting Airlines. I covered my position on AMR at $9. Oil was horrible during the first four days. Sadly, I keyed in another order to short AMR at $10 but AMR only reached $9.9! In the end I shorted AMR at $9.30. Oh ya, I covered the other airline stock, Southwest Airline, as well. It didn't stay below $13. Covered at $13.30.

Please See

I am actually quite busy for this week with SIA cup. Have been studying a lot on it. I know Jay Peg is hot favourite and his form is unstoppable. It has not been raining, so I doubt Cosmo Bulk will win it. After listening to trackwork, I have decided to change my picks. If this horse wins, I must thank Michael Maxworthy, a race commentator at the turf club.

SMS no. 7 KING AND KING.

Reasons
1. The weather has been freaking hot. 34 degree celsius at kranji these few days.

2. Oversea horses can't acclimatise to the hot weather. Dubai is quite cooling actually. So Jay Peg will not suit as well.

3. I call this destiny. King and king was not supposed to run in this cup. But unarguably, he is the best long distance horse in Singapore. He faced a lot of problems and came back nice and fit, along with a decent 5th at 1600m behind Chevron. If he were to win, what an article it would be for the papers. "A replacement winner". He was 2nd to Cosmo Bulk before and you can't take that away.

4. Trackwork of King and King was awesome. Like what Michael said, it worked better than Onceuponatime.

So, my quartet pick is 1st King and King, 2nd Cosmo Bulk, 3rd Onceuponatime, 4th Jaypeg. I look at the stats and horse no.3 has come in top 3 for 7 years in a row. So Cosmo Bulk should come into top 3 as it is no.3. Well, Onceuponatime has not finished further than 3rd in all of its races. Looking at year 2000 results, Singapore horses came in 1st and 3rd, so I guess Onceuponatime will come in 3rd. Jaypeg is good so I leave him to fourth.

As for Krisflyer, it is definitely Universal Ruler. No doubt. A 3 year old horse will win it. North boy did it, Iron mask did it. They were both outstanding horses so Universal Ruler will do it as well.

Please Please See

I see returning vistors here and I am quite pleased with that. However, I believe you have a lot of questions or doubts or criticisms in mind. It is better if you were to ask through comments and label yourself as anonymous. We are all in a learning process and I believe I am ahead in this process. So I can pull you along if you have any queries or something.

Lastly, I will do a further update on stocks after the cup. I will be going to Kranji. So this is a very rushed post. Sorry about this.

Go KING AND KING. I will sms No.7.

Latest Update


This is a daily chart of Olam International - a STI component commodity stock. Well, commodity stocks are supposed to be stellar stocks nowadays. Just look at Noble. It is quite hard for commodity stocks to go wrong at this point of time. However, Olam posted weak earnings compared to its peers. Well I compare it to Noble. From the chart, you can see that Olam is trending upwards in a channel form. I am bearish with Olam and I believe it will break the bottom trendline pretty soon. It closed at $2.92 last friday.


We move on to the weekly chart of Olam. It is quite obvious that it is in a strong uptrend. However, it appears to be facing some resistance at $3. Volume has been weak for past few weeks of gains. This is the first black candle after eight weeks of trading. It is also in a hanging man formation, thus showing a possibility of trend reversal. I suggest shorting Olam at $2.90 with probably 20% of your stakes. If it breaks the bottom trendline which I have mentioned above, short it at $2.8 for the next portion of your stakes. You can safely short the rest of your intended position if Olam goes below $2.75. My short term target is $2.50. I believe it can go lower though to $2.25 if you can hold your shorts for more than 1 month.

Tradershub

For those playing tradershub, you may want to consider long Celestial for the week. It is in a three white soldier formation. Great earnings along with nice trading volume last week. Buy Celestial till $0.99 for 12% gain.

Horse racing

My predictions were way off. Gone with too much emotions. Jay Peg won valiantly, so did Takeover Target.


“If somebody had told me my method would not work I nevertheless would have tried it out to make sure for myself, for when I am wrong only one thing convinces me of it, and that is, to lose money. And I am only right when I make money. That is speculating.”

Jesse Livermore

Mid Week Pit Stop #4

For any of those who aren't already aware, "Reminiscences of a Stock Operator" is now in the public domain, and is available for free in PDF format. I recommend that you read it because it is a classic book on trading.

Money Management

Rule 1: Don't Lose Money

Don’t lose your stake. A speculator without cash is like a store-owner with no inventory. Cash is your inventory, your lifeline, and your best friend. Without cash, you are out of business. Don’t lose your line.

There is no place in speculating for hoping, for guessing, for fear, for greed, for emotions. The tape tells the truth.

Rule 2: Always establish a stop

A successful speculator must set a firm stop before making a trade and must never sustain a loss of more than 10 percent of invested capital.

I have also learned that when your broker calls you and tells you he needs more money for a margin requirement on a stock that is declining, tell him to sell out the position. When you buy a stock at 50 and it goes to 45, do not buy more in order to average out your price. The stock has not done what you predicted; that is enough of an indication that your judgment was wrong. Take your losses quickly and get out.

Remember, never meet a margin call, and never average losses.
Many times I would close out a position before suffering a 10 percent loss. I did this simply because the stock was not acting right from the start. Often my instincts would whisper to me:J.L., this stock has a malaise, it is a lagging dullard. It just does not feel right, and I would sell out of my position in the blink of an eye.

I absolutely believe that price movement patterns are repeated and appear over and over with slight variations. This is because humans drive the stocks, and human nature never changes.

Take your losses quickly. Easy to say, but hard to do.

Rule 3: Keep cash in reserve

The successful speculator must always have cash in reserve for exactly the right moment. There is a never-ending stream of opportunities in the stock market and, if you miss a good opportunity, wait a little while, be patient, and another one will come along. Don’t reach for a trade, all the conditions for a good trade must be on your side. Remember, you do not have to be in the market all the time.

The desire to always be in the game is one of the speculator’s greatest hazards.
When playing the stock market, there are times when your money should be waiting on the sidelines in cash waiting to come into play. Time is not money “ time is time, and money is money.

Often money that is just sitting can later be moved into the right situation at the right time and make a fast fortune. Patience is the key to success, not speed. Time is a cunning speculator’s best friend if it is used wisely.

Rule 4: Let the position ride

As long as the stock is behaving normally, do not be in a hurry to take a profit. You must know you are right in your basic judgment, or you would have no profit at all. If there is nothing basically negative, then let it ride. It may grow into a very large profit. As long as the action of the overall market and the stock do not give you cause to worry, have the courage of your convictions, and stay with it.

When I was in a profit on a trade, I was never nervous.

Of course the opposite is true as well. If I bought a stock and it went against me I would sell it immediately. You can’t stop and try to figure out why a stock is going in the wrong direction. The fact is that it is going in the wrong direction, and that is enough evidence for an experienced speculator to close the trade.

I do not and never have blindly bought and held a stock.

To buy and hold blindly on the basis that a stock is in great company or a strong industry, or that the economy is generally healthy, is, to me the equivalent of stock market suicide.

Stick with the winners. Let them ride until you have a clear reason to sell.

Rule 5: Take the profits in cash

Jesse Livermore felt that after a huge winning trade, you should take 50% of that and place it in cash. This money should be put aside in the bank, hold it in reserve, or lock it up in a safe-deposit box.

Like winning in the casino, it's a good idea, now and then to take your winnings off the table and turn them into cash ... the single largest regret I have ever had in my financial life was not paying enough attention to this rule.

Comments

I find these rules common sense but as simple as they sound, many people fail to comply to them, even Jesse Livermore at times.

I like Rule No. 1 a lot. Jesse Livermore calls this probing, that is he sends a probe, a small position of his overall stake (usually 20%), and sees if the market goes in his way. If it shows him a profit, he enters in another 20% of his money at a lower value. Eventually all his money is placed on this one position. He is able to be so successful because he is using profits to bring in profits with this rule. The paper profit for the initial probe gives him an allowance for the 2nd position that he wants to put in and even if the 2nd position does not work out in his favour, he can pull out at a small loss or even. Obviously, this applies to his swing trading days and is definitely not suitable for day traders. You will probably die a horrible death doing this on a day- to-day basis. The question is because Jesse Livermore is so right about the overall trend, he is never wrong when he puts in his second position. If he is wrong, he will be out with the first. So what if, at the third position or fourth, things change so much that your paper profits has become zero or a loss?

You have to rely on your 2nd rule - a stop. Not only should a stop be placed for loss, it should also be placed for your profits. As you begin your initial position, you must have a stop loss in place. For eg, you bought Stock AAA at $2, you have a stop loss rule of 10%, so you will place a stop at $1.80. Things work out as planned, the stock is at $2.4 and you buy in your 2nd position. Similar a stop loss has to be in place but it will not be the same as your first stop loss. It has to be higher this time round. So your stop loss is not at $1.80 now, it will be at maybe $2.20. So if the 2nd position turns downwards, you close your entire or the 2nd position at $2.20. You are back to even or slightly to the negative. This looks weird but in the real market, a 10% movement in a bull market for a stock is quite rare. Usually in a bull market, it climbs up slowly. If you are facing such drastic changes, then the general environment is probably not that bullish. After all, you buy stocks because you think that you are riding a bull market.

3rd rule is plain simple. It is a gambler's theory. As long as you have a stake, you have another chance to come back or to plunge in at the right moment. We are looking for sure bets and not constant bets to "test" it out.

Let winning position rides. It has to do with your general environment. As long as the general environment is in your favour, I guess you are fine holding on your position. Hmm... honestly this is the key to everything so I don't think I shall make much comment on this. Nonetheless, if you have figured out a way to do this, please tell me. =)

Well, Jesse Livermore loses his fortunes many times because of this last final rule.

Updates

1.Wilmar posted a profit that was up nearly 7 fold. I don't know if it is up to expectation but the fact that it ONLY went to $5.10 at its opening, showed me that I must sell this stock. I like its outlook in the long run though. But I don't think it is going anywhere higher if it breaks $5, SELL.

2. I was pretty bad with my first entry into currencies. Basically, dollar strengthens and the rest of the currencies just go against me. Luckily, CNBC's currency trading was down. Blessing in disguise I suppose.

3. Oil had some profit taking which was pretty bad to my AMR. I had my stop with AMR at $9. Intended to short again when it hit $9+ as oil was going up pretty fast yesterday due to Iran's proposal of cutting output. But when I managed to get it filled, it was $8.8.

4. Well, with dollar strengthening, it means that my gold is not looking good. Close out at $880. Pretty bad call on this. I think I will not touch gold in the near future.

Horse Racing

SMS: You winning Horse No NRIC Name to 73111

Just realise that it is only for SIA cup and not Krisflyer.

I like Jay Peg and Sir Slick as mentioned on previous post. Their numbers are 1 and 5 respectively. Though I pick Jay Peg to win, looking at trackwork these few days, I am slightly biased towards Sir Slick at the moment, No. 5. It has been raining heavily today. I hope it stopped raining by fri and sat or else I may have to drop off Jay Peg and look at Mourilyan or Cosmo Bulk. Onceuponatime still looks very good for third though if you are playing tierce or trio.

Nonetheless I will do a commentary on KrisFlyer as well.

Absolute Champion is having his first overseas trip. Has been racing only in Hong Kong which only has right handed track. Well, not sure if he can handle left handed track. However he defeats Sacred Kingdom before and Sacred Kingdom is probably the best sprinter at the moment.

Ace and Aces has placed in a Group 1 race in New Zealand before but is horrible since coming to Singapore. I have a feeling that it does not like left handed tracks as well. However I find this horse fishy. If you are looking for real crazy dark horse bet, go with Ace and Aces.

Capablanca is easily the best in Singapore at the moment. His weight must be spot on though, 487kg. He is on his game with that weight. A must in the top three if he comes out at 485-489. Home ground advantage is worth one or two length. If you want to support Singapore, bet on this horse.

Lim's Fighter is more of a 1300m or 1400m horse in my opinion.

LoveLace is probably similar to Lim's Fighter. 1200m is not his best.

Magnus is one of the big names in the race. It was only 3/4 length behind Weekend Hussler, a horse ranked top 10 in the world. Can handle left handed and going good track, but it needs to be at his very best to beat this field.

Salaam Dubai has been racing on the dirt. Question over the grass down here. Nah.

Sanziro...hmm...if you want to pick Sanziro, I suggest you go with Absolute Champion.

Star Crowned is probably not up to this field.

Takeover Target is a globetrotter. I like this horse. Will probably be the favourite in the race. Only raced left handed twice, won one of them I think. But I think he is at his best with right handed track. A definite top 3 though.

Universal Ruler is my pick. Form is awesome. 5 Baggers going for 6. Has been racing on the left handed track. Storm home Scenic Blast who is a smart horse as well.

Waikato is not up to this. Even though it won Capablanca, Why be, Lim's Fighter in its previous race but this is a weight for age. Next year perhaps when it gets stronger.

Why Be can win this if he is down 20kg. Has been working hard, hopefully he will trim up fit (a lot of weight though). Take note that if Why Be is down to 530. Bet all your money on him. LOL
But 20kg in two weeks time is tough.

1st- Universal Ruler who can come off the speed or lead.
2nd- Capablanca who has home ground advantage and is similar to Universal Ruler
3rd- Takeover Target. One of the best sprinters in the world. Likes good track and is decent with Left Handed track.


"If a stock doesn't act right don't touch it; because, being unable to tell precisely what is wrong, you cannot tell which way it is going. No diagnosis, no prognosis. No prognosis, no profit."

Jesse Livermore

Storm's over, what's next? Tsunami

Actually, the main title should be just "Storm's over, what's next". I got this idea from the website of my brokerage firm. They actually held a seminar on this but I didn't attend. Honestly, all these seminars by local brokerage firms are quite useless in my opinion. Regardless of what they are going to say in the seminar, my answer is a big sensitive word - Tsunami. In fact, I don't even think that the storm is over in the first place.

Some Recap

I realise that Yahoo was not mentioned on the previous post. On monday, I was tempted to short Yahoo even though it was down 20% pre-market trading because I believed that it should be down even more, to $20 level. It opened about $23 and my faith on my stand started to waver slightly. Luckily, I didn't short Yahoo. But nonetheless, I think Yahoo is on a downtrend with its core business right now just like Creative previously when Apple steps into the MP3 players market. Creative VS Apple = Yahoo VS Google. You know what the result will be, don't you?

For a complete recap of the week, go here

I will talk about some important things that happen during the week. If you have not been reading headlines recently, you ought to do so now. Oil is the hottest thing at the moment. Firstly, you have Goldman Sachs saying that oil will hit $150-$200 in the near future. Next, you have inventories rising unexpectedly and yet oil sets record highs session after session. Amazing stuffs. I just can't see that oil will be that strong this week, after all, dollar does not fall much. Oil is behaving like the Hong Kong market of the past - Aug 07 to Nov 07. By right, if US is down, everywhere should be down as well usually. Of course there will be some exceptions at times. But HSI just pulls away real fast from the rest of the world's markets (refer to Mid week pit stop). Given the environment, Hong Kong's optimism is just not sound and is pulling away from the fundamentals.

Read on this India's ban on futures trading also.

In a free market mechanism, bans spoil the whole system. It is precisely why we have huge discrepancies and sudden reactions when people place a ban on the financial markets. Look at what happened when market crashes down 10% in 1987 and 1997 respectively. They go down somemore upon lifting of trading halt when it is supposed to calm the market. They just don't realise that the market will reach equilibrium eventually. A market that is bound to crash, will crash no matter what.

Well, moving on to Singapore market. I suggest shorting Wilmar at $5. It hits a low of $4.81 and closes at $4.9 on friday. Manhattan Res closes at $0.62. There isn't any volume to speak of so I cant short it in tradershub.net.

I call this a "Pump and Dump" game. Well, I don't know what does ManhattanRes do (sounds like a resort company to me) and I believe you do not know much either. Notice that the volume was close to insignifcant for a long period of time. The first time a huge volume kicks in, the stock opens and closes at its high without going below its opening price. Volume was over 2.5million. I don't how much more in terms of percentage when you compare the past few months. The trend continued the next day, almost a 70% gain, OMG, but I never noticed it. It was until the 3rd day where it formed a long doji. It came to my attention when one of the game players on tradershub.net shorted this. If you have remember candlestick stuffs from previous posts, you can notice an impending evening doji star formation. I never shorted in full force because I was so obsessed with Sembawang Marine, otherwise I would not have squandered my 1st position in the game.

So, why is it called a "Pump and Dump"? To be exact, it is manipulation of stocks. Firstly, you have a person or a group of people trying to throw away this stock. But the thing is they will lose a lot of money if they dump it just like that. Demand and supply, I hope you know your econs well (don't need to be that well, common sense please). So, in a bid to dump their stocks, they need to a create a rally first and to create one, you have to create buying power. Wait a minute, RALLY? BUYING? I catch no balls. Aren't they going to sell their stocks, why are they BUYING even more? Hope you are not confused just yet, it is quite simple in the end.

Yes, the first thing they have to do is to create a rally so that there will be more buyers coming in. Because it is such a dead stock, when people see its movement on the first white candle, they will take note of it on the second day. The key thing about this is on the 2nd day. Notice that the price gaps up. I believe it is the same group of people or person who jacks the price up, creating a mentality in everyone's mind that this thing is going to shoot because someone has inside information and is buying this now. For every buyer, there is a seller. Here is where the manipulators start to come in. They become the sellers, slowly. They do not want to kill the rally probably because they have a lot to sell. So bit by bit they start selling and the stock closes at its high yet again. Three white soldier? You bet it will.

Indeed, price gaps up again on the third day and continues to climb. Notice that the volume is the highest on this day. However, suddenly the price reaches a point where the selling pressure becomes too much for the buyers and the stock begins to fall. Selling from the manipulators still continue and I believe they have cleared most of their holdings. Seeing that the price isn't going higher, more and more people take in their profits and the stock closes near its opening, creating a long bearish doji star.

Most people turn bearish on the fourth day of course and more profit taking starts to take place. The rest is history. Now do you understand the pump and then the dump if not, read the three paragraphs above again.

By the way, see the gap there at about $0.500. Short ManhattanRes to that price.

Outlook

AIG has shown us that things can get even worse. Citigroup plans to shed some 400billion of its assets and there is a reason why they are shedding those non-core assets. It is going to take a lot beating for this market to go down real bad. Nonetheless, I think the general market is still trending sideways right now and is heading down at this moment to the lower range. However, oil can be the catalyst to speed up the downward spiral process. If oil continues to climb up further, chances are it will not stay sideways, then this whole game will be fun and we will see what Big Ben does. Of course if oil goes down, which is what the bulls want, then outlook is quite positive.

I am a natural bear. I don't even know why I am so negative about things. Basically, an oil spike should be arriving and because of this oil spike, commodities like corn will not fall because people want to look for substitutes. They turn to bio-fuel such as ethanol. So corn prices will still be shooting up. I think soy beans are used for bio-fuel as well. The story ends here and further implications are not explored because of limited knowledge. To sum it up, oil up = commodities up. If that were to happen, well cyclones in myanmar give a little push to rice and wheat even though some authority says that the world is well supplied, we are going to have serious inflation. If they refer the credit crisis to a storm, then inflation is going to be a tsunami. Worse still, we can have a STAGFLATION! Inflation at the moment cannot be controlled because the only tool Fed can use is raising their interest rate. Apparently, they will not do it at this moment. So dollar will still remain weak. The focus shifts to Euro. They are more inflation-centric than Fed and I doubt that they will cut interest rate for growth (Fed's main policy is to keep inflation in check though) because prices are really climbing up fast, just go to a supermarket near your house and you will realise it.

So... What to buy?

This is a very tricky question. Usually, high oil price will mean that oil companies earn more. However, somehow oil price is moving up too fast that it becomes a negativity to companies' profit margins. So oil companies are out.

Commodities companies. Similar to oil, if prices of most commodities were up, they would go up as well. But gold stocks are not reacting very well to how gold is moving right now. Look at Noble in Singapore market for example. Profits were up 400% and yet they closed the day up 1.2%. They were up 10% in the first hour though. So commodities stocks are out as well.

Do note that I believe the market is coming down so there will be a broad based sell off and it will make it even more tricky to select and buy certain oil or commodities stocks that can buck the trend.

Since oil price is going to climb up, I look for companies that will be severely affected by oil. The answer is obvious - Airline stocks. I recommended shorting AMR previously. Shorted 10 lots at $8.93. Current price is $8.19. I actually shorted 2 more lots at $8.17. Hold them till it test the previous low of $6.81 or till oil reaches $130. If you miss AMR, maybe you want to short Southwest Airlines Co. at $13. The idea of the play is the same as AMR.

I reinstate that financials are not worth holding. If you are looking to short any financials, short Citigroup and AIG. They look pretty bad in the future. Don't touch Goldman Sachs.

As for commodities, I miss some nice rally for the week with oil. I am still positive about oil and gold for long term. Shifting into gold at $889 now sounds good (I closed out at $880).

Currencies

CNBC portfolio challenge is around the corner and I will focus a lot more on currencies in the future as I will be using the challenge to play with currencies. Just key in a fake US address and you can create an account there =).

Currencies eligible for the challenge are Euro, US dollar, Swiss Fancs, Aus dollar, NZ dollar, Canadian Dollar, Pound and Yen. They are just matched against one another like Euro/US or Pound/Yen. I am very new to this area so I hope that I can adapt fast and give real proper analysis. My focus is on the dollar of course. That's the area that I am have some knowledge in.

For dollar, I guess we have to look at some economics data for next week.

Economic Data next week:
Tuesday: Retail Sales
Wednesday: Consumer Price Index
Thursday: Industrial Production
Friday: Housing Starts, Consumer Sentiment

Retail sales sound bad to me. Note that Wal-Mart is good because they sell products that are more of necessities. CPI is a tricky one. A high CPI could mean that Fed will stop cutting rates and send dollar up. I have seen all sorts of nonsense for irrational behaviour of dollar. Lastly we have housing starts and consumer sentiment. Sounds like a plan to short Dollar LOL.

There isn't any significant charts that I will want to use. However, my stand is oil will rally up commodities and put pressure on the dollar. They are inversely related by the way as oil is denominated with US dollar. So, dollar down, oil price up in order to maintain the same value. I hope you get it, I don't know how to make it simpler. So having decided that Dollar is like to be down for next week and also for long term. Naturally I will look to Euro first. Euro/Dollar is probably simpler than others like AUS/CAN. European Central Bank, ECB, just stand pat on its unchanged rate decision so I guess buying Euro/Dollar is a safe way to go.

Yen sounds slightly tricky.

The Japanese Yen has had a very good week as investors continue to curb their risk appetite. There will be a lot of Japanese economic data released next week, but it remains to seem whether this data will matter for the Yen. Money Supply and Broad liquidity figures are expected to be unchanged, as BoJ officials remain reluctant to increase liquidity in fears of fueling further inflation. In contrast, Bank lending and Machine Tool Order figures should decline, as businesses remain skeptical about global demand, and contain themselves from expanding. Bankruptcies and Eco Watchers Survey figures should be gloomy, as dejected consumers cut back on spending, and in the process hurting overall business sentiments, as local demand for products continues to decline. Near the end of the week, Machine Order, GDP and Consumer Confidence figures should help confirm investor fears that the once recovering economy has slowed again.

But my focus is on risk aversion. I think oil puts pressure on a lot of things. So, we will see more unwinding of carry trade in the weeks to come. Be wary of GDP near the end of the week as Japan is also having some problems with its economy.

My plan will be to buy Euro/US and Short US/Yen. I hope i get the order right. Basically is Euro Up, Dollar Down, Yen Up.

Digression

I will digress a bit on this post on one of my hobbies - horse racing. Singapore Airlines International Cup is on 18 May. I will make some predictions on the SIA cup as well as the Krisflyer Cup.

Basically, my strategy is to look for horses that like Left Handed and Going Good tracks.

Balius ran a valiant 2nd in the QE 2 cup but that's in Hong Kong which is a right handed track. It won a left handed track before but it was on a Heavy track.

Chevron, one of Singapore's chance, needs to find the lead. However, you have Sir slick in there so I doubt he will get the lead easily.

Cosmo Bulk seems to like Singapore a lot. But looking at its performances, he likes yielding track more. The weather is freaking hot right now and I doubt it will rain. So unless it rains, drop off Cosmo Bulk.

Itmaybeyou is a lead stalker but it can't even beat Trigger Express. So I doubt his form and ability.

Jay Peg looks the cream of the crop. It has won 2000m left handed good track before. Won well in Dubai with 57kg so it can carry the weight no doubt. But it has to travel from Dubai, so I hope his body weight stays the same. I like this horse a lot.

King and King, undoubtedly my all time favourite in Kranji, can place well if it is on his day. Actually I give him a good chance for a backmarker.

Mourilyan didn't race well when against Sun Classique last time out. But Sun Classique is a classy animal. However, I don't like the fact that he is coming back in distance. He has been racing 2400m for most of its recent racing. So it is a No for me.

Mr Line is not up to this. Sorry, I think he is overrated. LOL

Musical Way has no left handed track record so I don't really like him either. But he is classy, I will not be surprised if he runs well.

Onceuponatime has the best form in the field. Best turn of foot in the Singapore. I think it will run boldly. I like Danny Beasley as well. This year can well be his year even though I am a fan of Noel Callow. There is a lot of pace in this field. I like backmarkers in the field and this horse is the best of all backmarkers at the moment. Hopefully, the pace will suit and it will not overrace. A top 3 chance with home ground advantage.

Recast has the best jockey on board. Won Gold Cup last year but was with just 54kg. I need to see his body weight dropping to 437 before I am happy to select him.

Sir Slick is definitely the leader in the race and I can see him holding on. It was doing well last time out at Hong Kong. Can handle left handed and going good tracks. I like this horse a lot. Top 3 selection is a must.

Spin Around has been winning most of his races on right handed tracks. Its classy but I don't like him here.

Traffic Guard is not up to 2000m. It is too long for him.

Trigger Express went away with a soft lead on QE 2 cup day. Doubt he can repeat that. Does not have great turn of foot. Not up to this.

World Delight needs it to be wet. Not up to this

I have come down to just few horses mainly Jay Peg, King and King, Sir Slick, Onceuponatime, Recast and Cosmo Bulk if it rains.

1st - Jay Peg to be up there on the speed and run down Sir Slick late
2nd - Sir Slick to hold on the leading spot only to be run down by Jay Peg
3rd - Onceuponatime to fly home late
4th - King and King to fly home late as well but losing to Onceuponatime

Will do KIS cup on wed. There is the SMS contest for the winner of the cup. I suggest putting Jay Peg or Sir Slick. So good luck to you. Hope you can win the Dubai Trip. Cya

Latest Addition

On monday, I realise wilmar is releasing results the next day during non-trading hours. Probably after bell but just to be on the safe side, buy Wilmar today at $5.


"But I can tell you after the market began to go my way I felt for the first time in my life that I had allies - the strongest and truest in the world; underlying conditions."

Jesse Livermore

Mid Week Pit Stop #3

Emotions

"I can't sleep" answered the nervous one

"Why not?" asked my friend

"I am carrying too much cotton that I can't sleep thinking about. It wears me out. What can I do"

"Sell down to the sleeping point", answered my friend.

Cotton is a form of commodities by the way. The cotton here will refer to futures contracts of cotton. Futures are very speculative stuffs and fluctuations in prices are volatile. You can go from earning 100% to losing 100% in half an hour.

For this week post, I will to extend last week's topic on trading mentality by touching on emotion control. Well, mentality and emotion are related in a sense that they are both intangibles of trading. Those who have really traded stocks in real life (usually when just started) will probably behave like that. I will give a real life example about my friend in the investment team.

Back then; we were holding HSI put warrants (basically if Hang Seng Index, HSI, goes down, we earn money if not otherwise). There was few days that Hong Kong was closed while the rest of Asia were still opened for trading (I think it was long weekend as well). So we actually bought some put warrants on those days, anticipating a break in US markets, and therefore a large break in Hong Kong because it was closed (I call it a spring effect due to panic). On those nights where Hong Kong market was closed and US markets were trading, my friend would wake in the middle of the night, dreaming about Dow going up 100 points and how our warrants react to it. When he went back to sleep, he dreamt again, but this time it was the other scenario. Luckily, our trade paid off. This was his first time into the stock market. What an experience for him.

It will occur when you just start trading so take it easy, ultimately you have to control this emotion as you gain more exposure. I was affected to a small extent actually, maybe because I was used to losing LOL.

It is not the financial markets, nor government intervention in the markets, nor even the other competing traders that are the greatest enemy of any speculator, it is the greed and fear dwelling deep within his own human heart. To become an elite speculator, one must carefully learn over decades of real-world trading how to turn off one’s own dangerous emotions of greed and fear like a switch. The goal is to be totally emotionally neutral, never growing too scared nor stumbling into the deadly trap of greed.

A greedy speculator is doomed before he even starts because he will buy in at the wrong time and will inevitably fail to sell high when everyone else is confirming his greed and bidding up prices. A fearful speculator will fare no better, as he will be too scared to buy in at the right time when everyone else is also frightened and he will sell out too soon as his fear multiplies, missing most of the market move.

Jesse Livermore learned through long, hard experience that his own internal greed and fear were his greatest enemies as a speculator. Once he learned how to tame his own dangerous emotions when he traded, both his success and fortunes soared.

You have to be cold blooded when it comes to trading. No emotions should set in and overwhelm you whether it is fear or pleasure. Money comes and goes and if you cannot take the rapid flow of money, then you should not be trading. Always stay calm before thinking about entering a trade. When the market proves you wrong, just pull out and reconsider your trading plan. It is no point brooding over a mistake or carrying a mistake because you are so afraid to lose the money. The next thing you know, the stock that you are holding went down further. It is very hard for you to learn just by reading. I classify this as the intangibles of trading. Similar to trading mentality, it comes with experience. This is also a reason why I don't really support or believe in paper trading. In paper trading or simulator, you cannot experience this sort of emotions ride. In an extreme point of view, it is like asking you to play a Counterstrike game with a real gun pointing at you and you have to win! You can be a CS pro under no sorts of pressure but when it boils down to life and death, you simply break.

I am not asking you to throw money anyhow but telling you to treat trading very seriously at start and learn to control your emotion. When a stock goes wrong, what do you do? Those who fear to make a loss will turn into an involuntary investor in the end as they opt to hold on to it, HOPING that it will bounce upwards. You simply can't learn.

If that NTU guy can pick himself up, he is probably closer to being Jesse Livermore than me. Negative $300k for a 20+ year old student. Salute.

Quick Update

Some nice article for you guys to read as well. Here is one about oil and another about the Super Spike theory from Goldman Sachs as well. Well, it was one good reason for me to re-buy oil at $120.50.

At the beginning of the week, things were looking pretty good. First, oil shot to $120 and stayed there and gold, my big mistake, went to $880+. I covered both at the respective price.

Many will wonder why I cover gold since I recommend gold for the long term. For one, I didn't expect the losses to be that huge when gold was at $860. Actually I adopt a 10% stop loss. So by right I shouldn't be holding gold. But from the way oil is going on monday, I think maybe my gold will go back up slightly. Luckily, I was correct. From -40% to 0%, Phew.

Oil was excellent. Bought it at $113.40 on avg, closing at $120. You do the math. Anyway, I was watching oil very carefully these few days because it broke $120 and stayed there. On tues, I bought back oil again at $120.50. I was pretty sure that it had broken the resistance level and would stay about $120, probably shoot higher when inventories report come out on wednesday. However, inventories report was horrible to my position. Supplies went up more than expected. I covered at about $121. Guess what? No one cared about the report yesterday and oil closed at record high above $123.

Well, I suggest that you buy oil again and let's see it march towards $130. A good time entry will be next week. I don't really like the way dollar is moving. It is showing some strength this week. I believe oil will hover about this level till next week. Dollar should be going to around the 75 index level. Don't really know what is the value in terms of Euro.

Stocks

Fannie Mae was bad as expected by the whole market ended up slightly for the day. LOL so did Fannie Mae, up 0.5% I think. I was so wrong with Cisco, neglecting the fact that Sun Microsystems's weakness might attribute to Cisco strong earnings. However, Cisco was slightly down. In the end, I closed Cisco at flat. Another lucky story. Sembawang Marine was way off as well. The profits didn't look outstanding to me when I compared it to Cosco and Keppel. But I was able to close it at $3.99. So it was another flat stock story. I shorted it at $4. However, at a trader's game (tradershub.net), I was caught almost everyday by Sembawang Marine as I had to short it day by day.

The only good thing about this week was yesterday. Dow was down 200 points; S&P was at 1390. I told you that we would not be going up. =). Anyway, I am shorting US airlines now, mainly AMR because of oil's rally. Well, I don't know if SIA will response the same way as US airlines. So it is probably safer to short US side than SG side.

For Singapore market, because of strength in dollar which I think will carry on for the rest of the week, so I suggest shorting Wilmar at $5 (it is the current price as I am writing). Palm oil should be taking some form of pullback. I am shorting wilmar and this stock called ManhattanRes in the trader's game right now. During weekend post, I will mention about ManHattanRes. It is quite interesting in Singapore context.

That's all folks. Ciao

"A man must believe in himself and his judgement if he expects to make a living at this game."

Jesse Livermore

Half Empty or Half Full, We Broke 13000

About The Week

1. Fed cuts 25 basis points and leaves the market in the mix. Does that signify an end to rate cuts or not? We don't know. But what I feel is that the worst is not over because housing is not at the bottom yet. GDP grows at 0.6% for the quarter. So is it good or bad given that we have quite a number of horrific things happening to the credit market and housing? Again, it depends on how you see it. However despite the uncertainty on the outlook, Dow broke 13000 and S&P closed at 1413. Reluctant to believe what I am seeing though, I believe we are going up even more at least for the moment (logically thinking however...).

2. In case you thought the credit crunch was over, the Fed has apparently noted the elevated levels of LIBOR recently. Just before the nonfarm payroll reports, the increased the size of the TAF (Term Auction Facility) to $150b from $100b but is leaving the maturity at 28 days. The TAF, you will recall, allows the Fed to auction funds to depository institutions and accept a wide range of collateral in return. They are also expanding the type of collateral they will accept in the TSLF facility to include AAA asset backed securities.

3. Micro-Hoo. I have to rant about this and unleash all my frustrations. Both of them went silent for the past 6 days before friday #!%!@$%. Microsoft Chief Executive Steve Ballmer threathened Yahoo that they would walk around if the deal did not proceed fast (so much of a bluff). On friday, Microsoft raised its bid to $33, yet Yahoo was believed to be holding out for $37 according to some sources. Yahoo closed above $28 on friday while I sold Yahoo for $27 on monday. #%@#%!!%?@.

4. Rotation, rotation, rotation. We see even more money going into Tech and Financials while Commodities stocks are being thrown away. Is this going to last for long? We will see

5. I like this article on GDP. It sums up the report on GDP and gives a nice detailed coverage on it. Click here for the article.

Looking Back

Quite a number of recommendations and trading ideas so far. Time to see how they are performing.

1. Alcoa. Shorted at $39.4 and covered at $35. Around 11% gain

2. Intel. Bought at $21.12, sold at $22.13. Around 4% gain but if you had kept it in your hands or bought it back agian when I said that tech sectors are where you should be in, you would have Intel at $23.58. Another 11% gain. Look for $24.

3. UOB was flat for the week. Opened and closed at $20.60

4. It could have been a 20% gain for the week but sadly, I couldnt catch the bulk of it. Cosco at $3.09 to $3.30. Neat 6% Cosco was actually down all the way to $3.08 again this week. It proved some bargain again closing at $3.37 yesterday.

5. I certainly don't use yahoo for its search engine. Bought at $28.43, sold at $27. NEGATIVE 5%. Boycott www.yahoo.com please.

6. Oil was interesting. 1/5 of our position at $115, 4/5 at $113. I was so close to add a sell note if oil broke $110 (it hit a low of $110.30). Luckily it didn't. Average out the position, you get a mean of $113.40. Oil stood at $116.59. Assuming 5 contracts to make things easier, which means you need a total of $35,250 for margin, at $10 per contract for $0.01 movement in price, you earned $3190 = 9% of your margin.

7. I was impulsive on Gold. Should have referred to Fuzzy Logic and realised that dollar will strengthen, which means Gold will fall slightly just like what happened to oil. I made the call on Gold at $880. It closed at $856.10. $0.10/oz = $10 per contract. Margin required is $5875. Loss of $2390. Ouch. That is a whooping 40% of your margin. Hmm... this is bad.

To some up, total loss is -8% with gold in it assuming all being bought to the same value. Minus 1% per trade for commission, we have a net loss of 15%. Of course, if you were to ignore gold and oil as they were for long term purposes, it's 16% net gain for stocks alone.

Looking Ahead

I am running out of ideas for this week. It seems as though the rally is going to be unstoppable, especially if people are buying financials. I don't like to buck the trend, but things are too good to be true. After going through all the panic of a deep recession, illiquid credit system, mass inflation, we are standing at 13k, just 5% off record high last year.

So... with earnings winding down in the week ahead, I am going to be very aggressive with my calls this week. This is a huge call in fact. We have the so called "Rotation" of stocks this week - commodities to tech and financials. In order for this rotation to be sustained, we need good earnings or at least decent earnings from Cisco Systems and Fannie Mae next week. They are two big names from tech and financials respectively.

Weekly chart of Cisco system. Hmm, nice three white soldier here. The thing about three white soldier is that it can lead to a three line strike (a long black candle after three white soldier). Note that Cisco has a history of killing the tech sector last quarter with its poor guidance. I suggest shorting Cisco at $27 or closing price of tuesday if it never reached $27. It reports after the bell. Target $23. I have to credit this Cisco sell trade to Mad Money's host, Jim Cramer if it were to succeed.

I cant see anything for Fannie Mae though.

By Wednesday, we should be able to know the whole story of whether this rally will sustain. Maybe, just maybe, I will be less bias towards the bear side.

Commodities

So far my knowledge is limited to oil and gold for commodities at the moment. Hopefully, I can expand my scope in the future. Oil is very interesting. First, it can go down because of poor demand and weak economy outlook. Next, when weak economy outlook leads to dollar sliding, oil goes back up. To add things to the twist, dollar strengthens because of economy optimisim and oil goes up because of good economy outlook. LOL sounds funny and more fuzzy than my fuzzy logic. It happened last week. But watch for the $120 oil. I expect to see some pullback for the moment. Gold is failing me badly. Unless you want to sit really long term with gold (I'm pretty sure it will go back to $1000 because of dollar weakness), sell your gold positions. I will sit tight.

Latest Update

I just saw this piece of news when I woke up in the morning. Guess what? Micro-Hoo is gone. Read this for complete story. Honestly, I really don't know what is Yahoo thinking. Maybe they really believe that they have a bright future ahead. Nonetheless, I think Yahoo will free fall downwards to the pre-offer level at about $18.



This is a daily chart from Yahoo. I have actually noticed this when I made the Yahoo call previously. But when I move on to the weekly chart, it shows me another thing. I suppose this is one of graph glitches. Nonetheless, all gaps must be closed. In a week where I am looking for a tech break catalyst, Yahoo provides me one. However, Microsoft needs Yahoo actually. We will have to see how it goes. If I were Steve Ballmer, I would have to give in to Yahoo. Maybe $37 a share is way too much a premium. Oh well, if you never sell off your Yahoo which I sold on Monday at $27, good luck man.

Anyway, I strongly suggest that you still stand by on the side line unless you want to be aggressive, then you probably wish to short Yahoo and Cisco. For Microsoft, I am not very sure about its movement. It seems as though Yahoo's deal is dragging Microsoft in my opinion.

I just remember Semb Marine. I reiterate my stand that you should be shorting Sembawang Marine. Target price of $3.60. Major earnings for Singapore market actually. We have UOB on tues. DBS, OCBC, Semb Marine and Starhub on wed. Noble will report on thurs (hmm... commodities).


“I don’t know whether I make myself plain, but I never lose my temper over the stock market. I never argue with the tape. Getting sore at the market doesn’t get you anywhere.”

Jesse Livermore