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