Bear Attacks From Top to Bottom

I have always wondered why they use bear to describe a falling market and bull for a rising market. Apparently, it is because of the way they attack. Nice food for thought isn't it?

Well......

"Goldman analyst William Tanona said Citigroup and Merrill Lynch may be forced to take writedowns of $8.9 billion and $4.2 billion, respectively, and raise additional capital. He also added Citigroup to Goldman's "Americas conviction sell" list." From cnbc.com

Looks like I was right to add in Citigroup last week =D. But I am actually quite disappointed with the oversight of Merrill Lynch on my part. I shouldn't have stuck on with Lehman with a "till death do we part" mentality, after all Lehman already had announced most of its bad news. It makes more logicial sense to move on to other firms. Lesson learnt.

Recap of the week

1. It was said that we have reached the brink of a bear market. Usually they define a 20% decline as a bear market condition. We are very to close it.

2. The Dow Jones industrial average finished the week down 4.2 percent, while the Standard & Poor's 500 Index slid 3 percent, and the Nasdaq Composite Index dropped 3.8 percent.

3. Oil has broken $140 and stayed above it! This is very important.

4. Well, everything was down. LOL

For a detailed recap, you can click here.

Er... are we doomed?

YES.

I have already said, there is no reason for you to be holding any stocks. Either you short with me or you stay in cash. Like I have mentioned many times over before, everything falls in a bear market, and that includes rock solid stocks like Coca-Cola and Procter & Gamble.

You don't want to be hoping for a bear market rally, deceiving yourself and putting yourself in a self-denial mode. Things will not get better and next week could be even worse. I hope I have knocked some sense into your mind. Hoping is the BIGGEST taboo in the stock market.

The Dollar for Next Week

Again, our focus is on the dollar. Fed didn't help the dollar on wednesday which was expected. To make the matter worse, next week ECB is announcing it's rate decision.


1. Chart wise, the dollar is in a two black crow formation. We should be seeing a complete three black crow easily. I can't find any positive things for the dollar.

2. We have ECB's decision on 3 July. I don't think the ECB will hold their rates. They are more keen to fight inflation than the Fed. I don't blame the Fed also after all, it is a very delicate situation. But a rate hike is definitely in play, some of you may argue that a rate hike is already priced in and the Euro may not appreciate that much again the dollar because of growth issue in the Europe's economy.

Bad news will be amplified in a bear market. After all, it is the first time that they will raise it since July 2007. There could be excuses or speculations that they will raise it further for months to come.

3. I believe we will re-test the $1.6 dollar/euro level again or index of about 71.5 on the dollar.

In conclusion, weaker dollar = higher oil price = more downfall in the market. I think oil going towards $150 is really a no-brainer thing right now. Alternatively, if you are uncomfortable with oil, buy Gold. Marc Faber, aka Dr Doom, one of my best friends (I seem to have many best friend lol), also believe that you should be buying gold. You can read it here.

My opinion on the market hasn't changed. Don't find me too naggy. I think you should be doing the following:

1. Long oil.
2. Long gold if you are not going long on oil.
3. Short anything (alright slightly more/overweight on financials)
4. If you don't wish to do No.3, remember this - CASH IS KING.
5. Ignore those unethical analysts that tell you to buy and hold. They are probably selling while you are buying.

Market Outlook

Everything remains the same. Just want to have some confirmation about the situation for next week. Dollar should be on its way down, so oil will approach $150. This means that we are going to officially going into a bear market. DJI is in a two black crow, which is pretty much similar to the dollar. To make things worse, it broke the previous low of 11500 and closed below it. Next week is a short week because of Independence day. If my memory doesn't fail me, the last time we had a short week during Jan, there were plenty of panic selling for no reason. This time we have some strong reasons actually.

Will Fed have an emergency meeting and raise rate if there is a panic selling and we see ugly pictures like DJI futures down 400 points? lol who knows.

Some Gut Feeling

Everyone is probably asking this themselves, "How low can we go?"

No historical data matches what we are seeing right now, prices are off the charts which render technical analysis useless. RBS said that S&P would fall 300 points which makes it holding at the 1000 level.

My theory is a bit fuzzy. I believe that whatever you take away from the Mr. Market, he will eventually take it back from you. Of course, there will be some smart ones that retain most of the money.

So I look back at when and where the bull market actually takes off. My conclusion is S&P at 1100 and DJI at 10000 in mid 2004. For STI it is actually about 2400. I will probably do some more research to justify this.

Stocks that I shorted

Because my stand for these shorts are for months. So I shall have this section every week to see how I have performed.

Name Price shorted Current price % change

Lehman Bros. $24.15 $22.25 -7.87
General Motors $13.99 $11.55 -17.44
AMR $6.22 $5.35 -13.99
Citigroup $19.40 $17.25 -11.08
*Fannie Mae $21.51 $20.80 -3.30
*AIG $27.82 $27.75 -0.25

*Stocks shorted on Wednesday.

I never short any Singapore stocks because the market is boring in the day. But I will short them if I can actually so I will make another table for those stocks as well. Remember, we want to short the property stocks and SGX. I have decided to drop off the banks because I think it is pointless to cover so many stocks.

SGX $7.16 $6.92 -3.35
Capitaland $5.85 $5.59 -4.44
CityDev $10.20 $10.82 +6.07 =(

Actually, when I look back at the STI components there is one more stock that is pretty interesting - Yanlord. It is a china/property stock. What a combo that is. It drops off 5% this week and I think it's kinda cheating if I add it in as well.

I think I am shorting too much (lol), so I shall show my long positions as well - oil and gold. I am positive on them long ago so it is not really based on hindsight.

Price bought Current price $ change
Oil $135.15 $140.21 $5.06
gold $884.80 $929.30 $28.50

Have a nice ride next week. Ciao

I’ve got friends, of course, but my business has always been the same – a one-man affair. That is why I have always played a lone hand.

Jesse Livermore

Mid Week Pit Stop #10

Alright, we have come to no. 10 post for mid week already. Quite a milestone for me actually because I seem to have things to write all the time. Remember the "mailman" that I mention ed before? I approach him and actually ask him to write some comments for coming months as well because I want a slightly less extreme opinion. Well I think my post on weekend was quite extreme for most people to follow.

The Mailman

1. I would be looking to short the market. However, I would only go in to short after the Fed decision. The next couple of days sould be pretty flat or slightly towards the negative, indicative of cautious trading. So it would make sense to go in after the Fed rate decision. Guessing at the outcome of the Fed meeting could prove disastrous.

2. Secondly, the companies to short need to be selected. Financials have already been highlighted. But as mentioned, in a bear market everything falls. There is money to be made elsewhere as well.

3. Telcos that could lose out in the full number portability are one option. Starhub could lose out big with the imminent launch of I-phone and champions league rights now with Singtel.

4. Fundamentally sound companies like Keppel and Semb Marine should be avoided. Their balance books are strongly in the green and orders continue to pile in with oil hitting record highs. The extent of decline for such companies can be limited and hence returns on shorting not as great.

5. Property stocks are another option- Capitaland and Citydev. Property prices in India and China, the hot markets are cooling off with some decline in the past quarter.

Basically the mailman warns cautious until wednesday which makes sense in a way for shorters. Do take note that this week is the end of the quarter so we have to cautious about "window dressing". Also, the mailman has a very different opinion for the financials. I believe its because that financials are already heavily shorted which is why he wants to look for opportunities elsewhere.

Briefing.com

I was looking up for some comments on the Fed rate and found this interesting article.

But as usual, I will highlight some points to take note.

1. Stock market traders change views in a New York minute. The Fed doesn't.

2. Inflation has clearly picked up. That is due primarily to higher gas prices and, to a lesser extent, other commodity prices.

3. Yet, those prices that the Fed can control -- the core rates -- have not risen significantly. The core rate on CPI has been up 0.0%, 0.2%, 0.1%, and 0.2% the past four months. That is hardly scary. There is no sign of inflationary pressures in the core rates.

4. Of course, food and energy prices count too. That is not the point. The point is that the Fed has little ability to impact the global price of oil, or the impact of flooding on food prices.

5. It makes no sense for the Fed to raise rates when the economy and the credit markets are so fragile, in order to reduce demand in the U.S. to try to drive down the global price of oil. It may have some impact through providing support to the dollar, but that is playing with fire in very uncertain circumstances.

Technical Analysis

I will slowly go into more tangible and knowledge stuffs. So hopefully you can understand more charts jargons that I use.

Head And Shoulders

Alternatively, you can read from here. But it is quite lengthy (not like mine isn't lengthy enough).

1. Trendlines. The grey line is actually a lower trendline. I think it's quite obvious what trendline is. Basically, for a lower trendline, you link up 3 low points on the chart in a straight line. Sometimes, you can only get a best fit line. Similar for upper trendlines, you link up 3 high points.

2. Usually, head and shoulders occur after a upward trend. There is an inverse head and shoulders that occur after a downward trend. Pretty much the same.

3. Quite obviously, you have 3 peaks. The middle peak is the highest of the three.

4. The most important part is actually the neckline. See the blue line above. It is the lower trendline that joins the two troughs or lows. Neckline here is actually seen as a support. It comes into play when it is broken, albeit, prices have fallen through.

5. Support becomes resistance once its broken. Sometimes, you will see a pullback to the neckline immediately after its broken. So it actually provides a 2nd opportunity for you to short when the pullback occurs.

6. Well, they say that volume means something. It will be nice to see huge volume as it breaks the neckline but it is also alright if the volume is just normal.

7. I don't really care about projected price for downfall. It really depends on the market environment and how the prices move.

Current price of stocks that I shorted on monday

Name Shorted Price Current Price % change

Lehman Brothers $24.15 $24.35 +0.83%

General Motors $13.99 $13.19 -5.72 %

AMR Corp $6.22 $5.71 -8.20%

Citigroup Inc $19.40 $18.85 -2.84%

Lehman was disappointing =(

Wall Street never changes. The pockets change, the suckers change, the stocks change, but Wall Street never changes because human nature never changes.

Jesse Livermore

All In or Fold

Hindenburg Omen

There are slight disagreements with the signals that we are seeing lately though. 6 June, 16 June and 18 June signal are controversial. I don't wish to provide wrong information so I check them out with Ian Woodward. You can refer to his blog as well by searching his name on google.com. Some say that we already have a confirmed signal but according to Ian Woodward, the only real, undisputed signal we have was on the 17th June. Nonetheless, there is another one on the 19th June which confirmed the 17th June signal. So the end result is the same.

Comments for the week

1. Dollar gaps down, so actually you should have been cautious with shorting oil. Indeed, oil went up to $139 on monday, but was down on subsequent days due to various factors like Saudi output and Chinal price hike. Oil closes above $134 for the week. By the way, there will be a meeting in Jeddah regarding oil production this weekend.

2. RBS says switch to cash to avoid nasty selloff. Click Here. Well basically they say that S&P might be down 300 points. Who knows?

3. Financials are horrible. Good earnings from Goldman sachs but bad movements in the market. Oh to make things worst, Goldman issues a "hit list". Actually, I find this list useful, at least it gives me a guide for stocks to short.

4. Soros, the man who cries wolf, now is warning of a "superbubble". Well I hope you know who George Soros is. Actually he never really explains much but I like to quote something from him.

"[It's] difficult to imagine what you can do when you are already lending effectively 100% on inflated house prices."

5. Roller Coaster ride in Shanghai index. You have up -3% on tues; +6% on wed; -6% on thurs; +3% on fri. Honestly speaking I don't know what the Chinese are going through.

6. I'm very negative with the stock market right now.

Folding your hand

1. Folding is simple - cash is the king. There are so much certainty over everything and I see no reason for you to stay in the market right now. You have to hold cash. Seriously, what reason do you have right now to be positive about the market?

2. I read an article about holding onto defense stocks and it makes no sense to me. All stocks fall in a bear market. Maybe defense stocks will fall less but what's the point of it? To lose less money? You gotta be kidding me man.

3. By the way, even if you want to stay in cash, you don't stay with US dollars. Buy Yuan or Singapore dollars. Yuan is a very safe investment and with all the talks about inflation, I think there is no other better safe currencies you can find. If you wish to speculate, then it's a different story. Even though I am not pro-government but I have to admit that they are doing the best they can in times of uncertainty. Like what MM Lee said, we have 10 years of prosperity ahead. It's very true but the key is 10 years. Why not 20 years? Singapore's economy has been good and they have a strong policy on how they manage the dollar. Just look at the speed we pick up after 1997 financial crisis. Sing Dollar is definitely safe.

4. I am not someone who advocates folding. =D

ALL IN

Maybe "all in" is too strong a phrase to use in investment, but it's not for me. I firmly believe that we are going to have a big plunge downwards and I see no strong reason to stay in cash. Note that I mention "strong" reason, for those who wish to be safe, it will definitely be better for you to stay in cash.

Reasons being:

1. Oil spike. Well, oil is going strong. There are more positive news to come than negative news for oil and negative news have less impact on oil. I have mentioned this before, it is a bullish market characteristic.

2. Lack of panic selling. If you look at how the market is going right now, there isn't really panic selling going on. All the selling have been strong and steady and therefore I can't see a bottom right now.

3. Breaking of the 12000 mark. All along I emphasize that we are trading in a channel between 12k and 13k. I like to take whole numbers and I believe that the lows that we have before around the high 11000 level will be tested and broken easily.

4. Lots and lots of uncertainty. Well we don't really know if housing can pick up. We certainly don't know how bad the credit system can get. More importantly, we don't know how the Fed will handle the delicate situation with risk to growth and inflationary pressure.

5. We have a catalyst coming up. To start a strong and fast selling, you need some sort of catalyst. With all the inflationary talks, I believe that Fed's rate adjustment will be the key. It could be next week's Fed meeting where the most likely scenario is a no adjustment. Even though everyone expects this but I believe it could spark a fall in dollar again as oil gets stronger. Oil is a very much determining factor for dollar as much as dollar is for oil.

6. We have a Hindenburg Omen. Needless to say anymore?

In conclusion, the scenario I picture is something like this.

Fed doesn't raise rate -> dollar falls (well everyone wants rates hike) -> oil shoots -> market plunges. In my opinion, price of oil is the main bomb for the market and Fed's rate along with dollar are just the triggering factors.


In the end, the window (gap) wasn't meant to be closed and we have dollar facing a resistance at that level. Dollar formed black candles on every single day for the week. I believe we are heading down to test the 71.5 index level again, where Euro stands at 1.60 dollar.

But the main catalyst might not be this Fed's meeting in june, it could actually be in july where inflationary pressure gets stronger and the market wants a rate hike. But Fed doesn't raise rates, thus leading to a fall in dollar. It has become a confidence issue for the dollar - whether people will want to hold on to a falling currency in a weak economy. That's why I actually agree with Kudlow that by taking back a quarter basis point of interest rate, you induce confidence in your currency (the dollar), investment starts to come back in and you improve liquidity. It's a very unique point of view. But we all know the Fed will not do that.

So... all in on?

1. Well basically you want to be shorting something. The easiest way to go is to short the index. You can do so by buying put options or sell short index futures.

2. For Singapore market, you can short STI futures, HSI futures or buy put warrants on STI and HSI. Personally I like to go into the HSI market more than STI market. HSI is more volatile and the main important thing is HSI will also be affected by China's weakness. I don't think they will do something to save their stock market, maybe later when Shanghai index gets hammered badly. I just don't understand the cry for the government to save the stock market.

3. Not really all in here but I think you should get some gold futures as well. Again, in times of uncertainty, gold is the best commodity to hedge against the dollar and it's just a psychological thinking that gold will go to $1000 again. We are about $100 away from it.

4. I think oil is close to unstoppable. You definitely need a bit of oil.

5. Vietnam dong. I hope you have not forgotten about last week's post. My stand on vietnam dong in the long term is still the same. It has to depreciate and with a possible oil spike, I think the pressure will get larger.

What about Stocks?

1. In a bear market, everything falls.

2. Look at no.1 again!

3. Alright I'm just trying to lighten to mood, not going to repeat no.2. Well Goldman Sachs really saves me some trouble. I think you can short anything from the list Goldman Sachs provide. Personally I will like to add Lehman to it and advise you to short Citigroup because it is a dow component especially if we were to expect the index to fall badly. Financial sector is definitely the sector you want to go short with.

4. Similar for Singapore's market, you want to short the banks - DBS, UOB and OCBC. Another going thing to short is probably SGX. I think SGX suffers the most when STI is down from what I have seen so far. You can look at the chart and compare it to STI. I can't get STI chart though.

5. Financials aside, you can also look at shorting airlines and automakers. These two groups are based on oil spike theory. The "Mailman" actually jokes that shorting Vietnam Airline is a sure win situation. For US market, again I will like to short AMR for a small cap stock (it's quite small now) and GM for being a dow component as well.

6. Well if you don't want to short anything, at least hold cash =).

I will like to emphasize that this post is meant for a stretch of many months to come. So don't flame me if the market picks up next week. Again, I like to see next week Fed's meeting on wednesday as a catalyst. In fact, crude investories and durable good report are also going to be out on wednesday.

All in or Fold?

What most people will tell you, "Don't put all your eggs in one basket".
What I (alright, not me actually, Mark Twain) will tell you, "Put all your eggs in one basket and WATCH THAT BASKET".

Mid Week Pit Stop #9

The Hindenburg Omen

I will be quoting and doing some cut and paste from various websites. Alternatively, you can read from wikipedia.

Intro

The Hindenburg Omen is a signal that attempts to predict a forthcoming stock market crash. It is named after the Hindenburg disaster, the crash of the German Zeppelin of the same name in May 1937. The Hindenburg Omen is the alignment of several technical factors that measure the underlying condition of the stock market - specifically the NYSE (New York Stock Exchange) - such that the probability that a stock market crash occurs is higher than normal, and the probability of a severe decline is quite high.

Rationale

The rationale behind the indicator is that, under normal conditions, either a substantial number of stocks establish new annual highs or a large number set new lows - but not both. When both new highs and new lows are large, it indicates the stock market is undergoing a period of extreme divergence. Such divergence is not usually conductive to future rising prices. A healthy market requires some degree of internal uniformity, whether the direction of that uniformity is up or down.

Criteria

1. That the daily number of NYSE new 52 Week Highs and the daily number of new 52 Week Lows must both be greater than 2.2 percent of total NYSE issues traded that day.

2. That the smaller of these numbers is greater than 75. (this is not a rule but a function of the 2.2% of the total issues)

3. That the NYSE 10 Week moving average is rising.

4. That the McClellan Oscillator is negative on that same day.

5. That new 52 Week Highs cannot be more than twice the new 52 Week Lows (however it is fine for new 52 Week Lows to be more than double new 52 Week Highs). This condition is absolutely mandatory.

These measures are calculated each evening using Wall Street Journal figures for consistency. The occurrence of all five criteria on one day is often referred to as an unconfirmed Hindenburg Omen. A confirmed Hindenburg Omen occurs if a second (or more) Hindenburg Omen signals occur during a 36-day period from the first signal.

"For those who are interested in understanding the development of this Indicator, I suggest you Google using Hindenburg Omen and then select the following article, which is the second one down on the list: “Safe Haven - The Past Performance of the Hindenburg Omen Stock Market Crash Signals 1985 -2005”."

What's so great about the Hindenburg?

Consider this......

“The probability of an S&P 500 move greater than 5% to the downside after a confirmed Hindenburg Omen within the next 41 days after its occurrence is 77%, the probability of a panic sellout is 41% and the probability of a real big stock market crash is 25%.The occurrence of a confirmed Hindenburg Omen does not necessarily mean that the stock market will go down. On the other hand there has never been a significant stock market decline in history that was not preceded by a confirmed Hindenburg Omen.”

Personal Experience

Well, I'm only 21 years old, so I have not gone through many crashes or sharp corrections. So far, I have seen 2 Hindenburg omen signals and 2 major corrections.

1. The start of the sub-prime problem where Bear Sterns announced that they are closing down two hedge fund. The confirmed signal came on 22nd June 2007 and the correction period was from 13 July to 13 Aug. DJI was down about 10%; STI and HSI were down 18% and 13% respectively.

2. When my team came together, we were dead bearish about everything. But we were bearish too early. Instead of tackling the market during late October, we went in too early and were burnt easily. The cluster of Hindenburn Omen signals triggered during the 15 Oct to 19Oct. The correction lasted for three months though. From Nov to 21th Jan 2007, where Big Ben announced an emergency rate cut and it sort of ended the correction. The market trended sideway afterwards.

Well if you take the peak of HSI to the bottom of HSI on 21 Jan (not to take into the account that HSI was down to 21000 in March), HSI was down 10000 points or approximately 30%. STI was down from 3800 to 2900 as well.

Conclusion

According to my own research, we have three Hindenburg Omen so far. They occurred on 6th, 16th and 17th of June. So, if you believe in me, sell everything that you are holding right now or at least hedge some of your position by buying some put options.

The signs are there. You have a weak oil (at least it drops), strong goldman report and yet the market sells into rally.

Side Commentary

In addition to last week's criticism about "experts", look at this.

"Speaking of Lehman, you wonder why analysts drive me crazy? How about Guy Moszkowski at Merrill Lynch? The banking analyst downgraded Lehman when it was about $24 on Wednesday and upgraded it when it was about $33 in the beginning of June. So what happens? It is closing today at $27 and change; that call was the short-term bottom. " Quote From Bob Pisani on cnbc.com.

If you have not covered your Lehman, just hold on to it. We have an Hindenburg omen confirmed =D. You can actually get Lehman at $26 on monday. Nonetheless, I think I have read the Lehman situation correctly.

Broke $35 support -> plunged like a dog -> exit of executives (end of cycle) -> short covering -> SWEET~.

Oil was not acting according to plan. In retrospect, I should have considered more about the scenario where dollar would fall slighty and oil would face the resistance of $140 again. If you short on monday which I told you to, you will probably get a heart attack for a while (lol) but feeling alright with oil standing below $134. Cover the position and hold on your money while we prepare to short this market soon.


I never hesitate to tell a man that I am bullish or bearish. But I do not tell people to buy or sell any particular stock. In a bear market all stocks go down and in a bull market they go up.

Jesse Livermore

Roller Coaster Ride

Reply to comments

Hi,

I would like to thank you for making such an insightful post on my website. It really did set me thinking. Here are my views on the points you raised.

The approach of the ECB seems clear - inflation is its primary target. however, we have seen significant weakness in the Fed when it comes to its resolve on dealing with inflation. The Housing market and the related subprime crisis has not blown over as yet. Raising rates may not be the approach it wants to adopt as yet.

Indeed what you said was very true. If everyone, including the Fed, starts to clamp down on inflation with collective rate raise and some anti-inflationary measures, oil and many other commodities should be heading downwards. But just that week alone, where oil shoots $16, it is just a bull market behaviour.

Good news is treated as really good news. In fact, bad news is also treated as good news. Just look at the period from Sept 07 to Oct 07. It is similar to the Hong Kong Market when the rumours of the 1st rate cut spread, HSI shoots despite all the credit problems, moderate performance by the US markets, huge writedowns and so on. So in a way, Trichet's comments were just an excuse for the bulls. The chain of events thus took place in everyone's mind. Also in addition to this, oil was slowly sliding down and not falling dramatically. If it was a topping signal like what John Kilduff said, then I think oil should be plunging down heavily. The behaviour tells me that it is searching for some catalyst to shoot up again. That catalyst came in the form of Trichet's comments of a possible 1st rate rise since last July.

According to the current situation, the main issue is still the dollar and of course Fed's rate decision. In my opinion, everything else will only be attributed to short term price fluctuations. I agree that the dollar will strengthen slightly (will explain below). But I don't think Fed will raise rate during the June meeting. Maybe July, I'm not sure. It is more likely that they will want to adopt a wait-and-see approach. (A good video by Kudlow, a cnbc contributor, on Fed's rate and inflation)

As you have mentioned, this week is a very interesting week for oil. We have the dollar's best weekly performance against the Euro in three years and output increase from Saudi. Very negative for oil prices? The only positive news for oil prices is the strike in Nigeria. All things being said, oil is down 2% or $3 for the week and still holding above $130.

I hope I have given a good reply to addressed your views sufficiently. Thank you for your interest and I would really appreciate your comments on other posts in the future.

P.S: I believe you are some analysts or at least related to the finance sector right? You do know that my mid-week post #8 only refers to those irresponsible experts. =)

Lehman Brothers, Bear stern's brother?

In the end, my worry for Lehman price movement was justified. Lehman was up 13% on friday, closing at $25.81. Hopefully you have covered at least half of your holdings at $22. Lehman is announcing earnings on monday, unclear over whether it's before bell or after.

Lehman is on a two black crow on the weekly chart but two white soldier on the daily chart. I like Lehman on monday alone. Short covering despite horrible earnings report. Remember last quarter earnings? Lots of bad earnings from heavily shorted stocks and they were all up for the day. If you are holding on to the other half of Lehman, cover them at $26 if you can get the price, making the price of cover at average of $24. A nice 20% gain overall. Poor handling of Lehman during the week as I could have covered all at $22. If you are still ALL of Lehman shorts, it's very tricky though. I would suggest holding Lehman for the week.

The Dollar


1. This is the daily chart for dollar. We are about 74.6 for the dollar index. As you can see, we have a window or a gap from 74.5 to 75.5. The dollar crosses slightly into the gap and I'm slightly confused on its movement. All gaps must be closed - remember this! But dollar ended friday with a black shooting star. Sorry for the small graph, I can't find any better. Monday movement is very important for dollar. If it opens higher, I believe we can see some dollar strengthening till the index of 75.5 because I assume it will close up the gap.

2. The weekly chart is simple and easy in my opinion. Nice gain for the week. Hardly anything stopping sign. Based on this, I am inclined to the upside for dollar. Dollar should be testing the level of 75 and honestly if it breaks 75, I'm quite confident it will test 75.5 based on the daily chart (the gap).

3. In conclusion, dollar has more to the upside if monday opens and moves well. Target of 75.5.

So... do we short oil?

In a way, yes. We should short oil for the week.

A lot of tough talk of inflation lately. Possible stronger dollar for the week. Shorting oil next week sounds good. After all it is very volatile and that's what traders want. I see at least a downside of $4 towards $130 - the whole number theory again. It has occurred at $100 and $110 before so do exercise some caution. Highly unlikely that it will fall below $130 because as projected, dollar gains will be capped to the index of 75.5. Just in case it does fall below $130, I think it will look for $126.

Overseas Visitors.

I have noticed a number of visitors coming to my blog recently therefore I shall touch on some overseas markets as well.

A friend of mine, nicknamed the "Mailman" (he always delivers), informed me of an interesting situation - the vietnam dong.

Vietnam Dong

If you have time, read the follow article.

1. Vietnam Inflation
2. What will happen a or b

For those who do not have the time (I hope you fork out some please), here is a summary of the views expressed.

1. Inflation is at 25% last month (WHAT!)

2. The trade deficit more than tripled in the first five months of the year to $14.42 billion from $4.25 billion in the same period a year earlier

3. Stock market is down nearly 60% this year

4. The dong is allowed to trade within 1 percent on either side of a daily fixing rate

5. Vietnam was being hailed as the next Asian miracle, a success story to match the rise of the Asian tigers of the 1990s and more recently the stunning growth of China and India.

All these lead to one thing - Devaluation of Dong. The downward pressure is too huge and dong is at an artificially high value because the government pegs it to the dollar. Of course, the government can continue to buy up dong and keep at this unreal valuation.

The peg has to break and dong is bound to devalue sharply. Two scenarios are possible: Either there is a slow but substatial devaluation in the coming months or there is a sustatined value preceding a bust. The situation is similar to the same as Thai Baht in 1997. I would not like to see history repeats itself, but somehow shorting dong is almost considered a very safe investment. I wonder if Soros will speed up the process like he did before with bank of England. Actually I'm also wondering if there is any means of shorting the dong.

Let's say we can't short Vietnam Dong. What else can we do?

You can wait for it to plunge and buy back some Dong because IMF or other similar institutions might step in. This will traslate into gains when converting back from Dong to your base currency. For example, the dong falls to 20000 Dong to the Singapore dollar. You buy in and than it revalues to 15000 Dong to the Singapore dollar, an invested amount of $1000 will return of 33%. Remove this if you want

Or... ...

Singapore Property

Short Singapore Property Stocks. I am not sure if the banks have large amount of assets in Vietnam but I am pretty sure property stocks like Capitaland, Citydev and Keppel Land have heavily invested in vietnam and have assets valued in vietnam dong. Prepare to see a huge writedown in their balance sheets as they declare assets in Singapore or US Dollars.

This is a long term shorting play. You can hold real long put warrants or use SBL and short them for months.

P.S: I would like to thank Tony and his effort to bring his friends to this blog. Hopefully you guys can benefit from this blog.

Latest Update

Found an article where Goldman Sachs downgrade the whole of property sector in Singapore on 10 June 2008.

A loss never bothers me after I take it. I forget it overnight. But being wrong - not taking the loss - that is what does damage to the pocketbook and to the soul.

Jesse Livermore

Mid Week Pit Stop #8

I will touch on two things - a simple trading/investing taboo and a simple trading theory.

The "so called" experts

1. Most Singaporeans are brand orientated. They want big local names like analysts from DBS or fund managers from blah blah blah company. Somehow the company name adds extra weightage onto those "experts" words. On some trading website, I saw people saying that they had made a bad trade because they failed to read analyst report beforehand. I find that entirely bullshit. Now you must be thinking what makes my words so strong. Of course, I have found some allies.

2. The great Warren Buffett, my best friend lol. Read his article here on his wager with the wall street experts.

3. "ALL TIPS ARE DANGEROUS- TAKE NO TIPS!" Jesse Livermore

4. Another example that I got from CNBC.com

"Should we laugh or cry? Merrill Lynch financial analyst Guy Moszkowski has just downgraded Lehman Brothers

Lehman Brothers Holdings Inc LEH 23.75 -3.75 -13.64% NYSE

Quote | Chart | News | Profile

[LEH 23.75 -3.75 (-13.64%) ] , ONE DAY after affirming his BUY rating and ONE WEEK after raising the stock to BUY.

Huh?

Here's what he just said in a note to clients:
"Removing Buy a week later and 10 percent lower is not easy but scale of Q2 loss and capital-raise indicate lower ROE [Return on Equity] potential and lower confidence, esp. given LEH's remaining exposures."

On June 4, with Lehman at $31 and change, Moszkowski raised his recommendation on Lehman to Buy, saying "Share correction overdone in our view."

I think this analyst is gone by now. Wonder how he keeps his job.

5. For those with trading accounts. Tell me how many sell calls (telling people to sell a stock) are there in comparision with buy calls (telling people to buy a stock) right now. Worse still, trace back all the way to October 2007 and tell me how many freaking stupid buy calls at STI 3800 (straits times index, basically a measure of the overall market trend). It's alright to make some mistakes but look carefully again and tell me how many reports are there that rectify their previous mistakes. =)

6. Dated back in October 2007, an analyst from a well known brokerage firm (hint: top retail firm) said that STI will be going toward 4200. Just some fact that my friend told me before.

7. Last but not least, why should you listen to me? LOL, I'm no expert in the sense that I don't carry any tags with me. Of course even most of my friends don't listen to me when I try to explain or teach them certain things. There are only a handful that trust my brain. I speak from a neutral point of view.

Simple Yet Effective

I think I have mentioned this before but never really brought it out and discussed openly. This theory is the "whole number" theory. Not my theory, just a simple fact and a bit of psychological thinking.

Stocks have a tendency to face some price resistance when they reach a nice whole number. It is a psychological thing. Most people like to use whole numbers to place their orders. For eg. they will want to sell a stock at $30 and not at $30.20. It is a common thing so you actually see lots of volume queuing up at the whole number level.

It is probably easier to explain using real life numbers. For example, Semb Corp. was on a super nice uptrend towards $5. However, once it hit $5, no one seemed to be buying anymore and lots of selling came in and Semb Corp is trading at $4.5 right now. There are most reasons why it does not break through $5 but we don't care at this point of time. I just want to illustrate that at $5, all those reasons start to kick in and we have Semb Corp trading below $5.

Another recent example, Wilmar International. It was also on a nice uptrend but because of recent selling, Wilmar was at a pivotal price of $5. Here we see $5 as a support. It was trading at a high of $5.5 before. If you see the chart, you will notice something else at $5.5 but we ignore it for now. On Tuesday, Wilmar closed at $4.97 below the psychological $5. You can be quite assured that Wilmar still go down somemore because the support of $5 can't hold anymore. Wilmar kept falling on subsequent days.

We move on to US market and touch on Lehman, the hype of the market right now. I mention shorting Lehman over the weekend because it broke the $35 level. Note that whole number doesn't always have to be a nice number that ends with 0. $35 was a number that I get from my charts. The price was about $32 something. However on monday, Lehman opened at $30 and started to move below $30. I could tell that it would open below $30 by looking at pre-market trading so I keyed in my orders before the market opened. Seeing that the $30 can't hold anymore, I know that it will plunge downwards in a very ugly manner. It is important to look again at Lehman as it reaches $30 because $30 is a nice psychological barrier. Day after day, lehman keeps falling and is standing at close to $23.75.

Other examples that are for you to think about is Oil at $100 and Gold at $1000.

Btw, I have a big news to announce. We have a HINDENBURG OMEN last friday. UH-OH.

Latest Updates

Cover Lehman at $20. Maybe during the day it will fall below $20 but I highly doubt that Lehman will close below $20. I expect to see some short covering. Short interest is close to 14%. Short from $30 to $20 is a nice 33% in a week's time. Honestly I don't really think that Lehman is the next Bear Sterns. Just think about it, the reason for Lehman to plunge somemore today (thursday 9pm Singapore time) is the exiting of CFO and COO. Sounds like the end of a story.

Ok, really very sorry for this. I am quite concerned about the short interest right now. Honestly I wish to wait till friday before pulling out of Lehman. Lehman is about $22 at 9.39pm singapore time right now. Maybe you wish to cover half of your holdings right now at this price.

We have an interesting comment. Very nice things to ponder over. I will give some serious thoughts and reply on weekend's post. Cheers.

"I know from experience that nobody can give me a tip or series of tips that will make money for me than my own judgement."

Jesse livermore

Team Jin VS Team Kilduff

Commentary of the game (the week)

Welcome back everybody to the 2nd Half of the prestigious "Oil Championship Finals" between Team Jin and Team Kilduff. I am Jin Sidekick, your commentator for the game. As of half time, Team Kilduff is leading 1-0 with its brilliant "oil topping, pronounced top" strategy that he has charted out.

The teams are now ready to kick off the 2nd Half and somehow Team Jin looks restless. I believe they need some changes but the manager, "Jin Plunger", has NO SUBS on his bench to call upon. Looks like we are going to have a boring 2nd Half.

Team Kilduff is happy to keep possession in their half, with no intention to attack anymore. Players from Team Jin are getting frustrated. Time is running out and we are down to the last 10 min of stoppage time.

Skipper cum lone striker "Jin King" is sick of how the game is being played right now. He lunges a late sliding tackle at the star striker "J. Kilduff" from behind.

Beep. Yellow Card! I think the referee is being lenient there. However "J. Kilduff" is pretty unhappy. He wants a red card to be shown. The referee waves him off and signals for the match to resume.

"J. Kilduff" is red hot now. He demands the ball and starts dribbling from the midfield line. With dazzling footwork, he has dribbled past "Monday" , the defensive midfielder of Team Jin, easily. Shakes off "Tuesday", a slow and useless central defender, with a simple side step. With his change of pace, he manages to get past "Wednesday" and is now facing the goalkeeper, "Thursday" in a 1 on 1 situation.

Manager "John K" has his fist up in the air. He knows that the game will be over if "J.Kilduff" scores now and his "Oil Topping" strategy will make him famous.

The goalkeeper has rushed out and spread himself wide. "J. Kilduff" is full of composure and is very familiar with this situation. He brings the ball to his right and unleashes a banana kick that swerves past "Thursday" easily. The ball looks destined for the back of the net.

IT HITS THE TOP BAR AND BOUNCES JUST OUTSIDE OF THE LINE! The linesman waves a no goal sign to the referee. Team Kilduff is stunned. "Thursday" scrambles back to get the ball. A lifeline is thrown to Team Jin and we have 5 more minutes of stoppage time to go.

"Thursday" kicks the ball into Zone Z. What he is doing?

Oh, Team Jin is making a substituition. Looks who's here? Legendary midfielder "ECB" is here. He was supposedly held back by flight delay. The crowd roars and ECB receives a standing ovation upon entering the field. ECB passes a note to Skipper Jin King.

Camera zooms in and we can see something written on it. "We may get a Rate Raise next month". Jin King hints his teammates about the team instruction with some hand signals. Team Jin looks fired up. Momentum has shifted to them. What a 5min of ball game we are going to have.

Throw in is taken and immediately "ECB" snatches the ball away. He delivers a high floating 50 yard cross to Jin King who is now clear of the defense line. Team Kilduff points to the linesman for offside but the FLAG STAYS DOWN!

IT'S A GOAL!!! Jin King makes no mistake and the game is tied.

We are into injury time now and the fourth official shows 3 min of injury time. Team Jin knows that they have to end this game now and not go into injury time for Team Kilduff to regroup. Team Jin are piling up the pressure and earn a corner in the 93min. This looks like the last possession of normal time. But we have an argument right now between "Israel" and "Iran" to see who takes the corner. The spectators (speculators) like it very much. "Morgan Stanley", the playmaker, pushes them aside and takes the corner. It is a well taken corner and the ball flies towards Jin King who looms large at the six yard box.

IT'S IN!!! TEAM JIN HAS DONE IT. Team Kilduff is appealing for a handball but the referee ignores them. Looking at the replay, Jin King uses his hand but the referee can't see it. It's the Hand Of God. Team Jin has won the "Oil Cup".

Back To Reality

I was trying to be funny this week but I think I have scored a resounding victory with my firm stand on oil. I added an update on mid week post when I realised that ECB was announcing their rate policy later in the day on thursday. I was expecting ECB to raise rates because of inflation but they didn't. However, they hinted that they might do so next month. That's it. A hint is enough and I know dollar will plunge and oil will shoot.

My stand is not completely supported unless oil breaks previous high of $135. Oil was just below $130 on thursday and come friday, Morgan Stanley and tension between Iran and Israel complete the full turnaround of oil. We are facing an oil price of $138 right now.

Btw, here's a Kilduff's article which he published on Wednesday. I wonder what else will he be saying next week. I will not criticize him if he apologises like T. Boone Pickens who actually says that oil will go down to $80 something and he is shorting oil. He changes his stand later and is bullish on oil right now.

SPC was down to $6.5 on friday. Shorting on monday opening at $6.9 will yield you about 7%. With oil this high, I wonder if SPC will go up or down. The earnings was down previously because of too high oil prices.

Looking Ahead

Well, if you refer to past posts, I have been saying that we are in this sort of channel between 12k and 13k. I don't wish to be exact so I just take the whole number. This time round we are going to re-test the lower support level of 12k. So you can tell that we still have some more downside to go.

So if you are looking to trade the market, I suggest shorting Lehman.

Reasons being:

1. Weakest in the field. Well the experts say so, it is almost impossible for me to find out so I just take it as it is.

2. Unfixed earnings announcement date. Apparently, lehman may pre-announce their earnings. I like this kind of surprise factor. Just send some panic to the crowd.

3. It closes below $35. Basically I feel that lehman has a strong support of $35 before but it broke it last week. So I think you should short lehman with a stop loss at $35. Short until Dow hits the support of 11.8k to 12k. Honestly I think Lehman is heading to test its previous low of about $25. But it is a heavily shorted stock so you must have your stop loss.

4. Overall downtrend for the market.

I don't like anything from Singapore. Not even SPC. Watch out for Oil, I got this feeling that maybe oil will zoom past $140 easily and we have a market bottom. Dollar will still continue its way down. I foresee a big plunge on monday. =D

Extreme dislocations in markets inevitably occur - Gary Brinson

Mid Week Pit Stop #7

Why do you need to invest?

1. Money and more money. Sounds rather dumb to mention this obvious answer but it is the main problem that most people are facing with isn't it? Money is never enough. You have your car loans, housing loans, milk powder, food (INFLATION) and ultimately you have to live in a country with a very high standard of living accompanied by low wages. I believe everyone understands this reason for investing so I shall not explain more.

2. Time = Money. Basically you need money to produce time. It is a simple logic actually. You want to retire young, why? So that you can enjoy life after all. You do not want to work for money all life, instead you want money to work for you. I remember someone saying this to me from a book called "Rich Dad Poor Dad". The book cover and title puts me off so I never bother reading that book. Apparently it teaches you how to make money work for you. Maybe its a good book, who knows? However, I think otherwise.

3. A better future. Actually this is closely related if not the same as first reason, but I feel that I have to mention this. After all investing in companies is something like betting that these companies will grow in the future. In this case, you invest to give yourself a better future to look forward to. What will you do in the future? Start a business? Maybe. Sleep around? LOL. Or start a family? Definitely. It is exactly why you want to start learning now and do your planning. Of course if you want to sleep around, it's your life, but remember you may have plenty of families to look after. As a parent, you will definitely want your child to have a good life because you know that life is tough. You don't want your child to go through what you have gone through. You know that now, so don't procrastinate anymore.


I believe most people work or do stuffs for the above three reasons. Investing is just one of the ways to achieve all those above. Of course trading is slightly different. To me, trading is about beating the game which has millions, if not billions, of people playing. Other than that, I trade for a fourth reason which only a few people will know.

Nice and short, I will like to end off with this article. Try to read, it is very true.

EURO Time

Similar for SIA cup, I have decided to throw in another piece of analysis for stuffs outside stocks. This time is about the long awaited Euro. Honestly speaking, I wish England to be in the Euro because they will be the top few favourites and provide value for other teams in Singapore betting pools.

I firmly believe Italy will win the Euro. It's not because I am a fan of Italy or because I have won some money with Italy at the World Cup. If you are being rational and not betting with your emotions, you will also agree that Italy stands a good chance to win Euro at VALUE.

The odds for Italy to win Euro is about 1:8 online. But 1:6 at Singapore pools. Lousy odds.

1. Italy has depth and balance in squad. I like good defensive team. Italy will probably do the same as France back at France 98 and Euro 00. The main thing is value for money. At 1:8, there is no better value team out there other than Italy.

2. Germany is good. Well-deserved favourites but not value for money. Less depth in squad than Italy but they have an easy group. But Germany lost to Italy at home during previous world cup.

3. Portugal also has easy squad and this year could well be Ronaldo's year. I don't really like him but you can't question his ability. However, Portugal has no striker. I doubt they can win just by depending on Ronaldo.

4. Spain looks so well on paper everyday but no tough players in midfield, will probably face difficulties after group stage against france or italy. However if they get to the final, I think they will win, of course they have to win france or italy first.

5. France has weak attack. I think they are just missing a "Zidane" in there.

6. Holland can't score for nuts. So many talents but they just can't score.

7. Czech is still no longer the good old czech.

I am pretty lazy to talk about the rest because I don't think they stand a chance. Basically it comes down to only a few teams - Italy, Germany and Portugal. Italy > Germany. Portugal is unknown factor because it's Ronaldo's year, just like Kobe Bryant in NBA. It's Kobe's year. But I have to drop Portugal in the end because they have no strikers.

Another reason why I like Italy is because they always have something to fight for. World Cup was for the scandal and the death of someone (old coach? I forgot). This Euro is going to be for Cannavaro.

"Chiellini reportedly broke down in tears after discovering that the Azzurri captain had been ruled out of the tournament as a result of their training ground collision, but Cannavaro insists that he harbours no hard feelings whatsoever."

Cannavaro says, ""I comforted him. He was broken. I told him that it wasn't his fault. We lost a player - it's not worth losing a second."

I like this type of team bonding.

For Golden Boot, go with proven scorer Klose. If you like some wild card, buy Mario Gomez at 1:19. I think he is awesome provided he starts beside Klose instead of Podolski. Basically Germany will score a lot and advance far in the competition.

Latest Update

I think ECB will raise rates, dollar plunge, oil shoots =D