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".