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