ASIA EDITION
A publication of Guppytraders.com Pty Ltd since 1996
ACN 089941560
Offices and staff in Darwin, Singapore, Beijing, Kuala Lumpur. Ph +61 8 89270061 Fax + 61 8 89270125
Box 40043 Casuarina NT Australia 0811 www.guppytraders.com. Email: [email protected]
The Internet Trading Weekly with Independent Analysis
Weekly for Wednesday November 12, 2008 Based on Monday’s Close 27 pages
Edited by Daryl Guppy with contributions from A Gibbs and P Rak
Guppy Trading Essentials Chart pak, Metastock , Ezy Charts & SuperCharts. Data from JustData, Paritech, CMC
Markets, Almax & theNextView
Stocks mentioned in this issue:
Singapore
Noble Group
Malaysia
KLSE
Note.
icons
heading,
material.
The
more
computer
appearing after a section
the more advanced the
CONTENTS
• Volume Manipulation pg1
• Depression Triggers pg7
• Readers’ Questions – Analysing The Market For
Position Trading, Part 2 pg11
• Market Exam 6 pg14
• Index Briefs – KLCI Malaysia pg20
• Chart Briefs – Noble Group (NOBG), Singapore pg22
• Metal Briefs – Copper, Shanghai pg24
• Newsletter Notes pg25
• Portfolio Case Studies – Money Management pg26
VOLUME MANIPULATION
By Daryl Guppy
SUBJECT SUMMARY
VOLUME
Volume is the fuel driving the market.
It is usually shown as a histogram, with solid
bars. Volume charts yield clues when volume
is out of character. Unusually high, or
unusually low. High volume on a lower close
indicates selling pressure - people want to
get out and nobody is eager to buy so the
price falls. High volume on a higher close
indicates buying pressure - people want to
get in, but nobody will sell so they have to bid
higher. Volume becomes erratic as the
liquidity of the stock falls. Large blue chips
have high liquidity - there are large scale
trades every day. A small speculative stock
has low liquidity - there are sometimes no
trades for days on end. Volume significance
depends on the normal liquidity of the stock.
November 12, 2008
This week we bring you some comparative
analysis on the recovery patterns and trading
opportunities that have historically developed after
large market falls. We also promised you a series on
how to recognise market manipulation in bear
markets. This is based on recent work we did in
Beijing and Tokyo.
Volume is particularly significant in short
term trading. The price and volume relationships
provide a guide to the type of buying or selling
activity that is developing. There are four types of
activity.
1
•
•
•
•
The first is a type of share manipulation. This is often called a pump and dump scheme
in American markets. The manipulator buys a significant volume of shares. Others see
the price movement and join the rally. The manipulator then sells to these new buyers
and captures a quick profit. The price is ‘pumped up’ and then the shares are ‘dumped’
or sold to unsuspecting buyers.
The second is the volume activity associated with the development of a genuine rally
that may last for 5 to 10 days.
The third type of activity is genuine accumulation. This is an investment trend. This
occurs when buyers come into the market with the intention of building an investment
position. Their buying leads to the development of a steady uptrend.
The fourth type is a news event rally. A leading indication of this is a rise in volume that
does not show a rise in price. This suggests people are buying in anticipation of the
news. There may be rumours in the market. When the news is released the price and
volume rise very quickly. This is a short term trade opportunity, so the trade is closed as
soon as momentum declines. This may be 1 or 2 days after the news announcement.
PRICE MANIPULATION
Recognition rules
• Stock has a history of very low trading volume
• Volume suddenly increases dramatically and is often associated with just a few
trades during the day.
• Price increases by 10% or more
• Very fast price rise is associated with very high volume
• There is no news event that might explain the price rise
• Gap up activity is often followed the next day by a fall in price.
Trading rules
• Buy when the price begins to increase on day 1. Use intraday charts to identify
opportunity.
• Sell on day 2 or day 3 of the price move.
November 12, 2008
2
RALLY
Recognition rules
• Stock has a history of good trading volume with well defined rises and falls
• Volume increases for several days
• Price moves slowly, and then accelerates. This is defined with a parabolic trend, or
a trend line
• Volume increases as the price begins to move more quickly
Trading rules
• Enter when price rebounds from the trend line
• Use resistance targets as exit points
• Watch momentum and volume decline
INVESTMENT
Recognition rules
• Volume increases slowly. This is steady, consistent buying
• Buying volume is larger than selling volume
• Price moves in a consolidation band
• Price rise is slow.
• The new trend is defined with a trend line and there are many successful tests of
the trend line
• Volume remains steady when the price falls. This shows investors are buyers.
Confirm this with the GMMA indicator.
November 12, 2008
3
Trading rules
• Buy as price rebounds from the lower edge of the consolidation area
• When trend is defined with a trend line, buy when price rebounds from the trend line
• Use the lower edge of the long term GMMA as a stop loss
• Enter when price moves above the downtrend line
• Add to position when GMMA crossover develops
• Add to position after the first successful test of the long term GMMA support after
the GMMA crossover.
NEWS EVENT RALLY
Recognition rules
• Volume increases before the news announcement, but price does not rise
• Volume increases on the day of the news event
• Price accelerates quickly. This is a momentum rise
Trading rules
• Enter when price reacts to the news release
• Use resistance targets as exit points
• Sell 1 or 2 days after the news announcement when momentum declines
Recognising the correct price and volume relationship allows traders to make a better
decision about the best trading or investment approach to use for the trade.
We are waiting for markets to show signs of consolidation. The rally is not part of a V or W
shape rebound. When this develops we look at entering new long side positions.
While we are waiting we are studying. While we are waiting we are also learning. For now,
the first objective is to preserve capital and this is most easily done by staying out of the market.
We use the time out of the market to prepare the best strategy for re-entering the market
under new conditions in the future. This is an education and learning curve and there is no other
newsletter that tackles this as effectively and in such a timely fashion as Tutorials in Applied
Technical Analysis. We bring you articles that revise the essentials of trading approaches to the
market because these are the essentials of future methods.
November 12, 2008
4
We add to capital, and this is most effectively done by participating in the market. It is an
option available only to traders with the available time and experience required to monitor short
term positions. This is Snapshot Trading and it uses the methods discussed in the Catching The
Bounce and the GMMA Trend Volatility Management DVDs released a few weeks ago.
RECOVERY PATTERNS
For case study purposes we remain flat. We reprint the examples of market recovery
patterns. The ‘on the floor’ recovery pattern shown as the long term recovery chart is the pattern
we are currently developing with the DOW. The first generic chart shows how we expect the DOW
recovery to develop. We show where we are located on this chart development at the moment.
November 12, 2008
5
At Guppytraders.com we have lots of experience in trading falling markets from the long
side. We gathered this in 1997 trading the Malaysian market. We have honed these skills in 2008
with our daily real time trade advisory, SanZhiHua, for Mainland Chinese traders trading the
Shanghai market. This is a market that has fallen 60% and with 3 new stocks introduced every
day for long side trading it has tested and developed long side trading skills.
The key conclusions:
• Uptrends become very unreliable
• Trend breakouts collapse quickly when they fail
• Volume backed rallies fail quickly
• Average profit targets are small, around 10% to 15%
• Momentum is king
In the coming weeks we will bring you examples of the application of these strategies.
November 12, 2008
6
DEPRESSION TRIGGERS
By Daryl Guppy
SUBJECT SUMMARY
RECESSION AND DEPRESSION
A recession Is an economic slowdown that
may last for 6 to 18 months.
A depression is an economic pullback that
may last from 2 to 4 years. In both cases the market
moves in anticipation of the event. The market fall
develops before the fundamental signs of a
recession or depression become evident. The
market leads the confirmation of conditions.
The market also leads the recovery. In a
recession the market will develop strong trending
behaviour many months prior to the official
confirmation of the end of a recession. This
recovery provides trend trading opportunities.
In a depression the market will develop a
long term consolidation pattern. This is an
investment period and lays the foundations for
generational fortunes. Trend trading opportunities
do not develop for several years. This consolidation
and accumulation phase concentrates on creating
income flow from dividends. The fundamental end
of a depression is not recognised until many months
after the market has already reacted.
The key question facing markets is the
difference between recession and depression.
The market is hovering near significant
support levels. The closest of these we have
called recession support targets. The lowest
of these we have called depression targets.
Many analysis have compared this situation to
the market collapse in 1929. This week we
look at the charts from the 1929 period. In
particular we look at the similarity of
behaviour.
The first chart shows how we anticipate this market may develop a recovery and failure
pattern that leads in to a depression scenario.
November 12, 2008
7
The second chart is the weekly DOW for 1929 through to 1930. The significant features are
these:
•
•
•
•
The rapid fall is followed by a rebound and rebound failure.
The primary rebound failure occurs rapidly with another market collapse.
The pile driver low is retested with 12 months
Support, defined by the pile driver low, is not successful
The pink circle shows the comparable position of today’s market. This remains a period of high
volatility but the market reduces volatility and moves into a more clearly defined trending
behaviour. This pattern of behaviour suggests that a rebound from the current support levels may
persist for around 20 weeks. The important feature is the rapid failure of the trend line followed by
a rapid failure of the pile driver low support level. This failure is made more severe because the pile
drover low support does not equal any previous historical support level.
November 12, 2008
8
The failure of pile driver support brings the really bad news. The low of the market develops
in 1932, about three years after the 1929 crash. The key trigger is the failure of support set by the
pile driver low. The real disaster is that it takes 25 years for the market to exceed the high of 380
set in July 1929. This is why the Depression is referred to as a generational event. The current
situation has a potential to have the same generational impact.
Our task is to trade in all market conditions. The longer term DOW chart suggests several
different types of trading strategies. They are:
• Area 1. Short term volatility trading
• Area 2. Trend trading, but close all position when index trend line is broken
• Area 3 Consolidation rebound trading, short term
• Area 4, 5, 6, 7 Rally trading within the context of the developing fan trend line pattern.
• Area 8 Investment for long term recovery. The trigger is when the market moves higher
than the previous rally peak in area 7. This is the most important trend reversal signal.
November 12, 2008
9
Of course the market can be successfully traded from the short side throughout this period.
It can also be traded from the long side. American master trader Jessie Livermore developed his
trading skills through this long term Depression period.
Note that the fan trend line is a long term reversal pattern. It is not a Gann fan line. The fan
trend line captures the way resistance levels become support levels. This fan line pattern and
rebound support behaviour is developing in the Shanghai market.
The key trigger that separates a recession from a depression is the behaviour of the
rebound from the pile driver low. After the 1987 crash the rebound quickly developed strong
trending behaviour. The move above the mid way point in the market fall signalled a continuation of
the uptrend. This is recession behaviour. Depression behaviour is when the market fails to move
above the midpoint of the extreme fall area.
On the current DOW chart this suggests the area near 12000 is the most important level.
Failure to move above this level suggests a depression scenario may develop. A sustained move
above 12000 signals a recession. There is one caution in this analysis. The DOW has not yet
developed a confirmed pile driver bottom pattern on the weekly chart. The low of this pattern will
determine the mid-point resistance level that is used to signal a recession recovery.
Markets will not behave the same way as in 1930, but they will develop in a similar fashion.
There is a high probability that these behaviours will develop in shorter time frames.
November 12, 2008
10
READERS’ QUESTIONS - ANALYSING THE MARKET FOR
POSITION TRADING PART 2
By Andrew Gibbs
TRADING METHODS
POSITION TRADING
A ‘position’ is when the trader
buys stock. An ‘open position’ is any
trade that has been started but not yet
finished. The term ‘position’ describes
the stocks the trader is currently trading,
so he might have 6 positions, or 6 open
positions.
The position trader is somebody
who intends to hold the stock for weeks
or months. This trading style is built
around identifying trends and staying
with the trend for as long as possible. It
is related to the intended time in the
market, or the time frame of the trade.
Position traders ignore short
term fluctuations and many short term
opportunities. They manage risk based
on end of day data and on the closing
price. This trading approach suits full
time traders and also part time traders.
Last week we looked at ways of analysing the
seasonal components of a stocks annual trend in order
to decipher useful entry and exit points. This week we
are going to add some more specific entry and exit
signals to attempt to improve the original system.
In the previous edition of this newsletter we
analysed the various weeks of the year to determine
historically when the best weeks of the year have been
to buy or sell a particular stock. The stock we looked at
was 600692 listed in China. The system identified the
later part of the year and the first seven weeks in the
new-year along with a mid-year dip as the most
favourable period during the year to enter the market
based upon past history. The system then entered the
market utilising the RSI indicator to identify whether or
not the market was oversold. If the market was oversold
during the seasonal sweetspot the system purchased
the stock on the following days open and then exited the
market during a period where a high point had occurred
in the past using the particular week of the year as the
exit, rather than a trailing stop or profit target.
This week we are going to look at a slightly different variation. Firstly if we analyse the data
below it is clear that September and October or more specifically the 33rd-37th week of the year has
been the most favourable for exiting a position based on past history. The table below identifies
months 9 and 10 as being the best time to sell if you look at the profit factor column (the far right
hand column). The higher the profit factor the better and September and October obviously
correspond with the 33-37th week of the year.
Given that we know that the absolute best time to exit this stock has been in September or
October the system is now going to buy during the times during the year when the stock has been
weak in the past and we are only going to sell in September or October. The best buy periods
identified in last weeks article were the later part of the year (after the 40th week of the year) and
the early part of the year, prior to week 7. We also identified weeks 12-32 as presenting useful
buying opportunities following a sell-off in the stock. In addition we will only enter the stock using
what is termed a “volatility breakout” (see previous newsletters for more on this entry technique)
when the 5 day RSI indicator is below 20 during our two annual buy windows. The system report
below shows the results for this system.
November 12, 2008
11
An analysis of the table above is quite interesting. In the past this system of buying during
the seasonal sweetspot when the market is oversold and exiting during the 33rd week of the year
has been correct 80% of the time with a win:loss ratio of 2.86, which is pretty good for a system
that gets it right 80% of the time. Not only that, but the system has made $19.87 per share in net
profit on paper which again is very good because the price is only $7.00. We also only have three
trades per year, so it is not brokerage intensive and is pretty well passive investing. The point of
this article is to illustrate that sometimes knowing the past history of a stock can be a useful
predictor for future price action and in this case buying the stock when it is oversold during weeks
40-52, weeks 1-7 and weeks 12-32 and then exiting after week 33 in the year has resulted in an
outperformance for this particular stock compared to a buy and hold strategy. Will it continue to
outperform in the future?
This type of method does have one major weakness: A stop loss hinders the performance
of the method and therefore this type of trading is more suited to active portfolio investing rather
than outright trading. The method also fits well with fundamental analysis in that a portfolio can be
selected based upon fundamental criteria and the technical analysis methods above can be utilised
for entering and exiting that particular stock.
Andrew Gibbs sends out a free weekly newsletter outlining trading methods, along with the
services his company offers. If you would like to join the mailing list please e-mail
[email protected] with your full name and e-mail address.
The Tradestation code is shown below.
Inputs: Input33(1),input34(1);
Vars: TDOM(0), weekofmonth(0), weekofyear(0), TDOY(0);
if year(date of next bar)<>year(date) then TDOY=1
else TDOY=TDOY+1;
if month(date of next bar)<>month(date) then TDOM=1
else TDOM=TDOM+1;
if TDOM<6 then weekofmonth=1;
if TDOM>5 and TDOM<11 then weekofmonth=2;
if TDOM>10 and TDOM<16 then weekofmonth=3;
if TDOM>15 then weekofmonth=4;
if TDOY<6 then weekofyear=1;
if TDOY>5 and TDOY<11 then weekofyear=2;
November 12, 2008
12
if TDOY>10 and TDOY<16 then weekofyear=3;
if TDOY>15 and TDOY<21 then weekofyear=4;
if TDOY>20 AND TDOY<26 then weekofyear=5;
if TDOY>25 and TDOY<31 then weekofyear=6;
if TDOY>30 and TDOY<36 then weekofyear=7;
if TDOY>35 and TDOY<41 then weekofyear=8;
if TDOY>40 AND TDOY<46 then weekofyear=9;
if TDOY>45 and TDOY<51 then weekofyear=10;
if TDOY>50 and TDOY<56 then weekofyear=11;
if TDOY>55 and TDOY<61 then weekofyear=12;
if TDOY>60 AND TDOY<66 then weekofyear=13;
if TDOY>65 and TDOY<71 then weekofyear=14;
if TDOY>70 and TDOY<76 then weekofyear=15;
if TDOY>75 and TDOY<81 then weekofyear=16;
if TDOY>80 AND TDOY<86 then weekofyear=17;
if TDOY>85 and TDOY<91 then weekofyear=18;
if TDOY>90 and TDOY<96 then weekofyear=19;
if TDOY>95 and TDOY<101 then weekofyear=20;
if TDOY>100 AND TDOY<106 then weekofyear=21;
if TDOY>105 and TDOY<111 then weekofyear=22;
if TDOY>110 and TDOY<116 then weekofyear=23;
if TDOY>115 and TDOY<121 then weekofyear=24;
if TDOY>120 AND TDOY<126 then weekofyear=25;
if TDOY>125 and TDOY<131 then weekofyear=26;
if TDOY>130 and TDOY<136 then weekofyear=27;
if TDOY>135 and TDOY<141 then weekofyear=28;
if TDOY>140 AND TDOY<146 then weekofyear=29;
if TDOY>145 and TDOY<151 then weekofyear=30;
if TDOY>150 and TDOY<156 then weekofyear=31;
if TDOY>155 and TDOY<161 then weekofyear=32;
if TDOY>160 AND TDOY<166 then weekofyear=33;
if TDOY>165 and TDOY<171 then weekofyear=34;
if TDOY>170 and TDOY<176 then weekofyear=35;
if TDOY>175 and TDOY<181 then weekofyear=36;
if TDOY>180 AND TDOY<186 then weekofyear=37;
if TDOY>185 and TDOY<191 then weekofyear=38;
if TDOY>190 and TDOY<196 then weekofyear=39;
if TDOY>195 and TDOY<201 then weekofyear=40;
if TDOY>200 AND TDOY<206 then weekofyear=41;
if TDOY>205 and TDOY<211 then weekofyear=42;
if TDOY>210 and TDOY<216 then weekofyear=43;
if TDOY>215 and TDOY<221 then weekofyear=44;
if TDOY>220 AND TDOY<226 then weekofyear=45;
if TDOY>225 and TDOY<231 then weekofyear=46;
if TDOY>230 and TDOY<236 then weekofyear=47;
if TDOY>235 and TDOY<241 then weekofyear=48;
if TDOY>240 AND TDOY<246 then weekofyear=49;
if TDOY>245 and TDOY<251 then weekofyear=50;
if TDOY>250 and TDOY<256 then weekofyear=51;
if TDOY>255 then weekofyear=52;
IF (weekofyear>40 or weekofyear<7)and RSI(close,5)<20
THEN BUY NEXT BAR at open next bar+average(range,7)*0.5 stop;
IF (weekofyear>12 and weekofyear<32) and RSI(close,5)<20
THEN BUY NEXT BAR at open next bar+average(range,7)*0.5 stop;
if (weekofyear=33 or weekofyear=34 or weekofyear=35)
then sell next bar at market;
November 12, 2008
13
MARKET EXAM 6
By Daryl Guppy
SUBJECT SUMMARY
MARKET EXAM
Every day and in every trade, the market gives
us an examination. The results are
unforgiving. Get the examination question
correct and the market gives you money. Get
the examination question incorrect and the
market takes money from you. Every trading
decision to buy, or sell, or just observe is a
test of all the skills and knowledge and
experience you have accumulated. Unlike onthe-job training, the market gives you no
latitude for error, for past successes, or
experience. Every test is for real, and every
test pass or fail carries the same
consequences. It is a demanding task. Over
ten weeks we give you a less demanding test
– at least in terms of consequences. These
questions are designed to help you to evaluate
your knowledge about trading and help to
identify areas where you may needs to do
some more homework.
In challenging markets it is a good time to
think about the foundations of our trading
approaches. This is the sixth instalment of
‘revision’ questions to help this process of
rebuilding trading plans and approaches. Each
week we will provide a list of 10 new multiple
choice questions. We will also provide the answers
to the previous weeks questions. There are 100
questions.
We will not be providing an introduction
lesson for the questions. The questions based on
moving average analysis will not follow an article
on moving averages. The intention is to test your
existing knowledge of ideas, concepts and
methods relevant to trading. You may find some
gaps caused by forgetfulness, or by simple lack of
knowledge. This discovery is useful because it
provides a focus for areas of additional research.
Answers to last week’s questions are
below. Answers to this week’s questions, and a
new set of questions, appear next week.
REVISION QUESTIONS 51-60
51) Which is the correctly plotted upside target for the triangle?
1. Line 1
2. Line 2
52) Which is the correctly plotted down side target for the triangle?
1. Line 3
2. Line 4
November 12, 2008
14
53) Select the IPO chart with the correct entry signal. Use a volatility indicator calculation.
1. Chart 1
2. Chart 2
3. Chart 3
54) What is a divergence on a technical indicator?
1. A divergence is when the price of a stock trends in one direction and the indicator goes the
opposite trend direction.
2. A divergence is when the stock price goes up and the indicator goes down.
3. A divergence is when the price of a stock trends in one direction and the indicator trend in
the zone of importance goes the opposite trend direction.
55) Identify the valid divergence.
1.
2.
3.
4.
November 12, 2008
Line 1
Line 2
Line 1 and 2
Not a valid divergence shown on the chart.
15
56) Where is the pivot point low?
1.
2.
3.
4.
57) Where is the correct double bottom?
1. All line are double bottoms
2. Line 1
3. Line 2
4. Line 3
5. Line 1 and 2
6. Line 1 and 3
7. Line 2 and 3
8. None of the lines show a double bottom
November 12, 2008
16
Point 1
Point 2
Point 3
Point 4
58) Which line is the correct measurement for the double bottom?
1. Line 1
2. Line 2
3. Line 3
59) Where is the Rally?
1.
2.
3.
4.
5.
6.
7.
8.
60) What is the first step to successful trading?
1. Make a profit
2. Know how to assess the trade risk.
3. Knowing what are we looking for in a trading opportunity
4. Knowing what are we trying to do in the market
5. Know how to prove the opportunity
6. Know how to assess the trade potential.
7. Knowing what are we trading
8. Know how to determine the position size.
November 12, 2008
17
All show a rally
Chart 1
Chart 2
Chart 3
Chart 1 and 2
Chart 1 and 3
Chart 3 and 2
No chart has a rally
ANSWERS FROM LAST WEEK 41-50
41) What is the theoretical benefit of having stock in different sectors?
1) This gives portfolio diversity and reduces risk.
42) What is the benefit of trading the strongest stock in the strongest sector?
3) There will be a lot of volume, and the stock will move rapidly.
43) What is Systemic Risk?
2) Systemic Risk is the risk the entire market may fall.
44) What is cumulative Risk?
1) Cumulative Risk is where we have more than one open trade, and applying the 2% rule to all
our open trades the actual risk to our portfolio increases. If the entire market were to fall this is
how much we lose.
45) What is our preferred spread of Portfolio Capital across the three stock types; blue chip, mid
cap and volatile?
3) 4/7 blue chip, 2/7 mid cap and 1/7 volatile
46) We should only use money we are prepared to lose when we invest in speculative stocks.
3) No. Every trade should be given close attention and traded as though it’s the only open
position we have. We trade to make money.
47) Should we sell better performing stocks to make up for poorer performing stocks?
2) No. We should sell the losing stocks and follow the better performing stocks to their full profit
potential.
48) What is the difference between a moving average line and a Linear Regression Line?
3) The Linear Regression Indicator plots a line that is statistically fitted to the price data, one
data point at a time, rather than being an average of that set of data.
49) This is a chart of an important bank stock. The fundamental analysis said this bank had a very
good future. All the brokerages said this bank had a very good future.
Analyze the chart and select the best action.
4) Wait for a clear end to the downtrend and then buy.
November 12, 2008
18
50) Select the chart with cup chart pattern
4) Chart 4
Next week we bring you the answers and a new set of 10 questions.
YOUR SCORE CARD
Keep this scorecard updated and calculate your performance percentage.
Quest
1
6
11
16
21
26
31
36
41
46
51
56
61
66
71
76
81
86
91
96
Ans
Quest
2
7
12
17
22
27
32
37
42
47
52
57
62
67
72
77
82
87
92
97
Ans
Quest
Ans
Quest
3
8
13
18
23
28
33
38
43
48
53
58
63
68
73
78
83
88
93
98
4
9
14
19
24
29
34
39
44
49
54
59
64
69
74
79
84
89
94
99
Ans
Quest
Ans
5
10
15
20
25
30
35
40
45
50
55
60
65
70
75
80
85
90
95
100
To read more of Daryl’s articles, please click on this link
http://www.cnbc.com/id/23103686/
November 12, 2008
19
%
INDEX BRIEFS – KLCI, MALAYSIA
By Daryl Guppy
SUBJECT SUMMARY
INDEX NOTES
Each week we carry index
analysis
notes
for
regional
markets. These are the markets in
Singapore, Malaysia, Hong Kong,
Shanghai, Thailand, Taiwan and
Korea. Each market is covered
once every six weeks, or more
often if there are significant
market
developments.
The
objective of the notes is to provide
an
analytical,
technical
background to assist readers in
making
better
trading
and
investment decisions.
November 12, 2008
We looked at the KLCI in late August. The dominant
feature is the bearish long term head and shoulder pattern. It
is important to note that the downside targets near 760 have
not yet been achieved. This market is particularly compatible
with head and shoulder patterns. They occur often and they
display a high level of reliability in this market.
This is not a freefall market. There is a long term
support consolidation trading band between 860 and 920. A
market collapse has a high probability of pausing in this
consolidation area. There is some evidence of a consolidation
rebound developing in this region. However this is a temporary
rebound. All regional markets with head and shoulder patterns
have achieved or exceeded these pattern targets.
20
The neckline, or base of the head and shoulder pattern uses the extreme low in August
2007 and the low in March 2008. A straight forward application of the pattern target measurement
sets a downside target near 760. This target is not an historical support level. Support is located
near 800 so this is the higher probability downside target. This has been achieved, and the
rebound has developed from this area. The 760 target is an extreme technical target.
There remains the potential for a sharp temporary fall towards the head and shoulder target
near 760. The sudden temporary falls in March and August 2007 and again in March 2008 show
how it is possible for this behaviour to develop. This is consistent with the character of the
Malaysian market.
For more details, go to
http://www.guppytraders.com/08xmasoffer.htm
November 12, 2008
21
CHART BRIEFS - NOBLE GROUP (NOBG), SINGAPORE
By Petra Rak
INDICATOR REVISION
FLAGS
The flag forms when the initial
enthusiasm for the stock flags (excuse the pun).
There are few sellers as most new stockholders
are holding onto their recently acquired positions.
Buyers collect stock from long time stockholders
who are selling into the unexpected strength, but
who are a little frightened that it will not persist.
Gradually prices move downwards, but maintain
a steady trading band. This is the key
characteristic of this chart pattern. The sides of
the down sloping flag are parallel. Once nervous
stockholders have been bought out the price has
nowhere to go but up and a down sloping flag
often proceeds to do just that on a gap opening.
The daily chart of NOBG shows a rally in
a downtrend which may be developing into a
bullish flag pattern. In detail, NOBG has been
trending downward since the middle of the year
and prices have fallen from a high around 2.87
to a historical weekly low at 0.46 at the end of
October. The initial portion of the downtrend was
captured within a longer-term consolidation
developed between a support at 2.15 and a
resistance at 2.50. Overall, price movement
within and around this consolidation together
with the accelerating downtrend has resulted in a
rounded top-like pattern, which is shown dashed
on the chart. The pattern developed above a
1.60 support with a mid-point support at 2.15.
As is common with rounded top
patterns and indeed more generally with
the break of a strong support, the failure of
the 2.15 level was followed by a steep
acceleration of the price fall. The resulting
downtrend can be clearly defined using
two steep downward trendlines. The trend
fell to a low around 0.45, where a rebound
developed last week and broke through
the trendline in a momentum rally. This
rally has since broken above a weak
potential resistance around 1.00. The last
few days show a slight weakness which
may develop into a bullish flag pattern.
November 12, 2008
22
UP CONDITIONS
The rebound from the 0.45 support completed the downside rounded top target (calculated
by projecting the full height of the pattern downward from the base support at 1.60). Hence, the
rebound has developed outside of this bearish pattern, which is a positive development.
For traders willing to trade in the current highly unpredictable markets the initial opportunity
in NOBG was set up on breakout above the CBL breakout line at 0.75 and shortly afterward
through the downward trendline. The extent of this short-term trading opportunity (which amounts
to an increase of around 130% on the last day shown) was however unexpected and entirely
unpredictable and it is important to note that any entry on the first breakout day would have been
an extremely high risk position given the long-term downtrend. Hence, the initial rally trade was
only suitable for highly experienced short-term traders active in the current markets.
The rally has now started to run out of steam (but not out of support) as indicated by the
slight retreat (and possible developing flag) and falling volumes over the last three trading days.
Hence, interested traders will observe development of the potential flag pattern (which has
not been confirmed yet as we cannot reliably draw the two parallel flag trendlines). A rebound from
the 1.00 support will signal a likely flag continuation. Conversely, failure of the weak 1.00 level will
confirm that the rally has run out of steam and a retreat back to the downtrend lows is likely.
If successful, the flag pattern may result in a breakout back above the old rounded top
support and decisively out of the downtrend. We note however that a full flag breakout remains a
low probability given the weak and volatile market, the ongoing overall downtrend as shown by the
GMMAs and the significant overhead resistance levels.
DOWN CONDITIONS
As noted above, failure of the 1.00 level will signal a likely retreat back to the old downtrend
lows around 0.45. A rebound from this level may result in a potential opportunity, while a fall
through this level will signal an ongoing severe downtrend.
November 12, 2008
23
METAL BRIEFS – COPPER, SHANGHAI
By Daryl Guppy
SUBJECT SUMMARY
METAL NOTES
Each week we provide
Reuters
newswires
with
analysis of metal trading on the
London
Metals
Exchange.
Metal price behaviour is a
guide to economic strength
based on commodity demand.
We reprint this analysis for
newsletter readers.
November 12, 2008
Weak support near 31,000. Strong resistance near
34,000. Significant resistance near 40,000. Look for short term
rallies within the context of a well established downtrend. Long
term support projection target near 25,000.
24
NEWSLETTER NOTES
GRAPHIC QUALITY
Charts are at the heart of the newsletter. We use large charts so the detail can be seen clearly. The
newsletter is prepared with Word. When the newsletter is converted to PDF format there is a significant
reduction in the quality of the original graphics. You can compare the quality difference by downloading a
Word format copy from the web site using the passwords sent each week. The quality of the Word document
is always better. There are two solutions to this problem of graphic quality.
The first is to use the zoom button on the PDF display and enlarge the newsletter. However, you
cannot really improve an already degraded image quality.
The second alternative is to request that your preferred format be changed to Word format.
RESIZING NEWSLETTER CHARTS
Clear charts are at the heart of the newsletter. In
many cases we are forced to reduce the size of charts so
they fit on the newsletter page. The quality of the charts
and the detail is damaged in this reduction process, but
there is a simple way to return to chart to its original size.
This method is an ‘un-do’ of the picture compression
process and it retains all the original graphic quality.
Simply dragging the corner of the picture does not retain
the original picture quality. This method is only available
to those who receive the newsletter in word format.
First place your cursor over the chart and right
click. From the menu select FORMAT PICTURE. Then
select SIZE. In the SCALE box adjust the HEIGHT of the
picture size to 80% or 100%. Ensure that the two option
boxes – LOCK ASPECT RATIO and RELATIVE TO
ORIGINAL PICTURE SIZE are selected. This will
automatically keep the picture in the correct proportions,
even though you have only changed the HEIGHT to 80%.
Click OK to implement the change.
The result will be a chart that is as clear as the
original charting program. WARNING. This resizing will
affect the layout of the newsletter. When you have
finished viewing the enlarged charts make sure you
choose NO when you are asked if you WANT TO SAVE
CHANGES.
CHINA AND CMC
CMC markets include many Hong Kong Listed Red Chip CFDs. These are stocks that are jointly
listed in China and Hong Kong. This provides one way for foreigners to trade the growth of China markets. It
could cost traders thousands of dollars to learn how to trade the Chinese market. We provide a short-cut on
the learning curve with an English language version of our trade advisory weekly.
Each issue covers around 20 to 30 stocks each week, but does not include some of the
fundamental commentary included in the Chinese language edition. Red-K-Line includes Shanghai or
Shenzhen Index analysis every week which is not included in the Chinese language edition.
• Red-K-Line is essential reading for traders interested in understanding how China trading is
different from trading in Western financial markets.
• Red-K-Line teaches you which strategies work in Chinese markets.
• Red-K-Line is essential for expats who are interested in trading the China market.
• Red-K-Line is essential reading for those who want to be ready to participate in China market
trading when the market opens
With a real-time success record of 72%, Red-K-Line is the most successful China market trading
weekly publication available in English.
Full newsletter details are available on www.guppytraders.com/RKLChina
[email protected] for a free sample copy of Red-K-Line, English version.
November 12, 2008
25
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WHICH GUPPY BOOK?
Many people have asked this question. So, here is a summary guide:
Want to co-ordinate your trading?
The 36 Strategies of the
Chinese For Financial Traders Beginner to experienced
Want to know more about trading?
Share Trading
Beginner to experienced
Want to know more about charts?
Chart Trading
Beginner to experienced
Want to know more about tactics?
Trading Tactics
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PORTFOLIO CASE STUDIES – MONEY MANAGEMENT
Starting cash position $100,000 - no brokerage or slippage 2% of risk = $2,000
NOTE Entered date is the newsletter date which contains the case study discussion.
Close is Monday close prior to publication
Security/Counter/Stock
no open positions
trend trade
Price
Qty
0.00
Pur Value
0
Newsletter date
Close
0
Cur Val
0
6/08/2008 Open Profit
-
Percentage
#DIV/0!
NOTE: The case study portfolio is reset to a nominal $100,000 in trading capital in April 2007
Profit since April 1, 2008 , $26,796 or 26.7% return on trade equity.
November 12, 2008
26
-
SUMMARY MONEY MANAGEMENT
Profit April 1, 2007/March 31, 2007 = 63% return on trade equity.
Profit April 1, 2006/March 31, 2007 = 70.8% return on trade equity.
Profit April 1, 2005/March 31, 2006 = 59% return on trade equity.
Profit April 1, 2004/March 31, 2005 = 38.8% return on trade equity.
Profit July 1, 2000/December, 2000 = 32.2% return on trade equity. (6 months only)
Profit July,1999/ June, 2000 = 69.9% return on trade equity.
Profit July,1998/ June, 1999 = 54% return on trade equity.
Profit July 1997/ June, 1998 = 66% return on trade equity.
From 1997 to December 2000 we ran a Singapore/Malaysian section in the Australian edition of the newsletter.
The results above are from the case study trades for that period.
Direct investing in the stock market can result in financial loss. Historical results are no guarantee of
future returns. Results reflect absolute trading stop loss discipline. Case study trades are monitored and
managed in real time and management reports are delivered every week in the newsletter. Except where
noted, all case study trades and notional examples using reasonably attainable entry and exit points.
Unlike an actual performance record, simulated results do not represent actual trading. Also, since the
trades have not actually been executed, the results may have over or under compensated for impact, if
any, of certain market factors, such as lack of liquidity. No representation is being made that any account
will or is likely to achieve profits or losses similar to those shown. Full trade summaries, with charts, are
provided every six months.
DISCLAIMER AND COPYRIGHT
Guppytraders.com (ACN 089 941 560) Pty Ltd is not a licensed investment advisor. This publication, which is generally
available to the public, falls under the Financial Media Advice provisions. The information provided is for educational
purposes only and does not constitute financial product advice. These analysis notes are based on our experience of
applying technical analysis to the market and are designed to be used as a tutorial showing how technical analysis can
be applied to a chart example based on recent trading data. This newsletter is a tool to assist you in your personal
judgment. It is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared
without regard to any particular person's investment objectives, financial situation and particular needs because readers
come from diverse backgrounds, with diverse objectives and financial situations. This information is of a general nature
only so you should seek independent advice from your broker or other investment advisors as appropriate before taking
any action. The decision to trade and the method of trading is for the reader alone to decide. The author and publisher
expressly disclaim all and any liability to any person, whether the purchase of this publication or not, in respect of
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marked* and are not to be taken as a trading recommendation. This is not a newsletter of stock tips. Case study trades
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November 12, 2008
27