Week Roundup

Hey folks! The weekend is here and what a week it has been indeed. Big reversal on the US markets and there’s no doubt that the important 767 key level would be re-tested. In fact I was pretty sure it would be. One of the reasons was that Friday was options Ex. The institutes will not wanna pay a premium to the amazing number of puts out there in the market. Every attempt to rally the market to squeeze out the shorts will be made. On Thursday it looked like they had lost the battle but friday saw a very nice reversal indeed. The resistance levels on the S&P remain at 812 and the key 840. So what are we looking forward. We need any upside to follow through breaking these reversals. On the flip side if it does not follow through then 660 could come into play.

The thing about how such stuff work, is that we don’t know a bottom till it has formed and rebounded off it. Similarly we will not know a top is a top till it has formed and head back down. And those are your confirmation and trading opportunities. It is near impossible to know where a bottom or a top is till it has formed. And the only way for it to form is when a reversal has occurred. So could Friday be a pivot day? We will have to watch and see. One thing is clear. The market is not making it easy for investors and traders alike to make money. Just when you think everything is headed one way, boom it reverses. That’s why I tend to have a contrarian view. It will be extremely interesting if I can actually master this along with time-line analysis.

The topic on short selling has resurfaced. The speed of how Citigroup’s shares plunge over the week has nothing short of amazing. They have asked that naked short-selling be banned and you know my stand on that. I do not do nor condone naked short selling. As a trade, it is extremely high risk. Looking from above, it drives fear and could singlehandedly bankrupt a company. Imagine you had a 3 mil house on a loan. The market has been weak and over the year it has since plunged to 1.5mil. Imagine in the course of a week, there were massive dumps out in the market. The value drops to 500k. The banks will definitely ask you to top it up and if you can’t, it can be force sold and you made a bankrupt, overnight literally. Is it fair? No. Short selling with scripts is different. Longs and shorts create buy and sell equality. There could be more sells in a bear market and more buys in a bull market of course. But who are the ones who are buying (short covering) queues? Obvious aint it. Are value investors going in full force? No. They know we are a long way from bottoming. Without buyers, the bid spread between sellers and buyers can be huge. What does sellers do if they have to sell? Sell at any price where buyers are. Which can be very very low. That is a plunge in share price when it happens. Traders on the other hand are in between. But they can’t just short. They need to cover. You will have intraday traders and swing traders. Compare this with say Malaysia and Vietnam (if i remember correctly). Both do not allow shorting. The government believes in value investing only. The latter takes it a step ahead such that you need to hold your long positions for at least 3 days. Imagine what can happen in 3 days these days. Do u dare to enter? How much would u go in? Compare their index with the other key regional ones and even with the STI.

In short, naked shorting drives a price artificially. It also creates panic. Untrained retail investors will continue to be spooked by this and it takes a brave man to hold onto their positions. U see what happened to AIG, Freddie Mac and Fannie Mae and all. Will Citigroup end up the same? Some will not want to take that chance. Naked shorts have to be covered eventually, but it is very different from the way a trader using scripts will cover. Banning short selling is actually bad for the market to me. A lot of people will be placed out of the market and the whole equilibrium will be upset. It is normal that there are more puts in a bear market and more calls in a bull market. I know of a lot of people who are on the ‘short and hold’ strategy. I am not too sure if we have limited downside. It would have been best if it was done from the top but the idea is every nice rebound could turn out to be an excellent entry point.’

The US markets have violated the bullish divergences. STI has not violated it yet however.

So that’s the STI for you. Nice gap covering on Friday to close right onto the gap resistance. That itself is a resistance of its own. Do we see follow through? That is the question we have to answer. To help us, there are a few resistance lines as drawn in green arrows. 1713 will be an important level to look out for. On the downside, we should have support at the lowest low so far. Believe it or not the best place to go long is on a breakout at the top arrow. That confirms a bullish move. Anything before that will be a high risk trade because of the sideway formation. We could head all the way into 20MA and it is STILL in a sideway channel, not an uptrend. My guess is that we could get past 1713 to return back into the channel for now. But the way the market goes these days, even the best TAs will not be certain of any trend at all for now. In such scenarios, it remains bear with a neutral bias. If 1713 can be recaptured I will look towards a neutral-positive bias. Every bear cycle has a nice bull run where resistances will break on a short term chart. On a longer time frame it will take a lot more to turn bullish. Remember what happened between march-june this year? Nice rebound. That is an example of a bull run with a bear cycle.

The earlier charts of mine remain in watch list. SembMar has bullish engulfed the previous black candle but remains resisted at 20MA.

Citydev did not confirm that break at 5.30. I will be using the same cut loss points. SA has not retested its breakdown level at 73c yet while Kepland’s bottom held. Some of the 20MAs are still pointing down, while many have begun to be flat, indicating the flattish sentiment. Some on the other hand has begun turning up.

Regardless of it all, in trading, there is no way to predict what happens in the following week. What we do know is the key levels to watch for, and react accordingly. The idea is not to be sucked in without knowing what the risk are. U could do a ‘tikam’ trade but u have to know what to do if the tide turns against u. If the trend rides with your positions, know where resistance points are. Support and resistances are VERY basic things and candlestick and indicator analysis mean nothing if you do not understand support and resistance. In fact one could fall into the ‘little knowledge is a dangerous thing’ and make mistakes instead cause one is not seeing the big picture.

We do not create charts and determine where it will go. The chart is the one that provides direction on where it may go and for us to enter with a good probability. I think this is an important statement cause I see many people fail to understand it, thinking we are the ones who try to determine where we head, which is entirely untrue. ‘They’ decide, we follow. Pure and simple isn’t it?

Have a wonderful weekend everyone. Watch those levels next week. Watch for follow-through, or a total implode and violation of the upside attempts. We have seen almost every single attempt to head up get violated within 1 or 2 sessions. I feel it is about time there should be some form of decision soon on Mr Market’s part. The US markets are still trading inversely VS the USD. USD formed an M pattern intraday as the dow created the bullish W formation which ultimately broke out. Financials were a bit weak so you need to look at that closely. Citi is now a 3.77 dollar stock. AMAZING. JPMorgan is also extremely weak. The market headed up but financials are pretty mixed – down. Ugly.  Don’t link their market to ours though. STI does not follow the US market. It mirrors the HSI. It may take lead at opening 9am but thereafter it takes after HSI extremely closely. The UUP (USD play) will have to break its 20MA support and if it does it could come down very hard. If it does, then the US markets have every reason to rally based on my analysis and findings with the market’s performance VS USD.