Strategy for the week 29 Oct 2012 (US)

I am bearish in the short term for the US market.  In spite of the coming elections, QE3, and the traditional end of the year rally.

It is intriguing to note that S&P made a year high of 1474 on 14 Sept 2012, the day after Dr Ben Bernake announced QE3.  Interestingly, it has made a sequence of lower high of the daily chart.  QE3 is a sound plan to lift the market in the long term.  

What then is the reason for the slide since the announcement?  Poor earnings report.  Earnings is the heart of running of any business.

Lets analyse the S&P chart in multiple time frames.  Starting with the daily time frame (right).

1) Price has broken the triple top neckline at 1430, which is also the 78.6% fibo level.  It will very likely reach next support is at 1396 this coming week.

2) Price has broken the ralf regression channels.  This tells me that the short term trend is defintely not up.  It is either down or ranging.

3) 13SMA, MACD, Stoch, RSI are all trending lower, signalling that the momentum is down, with no sign of stopping.

Now look at the weekly chart (middle).  The is the main time frame that I use to define by strategy and tactics.

1) Notice that S&P has reached the quarterly pivot, which has a resistance turned support level.  We may see some support at the current price of 1414.

2) 13SMA, MACD, Stoch are indicating clear downward momentum.

Now, there is a support and there is a downward force, which direction should I should take?  I lean towards taking a downside bias.  Until the price action show me some tangible support, I will look to short.  This will also mean that I take quick profits, rather than the saying "let the profits run".

On the monthly timeframe, it is clear that the trend is up.  However, look at the last 2 candles on the monthly chart.  Note the month has not ended, but assumming if it did, the S&P looks like it will be retracing.  The name of the candle is a bearish harami, which means pregnant woman.  If it gives birth, I will expect S&P to retrace strongly.  The 2 candle formation also looks like a double top with relatively long wicks, signalling the bears are in control for the time being.  

RECOMMENDATION : SHORT.  INVESTORS STAY OUT.

Biosensor, catching a falling knife?

I was asked by a good friend (who is a very prudent investor-trader), on what is the best price to accumulate for Biosensor.  My immediate reaction was "huh, biosensor?!  catching a falling knife?"  Let me explain and analyse the stock price and the fundamentals of Biosensor.
Biosensor has been on my radar for some time, having made and then lost money on it.   My calculation of intrinsic value based on forecasted EPS is S$1.51.  The current stock price is currently undervalued.
Now, lets take a look at the EPS.

It looks like its R&D has finally started to bear fruits. The EPS is increasing year on year for the past 3 years. There is a potential of long term price appreciation.  The debt to equity ratio is decreasing nicely year on year, while the current ratio is increasing steadily.  The management seems quite wise in dealing with their finances.  I like Biosensor for its increasing earnings and sensible debt policy.  Note, however, that it has not given any dividends yet, making it unsuitable for conservative investors.  Now, let take a look at the charts.  I will be using multiple time frame analysis.

The first chart on the left is the monthly chart, second chart is the weekly chart, and the 3rd chart is the daily chart.  Looking at the daily chart (right chart), it is clear as night and day that Biosensor is falling, and falling fast.  The candles are making lower highs and lower lows, it has pierced the monthly R2 pivot, it trading below the 13SMA, the MACD is falling, Stochastics and RSI showing strong downward force, albeit at oversold levels.  But what did they say about oversold?  A stock can be oversold and remain oversold for a long, long time.
The weekly chart (middle chart) is also bearish.  $1.15 is now at the quarterly R1 pivot as well as the fibo 61.8% level.  But this support does not seem to have any effect (yet).  MACD, Stoch, RSI are also coming down.
Now look at the monthly chart (left).  It is clear that the long term direction of biosensor is upwards.  It is currently making a retracement.  This presents us with an ideal opportunity to enter.
How then can i seize this opportunity?  We have to wait for the price to stop falling down and then go up before we can enter.  The support at 1.15 does not seem like holding.  The next level is $0.97, and a very strong support at $0.79, which is both the fibo 38.2% and the yearly R2 pivot.  I will look out for a bullish candle in the weekly chart for my first entry.  No confirmation, no entry.  I will be documenting every trade i make on this blog with clear entry, target, and stop loss levels.
At this point of writing, buying Biosensor at these levels without confirmation is like.........catching a falling knife.

RECOMMENDATION : SELL (Because it is expected to trend downwards in the short term)

Strategy for the week 29 Oct 2012 (Singapore)

As a prudent investor, I am staying out this week for the Singapore Stock Market. 

Analysing the STI weekly, the week closed higher than the previous week, but could not break the week high and the 13SMA.  There is no clear direction based on candle formation.  Prices are consolidating at the 3000-3100 range for the past 3 months.
With regards to momentum indicators, RSI is healthy, but the Stochastics is indicating that the momentum of the market is slowing, and likely to fall.  Note the bearish divergence for Stochastics with prices making higher high, while Stochastics making a lower high. MACD is on the verge of a downward crossover.
My long term bias is till in the upside.  However, with the current uncertainty, my plan is to stay in the sidelines, protect profits (I am still long in a few blue chip stocks), and not to buy Singapore Stocks this week.
Only trade when the edge is on my side.