Time to Buy Stocks

I was training a class of new VectorVest users about 2 weeks ago.  Someone from the audience asked me if it was too late to short the market.  Surprised, I then took a poll of the audience that day if they felt bullish or bearish about the market.  Most of the raised hands were bearish.  With that I declared to them that it was time to buy stocks!

It was clear 2 weeks ago that the sentiment amongst retail crowd was bearish.  They do not want to buy stocks and are thinking of shorting.  In understanding that there are only 20% winners in trading, I knew that I have to be bullish.  Never take action, until there is a clear entry signal from the charts to signify that the demand fundamentals has changed.

You need 2 things to enter into a market:

1. Identify the Driver (Fundamentals or Sentiment)
2. Timing (Technical Analysis)

See below for the STI chart, and the S&P chart.  Green arrow for Buy signals, Red arrow for Sell signals.

It is now time to buy US and SG stocks.

How I got to speak at SGX

Tonight, I will be speaking in SGX at 6.30pm. I am writing to help to promote the event, and also to describe how I was invited by my brokerage.
My system (VectorVest) called for a sell on 2nd Aug.  All my human intelligence was telling me to continue to hold my stocks.  But after a tug o' war with myself, I decided to stay disciplined.  Hence I sold more than 20 stocks that I had long positions in.  Then, I also took a small short position.
Today, on looking back, I can say with conviction that Discipline is far more important than Intelligence in trading.
Here is the invite from my brokerage, Amfraser Securities.

Dear All
We are organizing a trading workshop for our client on 5th Sep, we have invited Mr. Ian Low from vector vest to share with us on the current market situation, should anyone be interested to join us, please feel free to email to us
Vector vest uses a combination of fundamental analysis and technical analysis to help better gauge the market and how to better your portfolio. As a personnel witness to the system, the vector vest system call for a SELL 3weeks ago, and it is a BIG SELL from vector vest. Mr. Ian Low sold his entire holdings that was under our holdings and even shorted stocks. I believe that the system is suitable for buzy people who does not have the time to monitor the market.
Thank you 

TITLE: TRADING WITH CLARITY
DATE: 5th Sep 2013
TIME: 1830 hrs to 2030 hrs (2hrs)
LOCATION: SGX Trading Room 2.
Address: 2 Shenton Way, SGX center 1, Level 2 training room

Should you have any queries, please feel free to contact us
Thank you
Warmest Regards

Chai Ming Hui, Augustine
Remisier, Amfraser Securities Pte Ltd
DID: 6236-2676 / 2677

Riding the Waves

My last entry in this blog was in early May this year.  Before I continue with the current market situation, let me give you a summary of my trades in the Singapore stock market.

See the chart of the STI below.  The Red/Green triangles are my entries and exits.  I have been riding the waves in both directions.

• Closing my longs in early June, and then initiating my shorts.
• Closing my shorts in early July, and initiating longs.
• Closing my longs in early July, and initiating my shorts.

At the current moment, I have closed half my short positions.....and waiting for the green arrow.

It has been about 4 months since I last wrote about the markets. There is a little story behind it.

Met a technopreneur, who has been on and off giving me free tips on life skills. He asked me what my end objective was for my blogs and websites. Reminded me the first 1st habit of successful people is "to begin with the end in mind". 

Since May, I have been stopped all my blogging.........till today.

These 4 months, I have been doing lots of self searching.......while trading.
And Yes, I am still trading!!

Expect to see lots of changes. I hope everyone benefits.

Sell in May and go away

I do not like to forecast......because I am often wrong.  My way of trading is to follow where trends may take me.

There is a pattern that is just to obvious too ignore.  See the STI chart below:

For the past 3 years, if you have shorted on the 1st of May and sold anytime in June, you have made a bundle. See the arrows.  The start of the arrows is on 1st May.

The STI price for past 3 years formed tripletop-like consolidation patterns in Mar to April time period.  Upon breaking the neckline, fierce downtrend ensued.

Now lets take a look at each of the swing low to see when we can take profit of the shorts.

• For 2010, it is 25th May
• For 2011, it is 17th June
• For 2012, it is 4th  June

There does not seem to be any pattern here that we can take advantage of.  We can only take reference that the downtrend lasted for about 1 month to 1.5 months, upon which we must be ready to take profit.

Now if most people are aware of this May Syndrome, 2 things are likely to happen.

1. The sell off may take place in April, as people fight to get in to short first.
2. The opposite may happen.  There may be a breakout failure to the downside.  The price may go up instead.

Play out the different possible scenarios that may happen to your portfolio.  Have a plan ready to react to each outcome.  Because, if you have no plan, the emotions will get to you when the price start moving, and you are setting yourself up for failure.

Rules based trading - Taking profit on Ezion

Ezion hit my profit target of 50% yesterday.  I longed on 3rd Dec 2012.  See the Entry on my blog.

Based on rules, I sold this morning at $2.18.  I did feel the emotions of greed whispering to me to hold on further.  Managed to brushed off the temptations and focus on obeying rules.
Admittedly, it was helped by Ezion forming a shooting star yesterday on the daily chart.  In addition, the price is now at the top of 2 channels.
Will I be buying Ezion again?  Yes, I may.  It is still a fundamentally sound company, and rising in momentum.  Again, if ever I trade Ezion again, my job is to ensure that the entry will be based on rules.

Real Estate Relative Strength Analysis

Real Estate is a red hot topic in Singapore.  Many people have diverse opinion whether the government intervention in Jan 2013 will finally cool the industry, or will there be a further cooling measures if this segment continue to defy common sense.

Real Estate sector is very broad.  Note that I still quite heavily vested, both in reits as well as ordinary stocks.  I wanted to know if I was vested in the right segment, and if necessary, to switch my horses.

First I manually created indices from the real estate stocks available in Singapore.  Then I use traditional TA based on moving averages and MACD oscillator determine the relative strength of each segment of the real estate sector.

I shall start with the weak to the strongest.

As expected, the Singapore Residential segment is one of the weakess.  The strongest are the Commercial and Hotel segments.

I believe in getting rid of losers and investing in the strongest.  I will need to switch my horses.

China

SG, Residential

Asia

HK

Industrial

Retail

Hotel

Commercial

A look at the Construction Sector

I have been wanting to invest in Construction companies in Singapore.  Somehow, I missed the earlier boat.   All over the Singapore, including the public roads, there seem all kinds of construction and civil engineering works.  Morever, according to our government, there seems to be no end to improving our Singapore.
Below is attached is an index of 24 Contruction Stocks that I created.

It is consolidating now at the 55 SMA.
After studying the charts and fundamentals of the list of 24 stocks, I eyeing at the following 3 stocks:
1) KSH Holdings
2) Lum Chang
3) Low Keng Huat

Preparing to long China ETF

Since my last post on 21 Feb, both the China ETF and Shanghai Stock Exchange has retraced to its 61.8 fibo level.  If this week closes with a nice white candle, the idea is to look for opportunities to long next week.

Note that this is a counter-trend trade, and against the downward momentum.  The main reason to support this trade is the sexy story that with a new man in charge the strongest economy in the world, the downward spiral of SSE has ended.

No Short Cuts

The comment below is not to shame anyone but to express my feelings:
I received an email from a vectorvest user that made me very sad. The person subsribed to vectorvest about a month ago, started trading real money with it, and promptly lost a sum of money via cutting loss within contra period.
For anyone who wants to stand any chance of not losing money in the long run, the following is non-negotiable. With software tool or no software tool, anyone who is successful in the long run is doing the following, or something similar:

1. Follow timing signals. Most important rule.
2. Write down your trading plan. Fail to plan, plan to fail.
3. Define and follow money management rules....example : risk only 1% of your trading equity for each trade. Better to be rich slowly than poor fast.
4. Review past trades. do not make same mistakes again
5. Backtest, or/and forwardtest for a time period. Determine your probability of each trade, maximum drawdown, expected or average profit per trade, maximum loss, minimum loss
6. Adapt trading plan to changing market conditions when necessary
7. If buying, search for strong stocks. Least important rule.

There is no short cuts.

STI's ominous Shooting Star

The daily chart of the STI certainly looks bearish in the short term.  On Monday, there was a ominous shooting star. See the circled red color.  The pattern seems to be developing into a triple top, also a bearish formation.

What do I make of these developments?  I have chosen to let the market do what it does.  I will still stick to my trading plan.  I have not taken profits for my long position.

Backtesting

Yesterday, on a Sunday, I participated in the VectorVest Precision training workshop held in M Hotel.  About 150 people turned up, which was a full house, as the room that was booked was pretty small.  I was there, sharing on the topic of Backtesting.

I shall here put on this blog as an appetizer of what I shared during the event.

What is backtesting?  

To backtest, means to apply the trading signals of your trading system on past historical data. Most of the time, patterns repeat itself.  Past patterns that has worked in the past, may work in the future.

Backtesting forms an important part of my trading methodology. By knowing which strategies work well in the past, I will know which strategies have a higher likelyhood of working going forward.

What do we want to determine through backtesting?

The most important data that we need to know about our trading system are: 

1. the total gains vs total loss %
2. the number of of winners vs losers
3. the total number of trades
4. the maximum drawdown
5. Largest win vs largest loss

If you were to have the above information about your system, you will have a pretty good idea

1. of the expected annualized return of your trading activites
2. of the probability of winning for each trade you take
3. of the estimated number of trades you will be taking for the coming day/ week /month/ year, matches your trading psychology
4. of the downside risk to your total equity in trading the system
5. if your system is able to ride winning trades, and cut losers short 

Overcoming fear of pulling the trigger
I recalled, that there was once a time where I could not pull the trigger.  As I think back, there were many reasons for it.  Many trading psychology books has written about it.  I was a classic case of someone suffering from fear of losses.  It drove me nuts for a while.

Reading trading books, trading courses, were unable to help me.  Most of them do not reveal their backtest data.  The problem, I realized, was within me.  I got over that stage by doing extensive backtesting.  Eventually through backtesting, I became confidant in the eventual success of my trading systems.  This enabled me take every trade, knowing that even if I were to suffer consecutive losses, profitability will likely return in the long run.

Most trading software and systems sold do not have a backtest feature.  Even if it has, it is extremely difficult to use for a typical retail trader as they will likely require programming skills.

How do I backtest nowadays?

I am using VectorVest to backtest.  The great thing about it is that it is really just pointing and clicking through a wizard to generate the backtest that I want.  I can even test stops such as trialing stops, which is a pain to backtest via visual or manual backtesting through excel. See screenshot of the possible stops for backtesting.

Note : I am not paid for recommending VectorVest, nor am I earning any commission from their sales.

Mutiple Stocks (Industry) Analysis

Both Charles Dow and Jesse Livermore observed herd behavior in markets.  On the charts, this can be seen  the broad market pulling individual stocks in the same direction.  A large portion of an individual stock's direction is attributed to the market's action, and only lesser fraction is attributed to the stock itself.
For the past year, I have been timing my trades based on a larger group of stocks.  The advantage of timing my trades in such a way has the following advantages:

1. A chart of a group of stocks is often less choppy.  Basing my actions on a less choppy chart reduces the whipsaws that I that may encounter had I chosen to trade based on a single stock chart.
2. Timing my trades based on a group often result in the trade responding rapidly to the changing market conditions.  This is because a group of stocks is basically, an asset class, a sector, an industry, or even a country.
3. Basing my trades based on an external, broader, market gives me a stronger mental justification for holding a position.  My belief in the stock is complemented by other stocks moving in the same direction.  That means that multiple stocks in the same industry is being bought, thereby increasing the momentum of the move.

Lets take a look at 2 examples.
I have a created a chart based on the arithmetic average of DBS, OCBC, and UOB.

The banking stocks have broken out and are making new highs.  I am happy to hold my positions, and will not be taking any profits yet.  As a trend follower, I must not put a cap on how high it can go.

Now, let look at a chart of 6 stocks: Golden Agri, Olam, Noble, First Res, Wilma, Indofood.

As a trend follower, I will stay away from buy any of these stocks until it break out of its trading range.

Vectorvest Composite Singapore

As some of you may know, I have been a subsriber of (VectorVest) software for about a year.  I honestly think they it is an extremely powerful tool for any stock investor.  My involvement with Vectorvest has got to a point where I am now helping them to conduct free product training for new users of Vectorvest.

This coming Saturday, 2nd March, I will be conducting such as training at Bras Basah Complex at 2pm.  If you want a free look at the features of Vectorvest, do contact me, as the room size is limited.

I shall now leave you with the slowest timing signal given by Vectorvest - the Confirmed Calls.  One of my Singapore stock portfolio is based on this market timing signal for entries and exits.  This chart is based on Vectorvest Singapore Composite, an arithmetic average of 756 Singapore stocks.  Vectorvest believes this chart gives a more accurate picture of Singapore Stock market, compared with the STI.  12 stocks were bought on 30 Nov 2012 (green arrow), and still holding.

Hero with pop star wife to move markets?

No, I am definitely not talking about our home-grown Singapore pastor.

I am talking about Mr Xi Jinping, the leader of China's ruling communist party.  Since Mr Xi Jinping  was elevated to the general secretary in 2012, the Shanghai stock exchange rocketed from its low of 1900s to 2400s - an increase of 25% over less than 3 months!

The above is a SSE50 China ETF weekly chart.  Since breaking out from the double-bottom pattern, and with MACD divergence, its strength has also caused it to break out of the raff regression downward channel.  I can safely say that the intermediate trend is no longer bearish.  Have we seen the low?  Is this the start of China's super-bull run?

Mr Xi is known as a reformist.  He has called for strong economic reforms in his first speech outside china in Dec 2012.  Can he come to the rescue of the china stock market, where today, 95% of stock account holders has given up and stopped investing?  Going the market movements since his inauguration, that maybe a strong possibility.  I know for a fact that the market likes to go against the general consensus.  Mr Xi has 10 years to do it, starting from next month, where he will be installed as the China's President.

What can we do to profit from this?  Look at the Shanghai SSE weekly chart.  I suggest waiting for the current retracement to end before buying.  How do we know the retracement is likely to end? After a series of black candles, wait for the first white weekly candle.  Two consecutive weekly white candles will be a double confirmation to enter.

Which industry will do well in 2013?

At the moment, the strongest industries are:

1. Energy (eg. Ezion, Keppel Corp)
2. Real Estate (eg. Ho Bee, Keppel Land)
3. Food (eg. Super, Petra )
4. Telecom (eg. Singtel, Starhub)

It is always tough trying to predict the year's top industry.  I do not have a crystal ball.  But I am a believer of holding the strongest stocks in the strongest industries.
It is always prudent to re-assess your portfolio at least three times a year.  If you are holding stocks in the above industries, you are on the right path. These stocks have been consistently making new highs.
However, if you are holding stocks in underperforming industries, I seriously suggest that you start planning on liquidating and holding stocks in the above four industries

With exception of real the estate industry, these industries will likely to continue to do well.  I will be very careful with real estate stocks.  Although I am still holding them, I am ready to let go when the uptrend ends. Although the property Jan sales was healthy, it was likely due to the saavy buyers locking in their orders before the Jan 12 2013 dateline.  I expect Feb and Mar property sales to be poor for the mass market real estate players.  I favour construction related real estate stocks.

A few days ago, OCBC released a report favoring infrastructure plays (eg Tat Hong). That will be something to consider as I consider them the dark horse for the year.

In my decision making, I try not to make predictions, such as where Shanghai market will be, or where the USD will go.  But I do try to make sensible decisions to follow the strongest (or the weakest for shorts).

When in doubt, go with the strongest.  I end with two wise quotes:

• trade with the trend till it ends.
• dont fix it unless it is broken

4 stocks with strong fundamentals and technicals

For those who would very much prefer to buy rather than short, I am recommending 4 stocks to hold for the medium term (about 6 months).  They have strong fundamentals and their prices are making higher highs nicely.

Boustead is now making 3 year highs.  I know, most people will say "how to buy when the price is so high".  That is precisely the point.  I was a poor trader in the past, trying to buy low sell high.  Most of the time now, I buy high, and sell higher.

The 3 other stocks (other than those I have recommended in the past year) that are strong in both fundamentals and technicals are:

1. Great Eastern Holdings
2. Dairy Farm
3. CWT

These 4 stocks have 2 things in common : they are making 3 year highs, and they are fundamentally safe, and undervalued stocks.  If you think we are in a bullish market, you should buy them.

My recommendation is that these stocks are definitely worth buying, but buying right now is risky.  The market timing is not optimum.  Waiting for the correction to be over before buying is more prudent.  Of course, with high risk comes higher rewards.

Here are their charts, note that the prices are making higher highs.

Hedging Long Position

Happy and Healthy Lunar New Year to all.  After taking a festive break, I am resuming my blogging, although I have not been feeling too good lately.  Must have eaten too much junk food and drank too little water.

Now back to the market:

A few weeks ago, I increased my long positions.  As it was not a prudent to invest at high prices, I did not want to mislead my readers, so I did not put them up on my blog.

Over the last 2 weeks, the STI has been a bearish candle and a doji, signifying uncertainty.  I am preparing myself mentally and psychologically for a possible retracement.  I consider mental strength and strategic planning as the 2 most critical factors to my success in trading.

What is my plan if it happens? My plan is not to take profits, and to hedge my long positions.  The idea is this: I believe that I am holding on to strong stocks.  Instead of selling them, the idea is to short other weak stocks.

In SGX, it is slightly difficult to short stocks.  The 2 easiest ways are through Contract for Difference (CFD), and Extended Settlements (ES).  Even then, the number of stocks available are quite pathetic.  One of my brokers has about 100 CFD stocks.  From this list of 100, I have shortlisted the following for short positions:

The following are some of the stocks that I am eyeing for shorting (not in any preferred order):

1. Asia Enterprise
2. Gallant
3. Fragrance
4. Banyan Tree
5. Hi-P
6. Datapulse
7. CSE Global
8. Rotary
9. Stamford Land
10. Stats ChipPAC
11. STATSchp
12. Hwa Hong Corporation
13. Genting
14. Singtel
15. SembMar

Note that I will not be shorting all 15 stocks!  My plan is to short 5 stocks out of this list of 15.

Current Market Situation, from an ex-colleague

I have a special contribution today from my ex-colleague, Song Koon, who has been trading/investing full time for about 3 years.  Here is his reading of the current market with some minor edits from me:

"The weather is getting hot and so is the market. I guess those who have positioned themselves in Dec and early Jan are having a roaring good time.
The bull is real, keep cheonging, with more and more positive news and earnings. There is also Jan effect and end of month window dressings. Although minor pull-backs are expected, all the major crisis have been kicked down the road beyond middle of March. With still low valuation and regional play such as emerging Myanmar and China recovery, there is still lots of stamina going forward for Feb and early Mar. Just remember sell in May and go away, which I find holding true time and again
For STI, the upside is getting compressed. However, penny stocks with potential expansion in emerging markets seem having good time, especially those cash rich and having good fundamentals.
What's important now is that the stock picks in your portfolio are rising due to strong fundamentals, good earnings and giving regular high yield.  Apart from this, it is highly recommended to watch the news of stocks in your portfolio. Remember to take profit along the way, leaving some stocks to extend their run to juice the final drop."

Possible Retracement for Shanghai Index

If anyone is looking to invest in China related stocks, I suggest that waiting for Shanghai to complete its retracement first.  Lets look at the weekly chart of Shanghai index.  I am assuming that today's closing of Shanghai to be lower than today's open.

Shanghai is likely to form a bearish weekly candle today.  This may signal a short term retracement. From the chart, it is clear that the long term trend is still down.  Shanghai needs to break above 2330 convincingly, to assure me that the trend may be changing.  Even then, the uptrend may not take place immediately.  The most likely scenario is for it to establish a trading range first, before breaking above 2656 to start its uptrend.
How does this affect me?  I will wait for it to complete its retracement, or break above 2330 before investing in China related Singapore stocks.