Market Trend 4Q 2009

V Shape or W Shape recovery? It does not matter!

If S&P500 and VIX were to repeat their chart patterns in Sep/Oct2003, VIX will rise to around 30 in next 5 to 10 days whilst S&P500 will briefly fall to below 1000 level and possibly find support at AROUND 975 level. Thereafter S&P500 will continue its longer term rising trend in zig-zag manner, i.e. peak around middle of the month and bottom at end of month or beginning of the subsequent month. That up-trend move will be accompanied by VIX which is likely to fall to its 50MA level or lower until the first two months of the following year.

The 2003 historical chart for China market may not be relevant as the China market conditions then were very different from the current one. As a reference, China's SSEC declined continuously from Jun03 to Nov03. Thereafter it rose none stop until Apr04. SSEC is currently in down-trend move heading towards 2500 support level.

Strait Times Index (STI) is likely to remain steady and consolidate its current level waiting for the right market mode to resume its uptrend move. It may be possible to surpass 2800 level in that move. The impending up trend will likely be lead by the Finance sector. Bargain hunting at around 2400 level for mid and longer term play is likely to see profit margin of around 15% .

Cautions: There is one certainty in market forecast, i.e. the market will not listen or follow any market forecast. Do have an exit plan on hand for any position entered just in case the market behaves differently from the expected move. Caveat emptor. 28.09.2009.

V型或W型股市复苏？我不在乎！

如果标普500指数(S&P500)和波动率(VIX)重复他们的2003年9月/10月图表形态，VIX将在未来5至10天上升至约30点的水平，而S&P500将简要跌破1000点的水平，并可能寻求975点左右的支持水平。此后，S&P500将在锯齿的方式继续其长期上升趋势，即将于月中达到峰值和于月终或随后月初达到底部。这种上升趋势将伴随着VIX下降到50天移动平均线的水平左右或以下。此趋势将持续到次年2月。

中国指数的历史图表可能不管用。这是因为当时的中国市场和目前的条件不同。以下数据是作为参考使用:中国的证综合指数(SSEC)2003年6月至2003年11月不断下降。随后指数不停攀升持续到2004年4月。SSEC目前正处于下降趋势并将走向2500点的支持水平。

海峡时报指数(STI)很可能保持稳定和巩固其目前的水平并等待合适的市场时机冲刺。在这一冲刺中它可能会超过2800点水平。迫在眉睫的上升趋势将可能由金融股带动。若在大约2400点逢低买盘，其中期和长期利润可高达约15％。

注意事项：市场将不会听从或遵循任何市场预测。为防市场趋势和预期的不同, 进场时必须备有减损策略。买者自负。 2009年9月28日稿

美国牛市分析

以下只是我个人的意见。买者自负...

在过去3个月，波动率指数(VIX)保持在低于35的水平似乎已达到稳态状况。这是一个好消息，因为投资者信心已得以恢复，市场相当的份额将逐步增长。在这进程中股价将不时会有技术调正。

虽然美国金融机构指数价最近上升了不少，它还是有上涨的空间。这可以从GSPC（S＆P500指数），^XII（美国证券交易所体制指数）和^ BKK（KBW银行指数）上周五收盘时都创下新高。以下3只股提供了在这一领域股票部分观点：

花旗集团（C，最后闭市价于4.70）当上一次其价格在2007年7月滑低于200天移动平均线（或200D MA）后，在过去2年一直被视为长期看跌股。于今年8月20日，C的股价跨越200D MA，显示了长期趋势的变化。于8月21又取得新的6个月的跳空高峰日。虽然价格摆动指标（Price Osc）和股价显示反差，而前一交易日又是一个看跌墓碑十字星，可是在短期内，它的看涨迹象强于看跌。看涨迹象包括CCI上升，交易量的增长和过去连续两个交易日是积累日。眼前的目标 是5.50，如果股票以周五的收盘价买入，这将是17％的利润。如果用期权交易，可得较高的利润率。这些较高的利润取决于所选的期权执行价格，执行期限和选择的期权策略。 C的价格有可能上升到7.50这将是下一个价标。为了保护贸易的资本和利润，如果价格跌破低于上周四的高点4.50，这一新交易应该平仓。当盈利开始增长时，“斩仓“出售价也应逐步调高。这宗交易只可在股价高于4.51后才进行。

万事达卡（MA，最后闭市价于207.25）是另一个有吸引力的股票。上周，MA从近期高峰价209.27回跌6.5％后又回升。它于8月 21日开市时跳空。其闭市收盘价是过去12个月最高的闭市收盘价。其他看涨的迹象包括：在过去两个交易日连续积累日和艾略特5波的PTI@57。眼前的目标是220。如果股票以周五的收盘价买入，这将是6％的利润。建议这里用期权交易可得益于其有限的风险和更高的杠杆收益。我比较喜欢用近期期权，选择delta 值约 0.2或以上。为了保护贸易的资本和利润，如果价格跌破低于上周四的闭市收盘价203，这一新交易应该平仓。这宗交易只可在股价高于上周五的闭市价后才可进行。

VISA卡（V，最后闭市价于69.0）被视为是MA股票的姐妹。同样的交易法可以使用。眼前的目标是75.0。如果股票以上周五的的收盘价买入，这将是8％的利润。建议这里用期权交易可得益于其有限的风险和更高的杠杆收益。

美国市场的牛市无疑将增加已经看好亚洲市场更多的信心。我喜欢的新加坡股票也是在金融部门，尤其是新加坡发展银行和新加坡交易所。

Bullish US Market

Just my opinion. Caveat emptor ...

The VIX appears to have attained steady state after staying below 35 level in last three months. That is good news as the investors have regained confidence considerably and the market will move up progressively with techinical corrections from time to time.

The US Finance sector looks bullish even after the recent rise in prices. That can be seen from GSPC (S&P500), ^XII (AMEX INSTITUTIONAL INDEX) and ^BKK(KBW Bank Index) all making new highs on Friday close. The following 3 stocks provide a partial view of the stocks in this sector:

Citi Group (C, last closed at 4.70) has been considered long term bearish for the past 2+ years when it last crossed below 200 Days Moving Average (or 200D MA) in Jul 2007. It has just crossed above 200D MA on 20 Aug 09 to signify the change in long term trend and made new 6 month high by gaping up on 21 Aug 09. For the near term, although the Price Oscillator indicator (Osc) might be showing bearish divergent and the last candlestick was a bearish tombstone doji, its bullish signs are stronger than the bearish ones. They include rising CCI, rising volume and two consecutive accumulation days in last two sessions. The immediate target is 5.50, a possible 17% profit if stock is longed at Friday close. Higher profit margins are possible if options are traded. The magnitude of these higher margins depend on the selected strike price, expiry month and the option strategy. Price of C is likely to rise past 7.50 which is the next target. To protect the trade capital and profit, this new position should be closed if the price falls below 4.50 which is just below Thursday's high. The "sell stop" shall be progressively moved higher when the profit starts to grow. This long trade position shall only be triggered if the market trades above 20 Aug 09's close @4.51.

Master Card (MA, last closed at 207.25) is another attractive stock. Last week, MA consolidated almost 6.5% from the recent peak @209.27 before rising again. It gapped up on 21 Aug 09 and the "close price" was the highest "close price" in past 12 months. Its bullish signs include: consecutive accumulation days in last two sessions and the Elliot wave 5's PTI is @57. The immediate target is 220 which is 6% profit if stock is longed at Friday close. Option play is recommended here to benefit from its limited risk and higher leverage gain. I prefer near month option with delta around 0.2 or more. To protect the trade capital and profit, I will close this new position if stock price falls below Thursday close of 203. This long trade position shall be triggered only if market trades above Friday close.

VISA (V, last closed at 69.0) is regarded as the sister stock of MA. Same trade approach may be used. The immediate target is 75.0 which is 8% profit if stock is longed at Friday's close. Option play is recommended here to benefit from its limited risk and higher leverage gain.

The bullish US market undoubtedly will add more confidence to the already bullish Asia markets. My prefered Singapore stocks are also in Finance Sector, notably DBS and SGX.

Update on S&P500 and VIX

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In late Mar 09, we compared VIX in 2008/2009 against that of 2002/2003. We saw similar pattern in VIX for the two different periods. S&P500's lowest point of 667 on 6 Mar 2009 was correctly identified. S&P500 has since risen to 956 on 11 Jun 09 before easing a little until now. That highest point was almost 43% gain from the market low. Can S&P500 reverse the recent downward move and surpass the high registered on 11 Jun 09? To answer that, let us re-examine the VIX charts.

In 2002/2203, VIX hit a high on 5 Aug 2002 and trended down in a volatile manner. Only after VIX's 200ma crossed below 50ma and VIX retreated from the 4th peak group (PH4) did we see VIX returning to steady state of below 25 points. During the steady state, S&P500 rose and made a series of new highs before reaching 2007 market peak. We can thus conclude that low VIX value is a reflection of low fear in the market and a confirmation of up trending market.

In order for VIX to enter into a steady state, its 200ma must cross and stay below its 50ma. That was fulfilled on 24 Apr 09. We can now assume that VIX has entered into a steady state so long as it stays below 35 points, preferably lower.

In order for the market to have a substantiate and prolong upward move, S&P500's 200ma must also cross and stay below its 50ma. That condition was fulfilled on 23 Jun 09. Incidentally, S&P500 price met its cross over of 200ma and 50ma around the same time. When that happens, the tendency is for the price to move higher and away from the 50ma and 200ma thereafter.

Elliot Wave practitioners will find that S&P500 may have completed the downward wave 4 and is seeking confirmation that upward wave 5 has started.

The week 26 (22 Jun - 26 Jun) has seen more accumulation days than distribution days on comparing with week 25.

In summary, we expect S&P500 to surge forward and likely to test 1000 points and beyond in near future. When that happens, it will certainly encourage other markets to leap forward too, especially STI. Already we saw some property blue chips displaying the bullishness.

Caveat emptor

Check Market Trend - Regression Trend Channels

My brother works in IT service sector and he is only interested in that area. He is confused by the various views read from web-sites, e.g. some writers advocate current market being a bear rally and would resume down trend soon whilst some writers encourage traders to go market bottom fishing as this is a chance of a life time.

He feels that PALM may be reversing from its current up trend to down trend soon. With that view formed, he asked when would be a good time to short stock.

My views are:

1. Most experienced traders usually trade along side with the market trend i.e. long stock in up trend, short stock in down trend.

2. Without a very strong reason, trading against a trending market, i.e. counter-trend trade, has a higher risk of being wrong. The experienced traders are likely to forego a small part of potential profit and wait for the trend to change before taking any position.

3. The "Regression trend channel" indicator may be used to assist traders in checking the trend.

4. To take a bearish position, one may either short stock or trade simple PUT option. The more sophisticated option traders may use various spread strategies to give them better chance in making profit.


To illustrate the above, let us look at PALM (see above chart). The "Price Osc" indicator shows that PALM may be ending its Elliot 5-wave up trend move soon. However, there is no confirmation that PALM has reversed to down trend yet. The likely moves for PALM in the near future are:

a. The current up trend momentum brings it towards 13.22 following the 3 lines regression trend channels,
b. It breaks the trend channels and falls towards 5.00 level.

Since my brother wanted to do a bearish trade, he could wait for the price of PALM to break the trend channel first, then short the stock or buy an equivalent put option.

Let us say PALM broke the channel and closed at $10.00, my brother could either short the stock or long a PUT option on the following trading session.

Shorting stock involves margin. Trader should check with the broker on that requirement. That is simple.

Trading option is slightly more complicated. My brother has never traded option. The conservative recommended size of options trade is by converting the intended share trade to option trade. 1 lot of 100 options is equivalent to 1000 shares. 2 lots of 100 options is equal to 2000 shares. Since my brother originally wanted to short only 1000 share, the equivalent option trade is to long 1 lot of 100 PUT options.

In this exercise, "PALM 7.5 PUT option (Aug 09)" is selected giving almost 3 months time to expiration. Other PUT options may be selected depending on trader's risk appetite.

I asked my brother if he had any plan to exit the trade after taking a trade position. He said he was willing to risk 15% loss to make 30% gain from the trade. I like his plan for stock trade. His plan needs modification if he chooses to trade option instead.

Singapore Press Holding Trade

1. Singapore SPH's (Ticker T39.SI) recent low in mid Mar 2009 was 2.31. It has fallen more than 50% from its Dec 2008's peak at 4.82. The pattern of falling price in Jan 09 suggested that there would be little resistance from current level of 2.90 till 3.10. The real resistance may come in when the price is approaching 3.30 level, hence the target has been set near there. 3.30 is also near the 38% retracement level.

2. Does that mean I will only sell at 3.30 and ignore the market?
2.1 Yes, I will only sell the position at 3.30 unless there is major event affecting the stock.
2.2 No, I will sell the position when the selected technical indicators suggesting the time is ripe to exit the position.

3. How is it possible to do the above?

3.1 To safeguard above 2.1, 'cut loss stop' (at price slightly below entry price, usually the support level of the current trend) is placed immediately after position is taken. When the profit (greater than the loss to be absorbed by 'cut loss stop') starts to show, the 'cut loss stop' is changed into 'profit trailing stop' and the initial setting of the stop is equal or greater than the entry price. The stop is either manually or automatically (if trading platform allows) adjusted upward when greater profit is shown. (Note do not adjust stop lower)

3.2 To safeguard above 2.2, more sophisticated trader may check the various selected technical indicators for major violations. Since SPH is trending up nicely, Regression Trend Channel can be a good reference for monitoring the trend. Knowing Candlestick pattern will definitely a big plus. Another useful tool to check momentum is to mark the Accumulation Day (higher price with higher volume than previous day) and Distribution Day (lower price with higher volume than previous day) down. In an up trend market, watch up for Distribution Day. Too many distribution days or when they happen too closely suggest that the bigger players are dumping the stock.

4. Will I enter a trade if the expected loss from 'cut loss stop' is equal or greater than the potential profit of my target? My answer is NO and I will look for other better opportunities.

Will there be another major market crash in near future?

DJI and DJ Transport Index (^DJT) have been in up-swing since mid Mar 09. Their momenta have tapered off this week showing weaknesses, perhaps needing consolidation. Some form of corrections may take place soon. Historically, Friday has a better chance for that to happen. However, it will be difficult to pin-point exactly when that would take place.

As for STI, it has gone up nicely and orderly in steps since Mar 09. In each step, STI went up 3 to 5 days big and down a few days small to consolidate ground before moving on to next step. With such ideal tempo, the rise should last longer than usual.

The VIX has been falling steadily from >50 since Mar 09. It had dropped to 36 and below its 200 day moving average. The low VIX suggests that the fear has subsided greatly.

The current market is still relatively volatile and we could still see DJI swinging 3 digit either way. Unlike those period when VIX was high above 50, the magnitude of swing now should be smaller, perhaps at lower 100's, should that happen.

Considering the above, the environment is not conducive for major market crash although minor market corrections are part of the market trend development.

Plan Trade to Reduce Stress

We hear different views on market trend every day. Some are for short duration and some are longer. They are the reasons for traders' actions. In their absence, the market will be dead.

Many traders find it very stressful to manage the above. Possible actions are:

1. Do nothing and just follow own instinct. This is common but stressful.
2. Switch trade position upon receiving news threatening the positions. This is very stressful.
3. Close position and pull out of market. No stress but no further gain either.
4. Work out a plan with profit stop, trailing stop, cut loss stop, monitor position closely and act decisively according to plan. Add protective instrument, e.g. options (for US markets), warrant (in other markets) at crucial time, e.g. over week-end, holiday and pending announcement of major events where necessary.

Market only listens to events and the mood at the material time. All market projections may be right or wrong and only time can tell.

Signs of Major Market Bottom

My brother has been reading the market reports and puzzled by the different views. The other day, he asked for more clues of a major market bottom. My simple answer is:

Phase 1 - After the market hit the major bottom, there will be several days of short covering (i.e. traders buy back short positions) immediately following that. It often comes with several gap-up days. Their daily volumes are usually higher than normal.

Phase 2 - When the buying to cover the short positions is done with and dries out, the market will fall back and sometimes retests the bottom but not lower than it. The sellers in this phase are those who are caught in down trend holding long positions and now fear for further downward swing later. This duration can vary depending on the market sentiment. The Volume may be lower than earlier phase. When the selling stops, the market will be ready for the up-trust in the following phase.

Phase 3 - The up-swing starts when the market sentiment is sufficiently positive for buyers to re-enter the market. This phase can only be confirmed when the 'high' in phase 1 is surpassed by a new 'high' in this phase. Volume is usually higher around the new high and thereafter.

Above signs may help one to guess if the market has reached bottom.

S&P500 & VIX

The CBOE Volatility Index (VIX) is a key measure of market expectations of near-term volatility conveyed by S&P500 stock index option prices. VIX has been considered by many to be the world's premier barometer of investor sentiment and market volatility.

Major events that created the fear in the market might not be the same at different times but the investors' reactions under the state of panic do not vary.

On 6 Mar 2009, S&P500 fell to a new low and rebounded strongly thereafter. My brother asked if it would make another new low later? To answer that, we re-visit major market bottom in year 2002/2003.

In the 1st set of charts, the top shows S&P500 Yr 2002/2003 (CHART 1A) and the bottom shows VIX Yr 2002/2003 (CHART 1B) . Let us look at VIX first. VIX rose from below 25 in Jun 2002 and made 4 peaks marked PH1, PH2, PH3 & PH4. During that period, S&P500 was confined to the floor zone. Only after VIX fell below its 200ma line and S&P500 crossed above its own 200ma line, S&P500 resumed up trend move.

In the 2nd set of charts, the top shows VIX Yr 2008/2009 (chart 2b) and the bottom shows VIX Yr 2002/2003 (CHART 1B). The wave patterns of both charts look similar. We could easily identify the four peaks in "chart 2b" and marked them PH1a, PH2a, PH3a and PH4a accordingly. The similar VIX wave patterns confirm our earlier assumption on human reaction to panic situations.


In the 3rd set of charts, the top shows latest VIX Yr 2008/2009 (chart 2b) and the bottom shows latest S&P500 Yr 2008/2009 (chart 2a). The 4 identified peaks in VIX found corresponding 4 bottoms in S&P500. Assuming the S&P500's wave pattern in 2002/2003 were to be repeated in 2008/2009, S&P500 should have started the up trend move since 6 mar 09. For confirmation of the pattern, however, S&P500 must rise above its 200ma line and VIX move below its 200ma line. Thereafter, we expect VIX to stay below 30 so that S&P500 will be less volatile.

With charting software, the rising trend of S&P500 is projected to hit 1000 marks from around mid April 2009 onwards. The corresponding VIX is expected to fall to 30 or below. Only time can tell if the target bars are good projections. One must not regard them as holy grail and ignore the market calls.

SG does not have an index similar to VIX. Since US market has great influence over other markets including STI, we may use S&P500 and VIX as good proxies.

Caveat emptor