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.