A little bit on Baltic Dry Index

My friend just called "Why are you so sure that this current rebound in commodity is different. Just look at the chart, there were rebounds in August, September, October and November, the current December rebound is still moved within the down trend channel, no breakout, why can't it moves south in January 2009 ?" To answer him I have to talk a little bit on Baltic Dry Index (BDI). What is this BDI ? BDI issued daily by the London based Baltic Exchange is a daily averages of prices to ship raw materials. It represents the cost paid by an end user to have a shipping company transport raw materials across seas on the Baltic Exchange, the global marketplace for brokering shipping contracts. It measures the demand to move raw materials and the supply of ships available to move the materials. BDI offers a realtime glimpse at global raw material demand. Unlike stock and commodity markets, BDI is totally devoid of speculative players as trading is strictly limited only to the member companies of Baltic Exchange that have actual cargo to move and that have the actual ships to move the cargo.

Look at the two charts I copied from Bloomberg. The top CRB commodity chart and the bottom BDI chart. The peak for BDI at 11,600 was in June and the peak for CRB at +30 was in July, CRB is lagging behind BDI by one month. By July the transportation rate as measured by BDI has dropped from 11,600 to 9,000 (22% drop) when commodity was at the peak and was projected to go higher. BDI can be treated as a lead indicator for economy. By early November, that was two months ago, BDI was at 790 (from 11,600), it has dropped 93%!!! But since then it has dropped only 2% from 790 to 774 before Christmas. From the chart, it was a sideway movement since November (2 months) whereas CRB (the green line) from November at -25 has continued to drop until early December to -42. Similar to the peak, CRB bottom (if it is a bottom) was lagging behind that of BDI by a month. In the last two months BDI was holding very well indicating that supply and demand of ships is almost balanced. At this point please remember one thing, the supply of cargo ship is generally very tight and inelastic. It takes 2 to 3 years to build a ship. A marginal increase in demand can push up the index very quickly, that is why it is a very good lead indicator. It is likely that BDI will move up one month ahead of CRB. Tomorrow if I have time and not lerthargic, I will try to put up a review for 2008. Happy New Year, wishing all of you a 888 2009.

Looking for Confirmation

Wow, look at the low on 24/12/08, it is slightly above the low on 5/12/08. In the last few days, I really kept my fingers crossed. I still believe the first low is the bottom of the commodity down trend. After retest the low and if it can go above -35, the commodity is going to run again, so do the Dow and the bond yield. I am looking at Dow to reach 12,000 within 6 to 8 months. As they run, I still have to monitor whether this is going to be a sucker wave. I always remember Murphy's Law " If anything can go wrong, it will". The main problem is that you do not know when. Merry Christmas and Happy New Year to all of you.

Look at this latest chart from Bloomberg.com, CRB (green line) has reached -40 a few days ago and if the current down does not go below -40, most likely -40 is the current bottom, commodities should move up from here to just below 0 for a 50% rebound over the next 8 to 12 months. If commodities can move up, it means economy has reach a temporary bottom(or ultimate bottom ?), it also means stock should be moving up.

US 4-week Treasure Bill at -0.01%

Believe it or not, US 4-week Treasure Bill dropped to 0% on 10th December 2008 and on 11th December recorded a Negative 0.01%. Investment Fund is willing to buy the 4-week bill and lose 0.01% of the fund immediately. If this is not a bubble, what can it be. I still remember in 1996 when KLSE was at its peak, there was no stock below Rm 2.00, and some investor bought Rm 1.00 face value Non-convertible Redeemable Loan Stock at Rm 1.20. As an amateur technician in stock investment, I don't really understand the implication of this bubble. My observation is, in the past whenever the funds switched out of stock, they moved into bond, that is why whenever Dow goes down, bond price goes up and bond yield goes down. Based on the same logic, does it means that if the fund switches out of treasury bills, it will move into the stock ? Lately the Dow is quite well behaved technically. Refer to the chart above from Yahoo, if it drops to 8300 early next week and then moves up strongly with high volume exceeding 8 billion, chances is very very high that the 7,392.27 intraday low on 21st November 2008 is the end of wave A (that dropped from 14,279.96 on 11th October 2007 to 7,392.27 on 21st November 2008. 48% drop in 13 months). Assuming 50% up for Wave B, it should move from 7,392.27 to 11,100 by October 2009. I hope it can be confirmed by end of next week.

A little bit worried about the US Treasury Bill

We have seen how US investment fund rushed into US property market, rushed into stock market and commodity market. All the three have burst. Now we are seeing a rush of fund into US Treasury bills. The short term 4-week bill has dropped from 3.08% in January 2008 to 1.95% in June, 1.63% in September and on 4/12/08 it touched 0.01%. 13-week bills have dropped in a similar way from 3.26% in January to last week low of 0.02%. The belief is "US Government will not default." To push the rate down to o.o1% indicates a mad rush into Treasury Bills, the safest asset. It appears to me that this is another bubble. What will happen if due to some reason, a panic stampede to get out of treasury bills takes place ??? September 2008 record shows that at the top three places, China is holding US$585 billion, Japan is holding US$573 billion and UK is holding US$338 billion with the rest of the world holding US$1.702 trillion giving a total of US$2.86 trillion. The top three is holding 52% of the total treasury bills issued until September 2008. I can't think of any reason why these three counties should unload their holding indiscriminately. No danger in the near future.

A little bit on KLCI

Thanks to asiachart.com, they produce very good charts. Both the charts shown above are produced by asiachart.com. The top chart is KLCI weekly and the bottom chart is KLCI Daily. Refer to the daily chart, KLCI after setting a peak of 1516 on 11/1/08, it has been moving downwards untill today with only one major rebound from begining of March to middle of May. The current downtrend is near completion. If the 3 waves down so far is wave ABC and if we have seen the worst of Dow, from the weekly chart, we are going to have another bull run. However, if the financial packages and interest rate cut by all the major countries do not reverse the direction of the world economy, and the whole world is heading towards a great depression, looking at KLCI weekly chart, the peak of 1516 is actually a major wave B with A at 262 on 1/9/1998 and the current downtrend is a major wave C heading south towards 262. This is possible but at this moment I would say unlikely. The next rebound is crucial, if the next rebound is of the same magnitude as the rebound in March-May, then there is a possibility that the down wave from 1516 so far is not ABC but 123 with the coming rebound as wave 4 follows by a sharp wave 5 that plunges together with the rest of the world.

Why keep on talking about Dow and not KL Composite Index

To find the entry point in stock investment , I always make sure the Dow has bottomed or is about to have a substantial rebound. Why Dow ? Because the whole world is following Dow in general. When Dow plunged, European market, Tokyo, Hong Kong, Singapore...... all followed. When Dow runs, the world may or may not follow depending on individual economy and political situation, but at least no danger. So, make sure Dow is right first, then only make sure CI is right, then only see which sector is right and which counter to buy. To sell is easier, when Dow is not right irrespective of our market's direction, sell. But for small fish, no hurry, a few lots only, enjoy the last ride before we get out. I love this photo from toursaver.com. I will try to fish for my pot of GOLD.

Dow going for Diagonal 5th Wave?

When Dow moves above the downward trend line on 28th November, it failed to pull away, it is a false breakout. The current wave is likely to be wave 3 of 5. If so, it will most likely stop at around 7300 follows by wave 4 of 5 rebound to the upper trend line again before ending the wave 5 lower at 7000. But if the current wave break through the lower tend line, it will come down very fast, under this circumstances, Wave 5 is no more a diagonal formation. If the current wave is able to hold above the last low, the last low is still the end of wave A and we are still at the starting of the 10 to 12 months uptrend Wave B.

Another view on Dow

This chart from asiachart.com with an opinion of a double top possibility. For double top to form it will have to break through 7500 with high volume, with or without a technical rebound to touch 7500 for one last time, the first target is 4000 in semilog scale. I have quite a different view on the double top proposal. The first top mentioned Dow was at 11,908 on 14 January 2000 and the second was at 14,279 on 11 Oct 2007. The difference in Dow is 2371 points, the difference is almost 20%. My view is that the difference is too big for a double top classification. Go back to my ABCDE formation, in the last four sessions, Dow has put on 1174 points for a 15.5% rebound, very encouraging indeed. It is very crucial now as it approches 8750, the upper level of the downward channel. A breakout is a further confirmation that the 7392 intra day low on 21 Nov is the end of wave A. What if it fails to break out of the downward channel? Well we will have to wait a little bit longer for Wave A to complete, because the so call end of A at 7392 will become a subwave 1 of 5, the rebound so far is subwave 2 of 5. It is what I call a diagonal 5 formation with 3 of 5 at 7300, 4 of 5 at 8100 and 5 of 5 most probably at 7000 for end of Wave A, easily another 10 to 15 days from now. I hope I don't have to go through all these. If it does happen, a possitive view is, God is so kind, he give you another chance to pick up your favarite stock at a cheaper level.

A little bit Crucial For Commodity and Dow

COMMODITY :

Refer to the Commodity Chart from Bloomberg, Roger INTL has reached -40. Last night it has rebounded 6.29% and CRB has rebounded 5.36%. With a robound of this magnitude, wave 7 has ended. The next question is whether the comming uptrend is wave 8 one week rebound or a major wave B bound? My bet is "The wave B uptrend has started". I have to buy back IOI, KLK, Boustead, Kulim, U Malacca and Batu Kawan.

STOCK MARKET :

Refer to Dow Jones Chart I copied from "Dogs of the Dow" website, the chart has yet to be updated, but if we insert the intraday low of 7464 on 21/11/08, it could mark the end of Wave A (from 14,279 on 11/10/07 to 7464 on 21/11/08). A pull back of 47.72% over a period of 13 months. Since I am expecting a 4 to 5 years long term side way consolidation of ABCDE formation. The up comming Wave B can last for a minimun 10 months period until August 2009 or more. The index may regain a minimum of 50% to 11,200. Let's see if I am right.

A little bit on Commodity

The above Chart was imported from Bloomberg.

Red line is UBS Bloomberg CMCI

Orange line is S&P GSCI

Green line is RJ/CRB Commodity

Light blue is Rogers INTL

Navy blue is Brookshire INTL

The patterns are more or less the same. I usually follow the CRB commodity index.

A popular question is "how low can the commodity goes ?"

When crude oil touched US $146.00 a barrel 4 months ago, some analyst was projecting the price to reach US $200.00 by 2009. 4 months ago, the belief was that, "even if there is a price pull back, it will not drop below US $100.00 a barrel". On 13 November, the Brent Crude Future closed at US $51.75. The trend and speed of dropping is the same for other commodities. So, how low can it goes?

Refer to the chart above, from the peak in July 08, using Elliott wave count, we are at wave 7. If 7 has the same magnitude as wave 3, since wave 5 is an extended wave, wave 7 may end at -40.

From the point of -40, a bearish possibility is a wave 8 rebound follows by a wave 9 down south to-50 or -60. A bullish possibility is -40 is the bottom of current down trend, in the next few months, it can recoup at least 50% of its losses. My bet is on the bullish version. I hope I am right.

A little bit on Elliot Wave Principle

Good observation by Ralph N. Elliott on historical data on Dow Jones averages and its behaviour, he discovered the same repetitious phenomena in Dow's movement. Basically the priciple is an empirical equation on human behaviour in stock market. The greed, the fear and the herd instinct. Thank you Mr. Elliott, you gave me a simple tool to identify the direction and location of the stock movement. The only problem is, sometimes at crucial junction, there are two to three possibilities in the stock movement. One may assign probability to each of the possibilities, sometimes it is well behaved but sometimes the least probable option was the correct one. Either I am not good enough or the stock market has to be like that or else the market cannot exist. I always tell my friend, whichever option the market ultimately adopts, it can fit into one of Elliott's principle. Elliott is always right, it is the interpretor that get it wrong, sometimes.

Looking at the Dow last night, I think it is on its last journey south to complete its Wave A from its peak of 14,164 set on 9 October 2007.

A little bit on stock market

Dow Jones Industrial Index 1919 to 2008

How low can the stock market drop?

Is it time to buy?

Last week (6 - 10 Oct) Dow dropped from 10,325 to 8,451, an 18% drop, and last night it put on 936 points, which is 11%. From 9 October 2007, from a historical hight of 14,164 to 8,451, the pull back is 40%. Is 8,451 the bottom? Or is it only a technical rebound? Whatever the economist or the chartist predict, sometimes they are right and sometimes they are wrong. A few months down the road we will know. But it has to be that way, that is why the market can exist.

In February 1997 when CI started to drop from 1271.57, no one would dream that it would drop below 300. At that time, it was only an Asean crisis. America, China and Europe had not much of a problem. This time around, it is a global problem, China has dropped from 6000 to 2000, America in big big problem, Europe is the same. This time it should be more serious than in 1997.

If we resort to technical analysis using Elliott Wave Principle to see where we are, the following is my interpretation. Refer to the chart shown at the top, Dow Jones Industrial Index from 1919 to 2008 on semi logarithm scale.

Since the 88% drop from 380 in 1929 to 43 in 1932, The Dow has completed 5 wave from 1932 to 2007. Wave one was from 43(April 1932) to 186(Jan 1937) 350% up within 57 months.

Wave 2 ABC correction from 186(Jan 1937) to 96 (Jan 1942) 48% drop within 60 months. It is interesting to note that even the B wave in second half of 1938 can give a 61% up.

Then comes the major wave 3 from 96 (Jan 1942) to 969 (Oct 1965) up 900% in 285 months. Within this period there were 5 up wave each gaining 60% to 100% and 4 corrective wave with about 20% retracement each.

Wave 4 is an expanding ABCDE formation from 969(Oct 1965) to 607 (July 1974) 37% drop in 105 months.

Wave 2 and wave 4 comply nicely with Elliott's "Rule of Alternation" (to expect alternating patterns in virtually all wave movement. If, for example, wave 2 is simple, expect wave 4 to be complex). Wave 2 is a simple ABC with short duration (60 months) but sharp in magnitude (48%) and wave 4 is shallower at 37% but with a much much longer duration of 105 months.

Wave 5 from 607 (July 1974) to 14164 (Oct 2007) with a 2233% gain over 363 months. This is really a long run, thanks to President Reagan's economic policy. Some says today's financial problem was planted by him. It is interesting to note that in a mega bull run of this magnitude even the 1987 black monday melt down does not stand out in the chart due to its extra short duration. It is only one of the many minor waves in this major Wave 5.

The magnitude of pullback of 40% until now indicates clearly Wave 5 has ended. If I consider 1929 to 1932 as Major Wave II and the 88% drop within 60 month as sharp and short duration, and if I apply the rule of alternation again, this current Major Wave 4 should be shallow and with a long duration. Possibly a ABCDE or ABC-X-ABC type of formation, if this is the case since October 2007 we are in Wave A. Where is the end of A? In an ABCDE formation A has to be 3 waves only. We are somewhere near the end of wave 3, so we are near the bottom of A. But if it is a ABC-X-ABC, the A can have either 3 or 5 waves. If A has 5 waves , after the comming wave 4 rebound, we are going to have another wave 5 down before A ended.

How long the this whole Major 4 will take. A alone is a year or more, if each leg takes 1 to 1.5 years, it will drag until 2013 to 2015 with maximum duration to 2018(120 months). The market can still be interesting as Wave B and D can produce a gain of 50%.

Please take note that whatever the ultimate outcome or wave formation, it can fit into one of Elliott's wave count. Elliot can never be wrong, it is always the user that has counted the wave wrongly.

Creation

At the back of my mind, the idea of having my own blog is always there. This morning I was searching for Hannah Yeoh's site, I started to click, click and click and suddenly infront of my screen I was asked whether I wanted to start my own block ? Hey, why not. So I click, click, click again and here I am, a new creation.

I shall stop here first as I am rather busy today, really have no time to proceed. I will be back soon.