Thursday, February 26, 2009

Malaysia Boleh

In this bolehland, a lot of wonderful things can happen.

A historical day at the Parliament. A high drama film that can win many oscars.

Tuesday, February 24, 2009

Bernanke Testimony to Congress

In his twice-yearly testimony to Congress on Tuesday, Bernanke told Congress that recession could end this year and that regulators are not planning to nationalize banks. His statements lifted the Dow by 236 points (3.3%) and sent bank stocks soaring.

Citi Group closed the day at US$2.60 which is 54% higher than its last Friday low of US$1.68 as shown by the above 5-days movement chart.

Bank of American did better, its closing price of US$4.73 is 71% higher than its last friday low of US$2.76.
When the current downtrend (Wave A) is completed and when the Dow begins its Wave B uptrend, US bank stocks that were badly beaten down by more that 90% from their respective heights are expected to out perform stocks in other sectors.
Dow has been very well behaved so far. Tuesday rebound has marked the end of sub sub wave (iii) as shown below. The downtrend is not over yet.
It is going to be interesting to watch the behaviours of Citi Group and Bank of America (BAC)with respect to Dow from now on. If my guess is correct, there will be divergence between the bank stocks and the Dow. The bank stocks may not see their lows again. If you are lucky, Citi and BAC may retest their last Friday lows to form a double bottoms reversal pattern when Dow completes its Wave A below 7000.

The chart shown above is the 5-days movement for AIG. It set a new low of 38 US cents on Tuesday. Bernanke did not clear the air on nationalization of Insurance Company and latest market talks on the comming announcement of 4th quarter loss of US$60 billion and on the possibility of AIG to file for bankruptcy protection before end of the week were factors that pushed the price to 38 US cents. How low is low???

Sunday, February 22, 2009

What Caused the Rebound ?

These are last Friday, 20 February 2009, daily charts for Dow, Citi Group, Bank of America and AIG. All of them rebounded in the afternoon session after White House press secretary Robert Gibbs told press reporters "This administration continues to strongly believe that a privately held banking system is the correct way to go, ensuring they are regulated sufficiently by this government. " "That's been our belief for quite some time and we continue to have that." However when he was pressed further on whether his comments meant the Obama administration would never nationalize the banks, he replied "I think I was very clear about the system that this country has and will continue to have." Can we take what he has said as a confirmation that the banks will not be nationalized by the government??To a certain extend the market has reacted to his comments positively in the afternoon.

AIG - What does the market know that we don't ?

From the 5-days chart shown above, AIG has dropped from Monday's height of 90 US Cents to Friday's low of 49 US cents (45% drop) and closed at 54 US cents.

From the daily chart shown above, the stock opened at 56 cents on Friday, 3 cents lower than Thursday's closing price of 59 cents, and the stock was sold all the way to 51 cent with high volume and rebounded also with high volume back to 56 cents. This initial down and up most likely was due to short selling and the subsequent short covering. After the first hour roller coaster, AIG slowly drifted down to 49 cents with low volume, these were more genuine consistent selling. After touching the intra-day low of 49 cents again without giving way, more buyers came in and the stock was able to recover some ground to close at 54 cents. We all know why it dropped from US$72 to the current level but it is hard to understand why stock holders were willing to sell at 50 cents. Are the sellers know something that we don't??? To buy this stock is really a gamble, very high risk. But if there is no further bad news from now on and when the Dow started its Major Wave B rebound, AIG can easily go to US$2 or may be US$5 if AIG's lucky star is shinning.

Thursday, February 19, 2009

American International Group, Inc.

This is the chart of one of the world's largest Insurance Companies, American International Group, Inc. It has operations in 130 countries. AIA is one of its many subsidiaries. From US$72, its stock price has dropped to US$0.59 yesterday with an intra day low of US$0.55, a drop of 99.2%.
In September 2008, when it dropped from US$22 to US$2 within 7 trading days followed by a strong rebound to US$5 within 4 trading days, during this period, a lot of bargain hunters moved into this stock. Even if one managed to get at US$2 and if he did not sell during the rebound to US$5, by now his capital has shrunk by 70%.
If you move in now at 60US cents, if it goes to 30 US cents, 50% of your money can disappear. However, if 6 months down the road, everything is OK, with a strong Wave B rebound, if it can go to US$2, the gain is quite substantial. I am very tempted to take a gamble on the belief that President Obama will not allow it to collapse as the financial and social implication to the American society is too big for him to handle.

So it is not Diagonal Triangle.

Within 24 hours, the option of Diagonal Triangles Fifth Wave was thrown out of the window. So, back to the sub-sub wave (iii) of wave 5. Dow is currently in the process of completing its 5-dot, that will complete the (iii), then the (iv) rebound and (v) down to give iii of 5, follows by iv of 5 then v of 5 and that hopefully is the end of Major Wave A by middle of March 2009. The main question now is "will Dow be able to hold above 7000?"

Wednesday, February 18, 2009

Market Update 18 Feb 09

The market so far can be considered as very well behaved. Dow is in the process of completing its Wave 5 of Major Wave A that has dragged into its 16th months. It is very encouraging to notice more divergence in some parameters that indicate that Dow is not far away from its botttom.

The commodity indicator CRB has gone lower than its Nov 08 low of 208, its latest closing is 200. However the Baltic Dry Index BDI is currently at 1986 which is 200% higher than its Dec 08 low of 663. The shipping demand to move raw material is still very strong indicating strong demand for commodity. CRB ultimately has to follow BDI in its uptreand movement.

On-balance volume OBV is still trending upward but has taken a pause in the last 2 days when Dow touched its Nov 08 low of 7552. The big boys are accumulating their targeted stocks.
In the last 10 years, KL composite index KLCI has followed the Dow very closely as shown below. It appears that KLCI will have to wait until Dow has finished its wave 5 before it can really run.

Dow is currently at sub-sub wave (iii). This sub-sub wave (iii) has so far completed its 1-dot and 2-dot as shown. It is possible that it is currently forming its 3-dot and 4-dot. The next 200 to 300 points down should complete its 5-dot and thus its sub-sub wave (iii).

Hopefully the whole downtrend that started in October 2007 can be completed by middle of March 2009 with Dow holding above 7000.
With the latest development in Dow until yesterday, 18 February, I have observed a possible alternative to the wave-count that I have been talking about. But first let me explain what is a 'Diagonal Triangle'. Elliott Wave Principle described 'Diagonal Triangles' as follow:
"Diagonal triangles occur in fifth wave positions, usually after the preceeding move has gone too far and too fast. They are a special type of fifth wave which indicate exhaustion of the larger movement"
The following sketch shows wave 5 as a diagonal triangle.

If I apply this diagonal triangle idea to the current Dow formation, it gives the following outcome.

For two reasons, I myself is not very convinced at this moment that it is a diagonal triangle; that wave 5 has ended; that its is forming a double bottom reversal pattern; that the market is going to run from here. First reason is that the magnitude of the triangles are too small, the form does not have the "right look". Second reason is that the triangles do not fall within two well defined converging lines as shown in the sketch. I consider this possibility as unlikely. Within the next 3 to 4 days, the moment Dow goes below 7552, this possibility can be thrown out of the window. However, if the Dow really refuses to go below 7552 from now on, the only thing that I can say is "the unlikely has happened, it is a diagonal triangle fifth wave."

Wednesday, February 11, 2009

Performance of Asia Pacific Bourses

In 2008 when Dow fell, all the Asia Pacific Bourses fell in tandem with the Dow. However when Dow was approaching its November 2008 low, some of the Asia Pacific Bourses behaved differently. At this current last phase of Dow down south, more divergences were observed. Among the Asian Pacific Bourses, Australia and Taiwan Bourses followed Dow closely as shown below. All set a low in November. Australia seemed to be the weakest, it has been hanging around its November low lately. Taiwan seemed to be moving away from the Dow in February, it has decided to follow China instead of the US.

Malaysia, Singapore and Korea markets have shown a stronger undertone than the abovementioned three markets. When Dow set a new low in November that was much lower than its October low, these three markets merely touched their respective October lows to form double bottoms as shown below.

The strongest market was China market, followed by Hong Kong and Japan. Infact all these three markets seemed to have decoupled from the US in November. When Dow set a November low that was lower than its October low, these three markets have their November lows higher than their October lows.

For China's Shanghai market, it appears that the Major Wave A has ended in October 2008. The Major rebound Wave B has started while the Dow is trying to finish its last down phase of wave 5 of major wave A. The Korean Market is about to break its January height of 1228, if it can break it within the next few days, Korean market will be the second Asia Pacific Market to move ahead of the US and I believe the rest will follow. It means for the Asia Pacific markets except Australia will decouple from the US market. It also means Dow may struggle in a side-way market for the next 5 years, the Asian market, led by China can reach new heights. If money doesn't flow to US, most likely it will flow to China, Korea, Hong Kong, Singapore................... and may be a little bit to Malaysia.

Monday, February 2, 2009

What is "On-balance Volume" (OBV)

It is a volume based indicator developed by Joseph E. Granville to detect whether a financial instrument (stock, commodity, bond...) is being accumulated or being distributed. The computation is simple, "On a day when the stock closes higher (buyer dominating - accumulation), its total daily volume is added to a cumulative total. when the stock closes lower (seller dominating - distributing), its total daily volume is subtracted from the cumulative total. The accumulated volume is termed as On-Balance Volume.

I adopted the same concept to monitor the stock market in general to detect whether the current market is under distribution or under accumulation. The following charts are my own daily charts for Dow and the corresponding OBV plot from 1st June 2007 to 31st December 2007. It covers Dow's peak of 14,164 set on 9th October 2007.

OBV peak was set on 13th July 2007 at 34,713 when Dow was 13,907. OBV peak was set three months ahead of Dow's peak on 9th October 2007. During these three months stocks were being distributed as indicated by the declining OBV. On 9th October 2007 when Dow set a historical height, OBV was at a much lower level at 32,524. OBV has given out a sell signal as the big boys were distributing out their holdings. By now we know what has happened after that, Dow dropped from 14,164 (9th October 2007) to 7,552 (20th November 2007) within 13 months. OBV declined in a similar way and set a low of 17,721 on the same day as shown by the two charts below. (From 1st July 2008 to 30th January 2009, it covers Dow's low of 7,552 0n 20th November 2008)

Since 20th November 2007, Dow in general was moving within a range of 8,000 to 9,000 whereas OBV was moving in an uptrend consistantly indicating persistant accumulation of stocks by the big boys. Last Friday when Dow closed at 8,000 the corresponding OBV was at 26,385 which is much higher than the 17,721 low. In fact the last Wednesday OBV peak of 27,584 ( when Dow = 8,375) nearly broke the intermediate OBV height of 27,841 on 8th September 2008 ( when Dow= 11,510). OBV is giving a Buy signal. The current bearish sub-wave 5 of Major Wave A down south that may last until middle of March 2009 (as mentioned in my previous post) can be the last chance to pick up stocks at low price during panic selling. The next questions are "which sector ?", " which stock ?", "how low is low?", "what is the down side risk?". Since I am talking about OBV, one of the criteria must be 'stock with strong OBV'.