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Market Update – 26 September BMO

Another week of interference and more evidence that the Fed is becoming the most ineffectual Central Bank in the world.

LAST WEEK’S RECAP

Last week, I said;

Monday 19 to Friday 23
We could also see a surprise move by the BOJ on Monday that could over-shadow what the Fed does on Wednesday. While in the west, investors are bracing themselves for a short on risk from higher Fed Fund Rates, in the east, investors are waiting for the long trade on risk from more easing by the BOJ. Let’s also not  overlook what the RBA could do on Monday as well.

Screen Shot 2016-09-26 at 8.46.34 PM

Dow Jones 19 – 23 Sep

So instead of getting the bearish ride we usually get on week 38, the BOJ and Fed colluded to rally the market instead. But was it really a rally?

By Friday, the market gave back half its gains and the bulls didn’t seems like being in the game at all with the bears outpacing the bulls all session long by more than 2:1.

Screen Shot 2016-09-26 at 8.51.20 PM

Now the DOW is left with what looks like an Upside Gap Three Method which is a continuation pattern.

Screen Shot 2016-09-26 at 8.54.41 PM

But it also sets up the possibility of a DFDM (Down Friday, Down Monday) seeing how the Futures are now down 15 minutes before the open;

Screen Shot 2016-09-26 at 9.12.37 PM

With a hive of data due out this week including GDP and tonnes of Central Bank press conferences, we’re in for another week of volatility, if anything, to the downside.

PREVIEW FOR THE COMING THREE WEEKS

It hasn’t been a profitable year for most and if this is the same for the fund managers, then they’ll be looking to offload from of the draggy parts of their portfolio this week.

SPY

SPY Weekly Averages

DIA Weekly Averages

DIA Weekly Averages

Monday 26 to Friday 30 September
• Watch out for Portfolio Dumping/Window Dressing in the last week of the month/quarter.
• The last day of Quarter Three has been down on the DOW 14 of the last 18 including last year

The last week of September (39) between 26 and 30 September has less than an 80% probability for a profitable short position on SPY and less than a 60% probability for a profitable short position on DIA over their 5, 10 and 15 year averages.

The 2016 Stock Trader’s Almanac’s averages for Monday are mild bearish at 57.1%, Tuesday, Wednesday and Thursday are flat-to-bullish on the DOW and S&P500 at 57.9% while Friday is the most bearish day at more than 71.4% as the month closes by selling off.

Key Economic Dates

Monday 26
• US New Home Sales
• ECB President Draghi Speaks

Tuesday 27
• UK Final GDP q/q
• US Consumer Confidence

Wednesday 28
• US Fed Chair Yellen Testifies

Thursday 29
• US Final GDP q/q
• China Caixin Manufacturing PMI, Caixin Services PMI

Friday 30
• US Chicago PMI, UoM Consumer Sentiment
• China Manufacturing and Non-Manufacturing PMI

Monday 03 to Friday 07 October

The first week of October (40) between 03 and 07 October has an 80% probability for a profitable long position on the DIA and SPY over the last five years but is flat over the 10 and 15 years averages.

The 2016 Stock Trader’s Almanac’s averages for Monday and Tuesday are flat at 51.1%, Wednesday is mildly bearish at 47.6%, Thursday is flat-to-bullish on the DOW and S&P500 at 64.3% while Friday is the most bearish day at more than 61.9%.

Monday 10 to Friday 14 October

The first week of October (41) between 10 and 14 October has a 60% probability for a profitable long position on the DIA and SPY over the last 5 years, an 80% probability over the last 10 years and about 65% over 15 years.

The 2016 Stock Trader’s Almanac’s averages for Monday, Tuesday and Wednesday are bearish at around 60%, is mildly bullish at 54% on Thursday and 74%  bullish on Friday on the DOW and S&P500.

CONCLUSION

I am holding my Puts and waiting out for the Bears this week. Nothing mush else to add except that I am keeping my trading to a minimum this week and just focusing on the SPY. Not much else to do anyway.

Happy Hunting!!

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Market Update – 19 September BMO

What a really volatile week! We expected something wild but what we got was totally out of this world …

Last week, I wrote;

I am bullish for the coming week (37) but that won’t last as I reverse everything into shorts in the following week (38). It is going to be fast and frenetic … definitely not for the faint-hearted and novices.

Screen Shot 2016-09-17 at 3.36.20 PM

Swings like those left the DOW and S&P with really ugly technicals (that I am laughing so hard at now, thinking about how the technicians are figuring this out).

Screen Shot 2016-09-18 at 1.33.14 PM

Dow Jones – 16 Sep 2016 AMC

Last week, I mentioned that “support on the DOW should hold above the critical and psychological 18,000 while the S&P500 should be supported above 2,125” … well, that worked like a charm.

Now that both the benchmarks have completed their “Death Crosses” (50 over 20 DSMA), we can expect the chartists to start getting nervous for the next technical indication of trouble – a break-below the 18,000 (DOW) and 2,125 (S&P) support levels.

Year-to-date, the DOW is up +4.01% while the S&P500 is up +4.66% but both remain below their major moving averages for more than a week now.

$VIX - - Fri 16 Sep 2016 AMC

$VIX – 16 Sep 2016 AMC

The VIX spiked to 20 points on Monday but subsided through the week to close at 15.37. This level does not represent the kind of calmness in Risk that is often associated to 15 points on the VIX.

Screen Shot 2016-09-18 at 2.12.13 PMYields pivoted on the belly of the curve to steepen for the week.

The 30yr added 4bps while the 2yr lost 2bps. That would usually suggest that greed is returning to risk. However, given the divergent nature of the market, I reckon it was a case of long term fixed income monies running away (to where, I don’t know yet) and short term fixed income seeing an increase in hedges. This came after a huge spike across the board on Tuesday as investors realised the possibility of a Rate Hike in the coming week.

The CPI number on Friday did little to calm nerves as the total number increased 0.2% in August while core CPI (which excludes food and energy) jumped 0.3% for the month of August. YonY, the CPI is up 1.1% while core CPI is up 2.3%. So while inflation seems to be firming and is usually seen as dovish news, the market saw it as an additional risk in the case for higher rates.

LAST WEEK’S RECAP

Last week, I said;

Monday 12 to Friday 16

  • Monday of Expiration Week is usually bearish with the Russell 2000 down 10 of the last 16
  • Expiration Week of September is usually bullish on DOW and S&P
  • September 16 is Triple Witching Friday with the DOW up 10 of the last 13 (2013, 2014 down)

The coming week (37), between 12 and 16 September, holds an 80% probability for a profitable long position on SPY and DIA over their 5 and 10 year averages.

According to the 2016 Stock Trader’s Almanac, the bullish averages for Monday, Tuesday, Wednesday and Friday are more than 63.7% on the DOW and S&P500 while Thursday is the flattest day of that week.

The statistics weren’t that far off in that the week still kept its predominantly bullish numbers and on the two days that were up, the indices really went UP. September Triple Witching Friday is now up 10 of the last 14 with 2013, 2014 and 2016 down.

I missed a really profitable trade on Monday (See Conclusion). Nevertheless, it was a profitable week on SPY. On a budget of $2,500, SPY returned a $300 profit by Friday’s open for a return of 12% in five sessions. This was in spite of the wild swings and unpredictable nature of the markets going into FOMC week.

Screen Shot 2016-09-17 at 3.26.30 PM

PREVIEW FOR THE COMING THREE WEEKS

Now that we’re done with the Bulls, we’re going Bear this coming week.

Monday 19 to Friday 23 September

The coming week (38), between 19 and 23 September has more than an 80% probability for a profitable short position on SPY and DIA over their 5, 10 and 15 year averages.

According to the 2016 Stock Trader’s Almanac, the bearish averages for Monday, Wednesday, Thursday and Friday are more than 63.1% on the DOW and S&P500 while Tuesday is flat-to-bullish at around 54.7%. Wednesday, Thursday and Friday are the most bearish days as the week closes into increasing bearishness.

We could also see a surprise move by the BOJ on Monday that could over-shadow what the Fed does on Wednesday. While in the west, investors are bracing themselves for a short on risk from higher Fed Fund Rates, in the east, investors are waiting for the long trade on risk from more easing by the BOJ. Let’s also not  overlook what the RBA could do on Monday as well.

Key Economic Dates

Monday 19
• Australia RBA Monetary Policy Meeting Minutes
• Japan BOJ Monetary Policy Statement

Tuesday 20
• EU, France, Germany Flash PMI (Services & Manufacturing)
• US Building Permits, Housing Starts

Wednesday 21
• US FOMC Statement, Fed Funds Rate, Press Conference

Thursday 22
• US Initial Claims, Existing Home Sales

Friday 21
• EU, France, Germany Manufacturing and Services PMI

Monday 26 to Friday 30 September

The last week of September (39) between 26 and 30 September has less than an 80% probability for a profitable short position on SPY and less than a 60% probability for a profitable short position on DIA over their 5, 10 and 15 year averages.

The 2016 Stock Trader’s Almanac’s averages for Monday are mild bearish at 57.1%, Tuesday, Wednesday and Thursday are flat-to-bullish on the DOW and S&P500 at 57.9% while Friday is the most bearish day at more than 71.4% as the month closes by selling off.

Monday 03 to Friday 07 October

The first week of October (40) between 03 and 07 October has an 80% probability for a profitable long position on the DIA and SPY over the last five years but is flat over the 10 and 15 years averages.

The 2016 Stock Trader’s Almanac’s averages for Monday and Tuesday are flat at 51.1%, Wednesday is mildly bearish at 47.6%, Thursday is flat-to-bullish on the DOW and S&P500 at 64.3% while Friday is the most bearish day at more than 61.9%.

CONCLUSION

Trading can be one of the most frustrating jobs you can have and I have proof of this. On Monday, as the market rallied, I thought my position of 20 contracts of Oct218Calls  at $1.25 were safe and sound so I went to sleep. While I slept …

Screen Shot 2016-09-18 at 10.49.11 AM

That’s right, you’re not seeing things … the next day, it took half of that back at the open and by lunch, it took it all back. I was powerless to do anything as I was in class on Tuesday night. At $1,700 from a $2,500 capital, that would have been a return of 68% in an intraday trade. Well, some profit at the end of the week is better than a loss, I guess. Can’t help but rue the one that got away …. *sigh*.

I am looking to get a second shot at this and this time, I won’t be sleeping, I assure you. My confidence is high, my senses are keen and my skills are sharp going into this week’s action. I am a Bear on the hunt!

Plus, I am cutting my hair on Tuesday BMO.

Happy Hunting!!

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CANDLESTICK & BREAKOUT PATTERNS WORKSHOP (MY)

Screen Shot 2016-09-12 at 3.28.00 PM

CANDLESTICK & BREAKOUT PATTERNS WORKSHOP (Kuala Lumpur, Malaysia)

Next Workshop:
• Date: Saturday, September 24, 2016
• Time: 10am to 6pm (1000 hours to 1800 hours)
• Public Entry Fee: RM250.00 (Cards not included)
• PTT Grad: F.O.C. (Cards not included)
• Venue:
Armada Hotel – Arcadia II & III , Level 3
Armada Hotel Petaling Jaya – Lot 6,
Lorong Utara C, Section 52,
46200 Selangor

Reserve your seat for the next session now!

Drop an email to:
ptradermy@akltg.com (For classes in Malaysia)

*LIMITED SEATS, SO BOOK EARLY!!

AND DON’T FORGET TO CHECK OUT OUR
iPHONE & iPAD (IOS) APPS!!

Candlestick & Breakout Pattern Apps

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Comments Off on Market Update – 12 September BMO

Market Update – 12 September BMO

Before we start getting carried away just yet, let me just say that this is not about the start of a great sell-off or market crash. Actually, some of you who have gotten used to my bearish/hawkish tones, may be surprised at what I am about write. Let’s review the situation first …

Screen Shot 2016-09-11 at 11.30.14 AM

DOW – 10 Sep 16, AMC

Screen Shot 2016-09-11 at 11.37.02 AM

S&P500 – 10 Sep 16, AMC

After the drop on Friday 10 September 2016, the DOW (-2.13) and S&P500 (-2.45) find themselves suddenly below their 10, 20 and 50 DSMAs, with their respective 20DSMAs below their 10DSMAs for more than three consecutive sessions. This comes after  the DOW marked 2 DFDMs (Down Friday, Down Monday) in six weeks at the top. The sell-off was sparked by fears coming from the reality of a rate hike on 21 September.

The Bond market had an even more frightening session as they sold off across the board. The 5 and 10 year yields jumped 6bps up while the 30yr yield gained 7bps. The fear of this bond bubble bursting came after months of massive bond buying as a result of quantitative easing in Japan and Europe which had pushed yields to record lows since last year. (Bond prices and Yields move in opposites.)

This rare divergence between equites and yields comes at a time when the equity space is already jittery about being too toppy and overbought. The reality of less-than-stellar Q2 earnings that sent the market to record highs in August and September, must have set in and made investors react en masse.

Screen Shot 2016-09-11 at 4.10.37 PM

This was by far the most convincing sell-down for the year with $DVOL outpacing $UDVOL by around 30:1. The VIX (+39.89%) also marked its biggest single-day spike this year by rising 5 points from 12.50 to close at 17.50, its highest close in two months.

Fri09Sep PnL

It was a profitable session for me, by the way … just saying. The two trades, of course, were on a budget of less than US$10,000.00.

More significantly, some of you may be asking why I closed out my Puts on SPY instead of letting it run into next week. Let’s just say that I don’t think there is any reason to crash the market yet and that September has always been prone to wild swings and higher volatility anyway.

On closer examination of the broader market, it would seem that the sell off in the first half of the day was confined to the large and mega caps only. The TRIN didn’t show the broader market selling off until the last two hours when the benchmark indices cut past their 50DSMAs.

Screen Shot 2016-09-11 at 4.56.36 PM

$TRIN – NYSE

This, to me, was nothing more than a knee jerk combined with automated stops and shorts being triggered when the 50DSMA was cut. The initial spikes and dips between 2pm and 2:30pm were typical of High Frequency Algorithmic Systems running orders on this trigger.

Volumes on the DOW and S&P didn’t show significant increases on the day to convince me that this sell-off could have been the start of armageddon. With such a wide range on the day, the volumes pale in comparison to the January, February and June corrections. One could call it an ugly Three-Line Strike on candlestick analysis.

Screen Shot 2016-09-11 at 4.52.35 PM

DOW – Volumes

Support on the DOW should hold above the critical and psychological 18,000 while the S&P500 should be supported above 2,125. The real sell-off is yet to come. Over the next two weeks, the market will tell us if a sell-off is due or if this is just the normal September craziness. Let me surprise you all and say that I am actually bullish for the coming week.

Let’s preview the coming weeks into the end of September and the first day of October …

Screen Shot 2016-09-11 at 3.20.17 PMMonday 12 to Friday 16

The coming week (37), between 12 and 16 September, holds an 80% probability for a profitable long position on SPY and DIA over their 5 and 10 year averages.

According to the 2016 Stock Trader’s Almanac, the bullish averages for Monday, Tuesday, Wednesday and Friday are more than 63.7% on the DOW and S&P500 while Thursday is the flattest day of that week.

Monday 19 to Friday 23

The following week (38), between 19 and 23 September has more than an 80% probability for a profitable short position on SPY and DIA over their 5, 10 and 15 year averages.

According to the 2016 Stock Trader’s Almanac, the bearish averages for Monday, Wednesday, Thursday and Friday are more than 63.1% on the DOW and S&P500 while Tuesday is flat-to-bullish at around 54.7%. Wednesday, Thursday and Friday are the most bearish days as the week closes into increasing bearishness.

Monday 26 to Friday 30

The last week, 39, between 26 and 30 September has less than an 80% probability for a profitable short position on SPY and less than a 60% probability for a profitable short position on DIA over their 5, 10 and 15 year averages.

The 2016 Stock Trader’s Almanac’s averages for Monday are mild bearish at 57.1%, Tuesday, Wednesday and Thursday are flat-to-bullish on the DOW and S&P500 at 57.9% while Friday is the most bearish day at more than 71.4% as the month closes by selling off.

CONCLUSION

I am bullish for the coming week (37) but that won’t last as I reverse everything into shorts in the following week (38). It is going to be fast and frenetic … definitely not for the faint-hearted and novices.

If you’re looking for a reason to crash or a catalyst that may start the next great decline, keep alert on the last week of September. That week is infamous for Portfolio Dumping – a phenomenon whereby Fund Managers adjust their struggling portfolios (especially in difficult years) by massively off-loading their losing positions in order to create the illusion of an out-performing portfolio by keeping the winners. If the dumping is checked, they are likely to follow-up after the first week of October and even on Expiration Friday of October.

That will be the true test for this market and might just set the tone for 2017, a year ending with the number “7”, that is synonymous for market crashes. But that another story for another post.

Happy Hunting!!

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Comments Off on Sector Report 1608 : Overvalued 2016

Sector Report 1608 : Overvalued 2016

up

The month of September is notoriously bearish so we’re featuring the most Overvalued large-to-mega cap companies on the S&P500 as of the close of 30 August 2016. Investors are expecting this year’s September to provide the catalyst for that long awaited correction that hasn’t materialized yet. If it does materialize, the best picks for shorting will obviously be the most over-bought stocks in the benchmark indices.

Includes latest market updates.

Get your issue here: Sector Report 1608 : Overvalued 2016

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Comments Off on August 2016 Review, September Preview

August 2016 Review, September Preview

Busy busy busy ….

I have no idea how many times I’ve started my blog posts like that but the truth is that has been the story of my life for the last ten years. And its been a great ten years because I’d rather be busy and working hard than bankrupt with too much time on my hands.

I have always dreamt of the day when I would be successful enough to take it easy and enjoy life, lay back, chill and simply ‘lepak’. That was a totally wrong concept of what success is really about. There really is no end to how much you can achieve once you set the wheels in motions because one success breeds more and like my mother-in-law said, “money doesn’t like to be lonely”. How apt.

On 21st August, KL completed its 33rd Tutorial batch who are now in Tutelage for an additional five weeks with Gary and Wai Seng, my longest stalwarts and supporters of the program.

PTTMY33

This was the only batch this year (in SG, KL and PG) that didn’t sell out. The reason was that we used this batch to capture the whole Tutorial digitally so we needed the space for the cameras. Every other batch this year has been sold out and even over-sold in some cases. Most of them were sold out weeks before the Tutorial started.

On Tuesday 23rd August, Singapore saw its 85th Tutorial batch complete its nine lessons in eight weeks. Now they are going to get hit with their Post Graduate Assignments over the next six weeks.

PTT85

On the 26th of August, Penang started their 5th batch there and what a batch this has been so far. I’m off to complete their Tutorial this weekend and if their first outing was any indication, I am in for a real fight this weekend because this is one super energetic bunch with all the right questions and a hunger I’ve not seen in years.

PTTPG05Sat27Aug_02

Finally, on Tuesday 30th August, Singapore started its 86th Tutorial batch. Yet another over-sold batch with 37 attendees.

PTT86 1st day

The last time I had back-to-back sold out batches was in 2007/2008. I hope this isn’t deja-vu because if really means anything, the economy is in for a lot of trouble.

MARKET MATTERS

August continued its bearish is reputation by closing in the red. In monthly permutations, it is possible that this could be the start of an Evening Star if September sells off. If this happens this could signal the start of that long awaited correction.

UNITED STATES

The DOW and S&P broke historical highs in August but were unable to stay at those highs. This now sets both benchmarks up for a possible Head and Shoulders pattern. This is even more so on the S&P 500 than the DOW.

INDU

On the economic front, the US economy is not in any bad shape at all. There are certain weaknesses in the manufacturing sector and a noticeable slow down on the retail and consumer spending fronts. But there are signs that the investors are not confident about these numbers and are choosing safety instead of risk.

The shorter maturity yields have been rising while the longer-term maturities yields have been falling, suggesting a flight to longer-term safety amongst the fixed income securities.

YieldsX3

This is more evident between the start of August and the close where the shorter term yields have closed higher than the month’s open.

YieldsX2

All this while the 30yr yield fell below the month’s opening yield. This flattening on the belly of the curve usually suggests doubt in the risk markets.

It would seem that the VIX agrees by rising in the month of August. The Fear Indicator made a two-year low, briefly touching 11 points before beginning its rally into the end of the month.

VIX

If this continues into September, it would be a clear sign that the big boys are hedging ahead of something huge. September’s FOMC meeting is going to be keenly watched as Chairwoman Yellen is expected to raise rates yet again. She had been broadly hinting about it especially through the Jackson Hole meeting in August.

SINGAPORE

August has been very active month for the Little Red Dot.

They got their first Olympic gold medal, the Prime Minister gave everyone a very public scare during his National Day Rally Speech, they mourned the death of a much loved ex-president and got its first case of the Zika virus that is quickly becoming a national threat. So if you’re looking for that catalyst that might bring the Red Dot down, I reckon we are looking at the start of something similar to SARS.

Year-to-date the STI has is down -1.8% while year-on-year, the index is up by less than 2%.

STI5yrs

It has been a painfully unprofitable year. Small to medium businesses have been closing down quicker than newer ones open. Rentals remain stubbornly high and consumer spending continues to slow. This is the result of shadowing the second largest economy, China, who have been in a massive economic slowdown.

The island state extended its run of consecutive months of deflation to 21 months in negative inflation. This extended the country’s longest period of negative inflation in its 51-year history.

Deflation

Spending on all fronts including consumer spending, government spending and investment spending have slowed to a crawl. Another clear sign that the Red Dot is in an economic slowdown is its precious real estate that has been in a decline for almost three years now.

Property

If Zika gets more serious and repeats the pandemic of the 2003 SARS outbreak, this could have very serious consequences for the economy that could put the Red Dot further on the back foot.

After a massive S$24B loss on investments and further devaluing of the SGD, this country is on the edge and it won’t take much to tip it over.

SEPTEMBER PREVIEW

September is the last and worst month of quarter three which is traditionally the worst quarter of the year. September 2016 has twenty-one trading days and one public holiday. In the last 65 years since 1950, September has been the most bearish month of the trading year for the DOW and S&P. It is also the worst month of the worst four months (July to October) on NASDAQ.

September Trivia

Economic Data

The FOMC meeting on 21 September will be the highlight of the month with the rate announcement due out at 2pmEST. Other events to watch out for are the various countries’ GDP reports.

Key Economic Dates For September 2015

Thursday 1

Friday 2

Tuesday 6

ISM Non-Manufacturing PMI

Thursday 8

Monday 12

Thursday 15

Friday 16

Monday 19

Tuesday 20

Wednesday 21

Tuesday 27

Thursday 29

Friday 29

Commodities

SUMMARY

Things are getting very nervy in the markets now. All it will take is a catalyst to kick start a massive sell down as most markets are way overbought right now. But what that catalyst will be is anybody’s guess … in Singapore, we’re watching the Zika story with keen interest. As of writing this, the spread of the contagion is getting worse.

If my economic outlook from 2014 still holds water, I’m expecting the major economies to fall apart in Q3 and Q4 this year. Even if I’m wrong about this I’m not expecting any bull market before Q3 next year. Having said that I’m not going to sit stubbornly by the side if this market chooses to keep rallying. I will take the ride for as long as it lasts but I will be extremely cautious should it show signs of failing.

Next year is 2017. Years ending with the number 7 have been notorious for market crashes;

  1. 2007 (Sub-prime Mortgage Crisis),
  2. 1997 (Asian Financial Crisis),
  3. 1987 (Housing Bubble Recession),
  4. 1957 (DOW Triple Top),
  5. 1937 (Property Bubble and Credit Tightening),
  6. 1917 (Inflation, WWI) and
  7. 1907 (Post San-Francisco Earthquake).

If you believe in this tradition, then you would sit on the side of caution. After all no one ever lost money by not investing.

Happy Hunting!

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Comments Off on July 2016 In Review, August Preview

July 2016 In Review, August Preview

Hectic. That’s how I would describe my July 2016. Between the 9th and 30th, I did, for the first time ever, three Candlestick & Breakout Patterns Workshops in Singapore, Kuala Lumpur and Penang (below).

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We graduated the second batch of Tutelage students on 18th July. This second run was more fulfilling as I was more prepared to anticipate how the students would perform under supervision. The energy levels were also much better this time round.

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PGT02

Apart from work, I finally got my speed back in the water. Still working on losing a couple more kilos from Switzerland (yeah yeah yeah, I don’t know why it’s to hard this time) that should help me push my timing even more. But it’s great to be in the water again and swimming regularly in spite of the weather.

MARKET MATTERS

It seems like the markets don’t seem to care about the state of the global economy and its obvious weaknesses amongst the banks and industrials. This ageing bull just keeps on plodding on and on and on. Where is it getting its legs from?

The US markets just keep forcing the highs while the European and Asian markets struggle to get out of a consolidation funk that has plagued them since their Q1 2015 highs. The slowdown in Asia and the impending credit failure in Europe are real global threats that the US seems to ignore as they blast their way to record highs. Is this rally sustainable or is this a last gasp reach for the sky?

UNITED STATES

The DOW and S&P broke historical highs in July but now seem to be on divergent paths. The DOW weakened into the end of July while the S&P500 maintained its highs. The NASDQ (5,162.13) also made high ground and is just off its 52wk high of 5,218.86 from 20/7/15 as of July 2016’s close.

INDU

Earnings have been impressive for Q2’s results so far. Now that we’re halfway through earning season, it seems obvious that this market is destined for higher highs. However, there are dark ominous clouds forming beyond the earnings horizon.

Screen Shot 2016-08-01 at 4.21.04 PM

Yields have fallen (abov) all year and are now threatening the lows of 2012. They are also flattening as they fall and the flattening is now pivoting along the belly of the curve.

On a tighter timeframe (below), the curve is pivoting along the 10yr with the shorter maturities rising while the longer maturities fall.

Screen Shot 2016-08-01 at 4.23.25 PM

With Inverted Yield Curves occurring at an average of one every seven years, this ageing bull has extended the possibility of an IYC happening.

Now that the cheap money has ended, investors are looking at parking money in safety again and this should bring on an IYC soon. For the record, the last IYC was in January 2007.

The VIX is also showing us a high level of complacency as it tests two-year lows at 12.16.

Screen Shot 2016-08-01 at 4.52.16 PM

SINGAPORE

If you had bought anything in June or July 2012, you’re not making money today. (STI, below)

Screen Shot 2016-08-01 at 5.46.25 PM

The Little Red Dot is getting deeper into trouble. Manufacturing has fallen, spending amongst investors, consumers and the government has slowed, easy credit is drying up and the retail sector is seeing more and more closures amongst the small to medium enterprises. Exports resumed its decline after a brief relief and Imports stay unchanged but at three-year lows. Property prices have been falling for 11 straight quarters and are at 5-year lows.

The real worry is that the island state is now 20 months in negative inflation, putting it in serious Deflationary territory given the economics behind its slowdown.

Screen Shot 2016-08-01 at 5.21.55 PM

This is now officially the country’s longest period of negative inflation in its 51-year history.

The circumstances behind this phenomenon are similar to those of Japan, South Korea, Hong Kong and Taiwan in the years that followed their massive growths and rise to economic power in the 70s and 80s. It would seem that it is now Singapore’s turn to take that downturn.

Screen Shot 2016-08-01 at 5.37.16 PM

Its Households Debt To GDP (above) is just off its historical highs at 60.3% of its GDP in Q4 2015, down from 60.8% the quarter before. The latest figures from Q1 and Q2 2016 are oddly unavailable.

To further hurt the economy, it didn’t help that the nation lost untold millions in educating foreigners who only returned the favor by defaulting on their bonds for which the authorities never pursued to recoup the losses or punish the bond-breakers. The economy was hurt further when it was announced that it lost S$24B of the people’s money in investments. The losses pale in comparison to the 1MDB scandal and are not likely to be recouped easily especially if the region goes into recession.

The troubles are only beginning to mount for the Red Dot as many who have been over-leveraged on debt are steadily and surely defaulting on their debts only to put pressure on the banks who have been fighting tough to cope with these issues. Their earnings in recent weeks were encouraging but certain spots of trouble are starting to blight an otherwise flawless quarter.

August Preview

August has been the most bearish in the last 28 years with no reliable patterns. It is the first of two consecutive months of bearishness going into September, the most bearish month of the year over the last 80-plus years. Since 1987, August has been the worst month on the DOW, S&P and NASDAQ.

August 2016 is a long month that has 23 full trading sessions and no public holidays.

August Trivia

Key Economic Dates For August 2016

This is going to be a busy month for Central Banks all over the world. With economies contracting and making hawkish forecasts, expect more volatility in the markets and more job lay offs as companies tighten their belts.

Monday 1
• Manufacturing PMI for US, UK, most of Europe

Wednesday 3
• Services PMI for US, UK, most of Europe
• US ADP Employment Change
• US ISM Non-Manufacturing PMI

Thursday 4
• UK BOE Inflation Report
• Australia RBA Monetary Policy Statement
• UK Official Bank Rate, Monetary Policy Summary

Friday 5
• US Non Farm Payrolls, Unemployment Rate

Thursday 11
• China Industrial Production

Friday 12
• Germany GDP q/q
• Europe Flash GDP q/q
• US PPI, Consumer Sentiment

Sunday 14
• Japan Prelim GDP q/q

Monday 15
• Australia RBA Monetary Policy Meeting Minutes
• US Empire State Manufacturing Index

Tuesday 16
• UK CPI
• German ZEW Economic Statement
• US CPI, Building Permits, Industrial Production, Capacity Utilization

Wednesday 17
• US FOMC Meeting Minutes
• Australia Unemployment Rate

Thursday 18
• US Philly Fed Manufacturing Index

Monday 24
• Europe, France, Germany Flash PMI (Services & Manufacturing)

Thursday 25
• (Tentative) Jackson Hole Symposium – 25 to 26 August

Friday 26
• UK GDP Second Estimate q/q
• US Prelim GDP q/q

Tuesday 30
• US Consumer Confidence

Wednesday 31
• US Chicago PMI, ADP Non-Farm Employment Change
• China Non-Manufacturing PMI, Manufacturing PMI

Commodities

Oil fell from 46.83p/b to 41.10, Gold rose from 1,338.00 to 1,357.00, Corn and Wheat both collapsed and are lingering at multi-month lows now … commodities across the board whipsawed in July with metals making gains and crops making declines along with crude.

SUMMARY

August and September are the year’s most bearish consecutive months over the last 26 and 86 years respectively. And August’s bearishness is way worse that September’s. Remember August 24th last year?

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These are the months that will threaten an economic fall out if ever there was an opportunity to do so. The time is ripe for such an event.

With Italian banks on the brink of failure, Deutsche Bank getting rebuked by the IMF for being the most irresponsible lender, Chinese banks begging for bail outs and American banks looking down the barrel of losses totaling more than half a trillion dollars, we’re looking at a potential financial crisis on the horizon.

I will be watching the warning signs with even more interest in the coming months as most have already manifested themselves to put me on alert. The past 19 months have been on track to meet my 2014 projections and if the patterns persist, we’re looking at a major correction this quarter and I suspect, one that will be heavier than last year’s.

Happy Hunting!

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Comments Off on Sector Report 1606 : Conrad’s Favorites 2016

Sector Report 1606 : Conrad’s Favorites 2016

Strategic Analysis

After busting my brains for what to suggest for this month of July, I honestly couldn’t come up with anything usable as July is so volatile and nothing is in season during this month.

So, to save time and grief, I have decided to focus on my favorite picks and watch how they perform in the coming Q2 Earnings Season so get an idea of how to trade them in their coming seasons.

These are my frequently traded stocks and ETF. Each stock is analysed and traded differently according to its characteristics and some have taken huge hits that make them the most tempting investments given the right time and opportunity.

Don’t miss out this unique opportunity to find some of the most intriguing trades you never knew about.

Conrad.

Get your report here: Sector Report 1606 : Conrad’s Favorites 2016

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Comments Off on June 2016 In Review, July Preview

June 2016 In Review, July Preview

Brexit

I guess June 2016 will be remembered for the event that never shook the world – Brexit. For all its hype and build-up, the event brought world markets to its knees for only two sessions. Within a week, everything was almost back to where it started. Loads of people lost trillions in the markets while many others stayed out. Institutions, it seems, were the worst hit. The worst may not be over yet. But until the next chapter in Brexit, the world and the markets have already moved on to worry about other things.

I will remember my June 2016 as a glorious dream realised when I vacationed in Switzerland for the first time in my life. It was everything I had imagined and more … much more. I have fallen in love. I must go back again and fill in the rest of what I have missed.


BridgeLakeSelfieBoatIMG_3820

It seemed like everywhere you point and shoot, you end up with picture postcard perfection.

HillsIMG_3824GlacierJungfrau

What I love best about cold countries is that I get to deck myself out with black over black and look badass!

FullSizeRender

TUTORIAL MATTERS

The Tutorial Classes in 2016 have been sold out back-to-back-to- back. This hasn’t happened since November 2007 till June 2008. With the August batch two months away, it is already more than 60% filled with a list of KIVs yet to confirm.

Sold out

In the last weekend of June, I went back to Penang after a long time. It was good to be back.

PenangAgain

On 25 June, I did a preview to a crowd of almost 90 people in Penang and immediately filled 80% of the seats with a list of KIVs still yet to confirm the few remaining seats for the August 26th Batch in Penang. The Malaysian batch in K.L. on August 15 is already more than half full.

PG2PG1

On Monday 27 June, we kicked off the second batch of the revised Four-Week Post-Graduate Tutelage. This is a full capacity batch with all 30 seats booked long before the Tutelage began.

The following day, Tuesday 28 June, PTT85 started its Tutorial. This is also a full batch with 35 new students. If the first day’s energy was anything to go by, this will be an interesting batch to teach and I relish the opportunity.

85b85a

There is a dark side to all this busyness … the last time this happened (November 2007 till June 2008), the economy was not in good shape and everything fell apart in 2008.

So if history is anything to go by, it seems things are repeating itself now and a certain sense of Deja-Vu is in the air.

MARKET MATTERS

June is known to be the most unpredictable month of the year while July is the most volatile. Given those reasons, I have been very conservative in my trades, never keeping anything for more than two sessions and sticking to mostly scalps on Crude.

The US market lived up to that unpredictable reputation by giving 2016 its most volatile month yet.

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June gave us the widest range of any single session this year with more than 590 points to the downside on the DOW, even more than January could muster. In two consecutive sessions after Brexit, DOW lost more than 880 points. However, it all came back within the text four days with the 1st of July (Friday) bringing the DOW back to pre-Brexit levels.

Such events often catch out the Bears who had been short on the market and definitely slaughtered the Bulls who had betted on it. Reports from all over are claiming that it wiped out US$3 trillion from the markets.

The US economy on the whole has been showing resilience by dropping its unemployment rate to 4.7%, its lowest since November 2007. However, growth remains subdued, contracting in the last three quarters to +1.1% from 3.9% three quarters earlier.

Its Manufacturing PMI has been falling but stays above the critical 50.0 mark but its Industrial Production has been negative for nine consecutive months and negative for ten of the last 12 months. Its Services PMI is also at the low end at 51.3.

For now, we hold faith in the American economy but I am keeping a very close eye on its weakening numbers. Most of all, I am watching the yield curve with exceptional interest. The spreads are tightening at an increasingly quicker rate that’s flattening the curve on the shorter maturities.

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The spread between the 2/5 is now only 41bps while the 5/10 is 46bps. Thus the 2/10 spread is less than one percentage point at 87bps when it should be 200bps for par.

The behaviour of the bond yields imply that in spite of the positive (albeit weakening) data, investors don’t have faith in risk now and are expecting some sort of slide in the economy and risk markets. I stand amongst those who feel that way and will stay conservative as we go into the worst quarter of the trading calendar.

July Preview

July is the start of quarter three and is the best month in the worst quarter of the year. Having said that, it is also the most volatile month of the trading year. The three months of Q3 are extremely varied with July reputed to be the most volatile, August being the most bearish in the last 25-plus years with no reliable patterns and September, known famously for having the lowest volumes of any month and the most bearish of the calendar year over the last 85-plus years.

July 2016 has 20 full trading sessions and one public holiday (Monday on 4 July). July is known for its volatility with huge swings either way. It is also the start of the third earnings season of the year when companies are known to pull back on their guidance and become conservative about their outlooks.

July Trivia

Key US Economic Dates

Commodities

SINGAPORE

Singapore seems to not care about world economics and its own internal frailties as government agencies raised parking rates and utility rates in the last week of June. With that, private parking companies have also seen the need to raise their rates to keep the spread between public and private rates constant. As with all things past, our government has repeated its pattern of raising fees and rates a year after being elected in again. I wouldn’t mind so much if things were status quo and life was great. But it is not great on the streets.

Empty properties are on the rise as commercial real estate demand dries up. Business owners especially among the small to medium retail outlets have found it extremely challenging to keep up with the high rentals while consumers pull back on their spending. With credit also drying up, the end to the flow of cheap money is affecting many who had depended on debt to maintain their way of life. That folly has now caught up with those who did and others are starting to fall victim to their own lavish spending.

This is not surprising given that Singapore’s Households-Debt-To-GDP is amongst the highest in the world at 60.30% of our GDP.

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Others are losing their jobs as banks and financial institutions tighten their belts. The shipping, oil and marine related businesses have also tightened up and cut heads. The new influx of fresh grads in Q2 have not been able to secure any job outside of sales and direct marketing.

Our Inflation Rate continues to be the foremost concern (although our central bank seems to ignore it). For the nineteenth consecutive month, the island state has registered negative inflation (Deflation) with the most recent read being the lowest and the sharpest decline since August 1986 at -1.60%.

Screen Shot 2016-07-03 at 4.10.34 PM

What’s making it worse and threatening to turn this into a full blown Deflation is the slowing of consumer spending, government spending and investor spending. Property prices have tumbled precipitously, catching many unsuspecting property investors out this year. High-end investors have been reported in the mainstream media as dumping or fire-selling their multi-million dollar homes. Foreigners who used to scoop up Singapore properties like candies in a discount store are now looking to off-load their souring investments in a hurry.

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Finally, although I have no numbers to prove this, the numbers of high-performance European Marquis have diminished rather starkly compared to a year ago when almost one in every 20 cars I passed was a Marquis. Even at the parking lot at my training center that used to have lots of such fine machines are now seeing less and less of them as the months go by. I used to drool at these magnificent cars when there were so many of them. These days, there are hardly any of them to drool over anymore.

SUMMARY

After April’s and May’s madness, it was good and timely to get a two week break to re-energise. The second half of the year has already started for me last week. I have resumed trading, albeit at a very conservative rate, and it has been profitable so far … difficult, but still profitable.

I am also back to swimming and working out to fight off the extra 4.5kgs I put on while vacationing. Put in 80 laps (4km) on Thursday 29 June and completed it in 01:46:00 for an average of 13 minutes per 10 laps (500m) including four quick stops to adjust my equipment. Still have a bit more to cut down but it’s good to be feeling fitter and faster.

It’s also good to be on the move and working again. I feel blessed and thankful that I can.

FFnMe

Happy Hunting!

I’d like to wish all my Muslim Brothers & Sisters a Selamat Hari Raya Aidilfitri.

graphic-design-selamat-hari-raya-puasa-greeting-card-2013_zpsl219ndn6

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Comments Off on Sector Report 1605 : Tobacco & Alcohol 2016

Sector Report 1605 : Tobacco & Alcohol 2016

 

smoking alcohol_84

The last time we featured companies in the Sin businesses was 2013 and the portfolio was rather profitable as was back in 2011 when we first featured it.

Tobacco and Alcohol are two perennial consumer “staples” that never go out of style, especially when the economy tends to stress people out … as it has been doing since last year.

Thus, we think it’s a good time to revisit the world of Sin & Vice again.

Get your copy here: Sector Report 1605 : Tobacco & Alcohol 2016

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