December 2010 Review, January 2011 Preview

WHAT A YEAR!

Started out with a bang, went volatile, gyrated like crazy, looked like it was going to the dogs by mid year then suddenly woke up and revived finished with a flourish … and that’s what my life looked like in 2010. Now let’s review the market … erm … kinda looks similar to my life, actually …..

But seriously, it was a wonderful year – very profitable in the market, very successful for WAT in Malaysia and Singapore, fantastic changes in my life and family and very progressive in my businesses. Our website and forums were given an upgrade and a new look and the Tutorial notes were given improvements as the year bore on – next year’s tutorial will have 30 chapters instead of the current 28 plus a whole bunch of updates and modifications.

I intend to keep this momentum going through the next year as I slow down on my teaching even more than in 2010 (my goal in 2010 was “Teach less, Trade more”) while I focus more on my trading and family matters. Instead of the usual 11 or 12 (SG) batches that I used to run in 2007, 2008 and 2009, I slowed to only nine batches in 2010.

I also cut WAI out from my calendar since August thus taking myself out of the course in Malaysia and Jakarta forever. I also reduced my exposure in Jakarta seeing that the demand for quality education there has waned in the light of its “easy money” market – no point in teaching a country that doesn’t need an education in a market that keeps going up in a straight line and is flooded with “Top-Of-The-Market Gurus“.

However, in spite of my best efforts to cut back on teaching, the demand for WAT in K.L. and Penang grew and it is likely that in 2011, whatever time I gave up in Jakarta will be taken up by Malaysia. I don’t mind as long as there is a demand for what I offer, I am always happy to teach. But in Singapore, I will be doing only eight batches with a view for one more batch as a contingency.

December 2010 was a nice way to close out this wonderful year.

On 6 December, I closed out my third biggest ever batch of students with 40 graduating from WATMY12. I really don’t like doing such big classes but the demand for the last two KL classes have been overwhelming. We actually had to push back some students for next year batches. Nevertheless, I had lots of fun as I always do teaching in Malaysia. The energy there is truly awesome.

Then on 15 December, after nine lessons in eight weeks, WAT45 finally graduated. This was one of the most long-drawn batches I have ever taught. We kept going off tangent and digressing thanks to the many questions and queries from this extremely curious batch.

On the same week that Friday, we had our annual Christmas Gathering which saw two good friends return to share with us their specialties … Andrew Tan gave us some metaphysics insights into 2011 … David Caploe gave us the political and economic issues that could affect the global markets in 2011 … and I said something bearish …  did you expect me to say anything else?

MOVING FORWARD

2011 is going to be another exciting year because I will be releasing two new books and two brand new Quick Reference Cards. The first book to be released is a follow up to my bestselling “Secret Psychology of Millionaire Traders” and is expected to be out by April. The other one should be released about two months later. I’ll keep the theme of that book a secret for now.

I will also be re-introducing the TA Masterclass as a brand new subject matter; Macro-economics & Technical Analysis (META) Masterclass. And with the launch of my second psychology book, there will also be a masterclass to boot; Trading Psychology Masterclass. Both workshops are opened to the public but not for Novices or Beginners. They will be weekend sessions over Saturday and Sunday. Details at a later date.

JANUARY TRIVIA

As January goes, so goes the rest of the year.

That is in reference to the January Barometer, an indicator that has only been seriously wrong 7 times in the past 60 years. In recent times, the January Barometer only failed when stimulus was introduced to reverse economic doom in 2003, 2009 and 2010. In a nutshell, if January is a bullish month, so will the year be. If January is bearish, we’re likely to be bearish for the year.

The first five days of January are also a very reliable indicator. In the last 37 times that the first five days were up, it was followed by full year gains 32 times.

January is the last of three of the most profitable consecutive months (November through January) of any trading year.

Here are the rest of January’s stats;

Oil and Gas tends to be weak in January and bottoms in February for one of the strongest Buy months of the trading calendar.

Precious metals usually peak in January with traders opting to short the shiny stuff while Copper starts to show strength.

Cocoa, Sugar and Coffee are normally mixed to the upside with cocoa being the strongest of the three. Soya and Wheat are weak while Corn is strong.

MARKET MATTERS

At the start of the year, I mentioned that the market would be sideways and volatile – and it was spot on right up to September when whispers of QE2 emerged and its subsequent $600b worth of stimulus in November changed that analysis. So what now, for the market in 2011?

Everywhere, inflation is becoming a worry as almost all commodity prices have broken record highs …

These high prices are definitely going to raise costs come 2011 as we end up paying more for oil, corn, wheat, sugar, coffee, etc.

Add to that statistic the new high for COEs; $72,000 (up $10,000 from the previous month) for cars above 1600cc … the rising prices of landed properties; $1,700psf in prime estates (up 5.1% on the quarter) and $990psf for non-prime (up 4.3%) – while resale condo prices stagnate with the bids getting lower … the cost of food, goods and services which are either getting more expensive or less in quantity – what you have is a growing inflationary bubble.

If you though petrol at the pump going up by 5cents was expensive, then maybe you should know that this is the price you are paying now for oil that was traded at $80 to $85 per barrel last month – oil broke $90pb on Wednesday 22 December.

So the cost of living is going up,  inflation is up to 3.8% and consumer spending is still generally beyond the average earner’s means. I only have two words to describe the next crisis if it happens – Credit Bubble.

Market-wise, we’re at the top, albeit precariously. The STI’s Head & Shoulders reversal looks like becoming a reality while the DOW, S&P500 and NASDAQ run themselves into familiar resistance levels at three-year highs. So just when you thought that we could be in the next bull run, here is an extract from John Hussman’s “Awful Time To Invest“;

In recent weeks, the U.S. stock market has been characterized by an overvalued, overbought, overbullish, rising-yields syndrome that has historically been hostile to stocks. Last week, the situation became much more pointed. Past instances have been associated with such uniformly negative outcomes that the current situation has to be accompanied by the word “warning.”

The following set of conditions is one way to capture the basic “overvalued, overbought, overbullish, rising-yields” syndrome:

1) S&P 500 more than 8% above its 52 week (exponential) average
2) S&P 500 more than 50% above its 4-year low
3) Shiller P/E greater than 18
4) 10-year Treasury yield higher than 6 months earlier
5) Advisory bullishness > 47%, with bearishness < 27%

Hussman lists nine occasions that met those criteria;

(Thanks Richard!)

Unemployment is still near or at 10% in the US and not getting any better. Latest update on this is Chevron’s retrenchment of 700 IT staff.

To make matters worse, the Fed Chairman is denying the inflationary pressures on the street by acknowledging the CPI instead. The CPI is conflictingly indicating deflationary pressure not seen since the 60’s (pic, left).

So which would you believe? The real pain of inflation on the street or the statistical indication of the CPI? Frankly, statistics never killed the market – the reality on the street did. When one man is given so much autonomy to play God with an economy, it can’t be good for the country … it never worked in our historical past and it still won’t work in the foreseeable future.

Personally, I am not bullish going into the first quarter of 2011. There are just too many indications that the market is not convinced about its lofty heights. If anything, recent weeks have proven that it doesn’t seem keen on breaking up any higher.

I’ll have a better idea at the close of January 2011 but given the state of economics in America (after listening to Caploe) I have some very serious reservations.

Despite all this bearish talk, I’d still like to wish every a great new year ahead and as always, Happy Hunting in 2011!

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Comments

Looking forward to be in your class on Jan 4th. Happy New Year and wishing you and your family an awesome year ahead!

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