(Malaysia)

Discussion Topic: IS THIS THE RECOVERY WE’VE BEEN WAITING FOR ?

The market has taken massive swings up and down in unprecedented fashion. Is the recent upswing the real deal or is this leading into another major dip? Have you been shorting the market only to get caught in a Short Squeeze or have you been buying only to cut losses on the next dip?

You’ve attended trading courses. You’ve read the best best-selling books on investing. You’ve invested thousands of dollars on the best trading software.You’ve spent hundreds more on some of the best subscriptions. You’ve made a few winning trades. But you’re still not realizing that million-dollar dream that was promised to you by those workshops, books and software. Worse, you’re losing more than you’re winning. And the current volatility and wild swings in the market is killing you …

If you’re reading this and thinking that it’s talking about you, then you really need to join a REALLY successful On-line Trader to find out what he does and how he does it. You are not going to be lied to. You are not going to get hyped up. You are not going to get hard-sold. Most importantly, you are going to get a wake up call on the reality of Online Trading and what it takes to survive it before you can even dream of making it. You will learn how tough it really is at the start but how simple it gets later. You will appreciate why it is so important to know everything from Bonds to Currencies to Commodities to Equities to Derivatives. You are going to find out how he has changed the lives of so many individuals by giving them an education on finance and economics instead of learning how to trade.

No amount of advertising is going to convince you otherwise.

Come and find out that the Pros do and what they know and why you are always going to get beaten by these elite group that make up the smaller percentage of winners. Or would you rather remain amongst the larger percentage of losers?

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

The Pattern Trader K.L. Tutorial

Kuala Lumpur, West Malaysia - Next Class:
WATMY18 between 23 March to 26 March, 2012
Tutorial Venue: See address below.

Next K.L. Preview will be:
Saturday, 18 February, 2012 @ 14:00 to 17:00 hours
Preview Venue: See address below.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

For more information on Preview dates, Schedules, Costs, or to make a reservation,
please send your query to: watmy@akltg.com (For classes in Malaysia)

MALAYSIA
Malaysia Office B-2-12 TTDI Plaza Jalan Wan Kadir 3,
Taman Tun Dr. Ismail 60000 Kuala Lumpur, Malaysia
Office : (60) (03) 7725 0212 Fax : (60) (03) 7725 8212

Reserve your seat for the next session now!

Click here for Course details: Pattern Trader Weekend Edition 2012

*LIMITED SEATS, SO BOOK EARLY!!

Weekend Food For Thought;

People always ask me how I did it; Referring to getting bankrupted, living broke for almost 7 years, working my butt off, changing careers at 42 years of age for something I had no idea about and no one to guide or mentor me, getting beaten by the market and still keep the determination to succeed as a Trader, then teach it and go on to help others to change their lives …

My answer; I had no choice, I had nothing left to lose, It was a “must” for me to succeed and frankly, if you were wearing my shoes then, you would have done the same thing.

The reason you ask me this question is because you still have a choice, you have a lot to lose, success is not a “must” because you have your comfort zone and frankly, you are not wearing those shoes which is why you will never understand why I did what I did when I did what I had to do.

So now that you know, what are you prepared to do?

Or will you wait till it is too late when “should have” becomes a “must“?

In a footnote, I added:

Come to think of it … the secret to success is Failure.

It is a very common story when you dig up all the success stories.

Here are some of the comments that followed:

Success is not something you dream about nor is it a goal to be achieved. I truly believe that success will come when it is earned, deserved and warranted.

Believe in what you do. Work earnestly. Be honest with yourself and with everyone. Do good deeds.

That’s is my secret to success after failure.

December came and went like a whirlwind and before I knew it, I was celebrating the new year. In fact, the whole year came and went like a light! Life just zoomed by and just like that, we’re doing it all over again in a new year.

Nine WAT batches in Singapore, five in K.L. and one in Penang plus I lost count on how may WA batches Adam and I did and between all that, countless public sessions, seminars, events and two surgeries made sure that my 2011 whizzed by in a flash. And as a result of the surgeries, my year-end schedule became so congested that December 2011 hardly existed for me.

WATMY17 graduated on Monday 5 December after an intensive weekend of mind-stuffing finance and economics in Kuala Lumpur. They still have another 10 hours to go over another 2 boosters in the coming months.

The following weekend of 8 to 11 December, Adam and I completed the 31st and final batch of WA for the year.

(Sorry, no picture yet)

WAT54 then graduated in the wee hours of Wednesday 14 morning after completing the eight week tutorial in Singapore.

And to close out the year with a bang, we had the biggest gathering of the year with more than 350 attendees at the Rock auditorium at Suntec on Friday 16 December for our annual Christmas Gathering. The event was kindly sponsored by CMC Markets and featured my good buddy, G.M. Teoh.

It was a very busy year but I have enjoyed every moment of it. Looking at my 2012 schedule, it looks very much like more of the same.

MARKET MATTERS

What an anti-climatic end to an otherwise flat but extremely volatile year. Really, this was the flattest year since 2005 but the ranges were amazing! We even had the most bullish October in 72 years when everyone was expecting a tanker – 1,200 points in five sessions … unbelievable. I think we also had the most 200 point sessions on the DOW in the past decade. At the end of it all, the DOW closed up, the S&P closed very flat and the NASDAQ was down. Talk about divergence

And the clincher is that it is not over just because the year ended. I reckon we’re in for more in 2012.

The DOW close to the upside by +640.13 (+5.53%) points and stayed well above all its major moving averages. On Friday, DOW closed to the downside creating the possibility of another DFDM (although the market opens on Tuesday). That will make it two DFDMs in three weeks.

The S&P also closed to the downside but barely though. At 1,257.60 -0.02% (-0.0016%), it closed above all its major moving averages and barely maintained some headroom above its critical 200DSMA. On yearly candles, SPX is wearing a perfect Doji which suggests that 2012 could either reverse or consolidate in volatile fashion.

The NASDAQ was pathetic. It started the year out with a bang and led everyone on to believe that strength in 2011 would be in tech. By mid year, it was evident that this was not going to be the case. By the last quarter, tech was a major drag on the market. NASDAQ closed out the year with a loss of -71.50 points (-2.67%) for the year. On yearly candles, NASDAQ is wearing a Spinning Top Doji just under the 5-year old 2,700 resistance. Like SPX, this suggests that 2012 could reverse to the downside or consolidate violently. NASDAQ is still below its 50 and 200 DSMAs.

Although 2011 was a flat year, less than 50% of the approximately 8,000 stocks actually registered gains for the year.

But all things considered, with the triple catastrophe in Japan, Europe’s on-going saga with debt and Pan-Asia’s two-year decline, I am actually surprised we haven’t crashed! Resilience or delaying the inevitable?

JANUARY TRIVIA

2012 is an election year which typically ends well. According to the Stock Trader’s Almanac, since 1952, the first four months suffered losses eight out of the fifteen of these election years. To make matter more bearish, of the seven bullish years, four of them were followed by bearish years in 1956, 1968, 1973 and 1976.

January’s first five days are also a very good indicator of the market’s direction for the whole year. In the last 38 up First Five Days, 33 of those years finished with full year gains.

The January Barometer is another indicator to watch for. As the saying goes, “As January goes, so goes the year.” This means that if January is bullish, so will be the year. Since 1950, the January Barometer has had major failures only seven times. In the last 20 years, it failed only three major times and two minor times. Each failure was a result of central bank intervention. In 2003 and 2009, stimulus rallied the market into a bullish close against a bearish January and in 2010, QE2 gave the year a bullish reprieve after spending more than nine months in the red.

Another interesting statistic to note; 11 of the last 15 presidential election years followed January’s direction.

January 2012 has a total of 20 trading days and two trading holidays. It starts out poorly but ends very well. January is also the last month of the best three consecutive months in the trading year.

• Monday 2 January 2012 is a trading holiday
• The first week of January is weak
• The first trading session of the year is typically bearish
• The second trading day of the year is very bullish with the DOW up 13 of the last 18
• 4th January marks the end of the Santa Claus Rally
• The second week of January is typically bullish
• Expiration week is horribly bearish with the DOW down 9 of the last 13
• Monday 16 January is Martin Luther King Day – Markets are closed
• First trading day of expiration week, DOW up 14 of the last 19
• Expiration Friday of January is bearish with the DOW down 10 of the last 13 with big losses
• The last Monday of the (economic) month is typically bearish ahead of the FOMC meeting
• FOMC minutes due at 14:15 EST on Wednesday 25 January
• January ends well with the last three session often rallying into the close of the month

For traders in SIngapore and Malaysia, Monday 23 and Tuesday 24 January is Chinese New Year – SG and MY markets are closed.

SUMMARY

So much happened in 2011. But what left the deepest impression on you? Which event will burn into your memory as the icon of 2011?

• The March 11 Earthquake/Tsunami/Meldown,
• Greece Defaulting,
• Euro Debt Crisis,
• Downgrade of U.S. from AAA,
• the slaying of Osama,
• the North African, Mid East and Yemeni uprisings,
• the ousting of Mubarak,
• the slaying of Gaddafi,
• MF Global’s demise,
• Kim Jong Il’s passing,
• Occupy Wall Street,
• the loss of Steve Jobs,
• Amy Winehouse’s untimely passing,
• flooding in Thailand,
• Chinese kid getting run over and no one gave a f**k,
• Worker’s Party winning in Aljunied,
• Suicides in Bedok Reservoir,
• the end of the Tg Pagar railroad,
• the MRT breakdowns,
• Orchard Road flooding again after “50 years”,

… what a year!

For me, 2011 will always be the year I came of age as an oil trader. It also represented my fifth year as a teacher and the year I took on two surgeries in two months. I have a lot to be thankful for this year more than any other year.

But most of all, 2011 was the year I was vindicated and recognized as a serious analyst and economist. Everything came full circle with almost all of my major forecasts over the last 4 years coming to fruition.

Originally Posted by Conrad on Monday 21 January, 2008

(In late 2006 and early 2007) I mentioned that the end of 2007 was going to be soft and this softness would carry into the middle of 2008. The longer term future, if you think all this is bad news, is that we are going to be soft for the long term … how long? I suspect till 2010. Any sort of recovery will probably be around mid to late 2011 to mid 2012.

Given the state of the global economy, I am going to hold firm to that four-year old analysis. I am expecting the first half of 2012 to be really rough and we should be revisiting some scary depths in the market till mid 2012. Its happened in each of the past two times that the market was in a decade long consolidation …

After the 10-year low (red area) of 1914, DOW lost 40% between the high of Nov ‘16 and the low of Dec ‘17 (blue area).

After rallying from the decade long 1974 low, DOW lost 28% between the high of Sep ‘76 and the low of Feb ‘78.

Now that DOW seems to have found its 10 year low in March 2009, the pattern looks set to repeat itself yet again after attaining 12,537 in May 2011. A 28% drop as a repeat of the ’70s will see the DOW get down to 9,026 while a 1917 style 40% drop will get it down to 7,522.

What is scary is the duration of the drops. It took 13 months to drop 40% between Nov ‘16 and Dec ‘17. It took 18 months to lose 28% from Sep ‘76 to Feb ‘78. If the current drop started in May 2011, then this drop would be 7 months old with anything between 6 to 11 months left to go.

But why should that worry me? In fact, I have been looking forward to it not just because of an opportunity to short the market but because every time the market bottomed on a year ending with “2”, it was followed by a four year rally!

From the bottom of 1932 to the top of 1937, DOW made a 350% profit …

From the bottom of 1942 to 1946, DOW gained more than 250% …

From the bottom of 1962 to 1966, it fell just shy of making 100% …

From the bottom of 1982 to 1987, there was more than 160% to be made …

From the bottom of 2002 to 2007, DOW managed to eke out 88%.

So if history were to repeat itself, it may not be such a bad thing after all! And with that silver lining to look forward to, I bid “Adieu” to 2011 and thanks for the memories, the new friends and thanks for a profitable year.

Hello 2012 … I’ve been waiting for this for a long time so bring it on!!

The Mayonnaise Jar and the 2 Cups of Coffee

When things in your life seem almost too much to handle, when 24 hours in a day are not enough, remember the mayonnaise jar and the 2 cups of coffee.

A professor stood before his philosophy class and had some items in front of him. When the class began, he wordlessly picked up a very large and empty mayonnaise jar and proceeded to fill it with golf balls. He then asked the students if the jar was full. They agreed that it was.

The professor then picked up a box of pebbles and poured them into the jar. He shook the jar lightly. The pebbles rolled into the open areas between the golf balls. He then asked the students again if the jar was full. They agreed that it was.

The professor next picked up a box of sand and poured it into the jar. Of course, the sand filled up everything else. He asked once more if the jar was full. The students responded with a unanimous “yes.”

The professor then produced two cups of coffee from under the table and poured the entire contents into the jar effectively filling the empty space between the sand. The students laughed.

“Now,” said the professor as the laughter subsided, ”I want you to recognize that this jar represents your life. The golf balls are the important things – God, your family, your children, your health, your friends and your favorite passions – and if everything else was lost and only they remained, your life would still be full. The pebbles are the other things that matter like your job, your house and your car. The sand is everything else – the small stuff.

“If you put the sand into the jar first,” he continued, “there is no room for the pebbles or the golf balls. The same goes for life. If you spend all your time and energy on the small stuff you will never have room for the things that are important to you.

“Pay attention to the things that are critical to your happiness. Play with your children. Take time to get medical checkups. Take your spouse out to dinner. Play another 18. There will always be time to clean the house and fix the disposal. Take care of the golf balls first – the things that really matter. Set your priorities. The rest is just sand.”

One of the students raised her hand and inquired what the coffee represented. The professor smiled.

“I’m glad you asked. It just goes to show you that no matter how full your life may seem, there’s always room for a couple of cups of coffee with a friend.”

As we consider the year that has gone by, let’s also consider the time we’ve wasted on unimportant things when we could have been appreciating the good things life has offered us. As we give thanks for the deliverance of yet another year in our lives, let’s not forget those who deserve better and let’s say a prayer for them.

Merry Christmas everyone … and thank you for making my 2011 an unforgettable one.

Cheers!

Con.

I started off the month of November on the 2nd with a second surgery in two months – to remove that huge nagging bunion on my right foot. This laid me up for three weeks with a 3.5inch cut that was held together with nine stitches. Needless to say, I was very immobile. But that was the blessing because it confined me at home (again!) and all I could do was TRADE! And boy, did I trade. Everyday, I was scalping oil and making my bonus for the year. It was great timing too as oil hit a high of $103 and it always gets easy when oil is either at a high or a low. The ranges were simply beautiful and predictable.

I struggled to get my schedule back by hobbling back to class (Batch 53) complete with walking stick, post-op wedged shoes and all on 11 November to graduate a really exciting batch of traders.

The following week was back to my crazy schedule which included a WA booster and the November Gathering. On 24 November, I got the nine stitches out of my foot which was a fitting birthday present. Batch 54 celebrated my birthday on the Tuesday before that and it was such a blast! Thanks Irene, Jing and Pei Fen for the effort that went into creating all those lovely cupcakes for everyone!

Then on 25 November, I did another talk at CIMB to around 50 local traders and investors.

Finally, to cap off a packed second half of November, I talked to more than 90 WA graduates last night (30 Nov) about the current economic climate and gave them an outlook for 2012.

MARKET MATTERS

The market looked like November was going to be a killer month. If October of 2011 was the best month on the S&P since 1974, then by Thanksgiving, Wednesday 23 November 2011 after the close, November 2011 was already on track to become the worst November since 1987’s Housing Bubble (-8.99%). The loss on the DOW for the month (-5.8%) had already surpassed the November 2008 drop (-5.07%) and the November 2000 dip (-5.33%). And we only had three and a half days of trading remaining. In my Daily Market Analysis on Monday 28 November before the market opened, I said;

With three sessions remaining, its going to take a major rally of 346 points for the DOW to get back up to break even for the year. Even if that happens, November is set to close in the red as it will take a massive 720 point rally (or 240 points a day for three straight days) to break even for the month. It looks like the bear run that started in May is set to continue after that quick reprieve in October.

And whenever you least expect it, the impossible becomes possible. The last three days of November produced an amazing 813 points on the DOW to close out the month in positive territory. With that, of course, the DOW is back up in positive territory for the year too. And for the record, Wednesday 30 November 2011 was the DOW’s largest gain of 2011 and the best percentage gain since March 2009. Despite today’s run-up, the Nasdaq and S&P 500 are down for the year.

Now with the The Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank, the Federal Reserve, and the Swiss National Bank announcing a coordinated action to enhance their capacity to provide liquidity support to the global financial system, all of a sudden, there is some real hope of avoiding one of the most catastrophic financial crisis in modern history. The purpose of this is “to ease the strains in financial markets and thereby mitigate the effects of such strains on the supply of credit to households and businesses and so help foster economic activity”.

The U.S. has also been consistently improving on its economic data with improved numbers on manufacturing (November Chicago PMI 62.6 vs 57.5; October 58.4), housing and employment. This has lent even more weight to my analysis of why America has been keeping monetary policy at such a ridiculously low rate; to bring down global currency values and level the playing field so that trade and commerce is more balanced. This is now happening as countries all over the world including Japan, Australia, China and Singapore lower the value of their respective currencies to keep trade balanced and fair. When valuations get lower, America will be poised to truly recover and take the lead in the global market again and free market capitalism will rule and conquer once again.

It all now hinges on the success and size of the effort of the central banks. As they scramble to get things together, European yields pause their parabolic rise and forex trades start to form some semblance of normalcy. How long this will last depends entirely on the central banks’ next press release that should either signal long term sustainability or prove that this 760 point spike is nothing more than misplaced short term euphoria.

Time will tell.

Trivia For December

Its the final month of a very volatile and exciting year. Will we have a Santa Claus rally? Will we finish the year up as the many prophecies have suggested – January Barometer, December Low, Valentine’s Day Indicator, Pre Olympic Year, President’s Third Year, etc … it will be a race to the finish and it is going to be a thrilling one! So bring it on!!

December has 21 full trading days, one public holiday and two holiday eves and is known to be very bullish. December is the second of three months (November, December and January) that represent the best three consecutive months of the trading year.

December Trivia

• The first trading day of December has been up 18 of the last 24
• The first week of December tends to be bullish
• 5^th December tends to be bullish
• The first week of November ends slightly bearish
• Tuesday 11 December, FOMC meeting concludes at 14:00 EST
• Small Caps pick up strength from the middle of December
• The Monday before Expiration Friday has been up on the DOW 8 of the last 11
• The week before Expiration Friday has been up 22 of the last 27 on S&P
• December Expiration Friday has been bullish on S&P 21 of the last 29
• The last trading day before Christmas has been up for the last 4 years
• Sunday 25 December is Christmas Day (Markets are closed on Monday 26 December)
• The week after Christmas is usually bullish on lower volumes
• December’s last day normally corrects with the NASDAQ down 10 of the last 11
• January’s first trading day is bearish with the Russells down 14 of the last 22

Commodities

• Oil starts showing some strength from mid December
• Natural Gas gets a correction if inventories remain elevated
• Gold and Silver may correct slightly early in the month but stay long till end April/early May
• Copper reverses mid December and stays long till end February
• Corn and Soyabeans stay strong, Wheat weakens
• Sugar corrects in December
• Cocoa and Coffee prices continue their strength from November

SUMMARY

So as America improves on its fundamentals and Europe’s worries get a reprieve, questions remain on the state of the Asian markets. With China’s and Australia’s PMIs contracting and their property market’s weakness getting more serious, there is little cause for happiness in the east.

Caution is still the key watch-word going forward but don’t allow that to spook you out of the occational bear rally.

Trade Safe & Happy Hunting Always!

To all Spammers … Either get a real life or drop dead and die.

My only surprise is that in 2007 and 2008, I never imagined that the Depressionary threat would come from Europe. Just imagine that the Great Depression was about a much smaller American economy going bust and pulling the whole world down with it for a long time (1929 to 1945). The only thing that saved it was the greatest bail out of all time – WWII.

Thus, the depth of this modern Depression, when it happens, will be unprecedented and there is no way to know how deep and long it will run. And make no mistake about it – this is way bigger and more implicative than 1929. It doesn’t help that the EU is insolvent and that nobody wants to buy their debts. It doesn’t help that Belgium just joined the list of sovereign debt threats like the contagion we expected it to be. It doesn’t help that rating agencies like Moodys downgrades Hungary who don’t pose as big a threat as its western neighbors. Most of all, it doesn’t help that Germany’s bonds are also unwanted now. The core and backbone of the EU is about to get into trouble themselves as they shoulder the burden of the entire Union.

It doesn’t help that commodity prices stay elevated and that inflation is still relatively high in most countries. It doesn’t help to fight those inflationary pressures when most countries are lowering their monetary policies to level the playing field against the American dollar. It further doesn’t help that weather cycles have been insane lately with rains and floods threatening and even wiping out most East Asian crops and staples. And it surely won’t help if China continues to sit on their hands and do nothing about anything whether it be their own domestics threats or the global threat to their continued economic conquests.

The cost of living everywhere in the world will go up as food shortages catch up with us next year. The shortages from last year’s drought plus this year’s floods are going to dawn on us very soon and inflation will be impossible. Already, inflation in Singapore is out of control. In a recent report, the official CPI number for Singapore hit 5.4%, higher than the expected 5.2% compared to a year ago, reflecting mainly higher costs of accommodation, private road transport and food. Excluding accommodation costs, the CPI was 0.2 per cent higher in Oct 2011. The Monetary Authority of Singapore (MAS) core inflation measure (which excludes the costs of accommodation and private road transport) was 0.3 per cent in Oct 2011 on a month-on-month basis.

Its getting pretty uncomfortable living on the Little Red Dot and its going to get worse. We didn’t need a CPI to tell us that. In the last two years, HDB prices have risen more than 25%, Condos have risen 35%, staples like bread are up more than 50% and cars are selling at 90% above what they were in 2009.

Lately however, attitudes amongst local consumers have shifted as they have become more conservative and have begun holding back on discretionary spending. In the last two years, salaries in general have not risen by more than 5% to 10%, banks continue to pay out 0.bs% on interest and stocks haven’t made any gains and all this is starting to take a toll on the residents on the Little Red Dot …

Around the world, manufacturing PMIs have fallen, in some countries for the second and even third consecutive month, into the red (below 50.0) signaling a major and continued contraction in businesses amongst the biggest economies in the world;

• China 48.0 in Nov vs 51.0 in Oct vs 59.9 in Sep
• France 47.6 in Nov vs 48.5 in Oct vs 48.2 in Sep
• Eurozone 46.4 in Nov vs 46.5 in Oct vs 49.1 in Sep
• Germany 47.9 in Nov vs 49.1 in Oct vs 50.3 in Sep

China’s and Germany’s drop were the most drastic with China losing 8.9 percentage points between September and October then contracting another 3 percentage points in November. Germany’s drop between September and October was 1.2 percentage points and it repeated the decline in November with another 1.2 percentage point drop to register consecutive months of contraction. The Eurozone, not surprisingly, has had more than three consecutive months of contraction. Anyone thinking that the contagion will be confined to Europe only had better think twice as this is a global event and no one will be spared.

In a global summary from news this week alone …

• Japan’s core consumer price index fell in October, signaling the return of deflation after four months of price gains. Their 6% hike in GDP this week was followed by a 0.1% drop in their core CPI. This raises fresh doubts about the Bank of Japan’s claim of a trend change in the price environment …
• Investors have turned bearish on Hong Kong’s property market, shorting stocks of real estate developers with fortunes closely linked to demand from mainland China …
• For only the second time in more than a decade, China has posted a net outflow of foreign currency, a fact that may signal an impending end of days for the Chinese yuan’s gradual appreciation, according to analysts …
• Still in China, the number of property transactions in China’s largest cities has fallen to dangerously low levels, according to regulatory documents obtained by the Financial Times, and this could have a significant ripple effect …
• China’s biggest commercial banks face systemic risks if a combination of credit, property, currency and yield curve shocks that could be withstood in isolation were to occur together, the International Monetary Fund warned …
• Though the daily market gyrations might indicate otherwise, realization is beginning to creep in that the European debt crisis and its effect on the U.S. will not take days, weeks or months to unwind—but years …
• The European debt contagion has now extended its infectious reach from Greece to include Italy, Spain, Portugal, Belgium, Hungary and the French banking system. Germany’s bonds a now unwanted too.

And if you didn’t think the markets weren’t that bad, then take a good look at the region’s top bourses over the last two years …

Not a Depression? I don’t know about that. If the EU goes down, the US is not going to stay up. This will bring most of the other nations down and China will not be spared especially when they don’t regulate their economy relative to its neighbors or anyone else for that matter. I fear the worse for the most selfish nation on the planet. If there were any doubts about China’s property, I am sure that everyone is now convinced that their 10 year bubble is deflating … and rapidly at that. I have been ranting about this possibility and reality on my blog since 2008. Now that some acknowledgement is being thrown into public view, let me now say that this is going to be much worse than some reports are making things out to be. Much much worse.

The U.S. was starting to look like they were finding their feet but as soon as things started looking optimistic, the confirmation of the Bear Rally took grip and now its looking exactly like Q1 and Q2 of 2008 all over again …

If this persists, we’re going to punch our way down to 10,500 before Christmas. If it comes to that, it wouldn’t be far fetched to see DOW get down to 9,500 by year’s end. Deja Vu? That’s because I’ve said it before and now I am saying it again. I was spot on the last time and I haven’t missed the mark since 2005. I don’t think I am going to start doubting myself now.

If this is Thanksgiving, I don’t want to know what Santa has in store for Christmas this year.

The young and impressionable shopper doesn’t give much, if any, consideration to market timing and will buy on impulse without thinking of the long-term consequences. In short, they buy for the “now”.

The old and wise shopper is particular about the timing of their purchases knowing that a well-timed purchase could save some money that can be used for other purchases in the future. They buy for the future.

The young and impressionable shopper doesn’t consider the price as long as they can have possession as quickly as they can get it.

The old and wise shopper is particular about the price even if it is affordable as long as they can have the best price no matter how long it takes to get that bargain.

The young and impressionable shopper is easily influenced by marketing, advertising and peer pressure and will buy on public sentiment. (Herd instinct)

The old and wise shopper is not easily moved by hype, will be extremely skeptical about marketing gimmicks and will be deterred by pressure. (Contrarian)

The young and impressionable shopper has a budget based on a monthly income and how much their credit card can stretch.

The old and wise shopper has a budget based on prudence, frugality and need.

The young and impressionable shopper will buy unnecessary things they can’t afford to impress people that don’t matter and only impress them for a very short time.

The old and wise shoppers buy things they need with what they can afford.

The novice trader is exactly like the young and impressionable shopper in every way. They will always get caught up in the hype, they will always buy the rumor and sell the news, they will always regret pulling the trigger too early and they almost always spend more than they can afford.

The book is due out by March 2012.

This is another extract from my upcoming book. It is part of the opening chapter and I thought it would be worth sharing it here first. This is a condensed version as each topic actually takes up several pages in detail. I hope to shed some light about what trading is REALLY about and not what is widely being conceived. Happy reading!

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Ten Truths About On-Line Trading

Since I started teaching about six years ago, I have come to realize that there are many people out there who have no idea or the wrong idea about on-line trading as a source of income or even as an alternative job. Many who have come to my Previews seem to already have a pre-conceived notion about this business and are surprised when I tell them the truth. And in spite of the truth being so obvious, they would still choose to believe in their idea about what trading is about and will not accept that I am offering nothing but the truth about it. They want to continue believing that there must be another way and that I am just bullshitting them into signing up for my class. Many walk away unconvinced only to come back months and even years later, acknowledging that what I said before was true.

Where do these people get the concept that trading is going to make them rich? How do they get the idea that it’s as easy as reading a book, attending a workshop or learning off the Internet? Why do they believe that they are the lucky ones that will become the next Buffet, Sorros or Peter Lim? And what is it about trading that draws these disillusioned people into getting slaughtered like flies to a flame?

The answer can be found everywhere. It’s called Media. It’s in the advertising, in books, on the Internet and it’s being sold at every workshop, with every software and in every website. It is a sales pitch and you can’t sell anything if you don’t hype it up. And you can’t hype anything up if you don’t sell a dream. And you can’t sell a dream without lying or hiding the ugly truth.

I should know. I am in the business of trading and selling.

But I have always been at odds with selling the dream. This has been the case since I started selling a class. It was tough at the start. No one wanted to sign up for the class because I was too brutally honest. The first truth I ever sold was that you will lose money. (Now, is there anything about that statement that you can’t believe?) And unless you banished any and all ideas of easy and quick wealth, you were likely to lose everything first before you wake up and discover, accept and learn from my first truth.

It was also a painful start as the naysayers and disbelievers questioned and grilled me about my credibility. I was even labeled as one of those gurus I despise for selling dreams. Such labels came from people who hardly knew me or knew what I stood for and why I wanted to teach … a topic that has been discussed in great detail in several series of posts on this blog including; Why I teach what I teach (2 parts), Why teach then you can trade (4 parts) and Why Traders Fail (3 parts).

I didn’t care. And I still don’t care for those who won’t believe or accept. I do what I do because there are many others who want to learn and many more others who want to unlearn. And the only way for me to teach them is by being honest and brutally truthful. For those who want to buy dreams, I can’t do much for them and I am sure they are not interested in my help.

The second truth I want to share with everyone is that on-line trading is tough. Thus, it is also about the mindset. It’s the toughest thing I have ever done in my very tough life. (Now, why won’t anyone believe that to begin with?) There is so much that need to be learned, so much more to do after learning and even more work before you can begin trading. It will take a toll on your life-style. It will eat up your time. It will force you to manage your time better or lose sleep over it. It will take its toll on your family and those closest to you. It will change your mood, your appetite and your hairstyle. I will change your life for better or for worse. In most cases, for worse.

The market is not a black and white place. It’s not even a grey area. It is a manipulated hellhole filled with crime and lies. It is a money-laundering machine where big money wins and small money loses. Those with the wrong mindset thinking that trading is all about looking at charts will be in for a huge surprise. Those who believe they are doing everything “the right way” will find out that the wrong way can be more profitable … and sometimes not. (read “Novice vs Seasoned” for an idea about what this is about.) Those in the wrong mindset will not accept that you can make money by losing money. The wrong mindset will also not allow a trader to make money more often by shorting the market because most dreamers are only of a bullish mindset while the market is never bullish for more than 70% of the time. (Now, is that hard to believe? If you want proof, you should come to my Preview.)

It is a place where small minds with little knowledge or experience will suffer against those who know that will prosper from those who suffer. It’s mean, it’s rough, it’s irrational, it’s unreasonable, it’s unforgiving, it’s thankless and it’s damn tough. And I mean it.

The third truth is the most obvious one. (And yet many believe otherwise.) There are more losers than winners. It’s around 8 to 9 losers for every single winner. Amongst the very few winners are an even smaller number of highly successful traders. And amongst the minute number of highly successful traders are even fewer successful traders that have made millions.

One of the possible reasons for this lopsided ratio could be that most of the market are bulls when the market is not bullish more than 70% of the time, as previously mentioned. The reason there are so many bulls is, once again, because of the hype, the sales pitches and the media. What they don’t tell you is that most professional traders make more in a bear run that a bull run. Why do you think we have that age-old joke in the market that goes, “The bull ran up the stairs and then bear jumped out the window“?

What makes everyone think that they will be good enough to be amongst the elite few if they don’t even accept my first two truths? And there are the extreme dreamers that believe that they can make a million by trading. A very good, very experienced trader friend of mine once said that he could make a million from trading in a very short time. I asked him how and he answered without batting an eye, “By starting with two million.” Which leads me to the fourth truth.

The fourth truth is another obvious one – it takes money to make money. (Now, is there anything you would like to differ to?) Therefore if you don’t have much to start with, don’t trade. You are likely to lose it all first because a small amount of money doesn’t last at all in this business in which you are likely to lose money (1st truth). If a very experienced and profitable trader can admit to how difficult it is to make a million, then you have to wonder why there are so many that believe that trading is the answer to becoming a millionaire quickly.

I should know. I started with almost nothing and lost almost all of it. It was a mighty struggle to trade on a tiny account to make any money at all. For a while, I was trading to make a mere $10 per scalp with no room for error because one mistake would take me five trades to make it back. Looking back, I could have done it differently but with no one to mentor me, I did what I could and knew. I wouldn’t wish it on anyone and I will definitely not encourage anyone to believe that it can be done.

If you don’t have the money for it, start saving first. Build a reserve of no less than US$5,000 on top of an already available cash amount of another US$5,000 if you want to consider trading. Anything less will severely test your psychological endurance especially if you have poor financial management. This should be money that you are willing to lose and never see again. And it should not change your life if you lose it all.

If you can’t save it, then don’t trade. Saving is the first good habit every trader must have. It is the first lesson in good financial management.

The fifth truth is that it takes a long time to become a good trader. The minimum by any outstanding measure is three years. (Now, why would I bullshit about that if I wanted to sell you a dream of quick easy money?) With so much to do, there is no damn way anyone can rush the process and be expected to be a profitable trader within a year. Some even believe that a weekend workshop is going to help them become millionaires! (When I started, I was one of those naive ones!)

It takes a lot of experience to be a good trader and experience means that it takes a long time. You can’t rush time therefore you can’t fast-forward the learning experience in any way. The minimum learning time is already one year because a trader needs to know the market cycle of a complete trading year, its seasons, cycles and rotations. They have to get intimately acquainted with all its self-fulfilling prophecies, economic data, earnings, money flows, sector leadership, etc. And you cannot rush the process that takes at least one year with so much to learn and apply. Which is why …

… the sixth truth demands that you must learn everything instead of only learning how to trade. It is very obvious that in order to learn anything in any professional field, you need to learn everything that the professional learned. (Now, isn’t that common sense?) And just who are these pros? They are graduates from Princeton and Harvard. They become fund managers, bankers, analysts and institutional traders from some of the finest financial institutions in the world who were mentored by some of the best traders in the world.

Now consider those ignorant victims who were sold a dream in a weekend workshop that trading is as easy as watching for blue and red arrows. Consider that they don’t know who’s on the other side or exactly how disadvantaged they are when going up against the best, the most knowledgeable, the most influential and the most manipulative professionals in the business. It took them three to five years to learn their craft from the best universities in the world, another two to three years in mentorship under the very best and experienced professionals in the world and then another two years on the floor of one of the worst dog-eat-dog places on the planet to hone their skills and experience.

Trading is a profession, a very serious profession. So are being a surgeon, a lawyer, an accountant, an engineer and even a soldier. If it takes these professionals years of study, years of practice and a lot of experience to become good at what they do, then why do some dream that trading is any different? A soldier takes years of training, mental preparation, physical fitness, weapons knowledge, field experience and even leadership management in order to operate in the battle field. Anything less will surely get him killed. Anything more doesn’t guarantee he’ll become a General.

In spite of this obvious truth, there will still be those who believe that a book or a workshop or something off the internet will make them good enough to beat these professional traders.

I don’t know of any soldier who became a high-ranking hero just by reading a book. Do you?

Having said that, the seventh truth is about training. (Now, Can you get good at anything without practice?) It takes endless hours of training and practice. It takes a lot of dedication to learn this craft. It takes even longer to understand its form. And it takes forever to apply what you think you’ve learnt.

Trading is not an academic subject and demands that you put into practice what you’ve learnt. That is not easy for most. Singaporeans are largely academia based meaning that they are academically intelligent but severely challenged in a practical sense. You can’t argue with me about it because I train plenty of them. Knowledge alone is never going to be enough because, as previously mentioned, it takes experience and experience means practicing and that means training will be required.

Part of this training is about being flexible and adaptable. Taking trading as an academic subject will not allow the learner to be either. Academia is rigid, static and theoretical. The market and the economy are not. If one is not ready to be flexible then when the market becomes irrational, nothing will make sense. If one is not adaptable then such irrational changes will hurt the trader and worse, opportunities will be missed. Academics need to quantify and justify everything – something the market will not allow you to do all the time. And most of the time, you are going to have to wait for the market to tell you what to do.

Thus, the eighth truth is that you need a lot of patience. (Now, there a serious problem … most of us are not patient at all!) You’ll need patience to learn so much stuff, patience to paper trade out your first year to get that minimum one year’s experience, patience to learn to control your losses, patience to wait for the market to present its opportunities, patience to wait for your profit, patience to tolerate how irrational the market can get, patience to control your emotions and patience to continue the learning process even when you become a good and profitable trader.

Anything done in haste never lasts and good things come to those who wait.

The ninth truth is that this is a very emotional business. (Now, this is one that you won’t appreciate until you’ve clocked up a few losses.) Even with rules, strategies and and the best technical knowledge, you will still lose money. And it won’t be because of the wrong kind of rules, the inflexibility of strategies or the unreliability of technical analysis. Even when those things do work, you will still fall victim to your own uncontrolled greed and irrational fear.

Your trading psychology can either be your best ally or your worst enemy. The market will do what it will do. It will give you what it wants to give you but it will take away whatever it wants too. You have no control over what it will give you thus you can never demand from it. Yet there are traders who plan their trades based on what they want to make instead of planning on how much they are likely to lose first. You are the one variable you can control thus you can control how much you lose to the market … but you are the most difficult element to control because you will be emotional. And when you are emotional, you have no control over your financial management. And then you will realize my first truth.

The tenth truth is …

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

I guess I’ll keep the best for the release of the book. Are you still skeptical about what you just read? If one thing changes after reading this, it will be the way you look at the market from now on.

Happy Hunting!

This is an extract from my next book on Trading Psychology which I shared with Batches 53 and 54 this morning in an email in reference to GRPN’s IPO launch and why seasoned traders tend to stay away from such events.

In life, we have two kinds of shoppers – the young and impressionable shopper with not a lot of money (in trading, they known as novices) and the old and wise shopper with obviously more wealth (in trading, they known as seasoned traders).

The young and impressionable buy on impulse the moment they see something new and attractive. This puts them in the hip and fashionable light. But the hipness doesn’t last and they will continue to spend lavishly to stay hip and fashionable by always shopping for things that don’t have an intrinsic value.

The old and wise shopper with obviously more wealth will shop for things that are necessary and will always look for the best bargains, lowest deals and cost efficiency. This ensures that what they buy will last and save them money in the long term. They shop for an intrinsic value.

The young and impressionable buy properties on impulse without much care for the total value (quantum value) and will be focused instead on the ability to make the monthly instalments. They often shop for properties that are too large for their needs and in locations that are most convenient and hip.

The old and wise property hunter will buy a property with the quantum in mind and will scope out the deal with the best resale value that their nest egg can afford. They will stick to properties that meet their needs and won’t mind locations that are slightly out of the way as long as there is a promise of future developments and expansions that will guarantee a rise in their property’s value.

The novice trader is exactly like the young and impressionable shopper in every way. They will always get caught up in the hype, they will always buy the rumor and sell the news, they will always regret pulling the trigger too early and they almost always spend more than they can afford.

This extract is from a chapter that compares Novice behavior against Seasoned behavior and vindicates my theory that the market makes us do things that are not normal in life. In the weeks to come, I will share a few more gems from this chapter that will lead up into the launch of this next book.

Happy Hunting!

It is extremely obvious at this time that events around the world now do not support any sort of bullish appetite. Prices of staples are ridiculously high and getting further out of control all over the world. This coming Wednesday’s USDA crop report is likely to show up a shortage across most grains and softs. The last report on 12 October reported a build on inventories but this build was never going to be enough to sustain the growing demand for such commodities. Weather conditions have made things in Asia worse by flooding Thailand. Rice has risen in a sharp spike and the longer term future for this Asian staple looks bleak as prices are expected to rise further as shortages in the coming months will take its toll on all the major rice-consuming economies, Singapore included.

As a matter of fact, the high prices of commodities traded in the last twelve months are taking its toll on our pockets today. While prices of live cattle and cattle feeder continue to break to new all time highs., prices of oats, corn, wheat, soy, sugar, coffee and FCOJ remain at their highs from a year ago. Copper, cotton and cocoa prices have dipped but that is all that has come down. Although off their highs, gold and silver remain at elevated levels from a year ago as with WTI, RBOB gasoline and heating oil.

In the meantime, Asian economies trudge along like there is nothing to worry about. Inflation is rampant everywhere in the East but the higher income earners have taken on a blase attitude toward it and continue to support these high prices with their ceaseless buying. This is slowly but surely putting pressure on the lower income earners who can’t afford these sky high prices.  And while all this is happening, there are those who pretend they can afford it by leveraging on debt which in itself, is going to be a major issue when this bubble pops.

Singapore’s growth rate expanded in Q3 albeit at a very modest pace. This was a convenient side-step away from a Technical Recession but it does not take away the fact that growth has slowed and is expected to slow further in the next two to three quarters.

So here are the stats; growth is slowing and is expected to continue slowing … inflation continues to rise and is almost surely going to rise some more … the central bank is lowering the currency rate in a bid to encourage growth (instead of raising the rate to fight inflation) … the banks continue to keep the borrowing rate low to further encourage spending and support inflation … the markets are flat for more than two years and lower from a year ago … doesn’t all this spell “Stagflation“?

The only saving grace is that unemployment is at 2.1%, slightly down from the 18-year average of 2.48% (Historical low was 1.3% in 1997, historical high was 4.8% in 2003). Having said that, the last few weeks have seen as many as 6,600 people lose their jobs from various industries of the financial and manufacturing sectors on the Little Red Dot.

The Singapore economy is on the verge of a major slow down. Jobs are becoming a premium. Property prices are stalling again. Manufacturing has been slowing and car prices continue to soar.

Times are getting tougher but we don’t feel it. And the reason we don’t feel it is because this is a Slow Bleed. In a slow bleeding situation, you don’t know you’re dying because life seeps out of you so slowly and before you know it, you’re on the edge of death. Some are already feeling the pain … six bodies in a reservoir in four months says a lot.

I am still maintaining the same sentiment that I have held over the past year and a half when I wrote, Balloon, Not A Bubble, Inflation – The Shit Hits the Fan, Singapore Beware and The Little Red Dot Gets More Expensive.

Over in the U.S., economic data would have us believe that the economy is on the mend having bottomed out over the last quarter. Overall earnings in the current Q4 earnings season have been impressive and guidance hasn’t been too disappointing. However, within the S&P 500, there have been 65 negative fourth-quarter earnings preannouncements against 19 positives so far. This makes it a negative-to-positive ratio of 3.4 which is the highest negative ratio since the 3.7 ratio in the second quarter of 2001, just after the start of a recession. The S&P500’s YonY fourth-quarter earnings growth estimate is now 10.8%, down from 15% on Oct. 3. This means that even as the market has rallied, the outlook for earnings has gotten worse. And lest my graduates forget, earnings has a quarterly effect on the market going forward

Employment too, it would seem, is improving … or is it?

The more important data that seemed to be lost was that the Fed slashed growth estimates significantly for 2011, 2012 and 2013 while making steep upward revisions in the unemployment rate for all three years.

It is notable that the FOMC Central Tendency Forecasts slashed GDP growth by 1.1% in 2011, 0.8% in 2012 and 0.6% in 2013.  It also raised its estimates for the unemployment rate by 0.3% in 2011, 0.6% in 2012 and 0.7% for 2013.  These are highly significant revisions from the previous forecast.  Even as late as 2014 the Fed estimated the unemployment rate at 6.8%-to-7.7%.

In its most recent policy statement on Wednesday 2 November 2011, the FOMC kept its target interest rate at 0.00% to 0.25% for “an extended period of time“. This, after Ben Bernanke had broadly hinted that rates may have to be hiked sooner rather than his mid-2013 deadline. The day after that policy statement on Thursday 3 November 2011, at the European Central Bank’s latest meeting, members decided to become more accommodative by trimming the key lending rate by 25 basis points to 1.25%. The day after that, the Eurozone reported another month of contraction in their October Services PMI at 44.6 vs 46,0. This adds to other major economies’ manufacturing and services PMIs all falling across the globe in October; Chicago’s PMI fell to 58.4 vs 58.9 from September’s 60.4 … Britain’s Services PMI 51.3 vs 51.9 expected (52.9 previous), Britain’s Manufacturing PMI disappointed 47.4 v. 50.0 … China October Non-manufacturing PMI dipped 57.7 vs 59.3 in Sep … Eurozone October Manufacturing PMI slipped to 47.1 vs 47.3,

FYI, a PMI read below 50.0 reflects a contraction while a read above 50.0 shows an expansion.

That lead us to Europe, whose problems are never going to go away and will only get worse and worse. After Greece, if Greece ever gets done, we have a REAL problem … Italy. And we still haven’t addressed the Spanish and Portuguese issues. There is much more debt than cash floating around in Europe now and we haven’t even considered the “smaller” threats like Belgium, Finland and Ireland.

I don’t want to revisit this region because enough of it can be found all over the internet and frankly, having been bankrupt myself, there is no way out for a region that is already deep in insolvency. It is a simple equation in life -

• You don’t work, you don’t make money. Companies that don’t make money have a high debt/equity ratio. Countries that don’t produce, will run up a debt.
• You don’t pay your bills, you get into trouble. Companies that don’t pay their debts file for Chapter 11. Countries that don’t honor their obligations, get a bail out.
• You don’t balance your cheque book, the taxman will get you. Companies that cook their books get their bosses incarcerated. Countries that don’t balance their economics default on their debts and conveniently ignore their obligations.

So why are countries any different from people or companies? If banks are allowed to fail now, shouldn’t countries be allowed to fail too?

• When you go bust, the Court moves in, assumes ownership of your assets and sells them off to help off-set the debt you incurred. When that is not enough, you become Bankrupt and stay bankrupt till your debt is paid up in full no matter how long it takes.
• When a company goes bust, Corporate Raiders move in, break up the company and sell it off in smaller, more profitable pieces. The company, whatever is left of it, is then listed as “Junk” and stays junked until it works itself out of bankruptcy or until a White Knight appears.

Now shouldn’t Germany be allowed to raid Greece to break the country up for all its assets then sell the little pieces off to help recoup the monies that are owed? You can’t say that it is merciless and the people shouldn’t be griping about it because it was the people that got the country into that mess in the first place. What Greece really needs now is Zeus letting loose the Kraken and Medusa on Greek ass for being idiots. Now their ignorance is costing the whole world a lot of pain. And it’s not fair.

Here’s the best part … we’re going to have to play out the whole scene again for Italy, Spain, Portugal, etc, etc, etc … this is the beginning of the end of the European Union and the Euro.

Technically speaking, the U.S. equity market is looking shaky again after an amazing and record breaking October run. DOW at 12,250 is looking daunting especially if Q1 and Q2 of 2008 replays itself now …

The VIX is back up above 30.00 and the TRIN has been ticking higher on average in the past week.

Bond yields are once again down at near their 52w lows with the 5yr yield twice under-par again and the 10 and 30 year yields not far behind from also dropping 2X under par as well.

The technical indications are there to support another possible correction/sell-off. It won’t take much to set the market spiraling into another major sell-off. The question is whether it will crash. The economic circumstances are there to support a crash – they have been there since 2009 – and if it happens, it will be long overdue anyway.

I mentioned in my Facebook account on Thursday 3 November 2011;

I can’t explain it and I don’t know why I did it but I liquidated ALL my Option positions yesterday except for LMT. I suddenly felt odd seeing the market rally and something about what I was seeing on CNBC (words like slowdown, downturn, pullbacks, shrinks, etc) and what I saw on my charts (optimism).

We rallied because the ECB dropped their Policy Rate – isn’t that a confirmation that the ECB is addressing a very serious problem? Then why are we rallying on the confirmation of bad news?

My portfolio is now hedged again. Like I said in Facebook, I can’t explain it. It’s not the technicals, it’s not the macros … something in my bones is telling me that something is not right. If I am wrong, so be it. But I would hate to be right and be on the wrong side of the trade.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Note to Spammers: Forget about it. You’ll just be wasting your time.

OCTOBER 2011 IN REVIEW

Mayhem. That’s what my schedule in October 2011 will be remembered for. Poor Queenie and Annie were scrambling to fix my topsy-turvy schedule after my September surgery put everything on hold for three weeks. As expected, I went on a marathon talking spree to catch up on all the postponements and ended up with only four off days and a public holiday to rest in the month.

But honestly, I can’t complain. I am truly thankful for the opportunities I have been given to share what I know. The demand has been overwhelming and I honestly don’t know where its coming from especially since I haven’t been in the press for more than three months now. It would seem that the lower I keep my profile, the higher the demand gets. It simply amazes me that I continue to do what I love to do and the students just keep coming in spite of my efforts to slow down. It is really a blessing and I am thankful that I can continue my educational crusade.

TUTORIAL & WORKSHOP HIGHLIGHTS

On 3 October, after a mind-crunching weekend, WATMY16 graduated in Kuala Lumpur. This was a tough gig as my ass was still not fully recovered and the plane ride was a killer on my gluteus maximus … and so was every car ride!

Then on Saturday 8 October, I did another gig at SIM to more than 70 enthusiastic investors-to-be and shattered their illusions about the market … well, its more like I put the reality of the business into their hearts. It was a wonderful session and I always enjoy educating the young.

On Friday 14 October, the Malaysians had their Mega Gathering at the Tropica Golf Resort. My guest speaker was none other than G.M. Teoh. So many of the old dawgs returned from four years ago and it was good to catch up with all of them again.

We had a really great Gathering at Klapson’s on Friday 21 October with many old faces returning and some leaving for good (All the best Hashok!) and one who came back to present his views on the market. Chris “The Mad Scientist” Yang totally blew us away with his market analyses which included reviewing sovereign debts, bonds, currencies, commodities, indices, floods and even solar flares! More than four years after coming to WAT, Chris and his trading group are still going strong including Mama (Eileen), Jimmy (in the U.K.) and Hashok (who has since left for New York). More power to you chaps!

Wealth Academy graduated another 80+ Investors from batch 29 on Sunday 23 October 2011.

Finally, on 31 October 2011, in celebration of the Pattern Trader Tutorial’s 5th Anniversary, we kicked off the Pattern Trader’s 30 Day Portfolio Challenge!

This Challenge is open to all Pattern Trader Tutorial (WAT) Graduates from Singapore and is organized by the graduates themselves. It’s strictly just for fun and traders will have no control over their portfolios at all except to pray that it ends up with the biggest percentage gain by 9 December 2011.

Naturally, they’ve banned me from this Challenge. I must protest.

MARKET MATTERS

Last month, I wrote;

Does the DOW look like its forming a Double Bottom? Could it be true that a rally back up to 12,800 may be on the cards by December? I’ll be happy if it just gets back up above 11,577.43, the opening price for the year, and not finish the year in the red.

But the truth of the matter is that it is more likely to finish the year on a sad note if there is no QE3. Even as I write this on Tuesday 4 October at 01:03am in Kuala Lumpur, the DOW is breaking below 10,800 and looking like it is destined for lower targets in the month to come. Here we go … 10,700 will be the key interest this coming week. A break below that is going to make for an excellent sell-down that should rival some of the tankers of October 2008. If the August and September ranges were any indication, we’re in for major volatility.

It is, after all, October – the anniversary month of all the major market crashes in history.

Immediately after I wrote that, the DOW made 1,200 points in less than two trading weeks and racked up more than 1,500 points for the month to close out at 11,900. What a comeback! As I write this, the market is now positive for the year after spending two and a half months in the red. Turns out that this has become one of those Octobers that becomes a Bear Killer rather than a Crash – a phenomenon where October pulls the market out of a bearish state and starts a bull run as it did 11 times before in the last 70 years in 1946, 1957, 1960, 1962, 1966, 1974, 1987, 1990, 1998, 2001 and 2002 when those Octobers turn a bear market around.

Now, on the back of a dilly-dallying EU solution, we go into a November that traditionally starts the best six months on the DOW and S&P500. Q4’s earnings have so far impressed and look promising for a bright finish to the year. Economic data in the US looks to have found some sort of bottom and looks likely to pull itself out of this four-year funk. The worry and main threats continue to be Europe and China – while one looks to avoid a recession as a result of a massive slow down, the other looks to avoid a crash as a result of a massive bubble.

What a mess.

Now with this amazing comeback, Q1 of 2008’s pattern comes into play …

… rather than the earlier possibility that I posted last month which is now obviously no longer on track.

Trivia For November

November has 20 full trading days and one half day and is known to be very bullish. November traditionally starts the best six months on the Dow Jones and S&P500 and the best eight months on the NASDAQ.

October Trivia
• The first trading day of November has been up only once out of the last 6
• Sunday 06 November Daylight Saving Time ends
• The first week of November is very bullish
• Monday 07 November, the market opens at 22:30 SG time.
• Tuesday 08 November is Election Day
• Friday 11 November is Veteran’s Day
• The second week is typically bullish with the occasional correction
• The Monday before Expiration Friday has been down on the DOW 7 of the last 12
• The week before Thanksgiving has been up 15 of the last 18
• November Expiration Friday has been bullish 7 of the last 9
• 24 November is Thankgiving Day (Markets Closed)
• 25 November is a Shortened Trading Day
• November’s last week usually ends well and is the most bullish week of the month
• November’s last day normally corrects

Commodities
• Oil remains weak but recovers mid month
• Natural Gas is flat depending on weather patterns
• Long Gold and Silver till end April/early May
• Copper stays bearish
• Corn starts its run, Wheat and Soyabeans end their run by month’s end
• Sugar tops out before the last week of November
• Cocoa and Coffee prices usually rally in November

SUMMARY

I am going to get November started with another round of surgery. This time, its for my gouty right foot. After the September surgery, the gout ballooned to record size and never subsided. Since then, the fluid in the swelling has been turning into soft tissue which is now starting to harden. The operation to remove it is necessary as it will have a long term effect on the foot’s skeletal structure. And I don’t want to be crippled for the rest of my life because of some damn gout. The surgery shouldn’t be as dramatic as the one in September but I am expected to be laid up for two weeks.

Some of my students and friends believe I am looking forward to more down-time so that I can trade. Truth is, full time trading isn’t all that its made out to be – it drove me crazy in September when laying in bed for two weeks doing nothing but trading made me want to bust out of the house and talk to someone! And that’s why I forced myself to hobble with a gouty foot and sore ass to the Gathering. That was a relief!

No, full time trading is not all that great. One needs to get out. Socializing, networking, fresh air, health and friends are an integral part of a Trader’s life. Making money is a by-product of what we love to do but all that money is useless if you don’t use it to enjoy life and spread that joy around.

So while I am looking forward to the down time, I am not looking forward to the confinement. And this time, I have no choice and will not be able to bust out again. I need to let the foot heal properly and there is only one way to achieve that – stay off my feet.

Damn!

Trade Safe & Happy Hunting Always!

With the benchmarks breaking out of their respective downside flags, this could be another serious spike for new highs. The only problem will be the volumes that get weaker with each up tick. Also, DOW seldom makes a bullish 1,000 range in five days and whenever it did, it gave it all back in a hurry.

In the last five years, DOW has made only three bullish 1,000 ranges in a week including the current one. The other two times were in October and November 2008 and the resultant trends were obvious …

Another uncanny similarity from the 2008 1,000 point weeks is the dip in volumes every time the market made gains. This is called Price-to-Volumes Divergence. This translates to a rally that is unsustainable or as some would call it, a False Break-out. This phenomenon almost always ends up breaking down to newer lows as was the case in October and November 2008.

Now take a close look at the last five sessions leading up to the Monday 10 October 2011 close in the chart below … from the low of 10,404 on Tuesday 4 October to Monday 10 October’s close at 11,433, the DOW has gained made more than 1,000 points in five sessions on consistently lower volumes. You will also notice that volumes today are half of what they were in 2008 which makes this market more susceptible t0 major gyrations. Thus it won’t take much to tank this market when volumes are so weak.

If you didn’t know Price-to-Volumes Divergence, now you do. You’ve seen the results of this from October and November 2008 and that is why I will not be convinced to reduce my hedge, let alone turn Bull as long as volumes stay unconvincing and sector leadership stays inconsistent. The VIX is still at heightened fear levels (above 30 points) and it didn’t help matters that the bond market was closed Monday. With no bond trades to counter-check the “buying” in the risk market, investors stayed sidelined as evidenced by the drop in volumes.

A few readers have asked what would be the likely catalyst for the tanker if we do get another crash.

There is no way to know what it will be but here is a timely reminder;

In the Crash of 1929, the morning of Monday, October 28, 1929 started out like a normal day. The market had already been showing signs of a top since September 4, 1929 but the general public continued to live like the problem wasn’t serious. But the structural weaknesses within the economy were very obvious and the financial system was over-stretched with leveraged debt.

Wall Street, 29 Oct 1929.

Then in the middle of the trading session, with no reason, no catalyst and no warning whatsoever, the market started tanking after lunch. By the close of Monday, October 28, 1929, the market had lost 13.5% in a single afternoon. The following day, October 29, 1929, the market crashed in what became known as Black Tuesday. The market and economy had started a -91% downtrend and it never looked like recovering till WWII provided the greatest bail out of all time.

Many of such major crashes happen this way. The market doesn’t need a catalyst to crash when the reasons have already been there for a long time but the public ignorantly denies the gravity of the problem and governments behave like they have a fix for any such circumstance. All it takes is a sell off to get out of control as in 15 to 19 October 1987, 23 to 27 October 1997, 27 August 1998, 6 to 17 Sep 2001 and most recently on 2 October 2008.

Will history repeat itself? Or will this October turn out to be a Bear Killer as it has happened 11 times before in the last 70 years in 1946, 1957, 1960, 1962, 1966, 1974, 1987, 1990, 1998, 2001 and 2002 when those Octobers turn a bear market around?

I remained hedged and under-committed till the market tells me otherwise. I am not that brave to risk good money on a fickle market now.

In early 2008, six months after the market started falling as a result of the Sub-Prime debacle, our then new forum (www.wealthacademyinvestor.com/forum) crashed and much of the data was lost forever. But thanks to our dedicated and selfless community, many traders re-posted whatever they had saved to revive the forum again. Many had backed-up certain parts of the forum for personal reasons and were able to restore up to 70% of what was lost. I was also able to retrieve some of the data from the old proboards forum and all these combined efforts brought our forum back online in no time at all. It was like it never crashed.

The forum has since migrated and it is almost one year to the day that this PatternTraderTools forum was born. This was to facilitate the ever-growing number of graduates from the Pattern Trader Tutorial and to make it absolutely private and exclusive. Looking back through all those forums is like a going back in a time machine to see its evolution and the growth of the success of what we’ve built. It also reveals how each and everyone of us has evolved from amateur traders to savvy financiers in the way we asked and answered questions.

And one truly amazing fact is that it has captured our outlooks on the market to vindicate the accuracy of our analyses since 2006 through to the current situation. It sends a chill down my spine that we could have been this accurate during a time when we were simple, unsophisticated and used simple common sense analysis to prepare us for the worst to come.

In October of 2007, before the market started sliding, I mentioned in the WA forum that the market was going to take a huge slide and that it wouldn’t be far-fetched to imagine getting from from 14,000 to 9,500 within the coming year. Of course I was slammed and ridiculed. But I kept my focus regardless if that analysis turned out right or wrong.

Then the forum crashed before the market tanked in January of 2008.

Upon restoration, after the market made its spectacular drop from 14,000 to 12,000, I made this first posting …

Originally Posted by Conrad on Monday 21 January, 2008

Its a pity the forum got slammed because at the start of October last year, this is exactly what I said was going to happen. Going back further (in my old forum) I mentioned that the end of 2007 was going to be soft and this softness would carry into the middle of 2008. The longer term future, if you think all this is bad news, is that we are going to be soft for the long term … how long? I suspect till 2010. Any sort of recovery will probably be around mid to late 2011 to mid 2012.

Visionary or smart analysis? … Or blind luck?

Either way, every one of my analyses have panned out accurately in the last five years. My only regret is that I wish I wasn’t so damn accurate.

Going forward, I am still keeping the view that this pain is going to get worse before it gets better. This will drag into next year and will probably find a bottom by the middle of 2012, give or take a quarter. And the low? … well, its a long shot but the call in 2007 was also a long shot – 9,500 on the DOW. And if the world doesn’t end by 21 December 2012, we should get into a massive rally that will go all the way into 2016.

I am not a fortune teller and there is no way I can guarantee that this will be the actual outcome. This analysis, as with all my analysis, is based on macroeconomics, technical analysis, historical patterns and economic models, market time-lines and plain ol’ common sense.

And just to scare the living shit out of everyone, I will leave you with these two charts from 2008 and the current one.

Sweet Dreams, Have a lovely weekend and Happy Hunting!

_____________________________________________________________

Comments are moderated and spams will automatically be deleted.

The main event for me in September was my three-in-one colorectal surgery to remove a fistula, piles and hemorrhoid on Friday 02 September. I was then laid up at home for two solid weeks, unable to move much or do much else except pound out the day-by-day experience on Facebook. The medication was numbing and slowed me down terribly. But it was better than suffering the pain. My history is a well documented record of poor physical pain tolerance in spite of my mental determination and resilience … an irony.

I was reviewed on Friday 16 September and my Doc passed me as having recovered quickly and recovered well. The wounds had healed properly and would take a month or two more before everything returned to normal. This was really good and relieving news as the ‘roid and fistula, I was told, were rather sizable and more work was necessary in order to achieve a total clean up. I had lost a lot of blood on the day of surgery which explained why I felt so weak in the first two days of recovery.

But while I was into my 5th or 6th day of healing, my gout blew up in the worst attack I have ever experienced. To add to my woes, the only medication that can help bring down the swelling has a side effect – diarrhea. Now that’s what you don’t want to do when you are recovering from colorectal wounds. So more pain killers and steroids and more slow and hazy numbness.

The worst part about all this was that my schedules were all in a mess. I had to push back the Mega Gathering in K.L. from Friday 9 September to Friday 14 October and Batch 52 in Singapore had to push their two Boosters back by two weeks and hope to recover in that time.

The good news was that by Sunday 18 September, the gout relented and my whole body was recovering. The other good news – I lost weight! Yay!

TUTORIAL & WORKSHOP HIGHLIGHTS

Batch 53 started their tutorial on 20 September and Batch 52, the weekend batch finally got their two boosters after a two week postponement. It was quite a struggle to get myself to start Batch 53 as the ass was still sore and the gout was fully blown out. But the show went on. If anything, teaching distracted me from my pains and it was truly good to be back and teaching in spite of my struggles. By the weekend of that week, Wealth Academy started. I struggled on my first session as the foot was still slightly swollen and I still wasn’t able to sit properly. I did manage to get my foot into my leather shoes for the last day.

WA28 graduated on Sunday 25 September.  Thank God! This was another great batch with great energy and I am looking forward to their Booster in a couple of weeks.

MARKET MATTERS

Now we can look forward and leave that awful quarter 3 behind us. Not that it was that awful, really. The trading was good but I can’t say the long term positions benefited from all those massive gyrations. Now we face the most potentially tragic month of the trading year – October – famous for all the worst market crashes in history … and there have been a lot of them lately. Ominous? Definitely. But it is still a money making opportunity if you know how. And it is a good, a very good opportunity. I’ll be gagging for it!

BUT …

Does the DOW look like its forming a Double Bottom? Could it be true that a rally back up to 12,800 may be on the cards by December? I’ll be happy if it just gets back up above 11,577.43, the opening price for the year, and not finish the year in the red.

But the truth of the matter is that it is more likely to finish the year on a sad note if there is no QE3. Even as I write this on Tuesday 4 October at 01:03am in Kuala Lumpur, the DOW is breaking below 10,800 and looking like it is destined for lower targets in the month to come. Here we go … 10,700 will be the key interest this coming week. A break below that is going to make for an excellent sell-down that should rival some of the tankers of October 2008. If the August and September ranges were any indication, we’re in for major volatility.

Looks like the VIX wants to find higher ground having broken out of its Bear Flag. That is enough to convince me to be extremely cautious and even deter me from being long. The internals have been hinting at a major sell-off in the making and with volumes getting weaker with each session in September, it won’t take much to bring this edgy market down. Leadership has been favoring the defensive plays and even they are copping losses while the usual bullish leaders maintained their leadership to the downside. The “rallies” in the last two weeks of September were nothing more than short covering. So with the bears rather empty handed and foolish bulls slightly stocked up, expect the market to turn down sharply as the bulls force-sell and the bears short the market again.

It is, after all, October – the anniversary month of all the major market crashes in history.

Trivia For October

October starts Quarter 4 and the final earnings season of the year. It is also the worst of the three months of the quarter. October is infamous for the worst market crashes in history; 1929, 1978, 1979, 1987, 1989 1997, and 2008.

Having said that, October is also known as a “Bear Killer” as the market turned up in a big way in 1946, 57, 60, 62, 66, 74, 87, 90, 98, 2001 and 02 to reverse some of the most bearish markets in history. Will October 2011 be a Bear Killer and “bail” the market out of this rut? I certainly hope so.

Statistically, October ends the worst six months on the DOW and S&P500. The really good news is that October is a great time to buy if the preceding September sold down big time – and we sold down big time in September 2011.

October Trivia
• There are 21 trading days in October 2011
• The first trading day of October has been down 4 of the last 6
• October traditionally starts out poorly in the first week
• The first week of October holds the record for the worst historical week on Wall Street in 2008
• Saturday 07 October is Yom Kippur
• Monday 10 October is a Bond trading holiday in observance of Columbus Day
• The second week is typically bearish
• The second week ends bullishly and carries into the third week
• The Monday before Expiration Friday has been up on the DOW 25 of the last 40
• October 19 is the anniversary of the Crash of 1987 (DOW went down 22.6% in a single session)
• October Expiration Friday has been bearish 7 of the last 8
• 28 October is the anniversary of the 1929 Crash (DOW went down 23% in two days)
• The last three days of October are traditionally bullish
• Halloween on 31 October is traditionally bullish

Commodities
• Oil remains weak (Hold)
• Natural Gas tops out
• Short Gold and Silver till end October/early November
• Copper stays bearish
• Start accumulating Corn, Wheat and Soyabeans from mid October
• Corn is a good bet for a run till end April
• Sugar is another good bet and stays bullish in October
• Cocoa and Coffee prices usually stabilize in October

SUMMARY

Well, its back to the grind and back to busy schedules. Apart from the usual Tutorials, on the weekend of 30th September to 3rd October, K.L. gets its 16th Batch … the Pattern Trader Mega Gathering in K.L. will be on Friday 14th October … Wealth Academy gets yet another batch on the weekend of 20th to 23rd, … Previews in Penang and K.L. … leaving me only five off days in October and one Public holiday, Deepavali on 26 October. I am not complaining … yet … because November gets worse with only three off days and every weekend burned!

Trade Safe & Happy Hunting Always!

We’ve been hearing all about the possibility of a Double Dip Recession and all the rhetoric about what governments are doing to navigate their way to a soft landing.

Now how about the truth … how about acknowledging that most countries are already in Recession and that we’re only a few steps away from Depression. After all, back in 2008, most governments delayed their official acknowledgement of a Recession until 6 months after the fact and America delayed theirs by a whole year.

We’re, and I mean the whole global community, already in a global recession and several countries are on the verge of a Depression. This is the beginning of one of the worst financial failures in post-war history.

Consider the facts – according to Wikipedia …

In economics, a recession is a business cycle contraction, a general slowdown in economic activity. During recessions, many macroeconomic indicators vary in a similar way. Production, as measured by gross domestic product (GDP), employment, investment spending, capacity utilization, household incomes, business profits, and inflation all fall, while bankruptcies and the unemployment rate rise.

Recessions generally occur when there is a widespread drop in spending, often following an adverse supply shock or the bursting of an economic bubble. Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply, increasing government spending and decreasing taxation.

Now there is no doubt that over the last four years dating back to August 2007, the situation described above has not been out of place. Unemployment has stayed high and intolerable all over the world especially in the developed countries and key developing economies (emerging markets). We did have a bubble of sorts and some countries are still living in those bubbles as we speak – an Asset Bubble – and they’ve been popping and deflating over the last year as expected.

Money supply is out of control with the US clearly out of options and the European economy clearly out of cash as both sides of the pond increase spending and keep taxation down. Macroeconomic indicators have been supportive of an ongoing recession for the longest time – we’ve just been distracted by no-so-bad data that we think its all good. Now that GDPs have been contracting all over the world, we cannot continue living in denial that all is well and that this correction is short-lived and irrational.

Consider another fact – according to Wikipedia …

In economics, a depression is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than a recession, which is seen by some economists as part of the modern business cycle.

Considered, by some economists, a rare and extreme form of recession, a depression is characterized by its length, by abnormally large increases in unemployment, falls in the availability of credit— often due to some kind of banking or financial crisis, shrinking output—as buyers dry up and suppliers cut back on production, and investment, large number of bankruptcies—including sovereign debt defaults, significantly reduced amounts of trade and commerce—especially international, as well as highly volatile relative currency value fluctuations—most often due to devaluations. Price deflation, financial crises and bank failures are also common elements of a depression that are not normally a part of a recession.

Read that again and tell me we’re not in a Depression. Remember that we don’t have to be in a Recession to get promoted to a Depression.

Rather than categorically classify the current situation as a Depression too soon, I would rather call it a period of Economic Failure. I mentioned this in the previous posting when I illustrated the 4-year Rececession Cycle, the Market’s 20-year Cycle and the 40-year Economic Failure Cycle. And if you consider that the market has been generally sideways since 2000, there is little to deny that we are right in the middle of an economic failure with the last period of failure being the 1970s, 40 years ago.

The Dow Jones Industrial Average over the last 11 years.

Now here’s something else to consider. Take a look at the two previous periods of failure and take note of the yellow highlighted period …

Dow 1905 to 1925

Dow 1965 to 1985

Those major dips happened right in the middle of the 20-year consolidation. Now take a look at this …

If you consider that the current consolidation started in 1999, then that would put the Sub-Prime crash right in the middle of this 20-year cycle. Or did the consolidation start in 2002 with the Dot.com debacle? Depending on how you look at it, we’re either done with the “big one” or the “big one” is due soon. Either way, we’re going to be volatile and sideways for a long time to come. And given the state of affairs around the world, I reckon this sideways and volatile mess is justified.

Here are some of the scary facts from Europe after Monday 5 September 2011;

• The stock market in Germany was down more than 5%.
• The stock markets in France and Italy were down more than 4%.
• Royal Bank of Scotland was down more than 12%.
• Deutsche Bank was down more than 6%.
• Societe Generale was down more than 8%.
• Italy’s UniCredit was down more than 7%.
• Barclays was down more than 6%
• Credit Suisse was down more than 4%.
• The yield on 2 year Greek bonds was up to 50.38%.
• The yield on 1 year Greek bonds was up to 82.14%.  A year ago it was under 10%.

With the US government crucifying 17 of the major banks this week, this could be the catalyst for a financial meltdown. The bond trade seems to be supporting this theory as is the rise of gold to a new record high today at $1,923.70. Yields across the US treasuries have all fallen below par and the yield curve is quickly flattening to the downside – something that has not happened in history.

Based on my Rotation Models, we should be “officially” in Recession by October or November this year and the market will become an officially bearish one by the end of this month. I made a similar call in August 2007 and no one took me seriously. I am making that call again now. The only difference is that this time, it is more obvious that it will inevitably happen.

So now the question begs – is anyone taking my call for a Depression seriously?

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

NOTE TO SPAMMERS: Comments are moderated and deleted immediately when you leave a link. So don’t bother.