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.

ITS THE YEAR OF THE DRAGON!

And so far, this Dragon has been getting his ass kicked! Five days before the new year, on Wednesday 18 January, I contract food poisoning and suffered liquid poop till Saturday. Then on Sunday, new year’s eve, at 4pm, my temperature suddenly soars to 38.3C. My wife gets me to the doctor (amazing that we could find one open on a Sunday, Chinese new year’s eve at 4:30pm and my fever is up to 38.9C. The doc decides that its rising too fast for normal medication so he jabs me in the butt. Then the rest becomes fuzzy, hazy and kinda fun!

A week later today, I am still sick. But I am slowly recovering with some medication. At least I was well enough to conduct the Booster for Batch 55 last night.

2012 started out pretty much on a low key. I took time off, chilled with the family and got some well deserved rest. My only engagements were a Booster session in K.L. on 7 Jan and the weekend class for Batch 55 in SG on Friday 13 January.

WAT55 graduated on Monday 16 January as the first batch of 2012. It was a compact weekend of finance and economics with a slightly different but significant approach – the coaches made the difference. And this Review will not be justified if I don’t thank them for their invaluable contributions. They are a precious commodity to the entire educational experience of what we do.

Thank you very much, Coaches!

MARKET MATTERS

After such a dour close to 2011, January 2012 was such a welcome contrast! In the December Sector report, I wrote;

If history repeats itself, we’re in for an extremely volatile time with the huge swings from 2011 carrying on into 2012. How the year finishes will depend on how January behaves and what the Bond yield curve does.

This has been the best January since, believe it or not, 1997!! This puts to bed, the January Barometer question. Together with the First Five Days of January, indications are for a bullish year or at worst, a year that shouldn’t go negative.

The First Five Days closed to the upside giving the market a hint of the direction for the rest of the month of January. Now that the January Barometer has closed to the upside, this should give the market some sort of direction for the rest of the year. But before we get carried away with the statistics, let’s not forget that last year’s bullish January Barometer did not equate to a bullish year as most of the year was volatile and sideways with nary a gain on the DOW by the end of the year and the S&P closed flat. NASDAQ was negative. Then again, the January Barometer is not known to fail miserably unless there was government intervention in terms of stimulus or fund injections.

As of Tuesday’s close, the DOW closed 411.72 points (+3.37%) clear of the year’s open. NASDAQ closed 156.45 (+5.89%) points above its January open and SPX closed 53.55 points (4.25%) up.

With that, we can now look forward to more indicators for more confidence starting with the Valentine’s Day indicator and the December Low indicator at the end of Q1.

The VIX (above) fell in January from 22.95, dropping three and a half points to settle at 19.44 at the close of Tuesday (chart above). This would suggest a low level of fear that almost invites complacency. And if you look at monthly candles, it paints a scary picture that started with a Bearish Engulfing pattern (Sep and Oct) that brought the VIX down in four consecutive bearish candles. This gives birth to the possibility of a fifth candle reversal in February. Support for the VIX has been good at 18.25 in the past week and if it holds firm, the market could be in for a new round of fear in February.

Having completed half the earnings season, the market seems to be unconvinced about rallying any further. To add to the worry, Friday’s GDP numbers came in under expectations in spite of showing an expansion in growth with a 2.8%. Expectations had been for 3.2%. By and large, the various economic data had been pointing to an American recovery, albeit a really slow one – employment is picking up, manufacturing and production is better than a year ago, inflation is not going up anymore, housing is still weak and earnings haven’t been all that bad.

But yesterday, Consumer Confidence, Chicago PMI and the Federal Budget threw a huge spanner into that recovery spirit. Now we have new worries to bother the American economic recovery. Plus, we have the all-important Non-Farm Payrolls this coming Friday. This is going to be a rocky start to February … and February is famous for being the weakest month of Q1.

Global circumstances will continue to plague the biggest economy in the world. As Europe grinds to a crawl, China slows. As China slows, it drags Asia along with it. As Asia trudges along, America shoulders the weight.

Depressing, isn’t it? That’s why it’s called a Depression.

FEBRUARY TRIVIA

February has 20 trading days and one holiday. There is no FOMC Policy meeting in February. February is the weakest of the three months of quarter one and the “weakest link” in the best six months on the DOW and S&P from November to April.

• The first week of February is rather volatile
• The first trading session is typically bullish – S&P up 8 of the last 9, NASDAQ up 7 straight
• The second trading day is also typically bullish
• The second week of February is bearish – NASDAQ down 8 of the last 11
• Monday before Expiration Friday, DOW down 5 of the last 7
• 14th February is Valentines Day – see stats below
• Expiration Friday (17 Feb) is rather bearish – DOW down 7 of the last 12
• Last trading day before President’s Day (17 Feb) is bearish – S&P down 16 of the last 20
• Monday 20 February is President’s Day – markets are closed
• Day after President’s Day is bearish – S&P down 7 of the last 11
• The week after Expiration Week is very bearish – DOW down 10 of the last 13
• February ends poorly

The Valentines Day Indicator has been 100% accurate over the last 25 years;

• If Valentine’s Day was bullish, the year ended up.
• If Valentine’s Day was bearish, the year ended down.
• If Valentine’s Day was on a weekend or public holiday, the year ended up

Commodities

• Oil and Gas usually bottom in February
• Gold and Silver peaks by early February and declines
• Copper tops out by week three of February
• Soya bottoms in February and runs up till May
• Wheat continues declining while Corn rallies
• Cocoa stalls in February and tops out in March
• Sugar tends to peak by mid February
• Coffee tends to be unreliable till May

SUMMARY

It’s the year of the Dragon and it is one of the most unpredictable years on trading record.

Before WWII, the Dragon years alternated on the DOW – 1904 was bullish, 1916 was bearish, 1928 was an extremely bullish year and 1940 was a bearish year.

Since after WWII, 1952 (+8%), 1964 (+14%), 1976 (+17%) and 1988 (+7.6%) were all bullish years. Then in 2000 (-6%), the market came down.

Fifth Dragon Year Reversal? Practitioners of Fibonacci will probably have a good laugh at that one.

In 1952, the last time we had a Water Dragon as we do this year, the market gained 8% in a very volatile year that only ticked up for that gain in the last two months of the year.

Numerogically, 2012 is supposed to be risky and volatile but should end the year on a higher note. Sounds very much like the Water Dragon year of 1952, doesn’t it?

In Fengshui, within the Chinese zodiac, the year of the dragon ranks as the sixth strongest year for the DOW and fifth best for the S&P 500. ??Historically, U.S. markets appear to perform the best in the Years of the Pig –  most recently celebrated in 2007, when the S&P 500 reached an all-time high – and fare the worst in the Year of the Snake, last observed in 2001.

I don’t know how much all this information will help you in your investments and/or trades but I will definitely be taking it easy this year and won’t be committing into anything significant like properties or large investment layouts.

Yup, that was the advice given to me for 2012.

And I am not messing with it.

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.

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!

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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 …

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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!

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!

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?

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

Inflation is running high unabated as is unemployment as more and more companies hand out thousands of pink slips. Flight-To-Safety dominates all the trading spaces with gold running to record highs above $1,800 per Troy ounce and bond yields fall to record lows everywhere. PMI numbers around the world especially amongst producing countries have contracted with more than half of them reporting numbers below 50.00. (A PMI read above 50 implies expansion while a read below 50 implies contraction.)

In last month’s Sector Report report, I mentioned …

With debt threats, slowing growth in most of the major economies, rising inflation and job cuts coming from all over the world in all sectors, there might be little to cheer about in August and in the worst month of the trading year – September.

I am still holding on to that opinion. As it stands now, my calls on the market haven’t been wrong at all this year.

Now I wish I wasn’t so damn correct about it.

AUGUST 2011 IN REVIEW

On the weekend of 13 and 14 August, the Pattern Trader was at InvestFair 2011 at Suntec City. This was the first year I decided not to have a speaking session and instead did impromptu presentations from my booth.

I burned another weekend at Wealth Academy Expo 2011 on 20 and 21 August

Now, that’s a crowd!!

That’s me on Day 1, all smiles and everything nice …

… and that’s me on Day 2, doing my Dr Doom thing.

On Monday 22 August, I did a talk to a group of budding investors at the Singapore Institute of Management. How nice to be able to get young people into the right mindset for this business.

Batch 51 graduated after nine amazing sessions on 25 August. I am going to miss teaching this batch for all their energy, participation and great fun throughout the entire nine sessions. Happy Hunting fellas!!

Batch 52 was one heck of a weekend class in Singapore and by far, the most active one too! Boy did the questions keep coming … felt like I was in K.L. for the weekend! Well done Batch 52 – thank you for proving to me that Singaporeans can be engaging and energetic!! Oh, and that was the weekend that we voted in the new Prez and Man Utd smacked Arsenal 8-2.

Its been a very hectic month with every weekend burned but I ain’t complaining. It has been extremely fulfilling and I would do it again in a heartbeat!

MARKET MATTERS

Dow Jones (AMC) YTD on 31 August 2011

August has been terribly volatile with daily swings of between 2% to 4% averagely. Such ranges are usually exclusively for earnings season or during periods of uncertainty and/or during market crashes. The whole month of August has seen the DOW range no less than 195 points or 0.65% (16 Aug) with every other day ranging more than 200 points for an average of 348 points over 22 days. The only other time in recent years that saw a worse level of volatility was in October/November 2008.

In the 29 July 2001 Monthly Sector Report, I wrote …

The whole world is on the brink of a terrifying financial meltdown … without exaggerating … a meltdown that could rival and possibly surpass the 1929 mess. All the bricks are in the right places for a perfect domino effect that is likely to turn into an unprecedented global phenomenon.

When? … give or take, six months.

Since then, America raised their debt ceiling by $2.4 trillion and got downgraded from AAA to AA+, Singapore got reaffirmed with a AAA/-A+, the S&P went down 5.7%, the Dow fell off 4.4% and the Nasdaq is lower by 7.6% with all three benchmarks down four months in a row, in the red for the year and below their 20, 50, 100 and 200 DSMAs.

The Fed also extended their period of exceptionally low and ridiculous interest rates till mid 2013 telling us that they either need that much time to fix the economy or that the date is the day they run out of ideas … I think the latter. Talk of a QE3 is only that – talk – without any basis or resources to back it up. Gold hit an all time high of $1,842.70 and the 10yr hit a historical low as the whole treasury yield curve fell below par for the first time in history. Inflation has hit multi-year highs in almost every developed country and manufacturing PMIs have contracted with most falling below 50.

Then in the last week of the month, the market bounces mostly on short covering that has turned into bargain hunting.

I have to admit that this turnaround is starting to look very tempting indeed. But I will be staying out of the market for the next few weeks for several reasons … one being that I will be medically laid up after this Friday and the other is the oncoming October Effect which has proven to be very unprofitable for me in recent years. I have never been profitable in September since 2007 so rather than tempt fate, I’ll paper trade it. Plus, September’s divergence has never been easy to read.

If we do survive September’s threat, then October will present a whole new level of deadliness given that all the famous crashes in history occurred in that month.

But that a topic for next month’s report.

Trivia For September

September 2011 has a total of 21 trading sessions and 1 trading holiday.

• September marks the last month of Quarter Three
• It is the worst trading month of the calendar year in percentage losses.
• The first trading day of September is the most bullish of the month – SPX up 11 of the last 15
• The days following the first day is usually bearish for about a week
• Monday 5 September – Markets closed in observance of Labor Day
• The day after Labor Day has been up on the DOW, 13 of the last 16
• The Monday of Expiration Week is traditionally bearish
• September Expiration Week is one of the most bearish weeks in the trading calendar
• September Expiration Friday has been up 6 straight and 8 out of the last 9
• The week after September Expiration Friday is bearish with DOW down 16 of the last 20
• Tuesday September 20 is FOMC Rate Policy Day – Caution is advised
• The Friday after September Expiration Friday is traditionally bearish
• The end of Quarter 3 is weak
• Window Dressing in the last days of September gives the month some bullish respite
• The last day of Q3 has seen the DOW down 10 of the last 14.

Commodities

• WTI tops out in September as hurricane season ends
• Natural Gas usually has continued strength till October
• Gold ends its run from August at the end of September
• Silver usually makes better gains than Gold
• Copper stabilizes and starts trending down
• Soyabeans are weak going into October
• Wheat is very strong but can correct wildly mid month
• Corn declines
• Cocoa becomes weak in week 3
• Coffee also weakens mid month
• Sugar sees strength till early October

SUMMARY

The highlight of September for me will be the Mega Gathering in K.L. on Friday 9 September. We’re already expecting no less than 150 people at Boulevard Hotel at 19:30 hours. My co-speaker for the night will be none other than my good buddy and trading-partner-in-crime, G.M. Teoh. I am so looking forward to that.

So as we venture into the most horrible month of the trading calendar, stay hedged and play it safe. The safest bet is not to trade if you can help it. If you have to, Scalping or Day Trading would be your best chance of not getting caught out in a sudden shift of sentiment.

Personally, I’m staying out and sticking to scalping oil … September has never been nice to me when I hold positions.

Trade Safe & Happy Hunting Always!

I got hit by two different viruses in three weeks and was on medication for all those weeks. That made me groggy and high most of the time while hacking and gagging all the way. The highs and lows were also evident in my classes as some days I was at the top of my form and other days I was lower than shark-shit but still pulling off the kind of performances expected of me. It’s tough when you can’t take an MC.

Needless to say, the highs and lows also prevailed on my trading account … one day up, one day down … I got sick of the gyrations that I went omni-directional on all my positions! Omni-Directional Trading … hmm … mebbe I should patent that strategy!  :)

JULY 2011 REVIEW

WATMY15 completed the mind-crunching weekend edition of the Tutorial in K.L. on 4th of July and have a long way to go with the hand-holding and follow-up sessions coming up over the next weeks and months.

On the 10th of July, after 4 intensive days, WA27 graduated as one of the most active batches we’ve had in a long time.

Then on 19th July, WA50 graduated from the eight week tutorial in Singapore.

On the weekend of 23rd and 24th July, Adam and I were busy at K.L.’s Investfair 2011 at KLCC and the AICE 2011 at Suntec.

Then on 30th July, Singapore got its second Breakout and Candlestick Patterns workshop of 2011 with one of the most active crowds in the workshop’s history. Thanks to all who attended and made it fun and memorable.

Busy month … and it is going to get worse in August as all my weekends will be burnt. But that’s a good problem, isn’t it? I think it is. Since my media days, I have always had the mindset that if you are not working, you’re not making money. So I guess busy is good and busier is better. But I’ll tell you something – it is getting tougher as I grow older. My only joy is that I still love what I do and nothing short of dropping dead is going to stop me.

MARKET MATTERS

It’s been a rough week and a rough month in general. Now July has left us in an uncertain wake of debt talks, slowing growth worldwide and contracting production, manufacturing and employment data. The world is slowly and almost surely sliding into recession but most would prefer to live in denial or bank on hope.

Singapore’s financial system is teetering on the brink of bursting with over-leveraged debt as it racks up the numbers on loans, credit and borrowings. On August 02, if America reveals that it won’t be raising the debt ceiling, the country will spill down and that will put a lot of pressure on its financial system. This in turn will turn the tide against our banks on the Little Red Dot as their over-exposure on anything and everything American goes against them. Now what will that do to your loans and incurred debts?

The whole world is on the brink of a terrifying financial meltdown … without exaggerating … a meltdown that could rival and possibly surpass the 1929 mess. All the bricks are in the right places for a perfect domino effect that is likely to turn into an unprecedented global phenomenon.

When? … give or take, six months.

I will be more than happy to eat my words on Tuesday if the US is able to pull off an escape act that Houdini would be proud of … but I ain’t holding my breath.

AUGUST MARKET TRIVIA

• Since 1987, August has been the second-worst month on the Dow and S&P500, but …
• It has been up in the last four years
• August is one of the two longest trading months in 2011 with 23 trading days in total with no trading holidays
• The first trading day of August has been down 9 of the last 14 on the Dow, last year was up 1.7%
• The first and second week of August is traditionally very weak
• The middle of August (week 3) tends to be rather bullish
• Monday before Expiration has seen the Dow up 11 of the last 16 with modest gains, last year was unchanged
• August Expiration has been up 7 of the last 8, last year was down 0.5%
• The week after Expiration is usually volatile and uncertain
• The second last day is notorious – it has only been up twice in the last 15 years, last year down 1.4%

Commodities

• Oil is usually strong in August but tends to dip at the end of the month
• Nat Gas is usually bullish from late July into December with August being the best month
• Gold stays strong with Silver following suit as a seasonal behavior
• Copper continues to be weak as construction slows
• Soyabeans stay weak, Wheat stays strong and Corn should stay strong
• Cocoa is erratic, close out Sugar longs from June, Cover Coffee shorts from May

AUGUST IN PREVIEW

As previously mentioned, busy, busy, busy with every weekend burned.

• Saturday, August 6, 2011 – Candlestick/Breakout Patterns Workshop in K.L. Malaysia
• 13 to 14 August 2011 – Investfair 2011 Singapore
• 20 to 21 August 2011 – Wealth Academy Expo 2011
• 26 to 29 August 2011 – WAT52 Weekend Edition

Well, I guess busy is better than not. So I shouldn’t complain. At least I get to rest on our National Day (9th) and Hari Raya Puasa (30th).

After that Hari Raya rest, we can look forward to the worst month of the trading year – September. But that is a subject for next month’s posting!

Happy Hunting!!

Looks like the shit will get worse before it gets better; The American debt talks are going nowhere and talk of compromise is now on the table … China’s manufacturing PMI in officially in contraction as it slips below 50 to 48.9 versus 50.1 in June … Greece continues to live in denial as they get downgraded one notch above shark-shit … Britain’s GDP contracts to 0.2% in Q2 from 0.5% in Q1 … China’s growth slows while their inflation soars … Japan stays firmly entrenched in recession and deflation … Australia dropped 2% on its GDP in Q1 and we’re still waiting for Q2’s result … Malaysia too, although they’ve been known to drop in all their Q1s anyway …

Singapore’s economy shrank by 7.8% …

Singapore’s inflation hit a 5.2% high as we continue to live in denial that this is “normal” and expected. This is the highest in a little more than two years, plus the authorities have has raised its inflation forecast for this year to 3%-4%, up from a previous estimate of 2%-3%.

What happened to the 2011 budget that was supposed to curb inflation? What happened to higher monetary policy to stem the tide of spending? Why are the cooling measures only slowing home sales and not stabilizing prices?

That’s just nuts … Housing has gone up about 30% in the last two years and cars have risen by as much as 90% in the same period. I am damn sure your salaries have not picked up by 10% in the last two years and neither have your savings. Let’s not even talk about your stock investments because the markets have been largely flat for the last two years.

• Two years ago, the 2.0 2WD (A) Suzuki Grand Vitara (which I drive) was retailing at $67,000 incl COE. Today, it sells at $131,500 incl COE. That is a price hike of 96.27% in two years.

• Two years ago, someone offered $240,000 for my three-room HDB flat in mature Bedok North. That was approximately $30,000 above valuation.  Today, it is worth $300,000 which is about $20,000 above valuation. That’s a price hike of 25% for an HDB flat in a mature estate.

• Waterfront Waves, a 99yr lease development in Bedok Reservoir was selling at an average price of $700psf in Q3 of 2009. In Q2 of 2010, the developer is selling the remaining units at an average price of $935psf. That works out to be a hike of 33.5% in less than two years.

• A loaf of Gardenia White was selling at $1.25 during the National Day period in 2009. Today, that same loaf is selling at $1.85. Bread has increased by 48% in two years.

The hike in prices wouldn’t be so bad if what we earn also went up by the same margins. But salaries are still more or less the same as it was two years ago, albeit with some minor increments if you never got a promotion.

Most of the common stocks in Singapore haven’t moved up in the last two years either …

DBS is as flat as Changi Airport in two years …

… talking about Changi Airport, SIA is not taking off …

… and SMRT … at least they’re not falling off their tracks from lightning strikes.

If no one noticed, we’re getting peanuts … leftover peanuts on our saving accounts …

So if incomes, investments and savings rates haven’t risen significantly, how are Singaporeans able to cope with rising prices to afford flashy new continental cars and exorbitantly expensive shoe-box sized condominium apartments and still have a life of clubbing, branded goods and good food?

I was in Siglap last night having drinks with an old friend at an al fresco joint. I was facing the road and for two hours between 9pm and 11pm, I watched some of the most expensive cars this country has to offer drive past at a rate of one every two minutes. 30-somethings were driving German marquees with the top down while younger drivers whizzed by in sports coupes that cost twice as much as my $68,500 Vitara.

There were several gentlemanly elders in very large Japanese saloons and SUVs. There were also some Aunties driving MPVs and smaller Honda Fit sized cars which I thought was typical. You would think that the older generation would be able to afford big flashy German marquees but instead, you see them driving conservative vehicles that are practical to their needs. Let’s not forget this is Siglap I am sitting in … you can safely assume that the senior Siglap-ians are rather wealthy and should be able to afford a German Marquee or two.

So where is all this young “wealth” coming from?

It’s a tired matter and one that has been repeated once too often on this site – low interest rates and easy credit … and the young ones know how to make it stretch.

Not that I am blaming the younger generation for the price hikes, mind you … no, not at all … I blame the banks … still. More so, I am starting to point an accusing finger at the government for allowing the banks to influence young minds into careless and almost reckless financial practices. It is still so easy to get credit. In fact, you don’t have to look for it – they come to you via your mail, email and phone. It is that convenient. And it is that reckless.

In many of my public talks, I get young people coming up to me after the session admitting to me (after having read this blog) that they were over-leveraged on credit and are now over-whelmed with debt. Then banks, it would seem, are very nice in helping them settle their debts with extended credit lines and more time (which means more interest) to pay up.

I am glad the banks were ruthless during my time as a thirty-something – they simply bankrupted me and put an end to my pains. Today, they just extend the pain for more gain.

Am I going nuts? Because it feels like I am the only one who smells trouble everywhere but people continue to buy? Do I stick with my fundamentals and continue to be prudent and frugal? Or do I join the crowd just in case I am nuts and miss out on all these great buying opportunities?

If the older generation are testaments of keeping your wealth when the shit hits the fan, I’d rather be an old and wealthy fuddy-duddy than a young and broke wannabe.

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NOTICE TO SPAMMERS: Don’t bother. Comments are moderated and spams are deleted automatically. Go spam someone else or get a real life.

The following are reports about Singapore’s latest GDP numbers.  Good news or bad news?

This is from channelnewsasia.com on 14 July 2001;

Singapore’s GDP grows 0.5% in Q2
SINGAPORE: Singapore’s GDP grew by 0.5 per cent on a year-on-year basis in the second quarter of 2011, down from the 9.3 per cent growth in the previous quarter.  On a seasonally-adjusted quarter-on-quarter annualised basis, the economy contracted by 7.8 per cent, compared to the 27.2 per cent expansion in the previous quarter. The advance estimates released by the Ministry of Trade and Industry (MTI) on Thursday said the moderation in growth reflected a slowdown across many sectors.

The manufacturing sector had the biggest contraction of 5.5 per cent on-year in the second quarter of 2011. The construction sector grew by 1.6 per cent on a year-on-year basis in the second quarter of 2011. Growth in the services producing industries moderated. Services producing industries grew by 3.3 per cent on a year-on-year basis. On a sequential basis, the services producing industries declined by an annualised rate of 2.9 per cent.

Here’s my headline that more accurately reflects the real sentiment …

Singapore’s Growth Slows Down, Economy Contracts 7.8% QonQ
Although Singapore’s GDP grew by 0.5 per cent on a year-on-year basis in the second quarter of 2011. it is down from the 9.3 per cent growth in the previous quarter. On a seasonally-adjusted quarter-on-quarter annualised basis, the economy contracted by 7.8 per cent, compared to the 27.2 per cent expansion in the previous quarter.

The advance estimates released by the Ministry of Trade and Industry (MTI) on Thursday said the moderation in growth reflected a slowdown across many sectors. The manufacturing sector had the biggest contraction of 5.5 per cent on-year in the second quarter of 2011.  The construction sector grew by 1.6 per cent on a year-on-year basis in the second quarter of 2011. Growth in the services producing industries moderated. Services producing industries grew by 3.3 per cent on a year-on-year basis.  On a sequential basis, the services producing industries declined by an annualised rate of 2.9 per cent.

And this is MarketWatch’s unforgiving report …

Singapore economy shrinks 7.8%, more than expected
SYDNEY (MarketWatch) — Singapore’s economy contracted at a sharper-than-expected rate in the second quarter, as manufacturing output slowed and service-sector growth eased, the government said Thursday. Gross domestic product for the three months to June 30 fell 7.8% on a seasonally adjusted and annualized basis, compared to a revised 27.2% increase in the first quarter, reports said, citing preliminary data from the Ministry of Trade and Industry. Economists surveyed by Dow Jones Newswires had forecast a contraction of 0.8%. Compared to the year-earlier period, Singapore’s second-quarter GDP increased by 0.5%, reports said.

And this is from Straits Times online … ever the cheerleader with choice words …

Weaker Singapore economy posts just 0.5% Q2 growth
SINGAPORE’S economy grew weaker than expected, after it posted just 0.5 per cent growth in the second quarter of 2011, according to flash estimates by the Trade and Industry Ministry. Manufacturing was the main drag on the growth rates, declining 5.5 per cent in the March to June period compared to 2010.

MTI said this was due to pharmaceutical companies switching to different lines of drug production and a slowdown in global demand for electronic products. Services also grew weaker than expected, expanding just 3.3 per cent. ’This was largely due to declines in the wholesale and retail trade and financial services sectors. The former was negatively affected by weaker trade flows during the quarter, while the latter was dragged down by a fall in stock trading activities,’ said MTI. Growth in the construction sector also moderated, growing by just 1.6 per cent.

The good news, however, was that the revised figures for the first quarter of 2011 showed that the economy expanded 9.3 per cent. MTI had previously reported that the first three months of 2011 grew by 8.3 per cent. MTI is forecasting a 5 per cent to 7 per cent growth for Singapore for the full year of 2011.

So, depending on which report you read first, you may have reacted very differently, wouldn’t you? While it is obvious that the MarketWatch and my reports are hawkish, the local press reports appeared dovish.

Such is the power of linguistic influence.

Now … I wonder how the Straits Times will headline this report in the papers tomorrow … dovish or hawkish? Any takers?

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Post Script:

Straits Time headline on Friday July 15, 2011;

Analysts rethink forecast in wake of Q2 slowdown

Manufacturing slump drags down growth to just 0.5%

I got a simple but very interesting query in my forum which prompted some thinking. What transpired thereafter was rather inspiring but ends rather depressingly. Enjoy the read …

Are the market’s fundamentals and sentiment right now the same with Oct 2008?

From your experience, can you share whether the market right now is as bearish as in 2008 or is 2008 is far worse than now?

The fundamentals previously were more focused on the US but it is all over the world right now. If things get worse, how much worse would it be?

Philip.

My good friend and fellow trader, Henry replied;

History never repeats itself in exactly the same way. It evolves with time. It may repeat in a different manner with different intensity & for different reasons – cause and effect. In fact, in the best of times or worst of times, there lies the greatest opportunity of wealth. A lot depends on how one positions himself/herself ready to see the opportunity ahead or only to see fear and stand frozen still.

The worst has yet to come…wait till US default on her trillions of debt!

And that got me thinking.

The world is wiser as a result of 2008’s crash. The powers-that-be are not likely to let the same mistakes repeat themselves. So they will know what to look out for and how to avoid a similar situation.

This has always been the case in history. And the result of these efforts haven’t always worked out for the better because instead of avoiding the same mistakes, they make newer, bigger problems. And for that, I would say history repeats itself because humans never change except to make things more complicated and messy.

What we have today as a main problem started as a fundamentally small issue. It is called Leverage (read: excess greed). Without going back too far in history …

• 1929’s capitulation (Black Thursday) was a result of the banks getting greedy and introducing leverage to the street in a time when the street couldn’t afford and couldn’t handle the greed.

• 1937’s crash was a result of the government leveraging on cheap money between 1933 and 1936 to stimulate the economy then cutting off that supply too quickly when the street needed the support.

• 1974’s failure was the result of the OPEC members’ greed to use their leverage over the world price setting mechanism for oil to stabilize their real incomes by raising world oil prices which brought on several years of steep income declines when negotiations with the major Western oil companies earlier in the month had failed.

• 1987’s crash (Black Monday) was blamed on many things but the main culprit seems to be over-dependency on the new computerized system trading programs which failed miserably and caused a worldwide capitulation when the world was over-leveraged on property and housing loans.

• 1997’s Asian Financial Crisis was the result of the region’s greed on foreign investments which drove up an asset bubble, especially in the property market that got Thailand greedy and over-leveraged on debt that was unsustainable and led into price drops across all assets across all Asian nations and saw a rise in consumer debt.

• 1998’s Russian Financial Crisis came about because of Russia’s over-leveraged dependency on exporting raw materials which accounted for 80% of the country’s exports and left its ass exposed to price swings in the wake of the Asian Financial Crisis that massively brought commodity prices down.

• The 2000 LTCM failure was a result of Wall Street’s greed of leveraging on leverage which eventually cost its creditors $3.625 billion to bail out the fund which eventually failed anyway resulting in total losses exceeding $4.6 billion in more than eight major investment categories.

I don’t think I need to express what brought on the Sub-Prime Mortgage Crisis and the ensuing Financial Crisis.

And now, we have another slew of over-leveraged contagion waiting to blow up in our faces;

• Europe – over-leveraged on debt that can’t be paid

• U.S. – over-leveraged on cheap money that has hit its debt ceiling but needs more debt to keep it from capitulating.

• Asia – over-leveraged on hot money coming out from China to keep inflation going up while growth slows down (sic).

• Australia – over-leveraged on exporting materials to China (see Russian Financial Crisis).

• Argentina – over-leveraged on Lionel Messi to bring glory to the country in the Copa America.

So in summary, the individual scenarios in the various parts of the world are not as bad as America in 2008 (with the exception of Greece).

But if one scenario blows up, this will have a domino effect. It will be a massive house of cards which could collapse the financial system as we know it.

That is my opinion. But then, I am over-leveraged with opinions anyway.

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Its been a very busy week for me but I can’t complain because it took me away from the market. Knowing I would be tied up, I had positioned my naturally long portfolio to handle any gyration by hedging with cheap (sold) Calls. I will continue to be hedged throughout next week and will not be opening any new long positions.

My cause for concern stems not so much from the economic situation in the U.S. but from much closer shores. Although Europe is a scary economy right now and about to get scarier, my fear comes from the east. I cannot see China coming out of this funk as its economy battles (too little, too late) its inflationary pressure and massive slowdown in growth.

China’s June inflation rose 6.4% as food prices jumped by 14% to three year highs. Analysts had been expecting a rise of only 4.5% to 5%.

Their June Non-Manufacturing PMI dipped to 57.0 from 61.9 in May. The June Manufacturing PMI also dipped to 50.9 from 52 in May. (a PMI read above 50 signifies expansion while a read below 50 signifies contraction.) Then on Wednesday 6 July, the PBOC raised its benchmark rate another 25bps with its 1-yr deposit rate at 3.5% and the 1-yr lending rate at 6.56%.

I have always maintained that China’s double figure growth rate in recent quarters was unsustainable and that they had to slow down gradually. That gradual slowdown never came and now they will pay for it. I also maintained that their biggest problem would be inflation as they have never had such a situation since they opened their doors to trade with the world. They wouldn’t have the experience to handle it and possibly mistake it for growth instead. And it happened. Salaries got inflated, businesses inflated their prices, everyone got on the high-priced bandwagon and got massively greedy. Investors got turned off and turned their attentions to India and Vietnam instead.

Now as growth declines, this inflationary level of greed cannot be sustained and it is only a matter of time (and it will be a short matter of time) that all this implodes on China. It will be their first major recession and their people will not be able to handle it … rather, they have preferred not to be part of it. Have you notice the lack of faith of the wealthy Chinese nationals? They would rather flock their monies out of China and invest in Singapore, Malaysia and almost everywhere else in the world while their own country bears the scars of greed unfulfilled as evidenced in the many ghost towns and cities that were built in anticipation of its over-ambitious growth. Their own people have no faith in their country’s ability to handle this growth.

Shanghai Composite 11 July 2011

Economic models are already confirming an economic top for the Republic and their market is confirming it further by declining slowly but surely, six months ahead of its economy.

Raising interest rates by 25bps last week will only serve to crush growth further while inflation continues to run rampant, ignoring the efforts of having a higher monetary policy. This will lead to a situation that the country will not be able to handle – Stagflation.

Stagflation crippled the American economy in the early 70s and is hurting America again today.

China will run the gauntlet of economic failure … it has to because all nations do … the question is IF they can and HOW they will manage it.

Japan had an economic boom in the 70s and 80s fueled by the emergence of their automotive and electronics industries. Their greed drove land prices up and caused an asset bubble between 1986 to 1991. Inflation and housing prices hit astronomical levels. One of the contributing factors was easy and risky credit. The other was financial deregulation. Another factor was the carry trade – money borrowed from Japan at low interest rates were invested outside of Japan for quick returns.

It capitulated in 1991 falling victim to Deflation and has not recovered since. The period between 1991 to 2000 became known as the “Lost Decade” as the asset bubble deflated. The government bailed out failing banks and businesses which only helped to create “zombie companies”. Unemployment levels ran high. Prices had initially bottomed in 2003 as Japan dropped their interest rate to zero in a vain effort to spur growth. The carry trade worsened. Investments flowed out of the country, never to return. Then prices dropped further at the outset of the global financial crisis of 2008. Today, the whole period of the 1990s and 2000s is known as the Lost Decades.

China’s growth and the sheer speed of it has far exceeded that of Japan or any other country in history. Can they hack it?

I am of the opinion that hacking it is not the concern … rather, it is their lack of regulation. As exciting and quick as the Chinese market and economy are, they are too maverick for the conservative and conventional trader. With no regulatory control on their currency, market and in some parts, governance, China runs the risk of all this growth blowing up in their faces with no regulatory governance in place to control the capitulation.

Already, evidence of this lack of a regulated operational procedure is rearing its ugly head – rather than raise interest rates in anticipation of soaring prices, China allowed inflation to get out of control and when it became intolerable, they used interest rate hikes to combat inflation. It has never worked in history in any country and it is not working for China today.

In the first place, China didn’t need to have low interest rates to begin with. As the global economy dug itself out of the Sub-Prime and Financial crises, China was in better shape than any other economy to take advantage of the impending growth opportunities as other countries struggled to find their feet. But they got greedy. It can be said that their economic policies have worked out well judging from their economic strength today. But has it? Success depends on how you manage failure. And they have yet to fail.

If they go down … or I should say … when they go down, Australia, who is currently very dependent on trade with China, will follow suit. There is no denying that Australia is having a wonderful purple patch now because of this marriage. But we all know that divorces tend to make for very ugly results. This will result in a domino effect especially considering America’s own inability to support itself and the growing debt problem in Europe. All eyes will then turn to India, Russia and Brazil for safe haven.

Is this the future? I hope not. I am praying that the Chinese are smarter than that. But I am not holding my breath for it.

Tessie is a Graduate of my Tutorial from 2008. She is a successful trainer herself and she was recently featured in an interview with Jakarta Globe and quoted me as one of her role models alongside other big name successes. Certainly flattening and definitely motivating.

Thank you Tessie!

You can read her whole article here.