Long Weekend: No Posts (Commodity article attached)

I'm not posting this long weekend break as I have decided to take the time off to catch up on some other stuff. See you back Monday with some comments about the commodity market (is it too late to get back into metals and energy??) Here is some good reading in the meantime.

UBS April 28 2006 Commodity Connections.pdf

Trade Entry: Ghope

Ghope is a plantation stock with a steady balance sheet, increasing turnover and profit as well as a growing asset base. The only thing I don’t like is its choppy and volatile share price history. Still, it enjoyed a brief spurt and is in in retracement mode so I have dipped into it on a recent bounce off a fibo support level. I am prepared for it to fall back to 4.2, which is my accumulation zone.

Trading: A rising interest rate does what??

Today both Malaysia and China raised interest rates. As a result the KLSE has failed to follow through the positive candlestick pattern yesterday and Dow futures got roiled. On the blogosphere twin deficit fears resurfaced after Fed chairman has been at work again talking things up. But I think that attention will start to shift to macroeconomic factors as investors ponder how rising interest rates in China will affect its ability to keep supporting the world. Could this bring back the bears and profit takers? I hope so, so that I can start buying again.

Trading: Palm Oil

Plantation stocks have mostly traded up in the last few days, contributing the continued KLSE strength. Today's movement even formed a morning star. But I still think we're fairly near a top and this is a seller's market.

 

Anyway today by complete coincidence after I posted about wanting to look into plantations yesterday OSK research came up with a piece on palm oil which could tell you more about the market than I ever will so I have included it as an attachment.

Plantation sector upgrade20060426.pdf

But here are a couple of extra points. Despite all the brou ha-ha about how palm oil is going to be a fuel substitute etc. let's take a look at some prices:

PALM                     SUGAR

The market just doesn't seem to be buying into the story. OSK's general explanation is that because most plants have not come online there is no demand yet, unlike for sugar which is already being used for its ethanol content. Sound like a good explanation? No. If there is no global demand for palm oil (or not as much as we would like) then why shouldn't this rationale extend to the plantation stocks which produce the very commodity? I don't think the market is stupid. If there is a real chance that palm oil will become even a close alternative to oil everybody would be buying into it now regardless of when the next plant comes online. After all that's what the entire futures market is there fore. I'm not saying it won't happen, but only that this isn't what the market is telling me.

Incidentally over the weekend a friend in the energy industry alerted me to some other candidates which seem more likely: 1) coal and 2) nuclear power.

But that doesn't mean that I won't buy plantations because that is a slightly different story. I anticipate that the malaysian government will continue to do its utmost to promote palm oil as much as possible, including making it a compulsory component for diesel, so plantation stocks should continue to benefit. I remain a buyer but only on weakness.

No Update Today

I am in the process of doing some research on palm oil on the back of a fairly lacklustre trading day. As the world's biggest producer of palm oil, will this be the big commodity play in Malaysia for 2006? Stay tuned to find out.

Trading: KLSE was up/down today due to [fill in the blank]

Apparently KLSE is down today due to "fears" about high oil prices or maybe even drying liquidity. If it were up, it would have been because of our improving fiscal position, or exports, or the 9th plan or whatever. The truth is nobody knows. High oil prices are a macroeconomic phenomenon affecting fundamentals and should never be used to explain the daily gyrations of any stock market. It may keep journalists in a job, but it will kill your portfolio if you become mesmerised by things like this. Somebody once said that if you spend 5 minutes thinking the economy then you've just wasted 3 minutes.

As traders, we have to shut all this out and listen to what the market is telling us. Perhaps one day we will have all the market information we need and be able to get rid of analysts and research houses completely. Unfortunately that is just a pipedream for now and we continue to rely on piecing together disparate truths like a jig-saw.

Anyway we are consolidating and I'm inclined to look for support before diving in again. Most of the stocks on my watchlist are down but on relatively low volume. Despite the KLSE gaining ground yesterday a lot of counters were also being sold so this correction is due in my books. So I'm just waiting and getting a bit pickier with my entry points. Also added TSH and Hiaptek to my watchlist (more good companies).

Trading: The Secret To Consistent Profits

Here's a golden nugget for those who are serious about trading independently for a living. In order to be a successful trader (i.e someone who outperforms the index every year) one must be aware of the rules of "benchmarking" and "asset allocation". Assuming you have $100,000 to trade what determines whether you are a successful?

Rule 1: You must outperform the market. Since I usually take each year as it comes, I take the performance of the KLSE from Jan 1, 2006 (some people the tax or financial year but that is up to you). On that date the KLSE closed at 899.7. Today it is at 948.19. That's about a 9% increase. So in order to be 'successful', your 100,000K portfolio must be worth 110,000K. It doesn't matter how many good calls or winners you picked. If you're not averaging over 9% then you're not performing well.

Rule 2: You must not take excessive risk. Hedge funds measure this scientifically using something called the "Sharpe Ratio" but common sense is good enough. If your portfolio is up by 10% this year, that doesn't mean you are a good trader if you put all of it into just one stock, because the performance of that stock could have just as easily have caused you a whopping great loss from you which you may never cover. Therefore you need to ensure that you spread your risks. Are you well positioned for a downturn in the market? Do you have a good proportion of 'safe' stocks compared to 'speculative' stocks'? Are you over-exposed to any particular sector? These are all questions which need to be asked. As a rule of thumb I risk no more that 5% of my capital on speculative stocks and try to makes sure I have a good spread of stocks which are fundamentally good, which are bought from an advantageous technical perspective and which range across several industries.

Remember, in order of preference its:

1. Good Trading and

2. GREAT Risk Management.

Trading: KLSE again

The KLSE has adopted a classic bearish chart pattern characterised by oversold stochastics and a bearish divergence on the RSI. That doesn't mean it can't go higher, but I am going to follow that sign and take some chips off the table on my U.S account where I had some malaysian ETFs (symbol: EWM). I will probably also stop looking to buy for a few days and put my patient hat on.

Trading: GHLSYS

Here’s a hot company. Up around 300% in 3 months driven partly by speculation on promotion to the main board. I like the business because I think that electronic banking is going to get big in Asia and this is a company with a consistent track record and growing balance sheet. The smart money seems to be done with selling into the news so this is where I have decided to pick some up. Given the texture of the chart I am prepared for it to fall back down to 0.20 – 0.25, which I have identified as an accumulation zone where barring any mishaps to the company’s fortune I will continue to be a buyer. Another push up to 0.40 is likely over this year, in my opinion.

Music Site: BBC

There is nothing better than digging into a fresh crate of vinyl in a record store. I used to spend days looking up and travelling to record stores then shifting through stack after stack of vinyl. Unfortunately there are no record stores in Malaysia so here's the next best thing: the BBC radio player. Go here and click on "launch BBC radio player" to get to the BBC listings of every radio programme played this week. I usually head to the Dance section and listen to Mary Ann Hobbs' "The Breezeblock" show but there's a ton of stuff there for everyone. 

If you're anti Real player cause it loads too much crap into your PC you can always get the alt. version here.