Trading: Combine Hindsight with Deja Vu….

If you’ve been following the market this year you’re probably scratching your head right now. I mean, since March the market has gone up and down and up again and we still haven’t gone anywhere. Over the last weeks, gold and oil and energy has outperformed pretty much every single asset class (see here) signalling that things still haven’t changed – and that difficult times still lie ahead for the global economy. But the stock market is resilient and keeps wanting to push on. So if you want to know what is going to happen to the market, just hit the rewind button to May. Yup, the bulls lost heavily. Do I think that this will happen again? Let’s put it this way: nothing fundamentally has changed in that inflation is stil rising and global demand for goods and services is slowing down. The one thing additonal piece of information we have now which we didn’t have in March is that the market can and was severely punished to the extent that a significant uptrend-line has been broken in May. If that isn’t a sign that the market is vulnerable I don’t know what is. So with that combination of hindsight and deja vu, I am happy to continue selling into strength and decreasing my equity/cash equity ratio.

Trading: Portfolio Review (06-07-06) No Man’s Land

Here it is: Up 3.23% since 22 May compared to -0.60% of the KLSE. I have been selling selling selling and cashing in so far and now my equity/cash ratio is only at 38%/62%. Sleep has never been easier and I am happy to sit out the market and wait for its next move. I have no opinions either way right now about where it’s headed and want to keep just a little in case it does continue its journey up, but not so much that if things turn south I will be worried. That is the best place to be when you lack conviction. Enough said.

Incidentally you just know that when the press proclaims that interest in the market is growing, because look at the volumes etc. etc. the market will almost inevitably close down the next day.

Tomorrow I head back to Singapore to enjoy the weekend with my fiance and catch up on my reading and research. So if I don’t catch you before then, have a great weekend all, and remember: money can come and go but the market will always be there.

Trading: Shark Attack! Time for Patience….

I’ve been getting some emails from people who failed to capitalise on the recent run up. Just like the downtrend went further and faster than anyone anticipated, this bounce has also gone further and faster than anticipated. A lot of traders have therefore been outflanked and outpositioned by this recent move. My condolences if you were one of those who sold in early June and did not get back in through fear only to see things bounce back up before you made your decision to get back in. If you’re one of those people, DO NOT ATTEMPT TO CHASE THIS RALLY.

Sure, things could go even higher but in the long run, the probability is that you will lose money if you start the chase now. Remember that most trends are started by sharks or ’smart money’ who offload it to ‘lambs’ after the majority of the gains have already been made; and a great trader once told me that 80% of any rise gets captured by sharks first and then only the last 20% gets caught by the public. Therefore the question you need to ask yourself is whether you are being set up by shark activity. In my opinion many factors are allowing the sharks to create the perfect set up to inflate prices so that they can load things off at a profit: 1) Earnings season is upon is, which means that many companies are taking this opportunity to window dress 2) Stock prices have plunged dramatically to drive pretty much the majority of buyers out of the market and 3) Markets are enjoying a rebound across the globe, led by the US on perceptions of Fed activity. Although there is no limit to greed, the sharks understand that there is a limit to fear so the point came in mid June to call a bottom.

It does not take a wizard to see the number of white candles on the KLSE charts so just ask yourself whether you’re willing to dive in now after the last 9 out of 11 days have been up. Even if I were bullish I would at least wait until we found a pause before buying in. The only activity I would be happy to engage in right now would be to sell. Other than that, I would handcuff my hands to my chair and sit this one out. There are better opportunitites out there to chase than his one.

Just my 2 cents!

Trading: Portfolio Review 02-07-06 (And a simple technique using PE ratios)

Tonight I am in Hong Kong because next week I start a new day job which will involve some travel between Hong Kong and Singapore. So to keep up with my trades and blogs, I decided to invest in a new laptop (Acer Travelmate 2420 for SD$1098!). Unfortunately, this seems to be missing Adobe Pro so I am unable to upload my spreadsheet this week (if anyone knows how to save a worksheet in png format using Excel only or some freeware please feel free to share it with me). Hopefully by about next week I’ll have a copy so you can see all my trades in more detail. In short, my portfolio is up by .029% as opposed to the -1.18% performance of the KLSE since the inception of my portfolio and I am very slightly overweight in cash and looking to take more profits so tomorrow I’ll be getting rid of my TSH shares.

Simple PE Ratio Technique

In my opinion we are going to hit some difficult times ahead so I am getting sensitive to companies which are posting declining quarterlies. By taking the earnings from the most recent 4 quarters it is possible to calculate a PE ratio with its stock price today. Then, compare this PE ratio with one calculated using last years audited earnings results, and you should have a good general idea of the company’s stock price behaviour in relation to its earnings. So in the case of TSH, although it has posted year-on-year growth consistently and showed increasing turnover year-to-date, its very low 4th qrtr results has dragged down its yearly earnings and brought its PE ratio from 6 (based on audited earnings) to 16(based on most recent quarter results)! So to me even though it seems to be well supported at these levels, it already seems expensive and I am happy to offload it in our current environment.

Tenaga

PS I am also thinking of getting rid of Tenaga, which is fundamentally a bad company buoyed by short term positive factors, but it is also one of the better performers in my portfolio (it is one of my “technically supported” trades) which has helped protect it during the recent downfall. But I am now toying with the idea of switching to cash and using my profits from that trade to maintain exposure by purchasing warrants (as suggested by investssmart here – I have to give him credit for coming up with this idea before me).

That’s all folks! See you all in the week.