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Technical Analysis : Week 05/09

This week the S&P 500 is down by 20 points. It was a rather flat week starting with fear on Tuesday. It seems like the Nov 08 retracement of 805 was tested 4 times this week and always closed above the 818 support. The major 800-support line, it would seem, is going to be a tough nut to crack.

Going into the last week of January, S&P 500 should trade in a range of 800 to 850 points. If it breaks above 850 points, we will have a major upside as the market will want to close out January in positive territory. But that is going to take a mighty 72 point rally in 5 days or 14.3 points a day for the whole week without a single flat or bear day. A break below 800 points will bring us back down to retest the 750.

Next week’s earnings seem to be looking pretty interesting as companies like Caterpillar, McDonald’s, American Express and Texas Instruments are going to toe the line.

The key resistance level for S&P500 index will be at the 850 (levels in blue).

The key support level for S&P500 index will be at the 818 (levels in red) with a psychological support level at 800.

Interesting point: The market has been rallying strongly during the 2nd half of the trading day, 5 out of the last 6 trading days. It seems like the initial drop is created by the disappointed earnings news and the 2nd period rally is fuelled by bargain hunters with some large institutions looking to buy into it too. This sort of behavior will most likely continue for the rest of Q1’s earnings season.

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Sector Rotation : Week 05/09

One of the defensive sectors edges into positives for the month; Health Care joined Energy and Utilities in positive territory. Utilities takes the lead with Energy and Health Care taking 2nd and 3rd place which grew in positives of 2.24%, 1.26% and 0.89% respectively. On the other side of the coin, we get the same, tired, old story of Financials (-26.15%) leading the laggards followed by Industrials (-5.34%), Consumer Discretionary (-5.19%), Consumer Staples (-2.36%), Materials (2.17%) and Technology (-1.67%).

Defense/Aerospace and Education continue to show strength in this turbulent market. Heavy Construction took a beating, as it gets dragged down by the financial mess (but don’t take your eye off this sector yet). All eyes will be fixed onto the stimulus package. XLF and XHB are looking better as their prices keep falling. The long-term bet will be on XHB with a dividend yield of 3.61% and a strong support at $10. XLF will be very volatile but expect a short term rebound this few weeks as most of the banks have been beaten up badly. Still, they have been able to hold above the support line of $8 rather strongly in spite of the heavy bombardment in the past 4 days.

One of the industries I’ll be keeping a close eye on will be Biotech and Pharma. In spite of the market’s obvious doubt and fear, the stocks in these industries have been nothing short of resilient. This is in-line with what I mentioned in November 17, 2008;

Although infrastructure, alternative energy and healthcare stocks may see a rally, the broader market will see continued weakness till January 2009 as fund managers stay away from the market and retailers get no leadership while Bonds and Currencies continue to make gains on flight-to-safety and flight-to-quality investors.

How sweet retrospect is when you get it right!
So while the market makes its madness, I’ll make sense from sectors like Pharma and Biotech and keep a close eye on stocks like: AMGN, AMLN, AZN, ABT, AGN, BCRX, BMY, CELG, CEPH, DNA, ELN, GILD, GNTA, GSK, IMCL, JNJ, LLY, MRK, NVS, PFE, PDLI, RGEN, SLAB, SGP, TEVA, VPHM & WYE. Now all I need is a catalyst …

20 - 23 Jan

Consumer Discretionary	XLY	-4.22%
Consumer Staples	XLP	-0.78%
Energy	XLE	-1.74%
Financial	XLF	-10.12%
Health Care	XLV	+0.08%
Industrials	XLI	-2.52%
Materials	XLB	-3.82%
Technology	XLK	-1.74%
Utilities	XLU	-0.66%

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Market Analysis : Week 05/09

In January, investors watch for one of the more reliable patterns known as the January Barometer - should S&P 500 close positively in January, there is a strong likely-hood that S&P 500 will close the year positively. Sam Stovall, S&P Investment Analyst;

Since 1990 the 3 best performing sectors in January beat the S&P 500 by an average 400 basis points per year in the following 12 months, and outperformed the market 75% of the time.

The pre-cursor for this indicator are the first five days of January which has a 50% accuracy rating;

So goes the first week of January, so goes the month, so goes the year.

If you didn’t already know, the first five days of this year were down -0.38% from the 2008 close. But there is another camp who disagrees because they have discounted the first trading day of 2009 which was on a Friday - if that Friday was recognized as the first trading day of the year, why was Non-Farm Payrolls on the following Friday? - thus putting the first five trading days as Monday 5th to Friday 9th January, for a loss of -4.74% from the 5th Jan open. Either way, the first five days were flat or negative, depending on which school of thought you’re from … bottom line: the first five days did not finish positively which translates to a poor* January and a poor year ahead. (*Read “poor” as “not bullish”)

On candlestick analysis, looking at weekly candles, last week ended a three-candle pattern known as the Three Inside Down, which is a very reliable indication of bearish conditions to come. This pattern tends to have legs and looking at the week that just finished, it has its justifications.

One other pattern that really stands out in my mind is the possibility of a 40-year cycle …

In 1929, the market crashed, lost 89% from its previous high and started the Great Depression. This came one year after the 1928 election of Herbert Hoover, a Republican.

40 years later, in 1968, Richard Nixon, Republican, took over presidency after a power shift from the incumbent and majority Democrats. A year later in 1969, the market dipped losing more than 36% from its previous high.

40 years on, in 2008, Barrack Obama, Democrat, took office after another power shift from the incumbent Republicans. As of Friday’s close, the market is already down 43% from its October 2007 high. For 2009, the DOW is already down 699 points (-7.95%) with only 5 trading days to go.

Apart from a few bright spots in the Technical sector, earnings have generally been disappointing while economic data has also been pathetic. Globally, economies are reporting considerable dips in their GDP outlook as both imports and exports have slowed drastically. All these lend weight to the possibility of the 40 year cycle becoming a reality. And if it does, we will be in for far more downside in the financial markets.

On 2 January 2009, I wrote:
If you though that 2008 was a rough year, watch out … 2009 is going to get tougher! Expect more gyrations that could send the markets much lower than where it is now.

I did hope that Q1 of 2009 would be slightly bullish. But in the same posting as the one above, I mentioned that VIX would find support at the top of my channel and retrace upward come earning season …

… Although it is still early days yet so it remains to be seen … but that kinda killed my hope for a bullish Q1.

A red January is not the best way to usher in the Year of the Bull.

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Foreword : Week 05/09

Wall Street never changes, the pockets change, the stocks change, but Wall Street never changes, because human nature never changes. - Jesse Livermoore

And it is for this reason that patterns are one of the most reliable ways to analyze the market. Patterns tend to repeat just as history often repeats. It could be self-fulfilling, it could be mathematical, it could even be coincidental … whatever the reason, it is undeniable that patterns in trading are reliable and understanding them reduces the odds of carry unnecessary risk into your trades.

This week saw the release of “Profit From The Panic” co-authored by Ryan Huang, Adam Khoo and myself.

We were featured on Channel NewsAsia on 19 Jan 09 during the morning program and you can watch the clip on our site. It should be noted that 100% of the authors’ royalties will go to charity; the Straits Times School Pocket Money Fund and AIDHA.

But more significantly, in today’s Sunday Times, the book is listed as debuted at #5 on the Best Seller’s list. So do something good today and get your copy now. These charities could use your contribution to put a smile on someone’s face. And in today’s economy, a smile means so much.

This week also saw the long, long awaited soft-release of “Secret Psychology of Millionaire Traders”. The official launch is scheduled for mid Feb 09. Let’s watch this one get on to the Best Seller’s list too. How sweet it would be to have two books simultaneously in the top 10!

With that, we close out the Year of the Rat and welcome the Year of the Ox (Bull). I would like to wish all our readers and members a Prosperous and Happy Lunar New Year and may all your dreams, wishes and investments work out for the best.

Remember to stay healthy, trade wisely and live safely.

Happy New Year everyone!

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Foreword : Week 04/09

It was nice for Santa to give us an extremely tiny rally between 24 Dec to 6 Jan - if you call that a Santa’s Rally. I call it “Hope on Low Volumes”. The reality of the rally between the 21 Nov 08 low and the 6 Jan 09 high, now seen in retrospect, was only a rally in a downtrend. As more and more of these analysts and economists call a later recovery date (they initially said that the market was at a bottom in Oct 08) of mid to late 2009, and others calling a bottom by early 2010, I am maintaining that we won’t see a real rally into a Bull market till 2012.

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Market Analysis : Week 04/09

In Jan 2007 during my tutorials, gatherings, WA and at various speaking engagements, I called a flat to negative market for the next 4 years with the next real rally in 2012. This was supported with various postings in my old forum and on this blog: http://www.conradalvinlim.com/?p=73
And now, as expected, January is looking like it is going to suck big time. The market is expected to re-visit its Nov 08 lows. I am expecting more new lows.

On December 1, 2008, I wrote;

So in summary, DOW for 6,000 on the low between now and May 2009 and daylight will not get much brighter than 9,500. A break above 9,500 might just give us a return of Santa but I won’t be holding my breath.

So while shoppers hit the malls and others rush out to buy cars, I will remain conservative with my wallet. I expect things to get worse. As mentioned in a recent posting in my blog, the Singapore economy will take a big hit, I don’t care what the papers are reporting. Car owners will be hard hit, construction will burn and financials will hurt. Unemployment will rise, foreign workers will depart, rentals will fall, property prices will tank and I will go shopping for a new house.

In reference to my second paragraph, take a look at what’s making the news in the last few weeks … construction is hurting - even our own Integrated Resorts are expecting late deliveries, foreign workers are being sent home by the droves, more people are losing their jobs everyday (more than I expected), property prices are declining as owners panic to sell now than later, rentals are indeed falling (all these are happening sooner than I thought it would) and still, many are still behaving like this is going to end soon and it won’t affect or hurt them.

The last time I thought like that was in 1998 and I went bust in 2001.

The exodus of fancy cars to the used car lot has begun. More and more cars are parking at such lots but the worrying trend is that they are parked there without being bought over by the lot owner - in other words, they are desperate to sell their cars even if the used car lot owner is not interested in buying it. Almost all these cars are on a 100% financing scheme which means that the owner can’t sell until he pays up the entire interest owed. So they park there because they can’t afford to continue paying for the car. And they can’t sell it because they can’t afford the interest owed.

The number of home buyers (from 2006 to 2008) defaulting on their payments is increasing. As TOP dates mature, the major sum of deferred payment schemes are due. Buyers on such deferred payment schemes are finding it impossible to fulfill their obligations and developers are in a quandry; do they repo or assist? Repo is not going to help them because finding new buyers is more difficult today and assisting is not in their interest or business model. Regardless, defaults are rising and fire-sales are inevitable for those hoping to recoup some of their losses (especially amongst the speculators).

En blog speculators who bought “promising” properties in the last 3 years are now getting desperate to get rid of their investment now. Those who still stubbornly hang on will be in dire straits very soon as property prices start to cascade. Developers are in no hurry to acquire such properties now because they know the hurt will come soon and they will be able to get a much better price than what was on the initially on the table.

Shop owners are hurting and one by one, slowly but surely, they are closing down or downsizing. Commercial rentals are starting to fall or are at best, stagnated. Have you noticed how you don’t have to wait for a cab these days? Have you noticed how thin your daily news papers have become? Have you started noticing that peak hour traffic is not as bad as it was about a year ago?

All these point to the obvious - that we are not yet at the bottom and it is going to be a while before we get back to normalcy. If this true, then those with day jobs without secondary incomes will suffer. Those who are living in denial that “it won’t happen to me” will hurt the worst. Those who believe in their comfort zones will soon find discomfort. Those who still have credit card debts that can’t be paid off with two months’ salary will find the going getting tougher.

Survival Tip #1: Get real. Even when the market does recover, the economy will still be in pain for another 6 months to a year after.

 

Survival Tip #2: Get a secondary income. Create a second income from simple ideas and common needs. Supply to the need and you have a second income. (Still don’t get it? Then you really need my help)

 

Survival Tip #3 Get my up-coming book in May 2009. It’s all about surviving bad times, creating money making ideas, finding opportunities in adversity and everything you need to know about bankruptcy - in short, how I survived and recovered from my time in financial hell.

Finally, get smart. Stop living in denial and stop dreaming. Wake up and smell the roses … they stink now because no one cares about watering their roses. Wake up and smell the coffee … it’s watered down now because kopi tiam owners are scrimping as coffee prices rise in a recession.
Wake up and wake your friend up - shit is happening and if you still don’t smell it, you definitely smell it when it’s too late.

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Sector Rotation : Week 04/09

In the past month, there were only 2 sectors in positive territory. The sectors are Energy and Utilities that grew at positives of 1.17% and 1.12% respectively. The rest of the sectors suffered blows with the financial sector taking the greatest hit. The sectors in the negative territory include Health Care, Materials, Consumer Staples, Technology, Consumer Discretionary, Industrials and Financial. They dropped at the rate of -0.11%, -1.05%, -1.21%, -2.16%, -2.92%, -3.37% and -20.85% respectively. Defensive sector like Utilities and Health Care will always be slightly positive during a bear market as investors shift their funds to defensive sectors in a flight to safety.

The sectors I am watching in anticipation of a momentum run are Heavy Construction, Defense/Aerospace and Education. One of the catalysts for their anticipated move is the stimulus package. Money should flow into these sectors once the package has been passed.

Continued weakness is anticipated in the Consumer Discretionary, Industrials and Financial Sectors. In spite of tax perks, more fund injections and the hope in a 44th President, earnings will continue to disappoint and guidance will continue to come in bleak. With earnings season only one week old, it is still early days yet to make a call on the long term trend.

12 – 16 Jan

Consumer Discretionary	XLY	-4.01%
Consumer Staples	XLP	-0.22%
Energy	XLE	-4.32%
Financial	XLF	-16.26%
Health Care	XLV	-0.34%
Industrials	XLI	-6.07%
Materials	XLB	-3.43%
Technology	XLK	-3.92%
Utilities	XLU	-0.62%

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Technical Analysis : Week 04/09

As we go into the 3rd week of the year, S&P shows a little promise of upside as it breaks away from the downside channel that started on 6th January. Base on candlestick patterns, it would seem like we have an ugly Morning Star - a rather weak Friday failed to close with any Bullish conviction. Thus, any upside in the coming week may be limited.

The 3rd week of January will be a short week as Monday is a holiday in U.S. The market will resume trading on Tuesday which is also the highly anticipated Inauguration Day. Traditionally, the market should rally as positive emotions prevail in a shortened trading week. But remember that we are in uncharted territory with waves of ugly earnings reports expected from the big corporations of earnings season’s second week of Q1. This will definitely create anxiety in the market.

The key resistant level for S&P500 index will be at the 883 (levels in green).
The intermediate level for S&P500 index will be at the 850 (levels in blue).
The key support level for S&P500 index will be at the 818 (levels in red) with a psychological support level at 800.

A break below 800 this week will see S&P500 test its Nov 08 low of 750 by the end of Jan 09.

Interesting Statistic: With S&P failing to close the first 5 trading days of the year positively, the market will be expecting a down close for January 2009. This, if it happens, will point to a down year for 2009 as it did for 2008. There is another startling statistic to support this expectation of a down 2009 … but we’ll save that for next week’s report. So stay tuned!

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