Today's Market Action
New worries in the US on Freddie Mac and Fannie Mae have caused the US market to reverse from previous gains. The same goes here when the market action from the US is continued in this part of the world. The STI shed a solid 47.50, losing all it gained yesterday to reach a low of 2886.62. The number looks nice but it is not. Put Warrants dominated the Top Gainers and Top % Gainers. Top Losers were blue-chips and Top % losers were Call Warrants.
Insights and Opinion
Feedback from someone who read this space is that we need more than just commentary. So here is more.
As I have mentioned, yesterday's uptrend was not sustainable. Today's worries have brought the reversal back very soon. Looking at the action in the market, it can be noticed that volatility is well managed with the use of CW and PW. A point I failed to address clearly in the last post was the idea of hedging. Warrants are used to hedge the opposite movement (just in case one is wrong). Although the cost of hedging can eat away profits, this cost is well spent when we think about managing our risk. Think of it as this, "it is easier to make less profits than it is to make large profits". So when we hedge and make less profits, risk is lesser and we make profits easier. If this is scaled up, it can make more, in terms of absolute amount of profits, with lesser risk.
Keeping "hedging" in mind, the activity of PW does not necessarily translate into an expectation of a bear market, it also shows that some are hedging against potential downside by shorting the Put when going long on the underlying. This takes into consideration that some may be doing this while trying to take advantage of lower prices.
Showing posts with label tactics. Show all posts
Showing posts with label tactics. Show all posts
Tuesday, 8 July 2008
Tuesday, 29 April 2008
Tipping Over
I was hoping I was wrong. The market tipped over today finishing 29.27 points lower at 3172.36. Selling was strong. The previous assumption of short selling last Thursday did not hold true.
Yesterday, I mentioned that "the magnitude of the change can well upset the direction of this temporary bull". I hold this view. However, today's fall is what I will call, "in the 'OK' range". This approximately 1% loss probably will not turn the good sentiments around so soon and cause a steep ride to the bottom. However, the near-term support can be estimated at about 3000 points +/- 50.
Today's action can probably be attributed to profit taking from previous lows especially for those who took stock in march and missed the previous high earlier in the month.
As for a longer term outlook, we should not rule out the possibility that this is the early wave of an uptrend. I would suggest people to bargain hunt in the coming weeks when prices hit a cyclic low and go slightly longer on those purchases. I have the following reasons for this:
1) if it runs bull, you profit (of course!)
2) if the market ranges, you profit (much less but still no loss)
3) if the market continues to downturn (more holding power with a longer horizon)
The right stock pick and take your money far.
Yesterday, I mentioned that "the magnitude of the change can well upset the direction of this temporary bull". I hold this view. However, today's fall is what I will call, "in the 'OK' range". This approximately 1% loss probably will not turn the good sentiments around so soon and cause a steep ride to the bottom. However, the near-term support can be estimated at about 3000 points +/- 50.
Today's action can probably be attributed to profit taking from previous lows especially for those who took stock in march and missed the previous high earlier in the month.
As for a longer term outlook, we should not rule out the possibility that this is the early wave of an uptrend. I would suggest people to bargain hunt in the coming weeks when prices hit a cyclic low and go slightly longer on those purchases. I have the following reasons for this:
1) if it runs bull, you profit (of course!)
2) if the market ranges, you profit (much less but still no loss)
3) if the market continues to downturn (more holding power with a longer horizon)
The right stock pick and take your money far.
Wednesday, 23 April 2008
Camel Back
Market action today was an undulating camel's back. The market soared to a high at 12pm only to continue lower after lunch. This beautiful camel back shape seems to be a rare sight.
Anyway, the market has broken the 3200 mark. Current trends in the 1-year chart seem to imply that there is further uptrend. The lines suggest that the market has entered the second wave in its upswing. Considering such a trend, previous speculations by analysts of a V-shaped or U shaped recovery seem to be possible. If that is the case, we can expect to see about 5 months more of bull market to go. The basis for this is that the market started its decline from October 2007 and this lasted until March 2008. This gave it an approximate 6 months of bear market. Negative serial correlation suggests a general bull market in the 6 months after, March 2008 to September 2008.
Even though the 6 month outlook may look good, care must be taken in stock-picking. Some stocks have been captialising very quickly on the current upswing and hence may reach their peaks prematurely before the general market does.
A general way to judge whether or not a counter falls into the above category, is to look at its bottom support (lowest possible price for the moment) and upper barrier (highest possible price for the moment). Estimates can be done from looking at the past highs and lows. The way to use these values is to use them as limits of the counter movement together with, the price where the counter is now. For example, a counter has a bottom support at $5 and a barrier at $10, if it is $8 now, there is lesser upside than downside (+$2 and -$3). If we vaguely put our judgment accuracy at 50:50, then our expected return will be, E(X) = 0.5(2) + 0.5(-3) = -0.5. This means that you probably may not be able to make a good return considering the risks. You should not buy the stock. When E(X) > 0, the risk you take is justified and you have a better chance of success.
Anyway, the market has broken the 3200 mark. Current trends in the 1-year chart seem to imply that there is further uptrend. The lines suggest that the market has entered the second wave in its upswing. Considering such a trend, previous speculations by analysts of a V-shaped or U shaped recovery seem to be possible. If that is the case, we can expect to see about 5 months more of bull market to go. The basis for this is that the market started its decline from October 2007 and this lasted until March 2008. This gave it an approximate 6 months of bear market. Negative serial correlation suggests a general bull market in the 6 months after, March 2008 to September 2008.
Even though the 6 month outlook may look good, care must be taken in stock-picking. Some stocks have been captialising very quickly on the current upswing and hence may reach their peaks prematurely before the general market does.
A general way to judge whether or not a counter falls into the above category, is to look at its bottom support (lowest possible price for the moment) and upper barrier (highest possible price for the moment). Estimates can be done from looking at the past highs and lows. The way to use these values is to use them as limits of the counter movement together with, the price where the counter is now. For example, a counter has a bottom support at $5 and a barrier at $10, if it is $8 now, there is lesser upside than downside (+$2 and -$3). If we vaguely put our judgment accuracy at 50:50, then our expected return will be, E(X) = 0.5(2) + 0.5(-3) = -0.5. This means that you probably may not be able to make a good return considering the risks. You should not buy the stock. When E(X) > 0, the risk you take is justified and you have a better chance of success.
Thursday, 17 April 2008
Hovering at a high
The market is up! Opening higher and hovering high today, the market lost a bit of steam at the end to close at 3126.30, up by 38.81 points. The markets in Asia and in the US have been linked relatively closely as I have mentioned before. This part of the world takes the cue from the US and how it closed. The US closed 2% higher yesterday which could have fueled buying today.
I would suggest that this phenomenon is not long lived. Looking at the 3-month chart, the top seems to be near. I do not expect to see the market breaking its previous mark of about 3186.
Tactics we can apply now are, selling to lock our gains and buying them back on the correction. This would be similar to shorting on your own holdings. The rule of thumb to make this profitable is to make sure the difference of the sell and buy price in this "pseudo-shorting" is greater than the total cost of this transaction (sum of sell cost and buy cost). This will give you a higher return than holding on to your current holdings for a longer period (if you are expecting a positive return). Also, your risk is cut when you have "locked-in" your earnings on your gains.
I would suggest that this phenomenon is not long lived. Looking at the 3-month chart, the top seems to be near. I do not expect to see the market breaking its previous mark of about 3186.
Tactics we can apply now are, selling to lock our gains and buying them back on the correction. This would be similar to shorting on your own holdings. The rule of thumb to make this profitable is to make sure the difference of the sell and buy price in this "pseudo-shorting" is greater than the total cost of this transaction (sum of sell cost and buy cost). This will give you a higher return than holding on to your current holdings for a longer period (if you are expecting a positive return). Also, your risk is cut when you have "locked-in" your earnings on your gains.
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