Location: Singapore

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"The market is a treacherous and fascinating game. I am a player and this is the quiet place i go to pen my thoughts and emotions."

Monday, July 31, 2006

Journal: Note to Self

JournalSuntec: sentimental/proxy play for IMF Singapore Meeting. Starts 14 Sep Ends 20 Sep.
STX: proxy for world trade, correlation with BDI and interest rates.

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Thursday, July 13, 2006

Chart: Landwind

ChartLandwind broke out of its month-long downtrend on high volume and price increase. This is obviously a good sign. However this was an overdeviation from the mean. The price retreated back to touch the short-term uptrend line after hitting the resistance line at 0.525.

The 7 day MA would be a good measure of support. I suspect the 0.525 resistance will be tested again soon.

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Sunday, July 09, 2006

Perspective/Chart: What does it mean to be "oversold" or "overbought" in technical analysis terms?

PerspectiveChartWe all read and hear about the terms "oversold" and "overbought" a lot. "This stock is oversold. Going cheap. Time to buy." "That stock is overbought. Too expensive. Avoid or sell."

Oversold and overbought conditions are defined by oscillators. Oscillators, like the Stochastic, MFI and Williams %R, measures where the level a price is compared to the past XX days. The TA user specifies the number of days(the default is usually 14 days).

I will use the Stochastic as example here:
The Stochastic measures where the closing price is compared to the past XX days' highest price and closing(lets take XX as 14 days). So when the Stoch is at the "oversold" region of the lower 20%, it means the closing price is very near the lowest price of past 14 days. When the Stoch is at the "overbought" region of the upper 20%, it means the closing price is very near the highest price of past 14 days.

That is all that it means. Reading into it further(like say, going "This means it is too cheap! Time to buy." or "This means it is too expensive. Avoid!") is a fallacy.

The cliche "The cheap will get cheaper, the expensive will get more expensive" demonstrates this fallacy aptly.

Let us take a look at a chart now:

As we can see, during the period the price was "oversold", the price continued to plunge 33%(cheap will get cheaper). And during the period the price was labelled "overbought", the price continued to soar by 16%(expensive will get more expensive).

There are 2 point we can learn from this:

1. We can use the Stochastic as a "momentum" indicator.
The reason why the oscillator pointed to "oversold" for such a long time was because the price kept being the lowest everyday compared to the past 14 days. (ie. the downward momentum has not reversed)

2. We can use the Stochastic as a "reversal" indicator.
The proper use the Stochastic is as confirmation of a reversal. When the Stoch rebounds from the lower 20% mark, it is a sign of a bullish reversal. Time to buy. When the Stoch rebounds from the upper 20% mark, it is a bearish reversal. Time to sell.

Of course, this is not a foolproof method to buy or sell. Notice in the chart, between the blue arrows, the Stoch rebounded from the lower 20% mark. Time to buy. But the price did not soar later. It is a failed break. Did you have your stop-loss in place?

I hope this has been helpful.

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Friday, July 07, 2006

Chart: Luzhou Revisited!

ChartGoody! Another request from you guys!
Please keep them coming.

Tracking the common rebound theme in most China stocks is Luzhou as well. I do not know much of the stock fundamentals but it looks like the corn starch/ethanol interest is still alive and building up. I can hear Bush live on CNBC talking about ethanol right now as I type.

On to the technicals:
The uptrend has been unbroken and volume has been steady.
A major resistance that needs to be broken is 0.92. I expect the price will waiver around this level.
MFI is climbing nicely. More money is coming in than out.
Stoch is in the "oversbought". Many people tend to see stoch's "overbought/oversold" regions as indicators to buy or sell. This is a fallacy. I will write more on this later.
Current the price has overdeviated by 2 standard deviations. If you are interested in buying, I suggest waiting for a fluctuation back to the trend line - buy on dips, do not chase the price. When the price has fluctuated up too much, it tends to come back down.

Hope this helps!

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Perspective/Chart: The Current Common Theme

PerspectiveChartThe analysis of Hengxin's chart prompted me to notice a common pattern that has emerged in the current week. Some of the stocks I monitor have displayed a common breakout pattern in the form of the cup and handle formation.

The psychology of the cup and handle formation can be explained as such:

It is a good example of matching sentiment with chart patterns. It starts with a huge selldown from a peak. then it consolidates and subsequently runs up again till it hits the previous peak. This is the cup. After that, it goes into a sideways motion, often slightly downtrending. This is the handle. Finally it runs up again, completing the cup and handle formation.

Why will the price retreat into a sideways motion after hitting the previous high?
Ah, this is the memory of price. buyers from the last peak and selldown finally saw that they can breakeven after holding for so long and starts to sell. This breaks the uptrend for a while as the buyers start to reconcile with the sellers until the sellers are satisfied with. Then, the uptrend resumes.

Here are some of the current charts displaying this formation:

This formation has been present in many of the china stocks. Open out your ChartNexus software and try to spot them!

Hope this helps!

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Wednesday, July 05, 2006

Chart: Hengxin revisited once more!

ChartBearing in mind the little chart requests I get, Hengxin is quite popular. The last time I had a request for this stock was from mininvestor, when the chart was on the verge of a breakdown. Well let's take a look at it again:

Now it is quite the opposite, the chart shows that Hengxin may be on the verge of a breakout! A writeup on Hengxin can be read here by Niversphere.

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