OPTIONS EXPIRATION WEEK RESULTS IN 100-PIP MOVE FOR USDJPY

Last week was Options Expiration Week. And those who attend that FXOptions classes know that Options expiration is a time to look for opportunities to trade forex based on the market moves (Dow or its ETF DIA). Options Expiration typically results in strong move (either Up or Down), with about 70% to the Upside (although it has been Up-Down-Up-Down lately). This week, there were 3 clear "Hammers" on the DIA, which clearly showed (look below) that the path of least resistance was Up on Options Expiration day. And this is what happened with the USDJPY pair. (Note: We used to trade EURJPY instead of USDJPY, but with the Euro susceptible to downdrafts, it was not the preferred vehicle this time round).




















Chief Shook

IS IT TIME TO TAKE A BITE OF THAT APPLE?

Apple, ah, that company which makes the must have iPhone and Macbook. That company which keeps on confounding analysts by growing and growing (like Blackberry behemoth Research in Motion). So is there a way to play Apple by using Options? What about playing Apple by using Options listed on the KLSE? Seems there is. The picture below shows some Vital Statistics on Call Warrants listed on the KLSE - namely Google, Apple and Exxon-Mobil.















(Click to ENLARGE. Source: The Star, 22nd December 2007)

With a conversion price of US$171.50, requiring 1,200 warrants to convert to one mother share, and a last transacted price of RM0.09 (reference price of RM0.08), we come to a "hurdle" price of US$200 per Apple (APPL) share for the Call Warrant to be profitable. Apple traded at US$193. Here's a fact. Apple shares do tend to rise up in January before the MacWorld later that month. And seeing Research in Motion (RIMM) blow away earnings expectations (again!) really gives this trade a good set-up. The Call Warrants expire on July 4th, 2008 providing ample time for profits, provided Apple (and the technology sector in general) performs. Look at RIMM to see how these stocks can soar.....

Chief Shook

WE'RE STILL WAITING FOR THE SANTA CLAUS RALLY ON THE DOW, BUT SANTA HAS ALREADY GIVEN US A GIFT (USDNZD)

The markets took a nosedive after the Fed interest rate announcement, clearly unhappy with the Fed Chairman's decision for a 0.25% rate cut, instead of the expected 0.50%. So did Bernanke become the Grinch who stole Christmas? This is why we play in multiple markets. For as Santa has been quietly holding back on the Stock (and Options) market, he has been magnanimous in the Forex market. The USDNZD has been one of the really clear patterns which has already given us 100+ pips (since my alert on Tuesday and subsequent SMS on Thursday, to FXoptions members). It has been quietly developing a channel for the past one month, and is now clandestinely working its way back up after hitting the downtrend of the channel (which also coincides with the bottom of the Bollinger Band and the 100-Day SMA). So we will have a merry Christmas after all!

(Click on Chart to Enlarge. Generated using Accucharts)


Chief Shook

WHAT IS THE AUSSIE WAITING FOR?

My favourite pair has always been the Aussie Dollar. I think it's the most easiest pair to trade, alongside the USDJPY. But trying to trade the Aussie recently would have given you a case of acute migraine (if you didn't already have one). Looking at the Charts of the Aussie below, the Aussie at the the bottom of what could slowly be a Head and Shoulders formation. But it doesn't look like it wants to break down (unlike the Euro and Cable, which fiddled with the bottom of their downtrend channel before breaking down, in all their glory).











So what's up, mate? Everyone knows about the Aussie's close correlation to Gold, so maybe we should look at the chart for Gold to give us some clues on the impending breakout of the Aussie. It is obvious from the chart of the GLD (the Gold ETF) that Gold is slowly consolidating in what is termed a rising wedge pattern. Gold is waiting to break up to the upside (or downside) once it completes the wedge pattern. Only when Gold breaks out should we see the Aussie finally do something, fulfilling its promise as an easy pair to trade. Intermarket analysis on other correlated assets gives us clues to help in our Forex trades.




Chief Shook

SANTA CLAUS RALLY BECKONING?

One thing about the Stock Market is its propensity to surprise people and catch them off guard, bull and bear alike. So just when everything pointed downwards towards a test of 1370 on the S&P (August lows), the Bulls took control and sent the DOW up for the largest two-day consecutive gain in 5 years. The fact that the Index managed to go up the third consecutive day (for a meager 25 points) was extremely significant. If DOW manages to have shallow corrections (or correction by time), then we could see a year end Santa Claus rally, and subsequent January effect. The charts on the S&P500 show the entire picture. We are not smack at the 200-MA, and are attempting a significant crossover. Going up would mean a rosy picture for stocks, Carry trades, and Commodity currencies, which have seemed to lost a bit of their luster as the DOW tanked 10% (normal correction) the past one month or so.
Nothing beats experience when it comes to analyzing the market movements. On the Monday Morning outlook, Bernie Schaeffer (one of the most respected Options traders) had this to say, “My colleagues, Bob Becks and Joseph W. Sunderman, took a look at the implications of a low ISEE call/put ratio (below 90). In their quantitative study, they eliminated signals that occurred within 20 days of the first signal, due to the tendency of these extremely low call/put ratios to occur in clusters. That leaves a total of seven unique signals. Ten trading days after these signals, the SPY has been positive 86% of the time with an average gain of 1.1%. Thirty days out, the SPY was positive 100% of the time, with the average return being 3.2%. The 90-days period following such a signal is really impressive. The SPY was in the black 100% of the time with an average return of 9.1%. Unless we're transitioning to a bear market, which I highly doubt, this study suggests that it's a good time to be long the market, no matter how gut-wrenching it may be on a day-to-day basis.”

The only roadbump I see ahead is the Interest rate announcement on December 11th. It’s likely we’ll be a getting a rate cut. The issue is: Will the market be happy and take us to greater heights, or will disappointment set in and lead us to August lows. It’s all up to Ben now!

Chief Shook

EURUSD 1.50 and USDJPY 106?

The Euro was within a whisker of 1.50 (it was at 1.4966 before backing off over 180 pips) and yen was steadily going towards 107 until the stock market rally stopped it dead in its tracks. But this happened on a Friday after Thanksgiving when the volumes were low, and stops triggered. We’ll see the real stuff the following week and see if the European fort can hold up against the Dollar. Once USDJPY broke down 108.00 on Thursday, the path seemed to be set for 106, but the DOW’s Friday rise put the Yen bulls in check. This looks like a good trade next week, but we’ll have see where the DOW is going (read the previous articles on the state of the Indices and you’ll understand why). (Click on images to enlarge)








Commodity currencies also seem to be following the path of, well, commodities. As the DOW went up 180 pts on Friday, the Aussie followed suit, with GOLD up $20 to $823. On the other hand, USDCAD also went up, as OIL went down. There also seems to be deteriorating fundamentals on the Canadian economy, as the USDCAD soldiers its way up even the DOW goes up.
I must admit I like the EURUSD and USDCAD right now. The EURUSD seems to be holding its own and wants to hit 1.50, while the USDCAD seems to be going the wrong way (which is good!) towards 1.0000 again. Had the DOW tanked on Friday, the USDCAD would probably be there already.

Chief Shook

WHERE TO NEXT?

That seems to be the most appropriate question to ask now. There was a large 360 pts day the last two weeks on Wednesday. Now it looks like a “dead cat” bounce. Trading was light this past Thanksgiving week, with extremely high volatility. The market went down 200 pts on Wednesday and rose 182 points on Friday during the shortened session. Looking at the charts below on the SPY (Spiders), we look precariously close to breaking the 141 level and challenging the 137 level last experienced in August. I’m not committing to options and equity positions until I see tests of these levels and what the does thereafter. Remember, we have to learn to TRADE WHAT WE SEE, and NOT WHAT WE THINK.



To confound matters further, VIX is also giving conflicting signals. Also spikes in VIX above 30 usually signal market bottoms, the spike we got on Nov 12 looks anything but a market bottom. VIX is well supported by the 20 day Moving Average (MA) and the Trendline which is drawn in on chart shown. An uptrending VIX has a “bearish” bias. This however could be good for FOREX trades – Yen and US Dollar strengthening. In fact, this is what we have been seeing. Only the EURO “anti dollar” is defying the trend.

The question is: With all the pundits waiting for the markets to test the August lows, the market could just go up and defy logic, leaving all the bears in the dust again. Isn’t that what the market is good at anyway?

ChiefShook

OPTIONS EXPIRATION WEEK

This post was supposed to be up Sunday night, but got delayed since my network went haywire. Lets discuss where we are, taking into account of what happened Monday night.
1. This week is Options Expiration Week, meaning that there can be some wild action, so please look for Hammers or Bullish Engulfing patterns for quick rebounds from the depths. If the market fails to recover in the early part of the week, there will be accelerated selling as Put sellers short the futures to maintain a neutral position.
2. Here's the chart of the DIA.

It's retreated 1,000 points from the high as of Monday night. If you look in August, it was when we retreated 1,000 points that we recovered through that the nice hammer. So are we going to get a hammer or bullish engulfing pattern here?
3. The SPY broke support of 144.95 in yesterday's sessions and could be heading lower to test its August lows, if it doesn't make a turnaround soon. This means the Dow could go down a full 300 points lower (Scary but plausible).
4. We'll have to see signals of a genuine bear market before altering any strategies. In the meantime, look for carry unwindings to short the Yen pairs. If you're not into shorting, then buy EURAUD as was recommended before.

For Forex traders, I'd wait for a solid rebound on the Dow before committing long positions on market beta currencies such as long Aussie, Loonie (Commodity Currencies) or long EuroYen and USDYen. With VIX in the higher 20s, things could be like a roller coaster. Already today, just before the market open, the Aussie and EuroYen were going up. Last week, on Friday, these currencies retreating spelt trouble on the Dow later that night. So will the uptrend today portend a recovery on the Dow, especially after a 680-point mauling the past 4 trading sessions? Let's wait and see.....

Rgrds,
Chief Shook

Revenge of the BEAR

After being in hibernation, the dreaded bear has reared its ugly head again. And as I've said before, there's one "market", so everyone was affected:
1. The DOW tumbled 360 points on Wednesday, and carnage has not been abating. It started with Citibank announcing large provisions for subprime losses last weekend ($8b - $11b). Today (Friday), Wachovia owns up ($1.1 billion write down).
2. The US Dollar, which was on a freefall early in the week as Oil made its march towards $100 per barrel, has been coming back with a vengeance. It has retraced also 350 pips against the Canadian dollar (which is levered to Oil); similarly, the Aussie, which touched 0.9400 after the RAB raised interest rates (must be an expensive country, eh?), went down 250 pips. Only the EURO has been spared (another record high today at 1.4750), although it has retraced a teeny weeny bit after setting the record high. Could it because the EURO is a safe haven?
3. Technology stocks, once the darlings of the market and thought to be shielded from the subprime woes, are imploding. The QQQQ ETF has gone down from almost 54.5 to 50. Cisco started the rout by being voicing concerns on the future, ala Caterpillar a few weeks ago.
4. The financials sector (represented by the XLF ETF which stands for Financial Select Spider), continues to get pounded.....and to make it a complete day, it was reported that Mizuho Securities has over Yen 100billion is subprime losses. Seems the contagion is spreading.

I normally do credit spreads this time round, but seeing the high VIX, I'm avoiding them for this Options Expiration week. Rather, I'm looking on selling more Calls against my stock positions.

Next week is Options Expiration week, which will give us clear directional bias. I'd just sit on the sidelines and see how the Dow behaves tonight. We'll either have the following next week:
1. Carry Trade Unwinding (Yen goes up and the financial markets go down)
2. Market going up due to an Options Expiration push above key market levels (in order to render large "Put Options" positions worthless). Under this scenario, the EURO will likely continue its march towards 1.50, as the strength in the EURUSD pair is extremely surprising. It was the last one to break down today. (and even then, it was a small move, and not a "breakdown").

Here's how it goes....The fundamentals clearly favour a weaker dollar. But the US markets are hoping that the Fed lowers interest rates again this December. But the Fed may not be able to do that due to inflationary pressures. The markets were clearly upset when Chairman Ben failed to assure them of this. Hence, we are seeing a return to Risk Aversion. This results in the Yen and US Dollar going up. And the Carry trade unwinding will put pressure the most on commodity pairs such as the Aussie, Kiwi, and Loonie.

Up or Down? You tell me.....It was down last month, up the month before, and down before that. Get ready and fasten your seatbelts!

Chief Shook

GOOGLE IS COMING TO BURSA MALAYSIA!

It was noted in the The Star reported on Friday (November 2nd) that OSK will issue Call Warrants on GOOGLE (yes, that GOOGLE, which is about the best company on earth, although I’m putting my money in VM Ware, thank you). The Call Warrants will have an exercise price of US$680. Since Google is now at US$707, the price of the call warrant could range from anywhere between US$40 and above. At about RM140 per call warrant, even 1,000 shares would cost a whopping RM140K! But it seems our friends at OSK have found a creative way to make this instrument cheaper. You will need 3,000 call warrants to convert into 1 Google share. This gives a reference price for the Call Warrant around 0.11 (11 cents), or saying that Google has to move beyond US$778 to make the Call Warrant profitable. No wonder they're saying the share$850!

Being a Call Warrant, there is extreme Volatility involved. Thus, it is important that when trading this new instrument, we use the same strategies that will be used when buying a Call Option on Google. Look at Google’s chart. It’s obvious that Google is on a tear, only seeing occasional pauses at the 10-Day moving average and when RSI-2 becomes “oversold.” Looking at this chart, Google would make a good candidate for a run-up to Earnings in 2008. But being in Malaysia, the speculators will probably run this up as if there’s no tomorrow! Lets see how ridiculous it gets. For the record, Google has not performed well from November to April, netting a loss of -1.54% from 2006 to 2007. Conversely, it netted gains of 13.84% for May-Oct 2006 and 43.11% for May-Oct 2007.

This invasion of foreign Call Warrants is actually good for the local markets, as it allows us locals to invest in global growth from Malaysia. Hopefully, Google is the start of a wave of "hot" companies from the USA (especially tech stalwarts who are leading the Web 2.0 pack). The Chinese invasion has of course been on our shores for quite sometime, with household names such as Petrochina and China Mobile. Check out the charts for yourself on Stockcharts.


Chief Shook

CROCODILE HUNTERS SLAY CROCS

Why is it dangerous to go headlong into Earnings announcement with a stock that ascending vertically? Here's why: (Charts for stockcharts.com)

Crocs makes one of most trendiest and MOST EXPENSIVE sandals on the planet. Look at them. Cool, eh? And they have a wide range of choices to cater for kids so we parents have money to spend on. But investors of Crocs surely must be feeling the world is against the reptile nowadays. After announcing recent earnings, Crocs fell off a cliff (look the charts above), to the tune of 35%. WOW! It was not about current years earnings, but rather about future guidance which disappointed investors (they might be thinking that this is the end of fad, especially with the growth of Crocs imitators.....Who can blame them? Even I bought a Crocs "imitation" which was 30% the price of the original thing! Doesn't look as good though, I might admit).

This shows the dangers of going headlong into an Event Risk with positions, especially if they are inadequately protected. The plunge would make any Crocodile Hunter proud! Btw, Crocs’ Board has approved a share buyback for 1 million shares…..for obvious reasons (but this is really "chicken feed" compared to EMC's $2 bln buyback, or Allegheny Technology's $500m buyback). Hope we’ll still have the Crocs fad, because apart from breaking my wallet (for the kids), the shoes really look cool, don’t you think? I mean, just look at those shoes. (from the Crocs site, of course)

Chief Shook

IS DRYSHIPS A "GHOST SHIP"

If you are a fan of dryshippers (which by the way is the hottest sector around), you'd probably be aghast last night and saying loudly, WTF ! It looked liked a big crash for Dryships (DRYS) and its brethren, including companies such as Excel Maritime (EXM) and Diana Shipping (DSX). Look the chart below to see the large Bearish Engulfing Candle last night.

That was a 17.5% drop, or a whopping $22.97, to close at $108. But even the other stars were not spared, as Excel Maritime closed down $16 to $63.91, and Diana Shipping suffered $5.63 to $39.19.....Ouch! So what was the culprit. It was actually two issues. The first was an article by the the Financial newsletter Motley Fool questioning the profitability of Dryships in an article entitled "World's Scariest Stocks: Dryships" on Monday (Oct 29th) and the fact that freight rates dropped unexpectedly. Here's what Forbes said,

"Freight rates on cape size ships, which are the largest vessels, dropped unexpectedly on Tuesday, which some analysts say may be a sign that Chinese steel production has leveled off, causing shipping prices to decrease as less vessels are needed. Others said that Chinese steel producers are downplaying the demand for steel by holding off on chartering ships in order to rattle the shipping industry since a decrease in demand for steel would mean a drop in shipping prices."

Let's see whether the stock stablises in the next couple of days. Trying to catch a bottom on bearish engulfing pattern is akin to catching a falling knife. Btw, since the stock was never at its RSI-2 level, you should not have a position in Dryships. Follow the rules.....

Chief Shook

WILL THE CHAIRMAN GIVE US A TRICK OR TREAT?

It's Halloween again! And the question on everyone's mind is WHAT IS THE FED GOING TO DO TONIGHT and how will it affect the markets? The markets have made their demands clear, that they want a rate cut of at least 25bp. But will the Chairman deliver? Your guess is as good as mine.

So how do we trade this? Since this is a very tricky event, I suggest we not even try to anticipate what they're going to do. Rather, it'll be better to wait and see what they do and trade accordingly (trade the reaction to the event). There are only two ways about it: Either the US Dollar goes up (risk aversion) or the US Dollar goes down. The US Dollar going up will be a counter-trend move which we should allow itself to play out. The US Dollar going down has already been priced in and is the current trend. This should bring the AUD and CAD higher, as Gold and Oil prices will rise when the US Dollar goes down. If this does materialise (and we'll only know after 215am tonight), I'll be betting on continued gains in the Aussie. This is because Gold is perilously close to the US$800 level, where there is a high "short level" interest. Breaking above this level will cause the shorts to covers their positions, and send anything related to Gold higher (adding "fuel to the fire"). This would of course, means the Aussie and also Gold stocks such as Goldcorp (GG) and even Coeur d'Alene Mines Corp. (CDE). I'll be all over GG and CDE....Good luck for the next several days. And don't forget, we still have the Non-Farm Payrolls for Friday.

Chief Shook

IS THERE CORRELATION BETWEEN OIL AND PALM OIL?

.....Other than the fact that Palm also ends in Oil? In Brazil at least, when farmers started to use Sugar for ethanol (cars there are powered by sugarcane ethanol), they were able to get a higher price for their sugar feedstocks. In fact, in his book "Hot Commodities", Jim Rogers has said that
In the USA, the use of Corn for ethanol has caused the price of the crop to go up, and affected other industries which use corn as feedstock, as well as a rise in rail stocks (which transport the ethanol). So when Palm Oil may also be used for Ethanol, it makes sense that the price of Palm Oil should track the price of Oil. I've decided to check this out and put together the charts of USO (the Oil ETF) and the spot price of Palm Oil (trade on the KL's MDEX). Here's the result.






















Today(Firday, Oct 26), as Oil briefly topped US$91 per barrel, CPO futures (Dec) touched RM2,819. (so there was correlation today). I'll have to watch this really close, as it could make trading in Palm Oil much easier. We can trade USO through Options, but Palm Oil has to be traded through Futures. This makes it extremely important to know what you are doing with Palm Oil, since you can literally lose everything (and more)! Beware of Gaps.....

Chief Shook

WE THOUGHT HE WAS NUTS IN 1999....

Way back in 1999 (when life was fun as we were all "virtual" millionaires), legendary trader Jim Rogers (partner of George Soros at the Quantum Fund) predicted a major commodities bull run, based on the simple law of "supply and demand." Many ignored him, or derided him - after all, stocks were red hot and even your grandmother could make a killing daytrading. Ah, yes, but then Jim Rogers has been proven right! Just look the charts of commodities such as Oil and Gold, commodities companies such as Allegheny Technologies and Freeport McMoran, and commodities dry bulk shipper such as Dryships. The good news is that Rogers thinks the commodities run still has legs (until 2015 in his book), and that the next big run will be in agriculture. Care about PALM OIL, anyone? (next blog entry will be on Palm Oil and why I think it's a decent play for investors).

Now Rogers has predicted that the best currency to be in will be the Chinese Yuan which he expects to quadruple (its now at 7.5 to the US Dollar). Rogers is also buying the Yen and Swissie as he believes that the "carry trades" will collapse one day. And Rogers is taking this action because he believes the US Government is "debasing" the US Dollar (citing that the British Pound lost over 80% of its value as it lost its status as the world's currency reserve).

Believe him or not? You choose (with the benefit of hindsight of 1999, of course). Here's the link to the article on Bloomberg (titled "Jim Rogers shifts out of Dollars to buy Yuan").

Chief Shook

OPTIONS FOR FOREX

Many people do not know about Options for Forex Exchange. But they are here, alive and kicking! And for that, we really have to find a way to use them, like we use in our Covered Call trades. These are for Hedging purposes. The great thing about Forex is that currencies TREND VERY WELL, and this means that we mitigate one of the problematic issues with Buying Options, which is Time Decay. The Options for Forex which really piqued my interest are the options for the Canadian Dollar (CDD), Japanese Yen (YUK), and Euro (EUI). The options offer a great way of setting a hedge against a position (without the use of hard Stop Losses, although you might want to use Mental Stops).

For example, on Friday we saw the DOW turning down 367 points. Since this represents the risk aversion (money flowing out of stocks to bonds, for example), the USDJPY should go down. But let’s say that we want to protect our position SHORT position since the market has been going up today on Monday 22nd October,but for now, we do not know if this is the real thing or merely a "dead cat" bounce. We have also done our homework and realise that analysts at Daily FX are targeting 111.59 as a target, so we cautiously set 112.00 as our target.

We would then short the USDJPY at 114.13 and purchase a Call option on YUK at 114.50 (expiring on the third Friday of November) at $1. What we have now is effectively a short USDJPY position with a “Stop Loss” of 137 pips. Let's see how this develops and whether indeed our target of 112.00 on the spot will be met.

P/S-I'm currently using Options to play a possible rally on the USDCAD pair. I bought the Nov 98.5 at $0.65, and until now, it hasn't cleared this level after 1.5 weeks. That's the beauty of options, because I would be in deep trouble if I did this using the Spot Forex. This is a speculative position that should yield a quick profit once the USDCAD pair "pops" to the upside, giving us a profit and IV (Implied Volatility) rises. The presence of IVs on Forex Options make them more easier to trade than Stock options, which are susceptible to gap ups and downs.

Chief Shook

LESSON FROM "WALL STREET"

Friday (Oct 19) was the 20th anniversary of Black Monday. And the market really responded by taking out 367 points from the DOW!!! We are fortunate it was not as bad as 20 years ago, although we might be in for a rude awakening this Monday (I think we’re going down, but it will a downtrend in an otherwise bull market). If anybody still remembers, there was also a Movie called “Wall Street”, which was released after Black Monday and depicted the excesses of the 80s. The movie also immortalized the name Gordon Gekko (played by Michael Douglas, who incidentally won the BEST ACTOR Academy Award for his role). Well, Gordon Gekko is now coming back in a sequel to Wall Street titled “Money never Sleeps.” Word has it that this movie will focus on Hedge Funds (it was Corporate raiders using junk bonds in the 1980s). There are sharp lessons on investing to be learned from the portrayal of Gordon Gekko. Here’s the clip.



The lesson is: INVEST ONLY WHEN YOU’RE SURE! And stop throwing darts around (trading for the sake of trading).

Chief Shook

IF THE MARKET GOES DOWN....

I mentioned to my last blog posting (prior to Hari Raya) of the possibility of a Market Crash. Next week will tell whether we’re in for another roller coaster ride ala August 2007. Once again, it could be turbulent until the Fed decides on Interest Rates on Oct. 31st. Does the crash cometh mean we stay out the markets? Nope.

So what do we do if the market tanks (at least in short term)? Here’s what we do:
1. Buy strong stocks at RSI-2 and do covered calls, and set up credit spreads on the weakest ETFs (some weak ones include Russell, Financial Spiders, and Utilities Spiders)
2. Short USDJPY or buy a put option on the Japanese Yen pair (or Short the Yen pair and protect yourself by purchasing a Call option)
3. And if you’re more adventurous (for the experienced), consider buying the EURAUD, which seems to spike when the market is tanking. Here’s the latest chart from DailyFX predicting a rise for the EURAUD. If the market is in for a breather, then we have an Elliot Wave supported by Fundamentals
4. For Malaysian stocks, I’d be in short term mode and look to buy the shares which have rallied recently, looking for a “snapback” once the fear factor diminishes. Some of these stocks are Jaks and Kossan. The rises last week were supported by expectations of growing business (I call it fundamentally based speculation).

Here's the Chart on EURAUD on DailyFX:



Here's the commentary from DailyFX:
"Commentary – The rally from 1.5631-1.6072 is a 5 wave rally, indicating that at leas one more similar rally will occur. In recent weeks, we have showed the long term support line that dates to 1989. As such, the recent turn higher may be a significant one. A small correction is playing out now and fibo support is at the 61.8% of 1.5631-1.6072 at 1.5800. A push through 1.6072 exposes former support (may now be resistance) at 1.6400."

But I’m still bullish overall, although we may need another bailout by Chairman Ben at the end of October. As I mentioned to my broker, we'll have to face and get through a very tough October.

P/S-Fundamentally, if China and India slows down, we’ll be toast! If they go on and grow, there’ll be a big demand for commodities which should fuel the rally for Oil, Steel, Commodities, Drybulk, Aussie dollars, etc. Imagine hundreds of millions of people gravitating to the middle class! The steel and drybulk sectors look good. My calls on Excel and AKS Steel were exercised this month, for a gain of 15.5% and 12.4% respectively. Nice gains on a “conservative” strategy. Go China and India…..

WILL THE MARKET CRASH?

That's what DailyFX thinks. Read it here. And the market charts on the Dow and Nasdaq clearly show a DOUBLE TOP if we do not gap up post Non-Farm Payrolls on Friday. See it for yourself. And we did get a "blowoff top" on the Hang Seng on Tuesday.

Source: Redoption
It's an interesting theory, which says that October is usually a tough month capable to springing up surprises. Let's see if this theory pans out. I really don't care where the thing goes, as I am more of a "hedged" neutral trader.

Tommorrow (Friday) is NFP so the markets will eventually resolve itself and we should be getting some good directional trades. For those of you wondering how to trade the NFP, go here. If if the markets really tank (USD goes up), then it would only be logical to buy the yen all the way down. I'll be revealing my stocks and covered call positions going into tommorrow's NFP so stay tuned.

Chief Shook

MY YEAR END PICK - AUDCAD

This is October, which is not a good month for Stocks. I don’t mind investing in Equities since with Covered Calls and my Credit Spread on indices, I have my downside covered (it’s risk management, remember). But Forex is an altogether different story, and since Currencies trend very well, the affects of time decay should not be so pronounced here. In addition, the leverage from having a spot position should give the Options a good hedge, and make us profitable if we are in the correct trend.

So it was with great interest that I read the the fundamental reason for the possible rise of the AUDCAD pair in the coming months. Click here to find out more.

So what if the USA bombs Iran? Well, then two things will happen. The price of Oil will shoot up, which is good for the CAD. But the price of Gold will also shoot up, which is good for the AUD. The markets will probably have a knee jerk reaction going down, but I think the downside is pretty much contained. So there’s my two cents worth. Lets see if the pair comes in to trigger a buy! See below for retracement to the middle of the Bollinger Band.



Another interesting pair that seems to be breaking up in EUR/GBP. Get the story here. What are the fundamentals behind this? Simply speaking, it’s the rise of the Euro as an alternative to the USD, and the potential problems of the British banks (e.g. Northern Rock). This should be able to send the EUR/GBP up. As usual, use technicals to find a good entry to this one. This pair has the advantage of not being directly tied to the Carry Trade, which can be good thing, since Carry Trades can go wild during unwinding as we saw in August.

Chief Shook

EURJPY-Proxy for RISK

Take a good look at the 2 charts presented here.

They look eerily similar. But the chart on the botton is of the EURJPY, while the one on top represents the ETF of the DIAMONDS (DIA), which tracks the Dow Jones Industrial Average. But why is this so? It is because these two were twins at birth? This is because the EURJPY is currently now the poster boy for carry trades, making it a proxy for risk. As the stock market goes up, risk taking increases, and investors borrow yen to get high returns. Conversely, when the stock market goes down, investors liquidate their yen borrowings, sending the EURJPY down.

So another way of playing the Forex Markets (and Stock Markets) is too look at the Dow Jones Industrial Average (DJIA) and base your trades in EURJPY on the direction of the DJIA. So if you think that the DJIA is going to have its end of the year rally and January effect early 2008, then long the EURJPY. If you think we’re going to have correction (prior to moving up), the go short.

Chief Shook

SHIPPING BULLISH WORLDWIDE

If you’ve not heard it, the Dry Baltic Index (an index which measures dry bulk shipping rates for bulk carriers carrying commodities such as coal, iron ore, and grain) has been rising and setting records lately. China vociferous demand for commodities such as coal and iron have created congestion in ports in from South Africa to Australia. This has caused stocks of Drybulk shippers to go ballistic – look at the charts of Dryships (DRYS), Excel Maritime (EXM), and Diana Shipping (DSX)

On the local scene, Maybulk and Hubline could benefit from higher charter rates. I particularly like Maybulk, since it’s part of the Kuok group known for creating value (ok, so they screwed up on Transmile…..) and it’s part of a transportation empire (yes, including Transmile too). It also packs a generous dividend yield (too bad we can’t sell Call Options for monthly dividends on the KLSE). And compared to the 3 “enfant terribles” that I described listed in the USA, Maybulk has yet to make its run for crowning glory (it’s business is 70% in Drybulk). The new aluminum smelter to built through a JV with Rio Tinto in Sarawak should give a first mover advantage to Hubline.

I also like Alam Maritime, since it’s tied to the Oil&Gas sector and has a pending bonus issue (3-for-8).

Chief Shook

CANDIDATE HIGH BETA STOCKS FOR OCT COVERED CALLS

I like to look for high beta stocks for Covered Calls plays. This is because I believe in the maxim “Buy high, Sell higher” (Say what! Have I gone CRAZY?). I’ll be coming up with my reasons on this on my website, so stay tuned. For the month of October (October 19th expiration), I’ll be monitoring the following stocks for possible entries:
1. Priceline (PCLN) and Blue Nile (NILE) - Two nice retail stocks on the upside. Blue Nile looks like it needs a rest
2. Southern Peru Copper (PCU) - A poster boy for commodities. With the US Dollar tanking, commodities are on their way up
3. Diana Shipping (DSX) or Excel Maritime (EXM) - Diana has a nice Reverse H&S in motion, while Excel Maritime is one that can go up and down fast
4. VM Ware (VMW) - What can I say? An upgrade on EMC (it's parent company) saw the stock rocket up by over $4 today. Analysts says its overvalued. I say, who cares! Wait until it pulls back.
(Note: I had winning results last month on Blue Nile, VM Ware and Dryships. Dryships is in the same sector as Diana Shipping, and since it's ran all the way to $80, I wouldn't be touching that anytime soon).

These stocks have high At-the-Money (ATM) and Out-of-Money Call (OTM) options prices, which is suitable to protect our downside. They are also on a tear, indicating further upside. The fact that some of the stocks have high “short interest” (i.e. Investors betting the stock will go down), only serves to add fuel to fire. I’ll be informing you of the stocks I select for this month’s Covered Call operations in due time!

Chief Shook

HERE WE GO, AGAIN! AND I PROMISE WE'LL STAY.

It’s Sept 20th, and this seems to be the best time to activate this blog, where I invite you to travel in the interesting world of stock investments (in Malaysia and USA), as well as in Options and Forex.

The markets have come through what was a torrid time in August to gain a semblance of normalcy in September, but we really have to go through October unscathed to have a really good year (remember 1987 and 1998?). But I really think we'll be OK since Mr. Bernanke is showing to be quite proactive in avoiding a financial meltdown. Nevertheless, he way we invest should still be cautious, as there might be strong headwinds in the markets.

I am however, bullish on the market. As the saying goes, BULL MAKE MONEY…BEARS MAKE MONEY…PIGS GET SLAUGHTERED (Now some people in the Malaysian state of Malacca might disagree, but that’s a totally different subject altogether). I am a great believer in systems, and believe that if you have the right system, the money will flow, regardless of the market direction. They key aspect in all of this is to have an arsenal of investing tools and strategies which are deployed according to seasonal patterns. These strategies, which employ derivatives or hedged positions, are designed to make people like me sleep (hey, I have a day job too!) every night while still being able to take advantage of the markets volatility. I do not believe in getting it right all the time, I believe that you must be able to make money even if you’re wrong! (But you can’t be so far off the mark…..then you get slaughtered! The markets owe you nothing).

So here is now where we find ourselves. Heading towards the end of the year and the beginning of 2008 could spell good vibes for the market. We have to make to make it through October, which has always been the bogey month, but with the proper application of our trading systems, we’ll be targeting to make a profit while protecting our hard earned capital, and avoid going broke. I admit, my way of investing is BORING, but it makes money from one month to the next, and is the TORTOISE way to riches. Hopefully, we’ll be back to the halcyon days of late-2006 early-2007 again.


So, when do we buy? I have certain rules for buying stocks and options, and other rules for buying forex. To make it simple, I'm waiting for the S&P 500 Index to slide back towards 1495 or 1500 (look left for Support and Resistance areas), notwithstanding the fact that it may make a run towards 1500. This is shown in the chart below (source: Redoption, "Today's market plot", 24th September 2007). If the S&P goes north to 1540, I'll be doing Credit Spreads; If it goes down in 1495, I'll be looking to buy Covered Calls. Simple enough?

CHECK OUT THIS BLOG ON MY INVESTING ADVENTURES!

Chief Shook

SOME THINGS ABOUT HEDGE FUNDS

I was at gathering on Tuesday night by Phillip Capital, who presented on their Hedge Fund offerings (by the MAN Group PLC). The MAN group is the largest Hedge Fund in the world, and is essentially a manager of Hedge Funds (they supervise many different hedge funds which are then put together in a single basket for investors). This is a very interesting arrangement, as MAN gets to then distribute the risk and volatility of their fund performance across many different hedge fund managers. Thus, when a single hedge fund among the portfolio is affected (e.g. Amaranth), the net effect on the entire fund is negligible. Cool.....No wonder their funds have been averaging returns of 13%-16% per annum. This makes hedge funds extremely suitable for investors who have a 5-10 year horizon, for they can compound (like mad!) during this period in the currency of their choice. This could be applicable for a family planning on sending their children for education. And the best thing about the MAN hedge funds for those of you who are risk averse? It's CAPITAL GUARANTEED.

Hedge Funds are also vehicles which go after ABSOLUTE returns (vs. RELATIVE returns). As was explained by the dudes from MAN, they typically make less than other funds (e.g. mutual funds) in a market bull run, but they usually still make a return when the market goes down. It goes without saying that throughout the overall life of the fund, the Hedge Fund trumps mutual funds easily. Unfortunately, the average hedge fund is not accessible to the man on the street. Their clients are usually institutional investors and high net worth individuals. All in all, it was very informative session on investing.

I also got two tips about FOREX. The first is why my stops keep getting blown out the water on the USD/CAD pair (I finally know why and an experiment today confirmed what was going on!). Another aspect was looking at MAN's composition of their portfolio. Guess what the largest asset class was? CURRENCIES! This was almost a quarter of their portfolio. So if you haven't got currencies in your portfolio, you're REALLY MISSING something!

In the meantime, our investors' infatuation with Call Warrants show no signs of abating. The Public Bank Call Warrants were listed today (reference price RM0.36 with a strike price of RM9 and a conversion ratio of 2-to-1). They ended their maiden day at RM1.17. What does that mean in simple layman terms. The Call Warrants are WAY OUT THE MONEY as their conversion ratio would imply a share of RM11.34 for Public Bank (RM9 + RM1.17x2). So unless Public Bank starts moving soon, a lot of people may get burned - like 100% burned. And maybe that's where the smart money is, just waiting on the sidelines getting ready to pounce!

Till next time.

Chief Shook

SECRET's OUT! IS THE CALL WARRANTS GAME OVER?

It used to easy. It was so easy to make money on this one. You bought a Call Warrant when it was first listed on Bursa, kept it, and watched it go up 25%-100% in a month. People who know me know that this was my modus operandi. Not all of them agreed with my methods, but I was laughing all the way to bank while many got caught holding speculative stocks (in a Bull market, which really doesn't make sense). It was supposed to be another raid on the Call Warrants yesterday, specifically the new Genting and Bursa (CBs). I argued that since investors really didn't understand these instruments, they'd bid it UP (high Implied Volatility, in Options parlance). I argued that our investors are still in love with "penny stocks", and what better penny stocks than KLK,MISC,Tenaga,YTL,Resorts,Genting (makes you salivate, doesn't it?) etc. Hey, basically, we got a party!

THE ROOF CAME CRASHING DOWN YESTERDAY. I didn't manage to get my hands on Bursa and Genting Call Warrants. The bulls took it to over $1 for Genting and $2 for Bursa (they've pulled back a bit today, with Genting CB at RM0.935, -0.05, and Bursa CB at RM1.63, -0.02), . Are these guys nuts! Don't they understand the conversion ratios? Anyway, maybe the easy money in these instruments are gone, and we'll have to be more patient on a pullback (which always results in a "carnage" since these are highly leveraged instruments).

In the meantime, lets wait for Public Bank and Maybank Call Warrants.

There are also THREE IPOs which I am applying for: Boustead al-Hadharah REIT (0.99), PanTech (1.18), and Dufu Technology (0.70) (sounds like Star Wars, doesn't it? Count Dufu instead of Count Duku.....). I abhor REITs but felt I had to go for Boustead since its the first plantation REIT. Pantech is involved in Oil & Gas (good according to Feng Shui Masters) and Dufu is in the Electronics Industry. Not my favourite, but what the heck. Gotta put money to work!

Rgrds,
Chief Shook

IT'S ALIVE, AT LAST

Finally, after hours of constant struggling (I'm not a programmer, mind you, and I must be dumbest guy I know of in HTML), the website Onlinetrading188.net is up and running. I'll be building links and a host of other things in the next few days in order to give the Blog and Website the same "feel", at least in terms of topics we discuss, which will revolve around Forex, Options (international equities), Local Equities, and Mutual Funds.

The screenshot is shown on the left.


OnlineTrading 188 will feature resources and articles on alternative investment assets such as Forex and Options. On the site now is the FREE Forex Course. Coming soon are the FREE Options course, an e-book on Tax, Options and Forex. The idea to provide pre-training through the Web is have potential students learn up the basics first before attending real classes. I just can't believe in charging people RM3,800+ for a course of Forex and Options. Better use that money for trading capital. So why is our training different? Go find out on the site!

The idea behind all this seemingly craziness is simple: WE NEED BULL MARKET TO MAKE MONEY. Although you can make money in sideways markets and Bear markets, it's not that easy (and neither is it that fun). By spreading my investments in many different types of market, I am ASSURED OF AT LEAST ONE BULL MARKET. This means that I will perpetually be having fun. Good deal, eh?

This is the START OF THE JOURNEY, so I'm quite excited. See you again, and let's drink to ONLINE TRADING 188!

Chief Shook

A JANUARY EFFECT IT IS

Both the Dow and KLSE blasted up north this week. So we do have a January effect, now don't we? The Dow ended at 12,556 (a new closing ALL TIME HIGH, which I'm sure we'll see be taken out next week) and the NASDAQ closed at a 6-year HIGH of 2,502. The NASDAQ is leading the rally, and this is even being felt at home where analysts are trying to prop up chip stocks here (Unisem, MPI, etc.). What was more impressive about Fridays rally was that it came on the heels of APPLE being sued by CICSO and a warning from AMD. Looks like even bad news can't stop the BULLS. Larry McMillan even mentioned that the bulls once again stole the show despite the S&P500 being close to breaking down its uptrend channel. The US Dollar fell against the Euro and Cables, although it did initially went up after the release of the Retail figures (got caught on that, bummer. But it was a good week for currency trading anyhow).

The KLSE closed at 1,119 and will most certainly blast through the 1,121 high. Its quite unfortunate that we're a laggard and still far away from the 1330 points set back 13 years ago! Just hope the party doesn't end soon (I have my own ominous thoughts on these), because WE'VE JUST STARTED HERE! Helloooooooooo.....Next week is Options Expiration week, so we should a slightly upward bias to the DOW (which means we'll probably see an upward bias to the KLSE, too).

I was still stuck in trying to get the Website out. But now all problems have been resolved and I'm looking at Tuesday, 17th January, as the date to launch the site. I'm still building the FREE Options and Forex training courses, and we should be able to see it online by January 22nd 2007. Sorry for the delay, as I realise that there has been a lot of DEMAND for these services. I'm not a technical guy, so it really took some time to understand the Internet thing. On the other hand, distributing these services without the Internet would have been a great NO-NO (I would die of exhaustion, seriously).

Cheers!

INTERNET ISSUES RESULT IN EXECUTION RISK

Execution Risk - The inability to execute your trades. As long as the lines to the USA aren't fixed yet, we might be facing an execution risk on our trades. True, not trading is costing us in terms of opportunity costs (and maybe some losses because we can't hedge), but that's the price one has to pay for a global trading environment. I was panicky two nights ago as my trade on the Aussie/US forex pair did not go through (instead, Firefox conveniently hung up and the Internet line was too slow - and Firefox is the BEST, mind you). Luckily it was a practice account.

Hope that the earthquake in Taiwan is a one-off thing (you wouldn't think so if you're watching the National Geographic channel, though). Telekom says 50% of the lines are restored, with 80% to be restored by Jan. 12 and 100% restoration by Jan. 20th, 2007 (read it here). I'll drink to that! In the meantime, stay tuned for the launch of onlinetrading188.net! (yawn, I know it's been delayed, but is really due to "technical" problems, which of course, inevitably can be traced back to humans!)

WE'RE ALIVE AGAIN AND A GOOD 2007 TO EVERYBODY

Well, it's almost a week after the Taiwan Earthquake hit and it looks like we're coming back alive, albeit slowly. Better than nothing though, as the Internet in Malaysia crawled to a standstill during the first two days. Shows that we need a better Disaster Recovery Plan (maybe other links than the current ones we use which are in an earthquake prone area). What happened was downright catastrophic as connections to FXCM, Easy Forex, Options Xpress, and Think Or Swim completely broke down. This prevented us from trading except on Friday. No hedges were able to be put in, so I'm looking at Wednesday (3rd January 2007) for this. But life goes on and hopefully we'll be up and running again this week.

At these times, I really wish GOOGLE had an online trading service (they can do anything and be a monopolistic, for all I care), since they were the ones to get their systems functioning after the Quake. The rest still struggled, and Yahoo!'s service was intermittent (Good try, though).

A Happy New Year for 2007? I'm not quite sure, and I must agree with Kadir Jasin on his take for the New Year (read it here, its titled "Tiada ucapan tahun baru Buat Anda."). Things are not all that rosy down here now and from reading the blogs, you can clearly see that we're facing 2007 with no end in sight for the increases in basic necessities (food,fuel,electricity,water,tolls).

Well, it's really hard to control the external or other factors which have lead to the inflationary pressures. I do see that housing loan rates are going down, although the housing market is slow.
In the meantime, let's hope for a volatile market in 2007 to make money from.

In the meantime, anxiety or not....HAPPY NEW YEAR and soon to be CHINESE NEW YEAR, too!