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