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WIN Investing: Who Is Going To Pay For It All?
WIN Investing: Who Is Going To Pay For It All?
WIN
March 2009
INVESTING
MONTHLY NEWSLETTER
NEWS, EDUCATION AND RESEARCH FOR THE INVESTOR
Gold 5
Introducing this month’s newsletter …..
Currencies 6 When it comes to trading, many people look means you would be making 30% every day!
at the end result of how much money they Of course you can make 30% in a day, but you
The virtual fund 7
want to make each year (and often these would be overleveraged in order to do it and
projections are entirely optimistic!). What you only have to have a bad day and you have
The market scans 8
they should do however is to chunk that year then gone and lost a bucket instead!
end figure down into a weekly or even daily
Stock Watch 9 amount. If you have a small account and can only trade
10 featured stocks £1 per point, what is a realistic return for
So for example, if I wanted to make £50,000 that? £20, £30, £50? I’ll leave it to you, but
Bonds 13 from spread betting this year, that means I this type of planning helps you to be a much
would have to make around £1000 a week more consistent trader.
or £200 every day. Take into account periods
Timeframe analysis 14 when I’m not trading (holidays etc) and I This month’s feature articles include trading
would realistically need to be making £250- bonds, a second look at timeframe analysis
£300 a day. plus we look at the psychological side of giving
It’s Best To Avoid the Thrill 15 in to temptation. All this plus much more
of The Chase Ok, that gives me a daily target that I need to make this month’s newsletter a must read.
achieve but I now need to ask myself if it’s
Bears and Bulls Leave Foot- 16 achievable? For instance, can I regularly Have a great month
prints make that amount of money with an account
Kevin, Kym & Dale
size of £1000? It’s highly unlikely as that
Volume 10 Issue 3 Page 2
News
The News Headlines
(Continued from page 1) I was pretty surprised to be driving past an
IKEA outlet to see the car park absolutely full.
The fear in the
The governments have also got to recoup We had to investigate, as surely this kind of markets has resulted
their spending. This will no doubt be in the business is only generated in boom times or
form of stealth taxes. There has already been when they are giving something away for next
in the volatility that
a bill submitted in the US to impose a tax on to nothing. But no, there were no sale ban- has ensured day
trading stock, options and futures. This is in ners or anything else beyond their normal
the form of a 0.2% tax which is expected to cheap prices, but there were queues at the trading opportunities
raise $150 billion a year. It is not believed to tills.
affect the smaller traders much, but overall it
might reduce some traders appetite and re- This follows on from discussion with some
sult in less liquidity. local tradesmen. I was expecting them to tell
me how bad things were, but instead they
Whatever, once again it is the general public were telling me how much work they have.
that picks up the bill either directly or indi- What this leads me to, is that we are likely to
rectly. The difference with this bill is that we see a growth in people staying put and im-
and our children may be paying it for many proving what they have. This means the DIY
years ahead. stores may actually start to fair better provid-
WHEN FEAR PROVIDES OPPORTUNITY
ing they target the right market and do not fill
their store with expensive garden furniture.
I mentioned in our January issue that 2009
was going to be a great one. Well the contin- The lower priced stores are already showing
ued volatility in the equity, bond and forex the best results and may well clean up here.
markets has been well received by us. Whilst In food, Domino’s and Kentucky are seeing
on face value these markets may look bleak, large growth in sales and the car park at
trading them has been awesome. Micky Macs look much fuller again, as cost
rather than healthiness dictates choice. If you
If you are still trying to swing trade or invest are looking for buying shares for the mid
for the longer term, it might well worth con- term, these may be worth considering.
sidering trading over a smaller time frame.
THE AIG DEBACLE
Whilst the huge ranging days we had experi-
enced in October and November last year There has been much in the press recently of how
have dissipated for now, there is still plenty AIG has had to be rescued four times. The last
of range. bailout top up was for $30 billion taking the total to
over $150 billion. The name AIG will
As we see the main markets hit multi-year go down in history, not
Whilst there is an unsurprising outrage from many
lows, you can almost smell the fear. I was smaller companies, that can not get credit lines,
talking to a fellow trader recently who also there is a logical reason for it. AIG was foolish for sponsoring
had picked up on this. At times like this we
should see some good opportunities for a
enough to insure the banks against credit defaults.
To allow AIG to fall would equate to a potential
Manchester United or
reasonable bounce or relief rally. With the implosion of the banking system, as the end bene- being the biggest
markets so far away from their 200 day mov- factor is not the company itself but the banks. In
ing averages ( 10 months for the Dow, S&P effect it is the fall guy for the bad press. insurer in the world,
and FTSE and 7 months for the NASDAQ), we
are certainly due a rally. Whilst AIG undoubtedly was reckless in taking on but for being one of
the amount of risk, the credit agencies were proba-
bly entwined in the deal.
the worse run
Personally I do not believe we have seen a
bottom to this bear market yet. It may come All in all, the name AIG will go down in history for
companies. Glad I left
in the form of a number of low volatility days, not being the worlds largest insurer, but instead them in 2001!!!
where no one wants to sell, yet do not have for being one of the worse run companies, along-
the initial desire to buy. Just like a rabbit in side the likes of Enron and Fanny Mae and Freddie
headlights, scared to move either way. The Mac. It is probably unjust that the ratings agencies
moves on the way certainly make trading such as Standard & Poors and Moody’s are left
rewarding. untouched, as they provided the high ratings to all
the trash in the first place. Right better get off my
BOOMING BUSINESS Kym Watson
box now!
Volume 10 Issue 3 Page 3
UK 0
Feb‐08 Apr‐08 Jun‐08 Aug‐08 Oct‐08 Dec‐08 Feb‐09
It’s no surprise to hear that financial conditions remain difficult. This
month saw a new round of poor bank earnings results which did
nothing to help peoples perceptions of the state of the banking sys- UK Unemployment
7
tem, which is in even worse shape than previously thought. And
whilst the banks soak up the blame for the current crisis, media at- 6
tention has switched to individuals and their bonus and pension
plans to vent frustration. The realities that we face every day though 5
are that the governments 5-point plan has so far had little impact on
the markets or the economy as a whole. The lack of lending to busi- 4
ness continues to be a major barrier to growth, and despite public Mar‐08 May‐08 Jul‐08 Sep‐08 Nov‐08 Jan‐09
announcements this is being addressed, it appears this is not im-
proving where it counts. Concerns over things like inflation (currently
running at 3%) seem a distant memory especially as it is predicted to US Interest rates
fall well below the 2% target in the medium term. Concern weighs 5
more heavily on prospects for economic growth. Interest rates are at 4
a 400 year low, and tomorrow 5th March we find out if they will go 3
lower still. GDP is down 1.5% in the 4th quarter and 1.9% down year 2
on year, unemployment is up and pay growth is down, so the road to 1
recovery could well be a long one. 0
Nov‐07 Jan‐08 Mar‐08 May‐08 Jul‐08 Sep‐08 Nov‐08 Jan‐09
US
The indices
There are currently two downward sloping trend channels
running on the Dow. The first is on the weekly charts Dow Jones 30
where the lower trend line can been drawn from Octo-
ber’s and November’s lows and the upper trend line runs 9500
parallel from the October high through to the January
highs. The Dow has been working its way to the lower 9000
reaches of this channel which is currently at 6350. 8500
The second trend channel is the one which can be seen 8000
on an hourly chart of the same index. This has been 7500
tested on both sides several times and is well worth keep-
ing on your charts (if you have true cash market charts, 7000
not spread bet charts). This hourly channel will get broken 6500
at some point and considering it is downward sloping, its
likely to break to the upside but if price comes down to 6000
the lower trend line again, that would likely coincide with 01/12/2008 01/01/2009 01/02/2009 01/03/2009
the weekly trend line as per above so that would be very
interesting indeed.
(Continued on page 5)
Volume 10 Issue 3 Page 5
The McClellan Oscillator has been near extreme levels FTSE 100
which last produced rallies of several days or more but
from a technical perspective the markets may want to 4700
challenge trend line support as suggested earlier. Cer-
tainly if prices get down to those levels, I will personally 4500
be very interested in looking for a counter trend posi-
tion. 4300
The Dow has now been falling without anything more 4100
than a one day rally for 18 days now so we are likely to
see a bounce soon, but starting from what levels? The 3900
lower range of the weekly trend line is currently around
6350 and the projection from the triangle pattern we
3700
had gives us 6000. These levels should be close to a
low. We will then just need to look at the sentiment if/
3500
when we get there.
02/12/2008 02/01/2009 02/02/2009 02/03/2009
Gold
Gold managed to rally to the psychologically important
$1000 level last month. It then posted two doji candle- Gold
sticks and has subsequently sold off back to its 50dma.
This could be an area where a bounce signal develops so 1050
I will use a combination of price action plus a stochastics
indicator that I will cover in an article for establishing any 1000
swing trade position.
950
In the longer term, the weekly chart makes gold's rise 900
still look too steep so should the yellow metal start to
rally in the coming days, traders should be wary that it 850
could roll over so they would need to stay nimble.
800
You can draw a trend line across the lows on the weekly
750
chart and should this be penetrated, another leg lower
could be assumed and then I would be looking for short- 700
ing opportunities…. 10/30/2008 11/28/2008 12/29/2008 01/28/2009 02/26/2009
Kevin Burton
Volume 10 Issue 3 Page 6
Euro
The euro has been flirting with the 1.2460 level for a couple of sessions now. Overall the traders sentiment as shown by the
COT report, would suggest that the shorts are reducing which we would have thought would have translated into a bounce
against the dollar. This has yet to happen but the current pattern may suggest it is not far away. Now that the base rate has
been cut (to 1.5%) this may be seen as a positive for the economy and consequently the currency.
Key support levers currently sit at 1.2428, then 1.2304. Resistance sits at 1.2732, 1.2885 and 1.3009.
Yen
The yen has lost some ground across the board, but particularly against the dollar., weakening by 12 yen (13%) over the last
six weeks. The previous strength was largely built on the unwinding of the carry trades and possibly the belief that Japan may
weather the storm better than others. Reality has hit home, there is not going to be any country that misses out on this one.
The only thing here is that the carry trades are unlikely to be built back up, as interest rates of all the traditional ‘safe’ coun-
tries wind down to 0.5 or less. This may in effect put a ceiling on the yen.
Key support sits at 95.09, then 93.48. Resistance sits at 100.05, 101.36 and 103.24.
Kym Watson
Volume 10 Issue 3 Page 7
Looking at the top sectors, it is no surprise to 10 Regional Mid Atlantic Banks Kym Watson
Volume 10 Issue 3 Page 8
Stocks
HMY
Current 11.43
P/E 23.31
PEG 0.34
Sector Metals
% Price growth
1 month -4.08%
6 months 38%
Support 10.20
Resistance 13.00
Outlook watch
Considering the current market environment and where we are in the current leg down, it is best for most swing traders to stand on the side-
lines and paper trade or trade with very small positions. HMY has pulled back to its 50dma and formed a reversal candle. A close above the
high of this should result in higher prices thereafter towards recent resistance.
P/E 5.16
PEG 0.29
Sector Wholesale
% Price growth
1 month -21%
6 months -64%
Support 10.83
Resistance 9.50
Outlook Watch
This stock is in a steady downwards trend although it is now at support levels from late last year. Should it bounce off this potential double
bottom, look for a close above the 8 day exponential moving average. Should it manage this, a counter trend rally could establish itself push-
ing prices up to test the $13 area in the first instance.
Volume 10 Issue 3 Page 9
Stocks
TRK
Current 10.70
P/E 7.22
PEG 0.97
Sector Leisure
% Price growth
1 month -24%
6 months -49%
Support 10.50
Resistance 11.48
Outlook Watch
This stock is in a steady downwards trend although it is now at support levels from late last year. Should it bounce off this potential double
bottom, look for a close above the 8 day exponential moving average. Should it manage this, a counter trend rally could establish itself push-
ing prices up to test the $12 area in the first instance.
P/E 12.27
PEG 0.55
Sector Telecoms
% Price growth
1 month 27%
6 months 65%
Support 36.60
Resistance 42.30
Outlook Watch
Ahh, the darling of day trader’s stock picks over the last several years! RIMM is consolidating in a sideways range on the daily charts so look
for a breakout in either direction for an potential move at least the same distance as the size of the consolidation.
Volume 10 Issue 3 Page 10
Stocks
COF Current 8.77
P/E N/A
PEG
Sector Finan-
cials
% Price growth
1 month -38%
6 months -76%
Support 8.50
Resistance 15.10
Outlook Watch
Capital One has the potential to establish a stick sandwich candlestick pattern on the weekly charts. The way that it has established itself
would imply a break to the downside so watch the weekly chart for a potential breakdown below the support levels we have given.
MOS
Current 40.09
P/E 5.08
PEG 2.12
% Price growth
1 month 10.59
3 months 47.97
6 months -56.83
Support 37.50
Resistance 44.40
Outlook Watch
break
Mosaic’s stock price has made a reasonable recovery since late November after having fallen from $163 to $21.94 (86%) in just 5 months.
What we have seen recently is a number of lower highs and higher lows, thus a triangle has formed. It is difficult to know which direction it
might break, so we would leave it to break and then pull back to test the line. At this stage either a long or short position would be taken. The
target would be around $10 in normal circumstance. With the markets as volatile as they are at present an initial $2 target may be wise.
Volume 10 Issue 3 Page 11
Stocks
DSX
Current 12.09
Sector Shipping
% Price growth
1 month -11.5
3 months 65.75
6 months -53.51
Support 10.00
Resistance 13.00
Outlook Bearish
Having made a reasonable recovery after losing over 60% of its price, we have seen a further sell off in Diana’s stock price.
However, in the last few days it has made a small recovery forming a bear flag. A break down from here may give us an entry
with an initial target of $1.70. If it runs a little further up we will wait until we get a reversal in the key moving averages above.
If it breaks through these we would step aside.
NSANY
Current 6.45
Sector Auto
% Price growth
1 month 5.44
3 months -4.48
6 months -58.71
Support 5.80
Resistance 6.60
Outlook Bearish
Along with the rest of the motor sector we have seen Nissan’s price fall quite hard. More recently it has made a partial recovery
running into the 50 day moving average. We have been left with a hanging man, a break of the bottom of which would give us
a short position. Our first target would be around $5.80. If we get a continuation up, we would stand aside.
Volume 10 Issue 3 Page 12
Stocks
SCSC
Current 14.77
Sector computer
% Price growth
1 month -21
3 months -1.45
6 months -50.50
Support 14.70
Resistance 19.80
Outlook Bearish
ScanSource’s stock price has been in a strong downward trend since late January. More recently we have had two up days
which were inside days to the previous down bar. This has been followed with a further down bar which has closed lower than
the previous low. This pattern is similar to what I refer to as a bedstead. We might short it if it breaks the low of the last bar
and look for a target of around 70cents. If it breaks upwards and takes out the high of the last bar we would stand aside.
QLGC
Current 9.56
Sector Circuits
% Price growth
1 month -17.49
3 months -9.80
6 months -49.25
Support 8.82
Resistance 9.79
Outlook Bearish
QLogic Corp’s stock has been in a strong downward trend until recently when it has out in a bear flag. This coincides with the
10 day moving average which has been the resistance for nearly two months now. The last bar is a spinning top which might
suggest a change in direction. A break of the bottom of this level might give us a short position with a first target of around 50
cents.
Volume 10 Issue 3 Page 13
Education
It’s Best To Avoid the Thrill of The Chase
Entry into a position is an important skill to develop when learning to trade effectively. There
are two common mistakes made in getting into a position, and both can lose you money.
Don’t give in to temptation and chase an opportunity that has already passed you by— by—
I’ve done it. I'm willing to bet that if you’ve ample the trade triggers, but you have missed
done any amount of trading that you’ve done the entry, it’s ok to re-assess the chances of Buying or selling a
it. In fact I’ll happily bet ALL traders have donetaking the trade on a pull back, but you
it at some point. should consider how far past your entry the
stock with upward or
price has moved before the pull back occurs. downward momentum
You know the feeling!! You’ve been watching In my trading plan, most of my setups have a
for a particular setup or price action in order pre-defined initial target. If I miss an entry is usually a good
to give you an opportunity to take a trade. point, and price reaches my initial target, and thing. But, if you
You’ve been waiting hours, maybe days or then falls back into my entry range, I would
even weeks for this chance to take a trade, NOT take that as a chance to take the trade. miss your initial entry
and here it is, a perfect setup. However, at the This event could be a “Fallen Star”, and is
moment of truth you are (select your favour- something to be avoided.
it may be best to let it
ite), walking the dog (my dog has cost me a go. Be sure to consider
fortune), on the phone, in a really interesting A fallen star occurs when an instrument
business meeting, or any number of other meets your setup criteria, triggers and heads
how far it’s moved be-
things that mean you miss your perfect entry. off in your intended direction, and makes
So, what do you do now??
fore thinking about
good headway only then to fall back into the
area where you felt there was a trade on. The entering the position
You could chase the trade and take it anyway, temptation is to use this as a chance to re-
even though it’s moved some way past your take the position. In this instance, if the initial
on a pull back to your
ideal entry but this is one of the two most move has already made your first target, and original entry zone.
common ways in which trade entries are then retraced, there’s a chance that some-
messed up. The other mistake many people thing has changed and maybe the move has
make is to anticipate a move before it has lost momentum.
triggered and get into a trade too early. Know-
ing how NOT enter a position is just as impor- It’s human nature ( a curse for traders) to re-
tant as knowing how to enter one. gret missed opportunities and want to have
the chance to make up for the “loss” of not
It’s important that when you’ve made a trad- taking their perfect setup. Chasing the posi-
ing decision based on your plan, that if your tion is one of the most common causes of
entry is missed you don’t chase after it, de- losing money at the point of entry into a trade.
spite the temptation. It can be really frustrat- But, if you've missed the move, it’s much bet-
ing to watch the market run away from you ter to let it go, there will be another one along
after triggering your set-up, but it’s more frus- soon enough and remember, the pain of
trating to watch it, and watch it some more “missed money” is much less than the pain of
and then when your emotions kick in and you lost money.
HAVE to jump on-board, watch the price imme-
diately reverse! As part of your trading plan then, it’s essential
to build clear rules about how you will enter a Fallen stars should be
This doesn’t mean you can no longer take the trade, but equally importantly how you will
trade, and you should consider another way to NOT enter one. When testing your strategies, avoided as they suggest
get into your original position cost effectively. think about what your initial target will be that an initial move
So, rather than just diving straight in, (a deci- whether that’s in terms of a number of points
sion based on emotion), re-evaluate what’s in the chosen direction, or a percentage of the has lost momentum
happening from the comfort of having no value of the stock and then determine that if and the balance of
money at risk, and see where price would you miss the entry, and it moves beyond your
need to move in order to give you another bite first target, you will have the discipline to pass power has shifted.
at the opportunity. that trade up and wait for the next one.
This is where it’s important to have a very well The words in the song, “Catch a fallen star
defined trading plan for your setup. If for ex- and put it in your pocket” cut no ice in trading! Kevin Burton
Volume 10 Issue 3 Page 16
Education
Bears and Bulls Leave Footprints
As traders the hardest part of our job is watching for signs that clue us in to potential moves,
and then acting on them. Consolidation can provide strong clues as to when the market is
ready to move.
Stock charts can be seen as footprints of trad- battle. Whoever wins the battle often defines
ers’ emotions. The more difficult part of our the direction of the next significant move. A bearish reversal be-
job as traders is to identify when a change of Learning to recognise these “battlefields” gins with the bulls
emotion can move price so we can profit from puts a trader in a strong position to benefit
it, whether we look to spot the early stages of from the result. As the fight proceeds, many
driving price action.
a rally or a decline. There is no way to predict traders are waiting for the outcome, which Then momentum
with 100% accuracy when a rally or decline is when it comes lures traders to jump into the stalls and a fight be-
about to begin, but technical analysis can pro- market in the direction of the “winners”. The
vide strong clues as to areas on a stock chart bearish continuation, for example, starts with
gins to control the
where the probability is high of a turning point the bears clearly in control. The tussle begins next move. If selling
occurring. There are many ways to try and
identify price moves, but one method that can
at an area of support and we see the develop- is happening at lower
ment of smaller indecision candlesticks, with
be very useful is to look for areas of consolida- the highest point of the candle getting lower and lower prices
there’s a strong chance
bears will win the bat-
tle and a reversal
move is likely.
tion. Imagine throwing a tennis ball in the air. all the time. This suggests selling taking place
Initially the ball will move up rapidly, and at at a lower price level in each time period, i.e.
some point physics, specifically gravity, takes the bears are winning. When the bulls be-
over. The ball will slow, until at some point it come weak enough, and the bears penetrate
has stopped moving (albeit very briefly), then the support line, there’s a good chance price
its motion reverses and it heads back down to action will continue in the original direction.
earth. This is analogous to price that has been The sudden sell off is enhanced by traders
rising, losing momentum and then reversing. who have been waiting to see the result of the
Now imagine you are drilling a hole in a plas- battle. Those who bought hoping for a rally,
terboard wall, or a piece of wood. Initially there quickly sell to get out of their losing positions Charts show when
is resistance to the drill moving through the
material, but then as you break through the
and those already short, realise they were greed or fear is driving
“right” and add to their winning positions.
plaster or the wood to the other side, the re- Recognising these repeating patterns gives
price. Our challenge as
sistance disappears and the drill moves you the chance to be prepared to take advan- traders is to identify
quickly through (hopefully not into a water
pipe ... another story!!) As price action com-
tage of them and build a plan around how to when a change of di-
trade them. I have described one of the four
pletes a move it will experience a period of possibilities in this article, I’m sure you can rection is likely so we
slowing momentum or consolidation. This con- now work out the mechanics of the other can profit from it.
solidation could precede a continuation in the three scenarios, giving you the opportunity to
same direction or a reversal and can highlight watch for consolidation and profit from its
an area where bulls and bears are locked in Dale Peters
potential.
Volume 10 Issue 3 Page 17
W INTERS I NVESTMENT
NETWORK