Blood in the Street

There was blood in the markets today, and unfortunately, mine was included. Dubai came out with a black swan report requesting to prolong its debt payments - causing markets to crash and credit defaults swaps to soar.

The Hang Seng Index went down by as much as 1,200 points - the largest one day drop I've seen in my trading career. As you can see in the chart below, the index broke down below its upward channel (confirming the MACD bearish divergence), the 32day SMA, and 65day SMA. The next support is at the 21,000 psychological level, but probably the safest buy would be the 130day SMA, which is around the 20,500 area. The Shanghai Composite also broke down last August, and it only bounced once it reached the 130day SMA. Thus, since China is the leader, my best bet for HSI and DJIA (Dow) would be to buy at the 130day SMA.


Man. I was all-in yesterday, so I got hit pretty bad. I got emotional during the day, so I kept buying up stocks hoping it would bounce right away. But the biggest rally it was able to sustain was a mere 100+ points. So yes, I dug a deeper hole for myself. I'm now down 54%.

I can't take this madness anymore. I'm going to make a trading plan this weekend and then consult my boss on Monday. I need to perform.

Happy Thanksgiving.

Strength is the key

The HK market was down more than 300 pts today following the big sell-off in China. The government is requiring the banks to increase their capital requirements; thus, speculation arose that these companies would have to place shares at deep discounts. With that news, the Shanghai Composite crashed from up 20+ pts to down 110+ pts.

The good news is, I survived. Luckily, I was able to gain about 5% from my investment in Brilliance Auto. Plus, I didn't get hit much in the afternoon because I was holding a defensive stock (HK:371) which was unusually strong today. I'm hoping that its strength will persist until tomorrow.

For the past few weeks now, I've been making money in down days and losing money in up days. I thought it was kind of weird at first, but upon further reflection, I realized that the reason for this anomaly is very logical. During down days, right off the open, it's stark clear to everyone which stocks have innate strength that even a tumbling index could not dissipate. However, during up days, it's not so clear which issues are strong enough to climb further within the day.

Thus, the lesson of the day is: if you're long the market, always look for strength. The ADX indicator (measures momentum) is your cheating. The higher it is (preferably above 35), the higher your chances of surviving a weak market. For example, as you can see in the image below, the stock I held today has been very strong. Its ADX is 50 (the black line), and it's above all the moving averages (also a sign of strength).

Philippine Market Tip

MPI: Metro Pacific Investments

Technicals: As you can see from the chart below, the MACD has just signaled a "bullish divergence," wherein the MACD has had a "low" and a "higher low," while price has had a "high" and a "lower high." This indicates that the momentum to the downside is decelerating, and the sell-off may be over.


Fundamentals: MPI controls defensive companies such as Maynilad and NLEX tollways, which means that their cashflow will most likely remain strong even if the economy stalls.

Entry Price: 2.5-2.7
Cut: 2.45-2.5
Short-term Target: 3.1
Medium/Long-term Targets: the moon :)... 3.8 then 4.4

I plan to enter this trade tomorrow. I hope I won't be too late.

Lack of Discipline

HK MARKET:

I may have dodged a bullet this morning since all the shipping stocks were down big, but I think I just set myself up to catch one on Monday.

I was overly aggressive all day trading just one stock, HK:1114 (Brilliance Auto), due to the strength in the auto sector (both technicals and fundamentals look very promising). I was already correct in the afternoon, selling right before the market had turned, but 30 minutes before the close, I became greedy again and had the itch to trade. So, I ended up buying back the stock without a good set-up. Of course it went down, and I had to cut 2 flucs below my buying price (2.24). I wasn't done. 5 minutes before the close, I noticed that the stock found support at 2.21-2.22, so yes, I bought my whole position again at 2.23. Argh. Talk about the lack of discipline on my part.

The Dow Futures are down big again, and because there are no economic reports due today, the main market movers are the strengthening dollar and the bad Dell earnings/guidance, which came out earlier today. I believe (or more of hope?) that the expected drop tonight has already been priced in the Hong Kong market. Or else, I'll probably get killed on Monday. Sh*t.

PHIL MARKET:

I lost money today. I bought MER at 231 and sold it at 229. I also sold my whole position in CPM at cost. I'm all cash right now.

Funny. I'm very disciplined in the Phil. market, but in the HK market, I'm reckless. Why? The only reason I can think of is the fact that I'm down in HK, and I'm up in the Phils.

Lessons for today:
1. Avoid buying back a stock 30 minutes before the close. Limit buybacks in the morning, or right after lunch. Also, in these cases, position size must be lessened.
2. Plans are useless if you don't have the discipline to execute it properly. My original plan was to cease trading after I had locked in my profit. I didn't follow it. Again. So i lost money. Again. Greed and Hope are really my biggest enemies.