One of our SpikeTrade members has sent in his second letter about China. It is posted here without editing – AlexCurrent Myth:
- China has $1.1 trillion of foreign reserve, they are strong financial sound country.
I didn’t know the BDI and added it immediately to my weekly check list. Thank you.Rodryk’s last post on the BDI which was instructive for me. Now, we can see that it has been going down for 3 weeks while the markets have been going up for exactly the same period.
I wondered whether the shipping industry could be used as an indicator of a possible recovery of the markets. I compared both the MG776 (index of the US shipping companies) and the BDI as of 2009-03-26. Unfortunately, MG776 follows the main indexes and hit its lows at the same time although the weekly MACD remained very positive. It didn’t bring us any new information compared to the BDI which was up since the second week of December while the markets tumbled as Rodryk pointed it out.Didier
This index has been popping up in SpikeTrade discussions, and is a part of my daily homework. This is why I want to share with you this email from a friend, Yannis R, a trader in Paris:“I have read a lot of things about the Baltic Freight Index and I would like to put things in their right perspective. There is a widespread need to identify leading signals for economic recovery. The paradox is that people involved with the shipping industry try to find signs on what their industry will do by analyzing the economy. The rest try to see what the BDI does as a signal for economic recovery!!! This is very dangerous for outsiders as the mechanics of shipping are complicated. I am in the industry 20 years and claim to know 30% of it. So for the latest developments let me lay out the following:1. During the downturn a lot of ships and especially the big ones (Capesizes) were laid up. These were around 400 ships. That’s a lot and not counting the ships slow steaming as to win time.2. These ships now are reactivating and see what is happening to BDI..!3. On top we have the huge order book of new buildings. Even with the reported cancellations their size is 46% of existing tonnage due for delivery this year and next.4. When demand returns to normal levels in the economies, shipping will still have to fight its own demons that were created during the greed years.***** after receiving this email, I sent Yannis the following message ***************
************************** he responded: *****************************Regarding DRYS I have to say I am biased so I might not be able to guide you accordingly.
- Firstly I do not trust the guy who runs it.
- During the drop he sold 10 ships from his private company to Drys .
- Drys paid top money for them even though the market had dropped 50%.
- I think the deal never went through goes of public outcry.
- During the 90’s and the junk bond craziness he got 150 million from investors and bought bonds back at 30 cents..!!!
- As I said the fundamentals of shipping for the next couple of years are not looking good because of the new buildings coming in and the low expectations for economic growth.
- DRYS has a huge
I am new to trading, and after missing several strong moves by the stocks that I have been following and trading (DECK, AVY) I began to feel pretty frustrated, like so many others, and didn’t know how to handle the situation. Didier and Stephen M have articulated this very well. I felt though that there had to be a way to do this – and it would have to involve not only careful entry technique but also a somewhat different attitude toward the quality of the fill.In the course of trying to get in on Monday and missing that move, and then getting whip-sawed on Wednesday, I noticed some possibly interesting things on the intraday charts and decided to look into it further.Below is a 25-min chart for AVY covering Mon 3-23 through Wed 3-25 [CHART 1]. It shows a series of short-term areas of support and resistance that you don’t have to squint too hard to see. (But the chart is a little busy, so it will take a little scrutiny.) There are two points of support at 22.10; one point of resistance and one or two of support at 22.50; and solid resistance on Tue 3/24 (and possibly the close on Wed 3-25) at 23.00.I noticed these zones during the day on Wed. Since I did not have any idea which way the market would go, I decided to try a buy limit/buy stop (OCO) order that used these zones. Around mid-day I placed a buy limit order at 22.60 (just above the 22.50 area) with a stop at 22.10 (a rookie round stop!). I also placed a buy stop order at 23.00 with a stop at 22.60. As price dropped, the limit order was filled (no slippage), and as price dropped further the stop was triggered. Price touched the 22.10 support level and bounded back up to near the 23.00 resistance level! If I hadn’t used such a dumb stop I might have survived the trade. I thought, “Well, that was quick,” but then I thought that maybe there was something to this support/resistance business. I decided to try the same thing the next day
Today, Thu Mar 26, I placed another buy limit/buy stop (OCO) order before the open: buy limit 22.60, stop 22.07 (a few ticks below the 22.10 line); and buy stop 23.00, stop 22.43 (below the 23.50 line). I was filled at 23.28 – that’s 28 ticks slippage, but I did get in and have a little ride (see CHART 2)! Yesterday’s support/resistance lines weren’t really tested today, but price went up to 23.60 in the first half hour, hovered between 23.00 and 23.60-23.70 for half the day, then oscillated around 23.70 (23.70 zone not marked on chart) before breaking out to close near 24.00.
Looking back on all of this, I think that the lines of support and resistance may have been useful guides. I also may just have been unlucky (first trade) and then lucky (second trade). Time and more trades and experience will tell.In fast markets, slippage and gaps are inevitable. I think that when things are squirrelly, as they have been lately, if a decision is made to trade, bad fills should be anticipated and controlled with very careful money management (stops and position size). It is likely in such conditions that entries will be missed, winning trades may not be as good as usual, and losing trades may increase. I am guessing with this, but it stands to reason that when uncertainty goes up, the results have to suffer somewhat.One other point: Besides the issue of thinly traded stocks usually exhibiting more slippage than very liquid stocks, I noticed that of the two stocks that I have traded so far, DECK seems to have a much higher bid-ask spread than AVY, even though they trade with similar volumes (1/2 to 1 million shares/day). This is something that I will watch out for in subsequent stock picks.
This comes from Stephen M, one of the leading SpikeTrade Members. I hope that some of the responses will include charts! – AEI would really like to see a blog topic on entries started. It seems that the group is missing some nice gains as a result of picks for some but entries for others. Take LDK for instance. Up 114% for the week. It showed a beautiful descending wedge and bullish divergences on the weekly chart on Sunday. On Monday it took off. It seems to me that a key objective in front of a tremendous bullish background is to “get long.” I remember watching an old VHS tape of you on the “Triple Screen Trading System” as well as in camp videos. In there, questions were asked as to limit orders, etc., etc.. Your emphasis was when these patterns develop, pull the trigger and get long… even at the market the next day. I think we have been in an interesting transition period the last months and weeks and have seen these beautiful patterns materialize. It’s hard though to get long on a gap and feel like you’re chasing the stock. The weekly pattern will come to your rescue though-generally-in quality stocks with these quality patterns. Perhaps a little less caution should be on entries and more on exits?Don’t get me wrong, I’m still very cautious and quick to run, but it feels good to ride a few of these trains leaving the station vs watching them.Thanks,Steve M
Hello Kerry/Alex,I would like to bring this comment to the attention of the group. I’m discovering trading in the middle of the crisis, my trading system (Top-Bottom) is a work in progress.Each week, I review 56 market indicators divided in 9 groups. One of those is the currency market, including gold. That’s why this divergence in progress on the USD index has been catching my attention for weeks.
Didier F
Canada
This is an excerpt from The Big Picture.com:Thomas Lee, US Equity Strategy at JPMorgan writes: “Believe or not, retracing 12-year lows for the Dow is an incredibly rare event. Besides the retest of 1997 lows seen on Monday, this has only happened two other times, on April 8, 1932, and December 6, 1974.”Given the rarity of the event, it is worth taking a closer look at the past instances: The 12 year low in 1932 was ~three months before the end of the bear market. In 1974, it was exactly the low for that bear market.Dan Greenhaus of Miller Tabak adds, in both cases, “the economy continued contracting beyond the bear market bottoms; this is typical of recessions. Unemployment continued rising and GDP remained weak. The 1974 Bear market ended in December, but GDP contracted even in the Q1 1975 at a 4.7% clip
Hsin had created and sold two computer businesses in Taiwan. He now lives in the US but often travels to China on business. He is an active Spike Member and graduated from a Traders’ Camp in January 2009. I am posting his letter without any editing – Alex
- Gray Economy is unique in China … so most convention economy study for China is not working well.
- Unlike western world which this time economy crisis affect majority of people, only 1/3 of population in China get affected.
- China has no debt and lots of reserve … under one party management, decision is faster and enforceable.
- Most Chinese don’t have debt… most housing value are way above their mortgage, no sub-prime or major credit problem.
Cash flow is tight for SME … but China ‘underground banking’ is at least 200% – 500% more than ‘normal banking’ activities.Question area:
- The next 3 months will tell us ‘how much China economy tie into Export’?
- Can China increase domestic consumption is key to its long term success.
Conclusion:
- China, compare with others, has least problem on hand.
- China equity market don’t support ‘SHORT’, most people are ‘buy and hold’ type. Most people lost 60% in equity market and
- Still hold on to it
It takes buying to move stocks up, but they can fall of their own weight. GE lost more than 2/3 of its value in as many months as it took years to rise. In October 2008 the new low of MACD-Histogram identified the point of the maximum power of bears. In area B the stock rallied into its value zone, between the two moving averages, and MACD rose above zero, ‘breaking the back of the bear.’ In 2009 GE broke support and fell to a new bear market low – but take a look at MACD-Histogram. This indicator is only slightly below zero, much more shallow than it was in October. The moment it ticks up, turning the Impulse system blue, it will complete a bullish divergence, flashing a powerful buy signal.I use an indicator used MACD XOver, included in all Elder-disks, to identify the level at which that change of color would occur. It tells me that GE must close above $8.20 this week for the signal to occur.The purpose of this post is to open up a discussion about where we are in the market cycle.
- What are your arguments for being bullish or bearish?
- How will you recognize the bottom?
- Which stocks ddo you suggest putting on the shopping list?
I look forward to a discussion that benefots us all. Contrary opinions and arguments are welcome – as long as they are presented in a civil and collegial fashion.Alex
I would like to share a part of my week-end “market bottom homework” with you, Spikers and SpikeTrade Members via the blog.Please find attached a monthly chart of the S&P500, including embedded comments. – As I am abroad in Denmark and did not want to update “tons of data” with TC2007 (->roaming costs), I used this time Incrediblecharts.com, which downloads the data on a stock by stock basis.