Sept. 25, 2011- A Little Common Cents Corner #16 – The Shopping List & Personal Accountability

(ERRATA: LC and MA written here at 0.98 and 0.047 was a 32 week moving average or 130 day MA which was easily broken awhile ago.  ( I wrote that they were 50 week or 260 day moving averages which is wrong)  The 260day moving average or 50 week moving average for both of them rests at 0.69 and 0.038 respectively.)

“Because it’s when we feel safe that we act most recklessly, that we’re most likely to think about the potential rewards of the game and ignore the fact that we just lost hundreds of dollars. Relaxation is the opposite of vigilance. And vigilant people don’t play the slots.” – Jonah Lehrer, “Why Being Relaxed Makes Us Spend Too Much Money”

Wired.com came up with a very interesting article that I believe sums up quite a good recap of the current markets today.  I’ll give the gist of the Bellagio Phenomenon.  (If you’re interested in reading the entire article, click the link above the quote).

1.) The Bellagio was the first modern casino to get it right. Because it emphasized the importance of relaxation – it treated the casino as an extension of the hotel lobby, not as a place to suffer through on the way to the lobby – it helped influence gamblers to take bigger risks.

2.) It turns out that when people felt comfortable – when they were put in a relaxed and pleasant environment – they were more willing to take irrational risks, to place losing bets on games of chance.  Feeling relaxed even increased the willingness of subjects to bid on risky activities, such as a bungee-jumping session.

(Hence, Macau and the Bungee Jumping Business, comment is mine alone) 

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I figured highlighting the above article instead of talking about charts and all that (though I will get to that in a few more paragraphs) because for the past several months, most traders, especially investors became very complacent in chasing extended trades, without necessarily placing tight stops.  For instance, how many traders are still playing the UPMs and the ARs recently?  How many penny stocks do you have to play, for you to end up forgoing all of your previous gains and perhaps even give up some of your precious capital?

Remember, when we are too relaxed in the markets, this is when we normally give all our hard earned money to penny stocks.  We then whine about the stock market being a big casino, when the truth is, we are the ones who we should blame for making the trading decisions in the first place.  I’m truly sad if everyone will suddenly hate the markets just like what happened during 2008, because of their own irresponsibility in handling their trades to penny stocks.  You are responsible for your financial freedom.  It is not a financial blogger, not a friend who happens to trade for a long time, not a market forum “guru”, or even veterans who have 20 year track records, even if they’re verified by SEC or something of the like.  It is you, and you alone.

If you must play these exciting entrapments, you need to know the rules.  I must admit, I play these penny stocks, but I know the rules.  I know when to enter and when to bail out.  Read and learn how these stories always start and how they always end.  There are several pump and dump stocks in the markets which will severely give your portfolio a reason to throw up.   Hoping is not going to solve your problems.

“You choose to buy breakouts or pullbacks, to chase or to catch knives or just watch when you have no clue what is going on.At the end of the day the choice and the responsibility is yours only. Nevertheless, it is good to remember that no one is bigger than the market.” – Ivanhoff 

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Plausible Buy Points: (Note, I say plausible.  I do not say anything CERTAIN, because nothing is ever certain in the markets.  Please know that everything here is just an educated guessing game.)

Make no mistake, the Philippine Composite Index is in a short term and intermediate term downtrend.  Primary trend remains up, although this is of no significance to me, because I am a short term trader.  We broke a lot of supports and there are going to be heavy resistances.

(Click the image).  PCOMP Index’s first sign of support can be seen at the retest of the Year to date lows which happens to be the 100 weekly moving average.  The level in the sand is 3,733-3,800.  We recently closed at 3885, which is very near a possible short term bottom.  Any short squeeze can possibly take us to 4153 (50 week moving average) and anything higher than 4,350 will nullify the bearish short term and intermediate term trends.

*The truth is, I believe most market pundits want an immediate flushing to new lows (what others call an “ethnic cleansing, or a blood bath”, but I personally think we will have a long range-bound tape.  Most traders (domestic and abroad) are very nervous with the markets either because there could be potential rips (to the upside, killing the shorts) and more downside (further damaging margin calls).  Due to the intrinsic dangers in the markets, keep yourself in HIGH DEFENSIVE mode. 

Example of possible rips that bears are cautious of are the following news headlines such as:

1.) ECB Rate Cut (Bloomberg)- found via Reformed Broker

The European Central Bank may step up efforts to boost growth and ease financial-market tensions as early as next month, Governing Council members said.

Austria’s Ewald Nowotny and Belgium’s Luc Coene said in Washington that potential measures include the reintroduction of 12-month loans to banks. Asked if an interest-rate cut is warranted, Coene said while that wouldn’t help to bring down longer-term borrowing costs, “the ECB has never ruled out things beforehand.”

“If the data in early October shows that things are worse than we anticipated we will look at the kind of decisions we have to take for that,” he said in an interview late yesterday.

(Read my post on Nature of Selling Climaxes and Dollar is Key for more signs of bottoming out.)

Further Indicators to watch are Vix Index (i.e. Fear Index) & US Treasury Yields– According to MacNeil Curry, BOFA/ML Technical Analyst-

Investors should watch the $VIX  “for signs of investor capitulation. Until it spikes north of 50, the risk off environment will persist.” On Thursday, the $VIX surged 6% to 39.64. Yields on the 10-year Treasury yield are now cleared for a long-term target of 1.52%, Curry writes. The 10-year note yield is down 8 basis points at 1.77%. $TNX

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The Shopping List: (Make sure that there are risk management strategies involved with some of that bottom fishing.)

1.) LC @ 0.98, MA @ 0.047

A lot of people are asking me about LC and MA.  This is a messed up commodity.  I don’t have weekly numbers, but its brutal.  Gold and Silver just had a massive carnage in New York Trading last Sept 23, 2011.  Gold will stage a long sideways-bound range.  Longer term trends will take a while to turn around.  There’s no point in buying gold right now (TECHNICALLY), because the ascent sped up so much.  We’re still up year to date, but if you ended up buying near the highs, the average person is now in a losing position.  Stay out.  Too many resistances.  My first line in the sand where I’ll be eager to buy LC and MA are 0.98 and 0.047.  I got the numbers from checking the 50 week moving average.  LC is an overcrowded trade, more than the MA, thus I believe it has more leeway of going down.  MA is very near my educated guess.  It last closed at 0.051.

Useful Advice is : Follow strength and be very nimble. If you are not a day trader, now is not the time to be aggressive. No matter what you time frame of operation is, flexibility is a must have quality. You should never feel bad for changing your mind. It is required to survive.

2.) Take a step back but do your own research. You won’t be as scared as the market suggests. Let the market be afraid while you be smart.  Repeat.  No one is bigger than the market, even a $1 Bil Fund manager gorilla.

Most fund managers, for instance Michael Garcia, who runs a $1 Bil investment fund in the Philippines transmits in a Bloomberg article the following lines in a Sept. 20 report:

“It would be foolish to expect the market to rally from now until the end of the year and exceed the peak it reached in August,” Michael Garcia, who runs the nation’s best-performing stock fund in the past three years at the bank, said in a phone interview. “It’s not the time to place aggressive bets.”

Touching this year’s low wouldn’t be out of the question. Philippine valuations are not going to get any higher without earnings doing their part.

Read full article here:  Philippine Stocks May Have Peaked This Year, Union Bank Says (Bloomberg)

 3.) Read this James Altucher article : Tune out the fear and panic

Commentary: Seize great stock opportunities now

I’ve highlighted in my previous articles that the primary trend for the dollar remains a short.  If the charts provide a good setup, look to short the USDPHP at the proper time. (perhaps the 44.15 area)

Excerpts taken from James Altucher’s article: (He’s advocating buys on AAPL, GOOG,WMT, AMZN etc. solid companies, with or without a recession)

Let’s look at some basic facts:

A) The top eight banks in the United States have almost $1 trillion in capital and only $54 billion in exposure to the weakest Euro zone nations. Let them all default. Doesn’t bother us.

B) In 1981-2, almost all of South America defaulted. The top eight banks then had 263% of their capital exposed to South America, based on accounting rules in place then. Guess what? We had a 20-year boom after that.

C) Is Europe a Lehman? One big difference (other than the obvious one I just mentioned: The banks in 2008 were subject to the brand new mark-to-market rule. Now they don’t have to mark to market. They can make an assumption (”Europe will pay back eventually”) and not have to mark things down as quickly. Guess when the mark to market rule was eliminated? March 2009 — the bottom of the market.

***As for bluechip stock picks, please enlighten me, mister and misses analysts because I’ve yet to read bargain hunting strategy reports from any brokerage firms.  Please send me any details on what I should bottom fish.

*Technically, MBT looks bright as a candidate for a capitulation buy mainly because volume being traded is large enough already and most earnings reports for MBT do not warrant the indiscriminate selling it is suffering.  (This is just a guess though, no financial legwork done).  Perhaps ranges of 55-60 is a good area to nibble, just have your position sizes in little tranches. Honestly, I’d just leave all these fundamental forecasting to the analysts.

Enlighten me with cash flow estimates and I’ll mark down those prices on my personal peso cost averaging preferred buying points. I’m merely a lowly trader.  I won’t pretend to be a fundamentalist.  I don’t have such conviction as most of them have.  Thank you.

Just as most Finance Manila market enthusiasts have been saying, looks like a long winter is coming, but I’ll be shopping in this winter season little by little. A week, a month, 3 months, 6 months, I don’t really know.  That’s what all these fundamental bargain hunting guys are all about anyway, fathoming a bottomless pit.

– The Faceless Trader knows nothing about the markets and everything above is purely speculation on his part.  If you have any questions, violent reactions etc, place it in the comments below.

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16 Responses to Sept. 25, 2011- A Little Common Cents Corner #16 – The Shopping List & Personal Accountability

  1. mac says:

    i love this advice!!! thanks for sharing this info 🙂

    Like

  2. genkumag says:

    Nice piece, FT. Am in complete agreement on MA being a none crowded trade (0.045-0.047 are interesting buy points). LC, have a slightly different take (methinks 0.90 is the ideal entry based on symmetry of legs on the long chart) but am also eager to get into this one so will be gradually building position below Php1.00. MBT is a curiosity with most of my banker contacts and friends saying the bank is well prepared to weather any crisis, domestic or foreign, so yes this should be part of anyone’s shopping list. Buy points for MBT are slightly more difficult to discern with Php55-60 being tradeable prices and Php50 a more comfortable one.

    I am slightly more bearish than the average market but remain constructive enough to realize there is money to be made in a falling market even without shorting. As you say, the PSEi could be trading in a very wide range so we should continue engaging it until it breaks below the range support you highlight.

    This should be fun. Good luck to us all. Thanks again for the post, FT. 🙂

    Like

    • Hello Genkumag and thanks for replying. I appreciate thinking about these topics with fellow traders too, hence I wrote my thoughts in a blog. Actually LC is 0.91-0.98 when it consolidated just a few months ago, so methinks the worst case scenario for a very panicky flush will be to settle there. I just think that too many traders anchor on the piso point, so I’m not too “barat” in the bidding, and see 0.98 cents or even near piso a very realistic and possible entry point (with more conviction). Blue Chips really are hard to tell. Once people panic, redeem their funds instead of constructively fixing their portfolios, we’ll have huge volatilities. I find your friend’s targets of 2600 in the index unbelievably bearish though. Just my humble opinion.

      – FT

      Like

      • genkumag says:

        Haha. Yes, 2600 is the dream, which is why as traders our dictum is always to trade what we see and not what we think or feel. The 2,600 he noted is merely for artistry’s stake. In the same manner that he too noted that LC would fall to 1.24 first, 1.09 next back when it was doing 1.60. Unbelievable then, even laughable, but not so much now. 🙂 Again, trade see, not think. =))

        This is finally our market, FT (bottom fishers unite!). We should enjoy it while it lasts.

        Like

  3. Ben says:

    Thanks for the informative post FT!

    Like

  4. Mon says:

    Very good post! My comments…
    1. Agree. At this point, prefer MA than LC.
    2. Outside PX, LC, MA, prefer ALI, SCC, MBT as my top 3. I’m sure an exhaustive exercise will lead to a top 10 list (ex mining).
    3. While mining may not lead from the bottom, I think just like in 2009, financials and property will do so. Of course, you’ll have occasional gems here and there outside of those 2 sectors.
    4. Based on historical PERs during crisis and based on how much the PSEi lost during the final days of the Lehman-led capitulation, the magic number that keeps coming out is 2600 thereabouts. It may or may not happen but that number now is in my head.
    5. Based on my experience, from the bottom it is usually value over anything. Then as the rebound matures you’ll see growth take over. Further on, it’s just pure momentum.

    Like

    • Thank you for the thumbs up on the post, as well as your thoughts on top 3 bluechips to ponder about- (ALI,MBT,SCC) . I think its a good thing that we “scare” ourselves and tell each other that 2600 may happen, but methinks this is overly bearish index wise, despite fund manager gorillas like Mr. Garcia who’s saying that our index is overvalued and not necessarily a buy, with further redemptions along the way. If there’s anything that my trading life taught me, it’s that we usually stick to leaders (relative strength wise), instead of bottom fishing for those that never even rallied. I don’t really feel 2008-ish at all, nor do I think we’ll get that (though I’m sure that’s what every trader wants, because they have mostly gotten out before this bloodbath).

      From an index-wide perspective, this is the reason why I’m bullish in the Philippines, despite the fact that valuation wise— we may not necessarily present the “cheapest” in the land, and find more bargains in China, Hongkong, Japan for instance (from a macro point of view). Emerging Market stocks like (BRICS) are suffering from major deleveraging, and Philippines is one of those remaining stellar funds in the universe. – FT

      Like

  5. tmac says:

    hello sir FT,

    RE: LC…. Are you using a daily or a weekly chart? Sorry for asking this, but how many days does a 50 week moving average have? 🙂

    Like

  6. alpha says:

    you guys might want to check the link above..it works great on bear market. just sharing.

    email me if interested to receive them daily… alpha1trader@gmail.com

    Like

  7. harry the newby says:

    A great read FT.

    I have to read the 3 latest articles twice to fully absorb the message.

    A good reminder too, to watch the usdphp as well as the vix during panic epsisodes.

    VIX is halfway compared to the 2008 level peak of around 80+. I wonder if that 80 will be revisited soon?

    Carry on..

    Like

  8. Jdeun says:

    Hi your blogs are quite nice. It help for my business. Thank you for sharing this.

    Like

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