Disclaimer : This is my personal blog. Author will NOT be responsible for information errors, incompleteness or delays or for any actions taken in reliance on information contained herein. Examples in this blog are for educational purposes only. These set-ups are not solicitations of any order to buy or sell. The author assume no responsibility for your trading results. There is a high degree of risk in any form of trading and speculation. Trade at your own risk.

Friday, October 31, 2014

The Correction Is Definitely Over !

Yup, it seems that way!

Market is up +12 points today with vol > 2 Bil ...10 trading days after the Day 1 rally attempt.

I was close on prediction on 2 occasions : -

1. Warning about an impending market correction back on Sept 25. Read here.

2. Calling an end to this market correction on Oct 25. Read here.

Ha ha ..

What's next ? I dunno yet, must have lost the crystal ball. Hopefully a market recovery till the end of the year and until the Chinese New Year .. -:)

Thursday, October 30, 2014

The NTA Debate

 A reader wrote to me some time back ...

"Hi there

I would like to enquire
 your opinion regarding PPHB & Mitrajaya. Currently they are trading at such a discount to their NTA. Are they a good buy now? Pls opine. Thanks."

The general thinking is that if the NTA per share > stock price, you may be in for a stock market bargain.

However, just like everything else in the stock market, looking at NTA may not get you much success. 

There are lots of stocks trading way above their NTA and a equal number trading way below their NTA. 

Some Issues With NTA

1) A company with more valuable (e.g. hard cash, property, land) asset is better.

2) High Receivables may indicate debtors might not want to pay me.

3) The company's inventories may be outdated.

4) Some business (e.g. service industry) where the important assets is not tangible e.g. its technology, brand name, people ......

5) Poor management or management which is not focus on the business.

6) Poor profits or profits that are volatile.

7) Company is in a high-risk business or cyclical business that is risky.

Other factors not related to the company may also affect the NTA valuations eg. poor stock market sentiment, not much publicity on the stock, etc.

Hope this helps ...


Friday, October 24, 2014

Is The Correction Over?

Question : When the market is in a correction, how do you know when it is time to buy stocks again?

Answer : Wait for a "follow through day"

What Is A Follow Through Day?

A follow through day indicate that a rally attempt have succeeded, and the market direction have changed from a "market in correction" to a "market in uptrend".

Investor’s Business Daily’s "Follow-Through Day Pattern," as described by its former chairman and founder, William O’Neil, in his book, How to Make Money in Stocks, is widely known as a pattern that identifies market bottoms.

Spotting A Follow Through Day

When the market is in correction and move into a new low, look for the first day where the market close up from the previous day. This is day 1 of the rally attempt. As long as the index is above the previous low, the attempted rally is in place.

The Day 1 low becomes the line in the sand; a violation of that low invalidates the pattern. Days 2 and 3 do not have to be positive days, but they cannot be less than the Day 1 low value.

Look for a major move on the 4th day of the pattern, which is call a follow-through day.

Summarizing the rules:

Day 1: Once a low has been established (after a correction), Day 1 occurs if the close is near the high of that day or a higher close occurs on the day after the low.

Day 2: The price must remain above the established low. If the price moves below the Day 1 low, then the pattern has been invalidated.

Day 3: The price must remain above the established low. If the price moves below the Day 1 low, then the pattern has been invalidated.

Days 4 - 7: Follow-through day must occur, with a gain greater than 1.7%, heavier volume than the previous day and heavier volume than average.

Identify Market Bottoms - Fig 1-1
Follow Through Day In Chart 

Let's take a look at our own KLCI chart ..

Based on the KLCI chart, Day 1 rally attempt was on Oct 17th, last Friday (the best time to buy for the very brave!) when the index made a correction low but closed at the high. Day 2 was higher, Day 3 closed lower and Day 4 + Day 5 (today) close higher. 

It seems the market direction has changed from "market in correction" to "market in uptrend". As long as the index does not violate the Day 1 low, the uptrend remains intact ? Let's see the coming days ahead ..





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