Am I right?

Good morning,

Liverpool lost 0-2 in the European Champions League and US Dow Jones dropped 47.16 points, or 0.48 percent, to 9,742.20, S&P 500 Index shed 2.37 points, or 0.22 percent, to 1,060.61 and Nasdaq Index dipped 6.70 points, or 0.31percent, to 2,124.04. It's not a very pleasant night for me, isn't it?

Well, football wise yes. They played unexpectedly bad in the first half, beyond what I had expected. Stocks? Well, at least with the current information, we can use it to forecast quite correctly the most likely movements for the next period. So while I was hurt emotionally that Liverpool lost, I am still better off in my portfolio of US stocks last night.

As a keen believer of the unique system for stock selection and execution I developed, I held on to the shares I bought, even though the broad US DJIA forecasted using Cycletrend was showing sideway range cycles. As long as I am not seeing a 50 degree cycle dip, I will hold on to my shares I bought till it achieve the target returns I wanted.

So BHI has lost 0.62% to $$43.03. It's ok because it has passed my selection criteria mentioned 2 days ago. Even so, I am still in the money since I bought it at less than $42. OSG closed at $38.37, gained 1.27%, BKS $21.79 up 0.18%, PMTC $13.81 up 0.44%, and Forest Lab $29.71 up 1.75%.

Comtech Technology was down 2.26% to close at $33.24, but that's the stock I did not buy as I do not see any interesting signals for immediate purchase. So overall I am in the money even as DJIA fell 0.48%. And I can only wish Liverpool will play better this Sunday!

By the way, if any of you friends are keen to see the cycle charts for the stocks you are following, do let me know and i will try my best to post them here for discussion.

Have a good day.

Francies Cheng
BBus MAppliedFinance

Stock Performance...where are we now

Good afternoon,

I woke up to the good news flashing across my trading screen that stocks had enjoyed their biggest day in more than a month, fueled by merger fever and a big rally in financial, industrial and materials stocks. The Dow Jones industrials closed up 124 points, or 1.3%, to 9,789. The Standard & Poor's 500 Index was up 19 points, or 1.8%, to 1,063, and the Nasdaq Composite Index added 40 points, or 1.9%, to 2,131.

Last night's were the biggest gains for the Dow and the S&P 500 since Aug. 21 and the best performance for the Nasdaq since July 23. The rally came as the market nears the end of a surprisingly strong September. In addition, the major indexes can look forward to their second quarterly gains in a row. An interesting note is last night's gains came on light volume as many traders had taken the day off to observe Yom Kippur.

And instead of a quiet day of trading and fretting over the market's three days of declines last week, corporate deals set off waves of buying.

An interesting research article from Morgan Stanley this morning predicted that S&P year end fair value will be 1050 at $70 EPS in 2010 on 15X multiple, and is expected to trade broad range between 850-1250. In fact they are bullish that it may even stretch 1200 at 16X EPS of $75!

The article further recommends buyng into growth rather than looking for value, which brings to my mind the mis-understood version of "value" investing during my seminars. Most students thought that "value" investing means looking for fundamentally good companies that has strong balance sheet. Well, it took me quite an effort to explain that "value" investing means looking for stocks that are mis-priced, ie., the current market price is either under-priced or over-priced. It's really difficult to find "mis-priced" stocks as it involves application of various variables used to determine today's stock price.

This is what my "value" stock screening criteria search for companies with good fundamentals with strong balance sheet and consistent earnings and free cash flows. I do not look for mis-priced stocks, i look for stocks that has growth potential.

Which leads me to the question I was asked today if I had made money on my trades last night. Well, I have bought the stocks I screened yesterday, ie. BHI (Baker Hughes) and decided not to buy GCO (Genesco).

First let us look at cycletrend charts:

The Dow Jones Daily Chart shows that the market should be trading range for the immediate future. While candle charting indicted an engulfing bull, I would rather wait for a confirmation tonight to decide if the bulls are in for real, taking into consideration the reason for the surge in DJ as mentioned. The trendic and OBOS charts below the candle chart is a little worrying as it indicated that the market may correct this week. This calls for caution when deciding to trade. Though the cycle signal a steeper downtrend, it does not translate into same depth of price fall. Selecting stocks with good fundamantals and growth potential is still the key.




Here is the chart for GCO:



Though the company is fundamentally strong (see yesterday's blog) GCO's chart has no clear indication from both cycletrends and candle and the price has moved toward the resistent of the upper bollinger band. It should be trading sideway and taking into consideration the overall DJ direction, I decided not to buy, and will wait for the stock to retract and for the charts to indicate better buy signals. Well, for the record, it opened at 24.12 and closed at 24.18.


How about BHI? Remember that I have mentioned that BHI has very good cashflows and consistent operating income and the stock should grow when the economy starts picking up? Well, I bought on the dip at $41.94 and looking at the chart for both candle and cycletrends, there is no downside fear so I am holding on to my gains. It closed at $43.30.



Hope you guys can contribute to my ideas and make this blog the best for all traders!

See you soon.

Francies Cheng
BBus MAppliedFinance

Market View 28th September 2009

It's the beginning of another interesting week after US stocks ended the week with their worst losses since early July. The declines were largely the product of mediocre economic news and a bad earnings report from Research In Motion that triggered a 17% loss in its stock price.

Well, though the market was down, it could have been worst. For the week, the Dow was off 1.6%, its first loss after two weeks of gains. The loss was the biggest since the week of June 29, when the blue chips fell 1.9%. The S&P 500 was off 2.2%, and the Nasdaq was down 2%. The losses were their worst since the week of July 6. I am slightly relieve that it is not as bad as I thought it will be, as the losses were modest compared with, say, the week of March 2, when the Dow fell 6.2%.

This week will see stocks facing some big challenges with some very important economic reports. One of the most important report will be on Oct. 2, the report on unemployment and nonfarm payrolls. In addition, automakers will report on September sales on Thursday, follow by beginning of third-quarter earnings season the following week.

It will be interesting to see the DOW testing the resistance of 10,000 this coming week, or drop below the support at 9600. On the S&P 500, the support levels are 1,040 and 980.

From the Technical Cycle Trend below, it seems that the US markets will be trading sideway with some downside potential.

Regardless, with earnings still lagging behind stock market growth, it would be prudent to trade in stocks with good fundamentals and technical indications for trading decisions.

Well, as usual on my research Sunday Night, these are the stocks that I have filtered for "Value" criteria of my unique system rules:

BHI (Baker Hughes Inc), CMTL (Comtech Telecommunication), GCO (Genesco Inc), OSG (Overseas Shipping Group) and FRX (Forest Lab Inc).

BHI has consistent operating cashflows and operating income for the last 3 years. However it may have some short term correction as the stock is currently testing it's upper bollinger resistence, with Cycletrends graph showing range movements. Though the candles look good, I will be waiting to buy on retraction and sell at resistance. Long term investment for this stock should be fine with the good fundamentals, and since the company supplies wellbore related products and technical services in the oil and natural gas industry worldwide, it should do well once economy starts picking up.

GCO is another company with consistent revenue for the last 3 years. However, I noticed it's operating cashflow last year where it recorded a large non-recurring inflow. Removing this one time item resulted a negative operating cashflow for last year. On the technical side, there seems to be short term limited upside. However I am cautious as the stock price is near its bollinger resistence. I am watching this stock closely since most analyst are calling for "Buy" and expected earning seems to be more positive.

Francies Cheng

BBus, MAppliedFinance