What a start to the US DJIA last night! I was sipping my wine in Vie Bar and reading pre-market reports that US Futures market was trading up because a Commerce Department report showing the recession abated more than originally estimated in the second quarter. I thought I could be wrong with my analysis that US market will be trading sideway and I was tempted to buy into high beta shares to take advantage of the possible upside swing.
Perhaps I was enjoying too much chardonnays and I didn't, and I am glad I did not allow my trading emotion to overtake my belief of the trading program I faithfully implement as an early selling effort dropped stocks from an initial gain to a loss of more than 1%! What caused the -70 degree drop? Well, it was the Institute for Supply Management-Chicago's business barometer report which came in after the Commerce Department report unexpectedly fell to 46.1 in September, a level that indicates contraction in the regional economy. Well, US markets gradually made their way back to positive ground before falling under a second wave of selling pressure. Although they finished the session with a loss, stocks still logged impressive gains for the month. At the market close, The Dow Jones industrial average slipped only 29.92 points, or 0.31 percent, to 9,712.28. The Standard & Poor's 500 Index fell 3.53 points, or 0.33 percent, to 1,057.08. The Nasdaq Composite Index shed 1.62 points, or 0.08 percent, to 2,122.42.
So my prediction was right that US markets will trade sideway for the near future. While drinking my third glass of chardonnay, a friend of mine drinking his brandy in the bar and who has interest in US stocks came over for a toast and suggested that I was wrong in predicting the US market. His broker had advised him that it will be volatile and intra-day data seemed to contradict my analysis. Am I wrong?
Which brings me to an important lesson I learned, and that is to match my trading style with the timeframe of the stock movements. If I am trading intra-day, I will use minute-by-minute data feed for my charting programs for trading signals and I am quite sure the graphs will be volatile. However, since I pick stocks for their fundamentals and trade to generate alphas from timing to buy at cycle low and sell at target returns, I use monthly timeframe to determine the market's future forecasted movements. The cycletrend chart for DJIA 30th Sept 2009 end of day data indicates that it will still be sideway with a possible slight retraction in October/November this year. Again since it is not a -45 degree cycle trend, I do not think it will be a major retraction. The candle doji sign tells me that the market is looking for a clear direction, and unless there are unexpected tail-end event, US market should be growing steadily rather than shooting for the sky.
So I am still right, and overall I am still in the money. I lost -0.86% in BHI (closed at $42.66) but still in the money. BKS was up 1.97% to $22.22, OSG down -2.61% to $37.37, Citibank up 2.98% to $4.84 and Forest Lab down 0.91% to $29.44. I have also increase my interest in OSG and BHI laast night for its fundamentals, the stocks' correlation with the market and the nice signals from charting.
See you tomorrow.
Francies Cheng
BBus MAplliedFinance
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