Stocks I will be buying this week

Hi my friends,

It’s another new week and I am fresh from my holidays. I was glad for the long weekend without any trading activity, especially so when all my positions were closed prior to my rest. I was asked when I was back drinking with my friends at the nice sake bar in Robertson Quay that if I had knew the Dubai’s saga beforehand since I sold all my trading shares on Wednesday. I would love to tell the whole world that I had predicted the event but honestly I didn’t. It is another tail-end event that occurred and I am sure no one in the market has foreseen this happening. The Dubai’s delayed in debt payment reminds me of the Russia’s default many years ago that resulted in the world stock market meltdown. However this is not the same as the Russian default that caused one of the respected funds to collapse. I am very sure the market will bounce back soon. It is good that it happened just after the recent financial turmoil we went through because most economies are fundamentally much stronger now to withstand such unexpected set back. Who can really believe that Dubai will default on its’ debt? I am sure they wouldn’t and I see this as an opportunity for the market to take a breather and for me to buy again.

Most analysts agree that the market will have bumps along its growth path and I totally agree with their views. My strategy is still to buy on low and sell when it achieved the targeted returns. This is the time to test my trading emotion management and stick close to my trading plan. So let’s see how the market will be this coming week;

As you can see from the Cycle Trend chart, DJIA will continue to be trading within range and it is testing the upper Bollinger band resistance. I am expecting the range to be broad and over the week the possibilities of decline is higher. This is confirmed by the candlestick formation where the Doji. Earning season is over but there are still some economic reports for the week and I will be careful with the with the ADP Employment change on Wednesday preceding the key Nonfarm Payrolls figure and Unemployment Rate on Friday. The market should be sensitive to any news and my macro decision remains.

The stocks KUTE selected based on fundamentals this week are: NOV, GIB, FRX and SIM.

CGI Group Inc. (CGI) is an independent provider of end-to-end information technology services (IT services) and business process services (BPS) to clients worldwide. The Company provides a range of services, such as consulting, systems integration and management of IT and business functions (outsourcing). Both the company’s operating income and cash flow are consistent and fundamentally this company should be a good buy. However the cycle trend is indicating a downward decline over the week and candle formation is telling me that the market has more bears than bulls for the weekly data. Based on the indication I will not buy the shares now but will continue monitoring the signals over the week.

Forest Laboratories, Inc. and its subsidiaries develop, manufacture and sell both branded and generic forms of ethical drug products, which require a physician’s prescription. The Company’s products in the United States consist of branded ethical drug specialties marketed directly or detailed to physicians by its Forest Pharmaceuticals, Forest Therapeutics, Forest Healthcare, Forest Ethicare and Forest Specialty Sales. The company has a strong pipeline going forward and is in good shape financially. It is one of the few companies actively buying back stock this year, having repurchased over 10 million shares. At the end of the second quarter, it had over $3 billion in cash and no long-term debt. Its operating profits are healthy and both the operating and free cash flows are positive. The cycle trend is indication a slow upside trend and candlestick indicates a hold and wait for new signals. This will be the stock I will be focusing and buy if it opens below Friday’s close of $30.56.

Grupo Simec, S.A.B. de C.V. (SIM) is a diversified manufacturer, processor and distributor of special bar quality (SBQ) steel and structural steel products with production and commercial operations in the United States, Mexico and Canada. The Company’s SBQ products are used across a range of engineered end-user applications, including axles, hubs and crankshafts for automobiles and light trucks, machine tools and off-highway equipment. The company’s operating income is consistent and cash flows are within my reasonable expectation, though I am a little concern with the increase in inventories. However with the cycle trend indicating an advancement and candlestick formation is high wave bullish harami, this will be the stock that I will buy.

As for NOV, I like this stock’s fundamentals and with the cycle trend indicating a buy signal and the confirmation of bullish homing pigeon candlestick formation, I hope to make more money from this stock.

Have a great trading week ahead.

Regards
Francies Cheng
BBus MAppliedFinance

Thursday! Thanksgiving and thankful for NOV gains!

Good morning,

It’s Thursday and finally I can take my long due break. US markets will be closed for Thanksgiving tonight and I can relax over a few glasses of red wine without having to wake up early tomorrow to write this blog. I am pleasantly surprised that the responses to my advertisement exceeded my expectation, and I am looking forward to the coming session. A gentleman called in response to the advertisement and asked what superior technique he can learn from me. To be honest, the best technique is to keep the strategy simple. It is always simplicity that’s the best policy to trade stocks. There’s this magazine which I subscribe (Knowledge) which is published by BBC and in this month’s issue there’s an article about stock trading. The research compared the returns of a monkey’s portfolio using darts to choose the stocks by throwing the darts at a board with all the listed companies in US against a senior stock analyst’s portfolio with his acclaimed stock selections and timing skills. Who do you think will have the better returns? It’s the monkey! Paying peanuts and getting a monkey? Sometime it’s not too bad after all.

This research reminds me of the lessons I learned in my Master’s that research do show that taking into consideration of trading commission, it is not possible to beat the market over time consistently and if it does, it is because the trader is lucky. You must be questioning me that indeed there are friends of yours that have made good money trading stocks. Well, to understand the research we must understand what “the market” is really. If a trader trades in 5 stocks in NYSE, his market will be the same 5 stocks that he trades in. Obviously if he compares his returns with that of the whole S&P500, he is expected to have higher returns simply because he is taking more risk, and his excess returns are rewards for the risk he took. It is not an easy theory to understand. It really a matter of relativity. Let’s assume a trader trades on Citibank shares at $2 and immediate sold the shares at $2.50.If the share declined to $1.80 at market close, most of us will say that he has “beaten” the market, which is the performance of the Citibank share. Honestly, has he “beaten” the market? Firstly, I can say that he is lucky because no one can really predict the next price movement. Secondly, to beat the market means he has to trade continuously throughout the same time frame, i.e. he should have short the stocks before the price decline. If we take the same time frame from the moment he bought the share to the time he sold, his return was actually the same return of the share, and with the commission for the trade, do you think that he has “beaten” the market?

The biggest lesson I learnt is when trading the stock market, I should not be aiming to beat the market. Rather my focus is to achieve my expected returns for the risk I take. I can never predict correctly all the time how the stock price will move, but with all the timely and right information of the companies of the stocks I am buying, I stand a better chance to achieve my targeted returns over time. Companies with good business strategies and are financially strong should grow over time. Buying the shares of these companies cannot be too wrong and if we can understand the behaviour of the market participants for these companies, we can time to buy at a good price and sell when we are happy with our returns. So since we cannot beat the market, I doubt there are superior complicated techniques out there that can claim they can beat the market. All we need to do is to study and understand the companies we are buying and honestly it is really all that complicating.

Last night was good for me and my forecast for the markets was hit on. US stocks advance was supported by data that pointed to stabilisation in the labour and housing markets. New claims for jobless benefits fell sharply in the latest week and new claims for unemployment fell to a 13-month low, beating economists’ expected claim. Continuing claims, a measure of Americans who have been receiving benefits for a week or more, fell to beat economists expectations. Sales of new US family homes rose in October to their highest level in a year in September, also beating economists estimates. Trading volume was light one day before the Thanksgiving holiday. Gold prices hit record highs last night, in line with my forecast the previous day, lifted by a report that India may consider buying more bullion from IMF and a weaker USD. Crude oil prices advanced on a weaker US dollar and after a government report showed that US fuel demand gained for a second week.

For KUTE’s selection, NOV gained 2% to close at $44.88. My limits were hit and I am really going to enjoy my holidays with the tidy profits I made with this counter this week. MGLN closed 0.48% down at $37.10 and APOG lost 1.68% at $14.06.

Have a great holiday and I will be back on Monday morning for the new stocks trading plan. Adios.

Francies Cheng
BBus MAppliedFinance

Look at my advert in Today's paper today

Good morning,

Today is the day my first advertisement in the Today’s paper for my stock trading seminar for beginners. I am excited but unsure if there will be good response. Why am I so unsure? Well, it’s because my advertisement does not promise that my students can make $10,000 a month from a small capital of $1000, and that I am only charging SDG 388 for the one day program. My friends have advised me to conduct “Free” introductory seminars to sell the program and felt that SDG 388 is too cheap and may be perceived as a “cheap” educational stock program, rather than a success secret formula sharing session. They suggested that I should charge SDG2800 for a 2 day program. They may be right but I do not believe that there is any real secret success formula and if there is, SDG 2800 would be too cheap. I am just interested to teach and share my method of stock selection and my aim is my participants can analysis and trade stocks like the professionals. So I can only hope for the best response.

US markets closed with moderate loss last night as minutes showed Federal Reserve officials are confident the recovery is sustainable. The market had declined earlier on a report that showed the economy grew at a slower than previously estimated pace in the September quarter. U.S. GDP was determined to have expanded at a 2.8% rate in the third quarter. That was in step with expectations, but it marked a considerable downward revision to the 3.5% increase that was posted as part of the advance GDP estimate. Trading was volatile and volume was low on Tuesday, which is likely to continue through the holiday shortened trading week, with markets closed for Thanksgiving Day on Thursday. Stocks also trade in a shortened session on Friday. With such reports, I am expecting the rates to stay low and USD to continue to slide for the near future. I am predicting that Gold price will continue to advance and energy related stock will continue to perform well. Although analysts are estimating that crude supplies have gained amid the slowing economy, I am pricing in the future growth into my expectation of the oil related stocks.

NOV closed 1.08% higher at $44.00 last night and the sole position I have is well in the money. I have placed a buy order at $42.90 but the lowest the stock went last night was $42.91. Missed opportunity but I am learning not to feel too emotional about it. MGLN closed 1.53% higher at $37.28 and APOG was down 1.11% at $14.30. CSH and ABM were both down at 0.31% and 0.83% respectively.

Have a great day today!

Francies Cheng
BBus MAppliedFinance

Good start to the week

Good morning,

US markets started the week higher after the surprising nice report from the National Association of Realtors’ existing home sales surged more than estimates and the statement from a fed reserve officer that they should continue buying mortgaged backed securities past 2010. Market breadth was positive and trading volume was light. On the NYSE, winners beat losers nearly four to one. On the NASDAQ, advancers beat decliners by more than two to one on volume of 1.27B shares. DJIA closed 1.28% higher at 10,450.95 and S & P gained 1.36% to close at 1106.24. By the way, I need to clarify that when I mentioned that US markets will trade sideways this week, I was suggesting that the markets will close within narrow range. However, I believed that the market will continue to be volatile within the week as participants respond to news releases. That is why I suggested buying at dip and selling at targets.

It is always nice to make money on the first trading day of the week. As expected, 3 of my positions in NOV were closed last night with very nice profits when the prices hit my limits. Good thing it did as NOV declined from its high of $44.36 to close at $43.53, up 1.73% higher from Friday’s close. It went as low as $43.36 during the trading session. I have 1 more position left for this counter and I am sure it will be sold by this week with profits. MGLN closed the session at $36.72, 1.35% higher. The other stock selected by KUTE and showed good buying signals, APOG gained 2.99% to close at $14.46.

Have a great day ahead!

Francies Cheng
BBus MAppliedFinance

Short week to trade with the selected stocks

Good morning,

It will be a shorter week for trading this week as the market will be closed on Thursday for Thanksgiving. Since I have not taken a nice break off my work, I intend to either close off all my position on Wednesday or to place limits and take a break on Friday to enjoy a longer weekend. DJIA ended up 0.5% for last week and S&P 500 ended modestly down at 2 points and Nasdaq was down 1% for the week. The declines were modest and it will be interesting to see how this week will be. We will have the National Association of Realtors report for existing home sales on Monday, the S&P/Case-Shiller Index for September on Tuesday which tracks sale prices of existing homes in 20 major markets and the new home sales from the Commerce Department on Wednesday. These 3 reports and the direction of USD the next 3 days can decide whether I can enjoy my long weekend break. Let see how US markets will be for the coming week.

From the Cycle Trend chart, DJIA will be trading side way and the candle formation of a white spinning top seems to confirm the chart. Since it will be a short week, my strategy will continue to buy at dip and sell at target. These are the stocks that meet KUTE’s fundamental requirements; NOV, MGLN, ABM, CSH and APOG. Since I have covered NOV and MGLN, I will only analysis the financials of ABM, CSH and APOG. ABM Industries Incorporated (ABM) is a facility services contractor in the United States. ABM and its subsidiaries provide janitorial, parking, security and engineering services for commercial, industrial, institutional and retail facilities in 100 of cities throughout the United States. The company is fundamentally sound and most analysts have given this stock a neutral to moderate buy recommendations and its operating profits and both the operating and free cash flow are consistently positive for the last few years. However the cycle trend is showing a decline for the week and its candlestick formation of bearish engulfing is telling me to stay away from this stock.

Cash America International, Inc. (CSH) provides pawn loans, short-term cash advances, check cashing services and other specialty financial services to individuals. The Company also sells merchandise in its pawnshops, primarily personal property that has been forfeited in connection with its pawn lending operations. As of December 31, 2008, the Company operated 501 pawnshops in 22 states throughout US. A confluence of trends looks ready to push pawn lenders higher. The declining availability of credit should spur more demand for pawn loans, and rising gold prices should make those loans more profitable. With banks offering consumers less credit, in a pinch more people will be forced to turn to non-banks, such as pawn lenders. Though the company’s financials are consistent and positive, cycle trend is showing a decline and the candle formation of a black candlestick indicates a wait signal.

Apogee Enterprises, Inc. (Apogee Enterprises), through its subsidiaries, is engaged in the design and development of value-added glass products, services and systems. I like the company’s financials and it is fundamentally strong. The cycle trend is showing upside advance but the candle stick formation is a spinning top representing indecision between the bulls and the bears. I will wait for the confirmation of the daily signals before I buy into this company.

As for NOV, the candlestick is telling me to wait but the cycle trend is showing a moderately strong upside advance. MGLN cycle trend upside advance forecast is strong and its candle formation for the week is to hold and wait for the confirmation of a new signal.

Since I am still holding NOV and I am at the limits of my 30-20-50 money management rule, I can only focus on the NOV stock. If I can sell all the positions of this stock I will look into both APOG and MGLN.

Enjoy trading for the week.

Francies Cheng
BBus MAppliedFinance

Mixed results but made money for the week

Good morning,

What a night. 4 bottles of premium sake shared among 3 friends and my head is still pounding. When I turned on my trading screen this morning I realized that I have placed another 2 positions of NOV at $42.87 and $42.72 last night. I am glad that one of the positions is in the money and the other’s loss is marginally, because the buy orders were executed while I was enjoying my sake.

So it’s time to evaluate the performance of KUTE’s selection. It was forecasted that DJIA will trade up amid volatility for the week. Last Friday’s closed was 10,270.47 and last night DJIA closed the week at 10,318.16. During the week the range was from 10,471.28 to 10.226.41. As for the selected stocks, I mentioned that NOV’s cycle chart was indicating upside gain but the candle formation was a black spinning top indicating decision, and my plan was to buy at dip and sell at target. NOV’s last Friday’s closed was $44.17 and the counter closed $42.79. The range for the week was $46.46 to $42.35. I had made a few profitable trades during the week and am currently holding to 4 positions. MGLN last Friday’s close was $35.18 and last night close was $36.23.The range was $36.87 to $35.13.

As for the rest of the stocks that passed through the fundamental selection but not the technical, CVX opened the week at $78.11 and closed the week down at $76.77, MIR opened $14.79 and closed down at $13.94, and ESV opened $46.26 and closed lower at $44.34.

See you next Monday morning for next week’s KUTE’s selection. Have a great weekend!

Francies Cheng
BBus MAppliedFinance

NOV buy order was triggered last night

Good morning,

I have finally decided to launch my KUTE stock training program for new beginners and those that have attended other so-called stock gurus’ programs and have not been making money. It was not an easy decision because I have always question these programs that if they are so good and can make such easy money, why should they be teaching others? However as I spoke to many of those who attended these programs and having checked some of the gurus’ background, I realized that most of the students are paying large sum of money to learn strategies that may not work at all. It is really not worth the thousands to attend such programs. So I thought that since I have been training only my Investment Advisers and share my KUTE methods only to clients, I might as well share it to the public, at a much lower cost. My intention is to educate would be stock traders to understand everything they should know before plunging into the challenging world of making money from analyzing the macro, companies, forecast their future earnings and growth and making a well calculated move to buy the shares. My program does not guarantee one to become a millionaire nor having returns of $10,000 per month from capital less than this after attending my program. Rather participants will make consistent returns over time if they apply what they learn in my course. So do look for the advertisement that will appear next wednesday in Today’s.

Last night Major indexes tumbled about 1 percent, including DJIA, which lost 94 points but ended well off its low after a key economic report raised concerns about the recovery of the US economy. Energy and material stocks logged some of the biggest losses as a jump in the dollar sent commodity prices tumbling. Meanwhile, an analyst's downgrade of the chip industry pulled technology shares sharply lower. The sell-off was broad-based, with all but three of the Dow's 40 stocks turning lower. Financials, Industrials and consumer discretionary stocks were among the hardest hit.

NOV was down below the previous Friday’s close of $44.17 during the early session and I had 2 buy orders triggered and 2 positions were bought at $43.69 and $43.54. The stock closed at $43.83, though down 3.86% from previous day, it is still positive for me. MGLN closed 1.73% at $35.76, MIR down 3.98% at $13.99 and CVX declined 1.58% to close at $77.34. Another trading session to go and I am already looking forward to it and the coming weekend to rest.

Have a great day.

Francies Cheng
BBus MAppliedFinance

Did nothing last night

Good morning,

Yesterday started with a visit to the doctor for my H1N1 jab. I thought the clinic would be packed with people waiting to immune themselves against the flu virus, but to my surprise I had my jab done in 5 minutes. Later in the evening at my bar I was sharing with an In Flight Supervisor from my local airline about the jab and he told me that he had it done in 2 minutes and there isn’t any queue at all. I was expecting the local population rushing to take up the supply of vaccines but it didn’t happen. So why did I rush to have it done? Perhaps it is my stock trading mentality. A good stock trader looks at the past historical records and understands the current situation and bet on his perceived future forecast. I read in the news that H1N1 spread fast previously and it may get worst during the winter season. Though it has not happened, I am sure once the flu season kicks in and if there are reports of wide-spread around the world, many of my country folks will rush to have their jabs, and the stock of vaccines may not be enough. Isn’t it the same the stock market? Traders and investors will rush to buy or sell when there are un-anticipated macros or companies report causing the price to rise. So if a trader can look at the historical past, understand the current situation and market participants’ behaviors and forecasting the future with these understandings, it would be better for him to buy or sell before the market does to maximize the returns.

I am glad that I have no major side effect from the jab except a minor one which I am not sure if the cause is the jab. I did a training seminar last night for my new Investment Advisers and faithfully finished the class just before the markets open. On my way home I dropped by my bar for a glass of my normal dose of merlot. I only had a glass and I was high. This has never happen before so I think it must be the jab effect. So if you are getting yours’, maybe is wise to avoid alcohol after the vaccination. The good thing was there was no buying signal for the selected stocks when I read the technical during my rest before my class, so when I reached home, I just headed straight to my bed and slept through the whole trading session. I was glad I did because the markets were volatile and with the dizzy condition I had I would probably trade with my emotion rather than following the rules of KUTE.

DJIA closed down 11.11% at 10,426.31 and S&P lost 0.05% to close at 1,109.80. The declines outnumbered the advances for the second day in both the NYSE and Nasdaq. Despite the poor housing data, the Dow Jones US Home Construction index added 0.4%, bolstered by a 4% rise in Pulte Homes after an analyst's upgrade. Advances in the financial sector limited the market's decline. The S&P financial index added 0.5%. At the close there were more weaknesses in technology and energy stocks.

Despite my no activity last night, NOV share price moved up, hitting my limits before it declined to close at $45.59, losing 1.17%. So I made good tidy profits while I was sleeping, thanks to KUTE position trading plan. MGLN closed the session at $36.39, down 0.49%. CVX was 0.14% higher to close at $78.92, ESV declined 0.72% at $47.19 and MIR declined 0.61% at $14.57.

I have no more open position with NOV and MGLN so I will be looking at technical today for buying opportunities since the stocks are still above last Friday’s close.

Have a great day!

Francies Cheng
BBus MAppliedFinance

Asset allocation or stock trading for wealth accumulation?

Good morning,

One of the readers of this blog wrote to me asking why I was talking about portfolio allocation if the title of this blog is profitable stock trading. Let me explain. Firstly, there is a different between trading and investing. Investing traditionally refers to buying a stock or other financial instrument for a long period of time, typically over several years whereas trading typically refers to buying and selling stocks or other financial instruments for shorter periods of time, typically less than a few months. A trader will move quickly in and out of stock, picking up a few points here and there whereas an investor is in for the long haul and is more interested in consistent growth in the long term. It's important to understand this simple distinction and keep the two separate; stocks that you trade and stocks in which you invest should be treated completely differently.

Secondly, all of us look forward to the day where we can stop working and enjoy our lives. To be able do so, we need to know what is the lump sum capital required to fund our dreams when we stopped working, our time horizon and the internal rate of returns so that the current capital we have can compound over the period to achieve the lump sum capital. Research tells us that over time, most equity indices return an average of 9% to 12% per annum, so if an efficient portfolio can be created for equities that do not co-vary and meet the investor’s risk profile and rate of return, the dream is attainable. Depending on the risk profile, a percentage of the total asset could be set aside for trading. This amount should be large enough to trade and small enough so that one will not lose sleep if all is lost. Thus when I advise my clients, I will recommend them to invest long term for their future and if both the risk profile and financial ability allow, trade to beat the average market rate of returns to boost their investment total returns, and this profitable stock trading blog objective is to serve this need and educate my readers the systematic method to trade stocks for better returns. At the same time I also clarify to this reader that he may have misunderstood that I am a day trader trading on intra-day data and scalping the markets every minute. I had mentioned previously that I “trade” daily, but what I actually meant was I look at the markets and stocks daily and only trade when either there’s a tail-end event or my previous night’s position was exercised and I need to place new trades. Otherwise I allow the stocks I bought at the week’s opening to appreciate till it achieve my targets. Very often I placed buy and sell limits at prices below previous Friday’s closing prices at the same time I bought into the shares. My trading style is suitable for busy executives since they need to work the next morning. So because of my style, I can rest well and sleep early, which I did last night.

DJIA gained 30 points to 10,437.42 last night. Nasdaq added 6 points to close at 2,203.78, and the S&P 500 was up 1 point to 1,110.32, mostly because of weakness in those retail stocks. There were 44% advances against 52% declines in NYSE and 51% advances against 44% declines in Nasdaq. The KUTE selected stocks NOV closed 1.47% higher at $46.13 and MGLN was up 1.05% higher at $36.57.

CVX was up 0.25% at $78.81, ESV gained 0.17% at $47.53 and MIR lost 1.15% to close at $14.66. So far the selected stocks are in the money and I hope that you have gained as much as I have.

Have a great day!

Francies Cheng
BBus MAppliedFinance

So did you profit from NOV last night?

Good morning,

I had a busy day with a couple of meetings with my clients. These are clients who have made more than 30% returns for their portfolio I manage for the last 4 months when they transfer their investments to me because their previous Investment Advisers have disappeared after losing more than 50% in a year with their portfolio. The common question they asked me during the meeting was how the markets will perform for the next 6 months and whether they should sell their equities portion of their portfolio to lock in profits. Is this the same question we all have today? My advice to all these clients of mine is to first remain focus on their objectives, time horizon, risk profile and the strategy for re-balancing for their portfolios. Since their objectives and risk profile has not change and I am expecting the volatility index to decline, my recommendation to them is to buy more equities (relatively reduce bonds) when the markets are trending up for the next 3 months (constant proportion strategy) and do a review of the market conditions if the constant mix strategy (buy equities as market falls) should be applied in February next year.

I was home early last night because I was anticipating a good rally when the stock markets open for trading because Asian markets have closed higher amid expectation that the retail sales will beat estimates and Lowe has reported that it is seeing stabilization in some of the hardest hit housing market. I was also expecting Bernanke to keep the interest rates intact for a little longer and the market will react to the speech. Indeed KUTE was right with its macro forecasts yesterday as broad based buying drove the US markets to close at their highest in for 2009. The DJIA closed 1.33% higher to close the session at 10,407.96; S&P 500 was up 1.45% to close at 1,109.30 and Nasdaq closed 2,197.85, up 1.38%.

I have mentioned in my earlier blog that I will only trade stocks that KUTE select for its potential gain for the week (ie. fundamentally sound and cycle trend indicating upside advancement for the week and candlestick formation confirmation of up trend or indecision) and actively buy and sell daily if technical signals opportunities. Last night, I bought NOV at $44.76 when the stock gapped up from last Friday’s close and took another position at $44.70. The stock closed 2.92% higher at $45.46. The day’s high was $45.79 and my positions were closed at $45.70. That was the only stocks I traded last night and didn’t buy into MGLN as I am still sticking to my 30-20-50 rules for liquidity since I am still holding on to PTEN which took up much space in my 50% portion. The stock closed 3.51% at $16.52. The reason I am holding on to this stock is to test the KUTE’s rule that even if the price did not move as forecasted, the stock is good to hold and the price will advance over the next 3 months since it is fundamentally good and its financials are strong. At least I don’t lose much for this position and I am still in the money.

As for the other selected stocks, ESV closed 3.29% higher at $47.45, CVX gained 1.75% to close at $78.61, MGLN was 2.87% higher at $36.19 and MIR up 0.41% at $14.83.

Have a great day!

Francies Cheng
BBus MAppliedFinance

The week of 16th Nov KUTE selection

Good morning,

What will this coming week be? After last week’s volatility, will we see another week of swings? There will be fewer companies reporting their earnings but I will be careful with the outlook reports of Lowe and GM on Monday. A good report for Lowe will confirm the bullish about the US housing market. GM outlook will confirm the recovery story since automotive is one of the key area of the US economy. Dell and Home Depot will be the other key earnings I will look out for. This week will have economy reports for Retail Sales on Monday, Industrial Production on Tuesday, CPI and Housing Starts/Building Permits on Wednesday and Existing Home Sales on Friday. I will also be following Bernanke’s speech about US economy outlook on Monday. I expect the focus to be on US dollar and the market will probably be driven by the direction of the currency after reading from US Secretary of Treasury Mr. Geithner’s message during APEC that US is committed to a stronger USD. This could be his first hint to manage future increase in interest rate and I will be listening to Bernanke’s speech for any reference to the monetary policies. Let’s see how both the Cycle Trend and technical forecast for the coming week;

We can see from the Cycle Trend that US DJIA will still have some more room for upside movement for the week. On the candlestick formation, a bullish three outside up pattern has formed to confirm the bullish engulfing pattern of the last session and the index reversal. The reliability of the pattern is very high but I am still waiting for the confirmation of a white candle this week. With the economy stabilizing and market on the edge to read between the lines of Bernanke’s speech to predict the time-frame of interest rates increase, the strategy of buying at dip and sell at target will still apply to this week’s trade.

The stocks selected remain unchanged for the three stocks selected last week with the exclusion of TAP. The only inclusions are Chevron Corporation (CVX) and Ensco International (ESV).

Chevron Corporation (Chevron) manages its investments in subsidiaries and affiliates, and provides administrative, financial, management and technology support to the United States and International subsidiaries that engage in fully integrated petroleum operations, chemicals operations, mining operations of coal and other minerals, power generation and energy services. The stock is tied to oil-related equipment and data, to oil fields, pumps, and refineries, and to more buildings and employees, among other things. It's unlikely that those kinds of assets will suddenly become worthless. The company has strong operating cash flow and free cash flow. Its last 3 years operating income was positive. So the fundamentals of this stock are strong. For the technical, cycle trend indicated an uptrend but the price is trending towards the resistance of the upper Bollinger band. With the candlestick forming a black spinning top, I would rather wait for the further confirmation before entering to buy this stock.

ENSCO International Incorporated is an international offshore contract drilling company. The Company engages in the drilling of offshore oil and gas wells in domestic and international markets by providing its drilling rigs and crews under contracts with major international, government-owned, and independent oil and gas companies. The company’s operating profits for the last three years was consistently positive and growing. The operating and free cash flows are strong for the same period. The little concern I have is the reduction in short term debt but the increase in its receivable for the last financial year. As for the technical, Cycle Trend is positive and forecasted an upside gain for the week. However, its candlestick formation is a black bearish engulfing pattern with a potential reversal change in trend. I will keep an eye on the on futures trading to get preliminary hints about the direction of the market. Related news, events, economic data, and the world stock markets will also be closely followed prior to and during the confirmation week to decide if this stock will be traded, since cycle trend is positive.

As for NOV, MIR, MGLN, there are no changes to its fundamentals and I will only look into the technical. NOV’s cycle trend is still showing an uptrend gain for the week. As for candlestick formation, a black spinning top was formed, representing indecision between buyers and sellers. I will be closely monitoring the daily candle confirmation for a white candle formation to enter to buy this stock. MIR cycle trend is forecasting a downside decline for the stock and its candle formation of white spinning top represents complete indecision between the bulls and bears. For this stock, KUTE is recommending a “Hold”. As for MGLN, the cycle trend indication is upside gain. However the price is trading near its Bollinger resistance and candlestick formation is a white candle without a significant signal to buy or sell.

My trading rules to select the stock to trade daily; if the selected stocks’ price is at or below Friday’s close and cycle trend is positive with candlestick formation signaling neutral, indecision or buy indications. The stock must also not be testing its Bollinger resistance. For my daily trading, I will be looking only at NOV and MGLN because of the positive cycle trend indications and the market’s indecision.

Have a great trading week ahead.

Francies Cheng
BBus MAppliedFinance

Week's evelaution

Good morning,

Time flies. It’s Saturday again and this is the day I always look forward to because I can evaluate my stocks’ performance and look forward to the new stocks selected for next week. So how correct are KUTE’s forecasts? KUTE has forecasted at the beginning of the week that US markets will be volatile and trading within broad range with the possibility of upside advancement for the week. It further selected NOV and recommended to buy at dip and sell once the target returns is achieved.

For the macro, US markets closed the week higher at 10,270.47, ranging from 10,020.62 to 10,357.38.

As for NOV, the technical indicators signaled the stock to advance and recommend buy when the price was $43.68. The stock opened the week’s session at $44.63 and closed last night at $44.17. In between the week it traded with the range of $43.87 to $46.16. I had mentioned in my previous blog that I bought when the stock dip and sold when the returns were achieved twice in the week and recommend to stay out of NOV on Thursday. I am glad I followed KUTE’s recommended trading strategy for the week and made some tidy profits for this stock.

The other stock that KUTE selected and I decided to bet because the candlestick formation was signaling a strong buy but cycle trend was showing a potential downside risk was MIR. It started the week at $14.15 and closed at $14.77. For the other 2 stocks that were dropped from the final selection for its poor technical indications, MGLN opened at $33.91 and closed the week at $35.19 and TAP opened $43.85 and closed $45.68.

I cannot be too happy with the other stocks I have bought that were either not selected by KUTE or when the system indicated sell but I continue holding. So I am still waiting for Citibank and PTEN to recover.

See you on Monday morning for the new list of KUTE’s selection. Have a great weekend!

Francies Cheng
BBus MAppliedFinance

Good morning,

I was clearing all my unused files and I chanced upon an excel file of the stocks screened by KUTE sometime ago in July 2009 before passing through the 2nd and 3rd stage of KUTE funnel. These are the stocks;

You can see from the raw unedited spreadsheet that of the 10 stocks that were screened for their fundamentals, 60% of the selected stocks are in the money compared with the 40% declines. These stocks are selected only for its fundamentals and have not pass through the more stringent rounds of reading the financials and technical. For the period of only 4 months, the return is 13.36%. If these stocks are bought with CFD at the leverage of 10 times, the returns will be amazing.

These returns support my belief that fundamentally sound companies’ share prices should increase over time. From both the positive returns of the 6 companies and negative returns in the same period for the other 4 companies, I learned that it is prudent to invest in all the selected stocks and target only the portfolio return if my strategy is to buy and hold. Since there are 4 companies with declined stock price, the buy and hold theory rewards investors for assuming systematic risk and not company specific risk. Investing in a basket of stocks is good for investors with longer investment horizon and is too busy to manage their own stock trades. For the many traders the buy and hold strategy is neither exciting nor fulfilling. Our goal is to achieve better returns than the buy and hold strategy. With the right system for stocks filtering and rules for entry, exit and money management, the chances of beating the portfolio return is much higher. KUTE has so far served me well for daily trading and my returns have far exceeded the 13.36% returns.

The US market declined last night with DJIA losing 0.91% to close the session at 10,197.47 and S&P logged its worst performance by percentage this month to close at 1,087.24, down -1.03%. Nasdaq was down 0.83% at 2,149.02. NYSE had 78% declines against 20% advances and Nasdaq was 73% declines against 23% advances. The declines were caused by stronger dollar weighing on commodity based shares and a guarded outlook from Wal-Mart Stores spurred worries about the strength of US consumer spending. NOV was down 3.14% to close lower at $44.17 and MIR lost 1.34% to close at $14.77. MGLN lost 1.38% to close at $34.42 and TAP lost 1.3% to close at $45.54. PTEN lost 4.21% to close at $15.93.

I can only hope that my friend had read the previous day’s blog that I did not re-enter to buy NOV and he did likewise. Have a great day today.

Francies Cheng
BBus MAppliedFinance

Dow was up and so were the selected stocks

Good morning,

Last night’s market opening was great for all long stock traders. DJIA resumed its previous night positive close to advance in the opening session and the good news to me was the 2 positions I bought in NOV hit its target again and was sold at morning high of $46.10. I bought the stock last night at $44.52, so I am a happy man making another round of profits with the counter. I am glad that I placed the limit price because the stock traded down to $45.31 after it reached the morning high. Not long after the trade I received a sms message asking me if I had made money. I am pretty sure this friend of mine had made some money with this counter after reading my blog this week. What interests me is another sms soon after the stock declined to $45.40. This time he asked if the price is good to re-enter since I have mentioned in my blog that I will buy at dip and sell at target.

I am glad that he asked and I sincerely hope that my other followers do not blindly buy at dip just because I have mentioned in my previous blog. I do analysis the day’s economic developments and scan the web for any news relating to the companies of the stocks I intend to buy at dip. I also read the technical cycle trend and candlestick charts. If all the signs are positive I will re-enter to buy. It is not possible for me to detailed daily forecast in this blog since I am not an intraday or daily trader. I believe good stocks will eventually advance within my bell curve confidence level and when I buy a stock I normally wait for it to achieve my targeted returns. KUTE system’s selected stock is quite accurate for weekly position trading, i.e., if the stock is purchased and held to recommended exit point. However, the buy at dip and sell at target strategy needs further analysis to determine if the stock should be bought again. Let me give you an example; if KUTE forecast for a stock returns to be positive for the week and the stock advanced 10% in the first 2 trading session. Subsequently it declined 5% on the 4th trading day, and decline further 3% in the last day of the week. Overall the stock has advanced for the week, but if it was re-purchased when it dipped 5%, the new position would have lost 3%. That is the reason why I conduct stock trading seminars to share and teach my methods and strategies so that new traders can choose their own criteria to select which stocks and when to trade. As for NOV, I did not buy again after profits were taken because the cycle trend and candlestick indicated a potential bearish decline. The daily candle for the stock was a bearish harami and it is better to wait for confirmation before any trade.

US stocks edged up last night as comments made by Federal Reserve officials suggest interest rates will stay low for some time. However, gains were limited by strength in US dollar. The rebound in US dollar and some technical resistance cause stock to pull back after the early session gains. The good news was the DJIA continued its daily gain and closed 0.43% higher at 10,291.26 and the broader base S&P 500 closed 1,098.51, up 0.5%. Market breadth was positive. On the NYSE, losers topped winners by four to three and decliners topped advancers almost seven to six in Nasdaq. For the selected stocks, NOV closed 1.04% higher at $45.60 and MIR was up 0.67% to close at $14.97. TAP was up 2.92% to close at $46.14 and Magellan was up 1.1% to close at $34.90. I am still holding on to 1 more position in NOV and the position is still in the money. As for PTEN, the stock closed 2.15% higher at $16.63. Though it is in the money, the price has not achieved the target to exit so I am still holding on.

Have a great day.

Francies Cheng
BBus MAppliedFinance

Predicting daily prices

Good morning,

I was asked yesterday if the US markets can continue its’ surge after gaining more than 200 points the previous night. Honestly I can just punt a direction and hope that I am right. To be honest it is not easy to predict daily stock direction. Over the decade there are many academic studies and research done by market professionals in an attempt to predict the direction of the company’s stock and the market direction. The one conclusion that can be made from these studies is that few, if any, show a real statistical edge.

Technical surely don’t predict what a stock will do. They are only tools to alert us of the prices, based on past experience, at which there is an opportunity to take some specific buy or sell with the likelihood of a positive return. It is a tool to help us understand the current market behavior and the statistical probabilities of price direction. Stock traders buy and sell based on their interpretation of current market conditions and forecasted expectations of the future price directions. A good example is a bearish candle formation that shows more bears selling the stocks than bulls buying. Since there is more supply than demand, the probability of price decline is higher than for the stock to advance. However, if there is an important unexpected positive news announcement for the stock, the market participants will react to the news and the stock price may advance regardless of the candle formation. I have mentioned in my previous blog the theories of market efficiency. While I believe market is efficient, be it if it is strong, semi strong or weak EMH, I have observed that the market efficiency is at its weakest form in the shorter term. Price is real as it represents what the majority of the market participants know at that given time. Most of these short term inefficiencies tend to occur whenever there is either news in the stock or the economy, or there is a great deal of fear in the market.

There are many factors that determine the direction of the market price. Using systems to trade stock is to trade within the bell curve of the confidence level determined by the program. For the system to be right, the conditions for the stock price movements must fall within the bell curve. The more data is used for regressing and forecasting the less noise it will have and the system will be more accurate in its forecast. Daily data is subjected to more noise and market participants’ psychology compared with weekly or monthly data. Thus while I can forecast quite accurately the price behavior for the week, your guess for the daily price movement is as good as mine. So unless I have privileged information, how can I be sure of the immediate future direction?

So what will I do if all my positions were squared the previous night? My strategic decision is based on the macro direction of the US markets. I have expected the market to be volatile and my tactical decision is to buy at low and sell at target. The decision is to buy the stock once the market opens and set profit limit. If price limit is hit and stock sold before the end of the week, I will study the weekly and daily technical again to decide if I will trade this stock again and if I do, when I should enter to buy.

The US markets were indeed volatile last night. Stocks oscillated throughout the session as the U.S. dollar fluctuated against other major currencies after it dropped sharply in the previous session. The market ended flat with DJIA closing 0.2% higher at 10,246.97 and S&P 500 down 0.01% at 1,093.01. There were 41% advances against 56% declines in NYSE and 31% advances against 31% declines in Nasdaq. NOV closed the trading session 1.18% lower at $45.13. MIR was up 2.27% at $14.87, Magellen Health up 0.85% at $34.52 and TAP declined 0.31% to close at $44.83. I bought NOV again last night at $44.52 and am still holding to PTEN. The stock closed 1.03% lower at $16.28.

Have a great day.

Francies Cheng
BBus MAppliedFinance

Did you profit from KUTE last night?

Good morning,

My Taiwanese friends are in town and we had a few nice rounds of merlot and whisky at my bar. These friends are derivative arbitrage traders trading the Taiwan indices and have made good money trading the difference between the SGX futures and Taiwan futures. It’s always an enjoyable time when traders gather and talk about the markets and trading strategies, especially with rounds of alcoholic drinks. The key topic we discussed was obviously the future direction of the markets. Some predicted the continual V recovery; a few believed the W recovery and the rest are honest enough to say that they do not know at all. So what is my view?I believe the markets will continue to rally for the near future but I will be cautious after the New Year. The economy is flooded with excess supply of money and I am sure the Fed will increase the interest rates to counter possible inflationary pressure once the economy growth stabilizes. I always remember what I learned in my finance graduate class that the main policy of the Fed is to control inflation and manage employment rate. With the unemployment rate exceeding the market expectation, I am sure Fed will continue its stimulus plans to fight unemployment and bring the rate down before they embark on the battle to control inflation. So till we see unemployment improving as the economy recovers, we still have some upside to make money with equities.

The week started off with the stocks rallying once the markets opened. Gold hit a record high, financials rose and the Group of 20 nations said they would keep economic stimulus programs in place. Also helping the mood was the Conference Board Employment Trends Index, which rose in October for a second month. US dollar dropped after the G20 decided to maintain the stimulus with gold soaring above $1100. At market open, the stocks KUTE system selected last night advanced along with the markets. NOV was up more than 4.45% in the early session, already achieve the target returns. MIR was a good bet as it advanced more than 3%. MGLN was up 0.28% and TAP advanced 2.2%. So it was an early night for me since the positions were closed once the targets were achieved.

At the end of session DJIA closed at 13 month high and was 2.03% higher at 10226.94 for the session. The broader S&P 500 was up 2.22% to close at 1093.08. The market was bullish with NYSE 82% advances against 26% declines; Nasdaq closed with 67% advances against 20% declines. For the 2 stocks I planned to buy NOV was up 4.56% to close at $45.67 and MIR gained 2.76% to close at $14.54. I managed to sell 1 more position of PTEN at $16.28 and still holding on to 1 more position. MGLN closed 1.3% higher at $34.23 and TAP advanced 2.55% at $44.97.

So did you make money from KUTE’s selection?

Have a great day.

Francies Cheng
BBus MAppliedFinance

New Stock selected with KUTE

Good morning,

It’s a new week and every new week is a new beginning and a new start to filter new stocks, analysis them and make some informed decisions to trade these stocks. With the US markets closing higher in the face of news that the unemployment rate climbed to a25 years high, it will be very interesting to forecast the markets’ direction this week. This week’s key data will be the trade deficit report and the University of Michigan’s report on consumer sentiment on Friday. More important will be the earnings reports which will be dominated by retailers and also reports on construction and technology. With the fundamentals factoring the higher than expected unemployment, massive budget deficits and weaker USD, the market direction should be driven by momentum and participants’ psychology by the earnings reports of the companies selling to the Americans. Let’s take a look at the Cycle Trend chart.

As we can see from the chart, DJIA has an upside potential from both its cycle formation and candle for the coming week. Since I am expecting the week’s earnings reports to be positive and together with the technical, I would expect the market to be volatile and continue its broad range trading and possible upside advancement for the week. Thus my macro strategy of buy at low and sell at target will apply again this week.

The 4 stocks I am looking at this week are Molson Coors Brewing Co (TAP), Mirant Corporation (MIR), Magellan Health Services Inc (MGLN) and National Oilwell (NOV).

National Oilwell Varco, Inc. (NOV) is a provider of equipment and components used in oil and gas drilling and production operations, oilfield services, and supply chain integration services to the upstream oil and gas industry. NOV has a market cap of about $17 billion and has raked in more than $13 billion in sales in the past 12 months. Its fundamentals are good and the company’s last 3 years operating income is positive and growing. Operating cash flows and free cash flows are consistently positive. On the technical, the cycle trend is forecasting an uptrend and a white candlestick were formed, representing normal buying pressure. The bullish harami marks a potential change in trend and a confirmation is required to confirm the stock forecasted advancement. Taking into consideration of the company’s fundamentals, cycle trend forecast and candle, I will be including this stock in my buy list.

Magellan Health Services, Inc. (MGLN) is engaged in the specialty managed healthcare business. Magellan provides services to health plans, insurance companies, corporations, labor unions and various governmental agencies. Its’ earnings report last month beat market’s expectation and the company has raised its FY EPS views. The fundamentals of the company are strong and its past operating income, operating cash flows and free cash flow are positive and consistent. However the cycle trend forecast for the company this week is downward decline and a white candlestick with a long tail shadow was formed representing normal buying pressure and possible retraction, telling me not to bother with further selling or buying until a new signal is formed.

Mirant Corporation (MIR) is an energy company that produces and sells electricity in the United States. The Company owns or leases 10, 1120 megawatt of electric generating capacity located in markets in the Mid-Atlantic and Northeast regions and in California. Mirant also operates an integrated asset management and energy marketing organization based in Atlanta, Georgia. The company post a 97% plunge for their 3rd quarter profit driven mainly by hedging losses. Fundamentally the company is not too bad. Its operating income is consistent if this one time writeoff of hedging loss is excluded and positive and operating cash flow is positive. However I am not comfortable with its free cash flow and the reported large one time hedging losses. This reminds me of the companies in Singapore that had large hedging losses causing the stocks to plunge and these stocks are still recovering from their fall today. The cycle trend is indicating a downtrend but with the candlestick showing a bullish harami cross, I may take a speculative intra day bet for a potential bullish swing when the market opens and set 10% profit target to sell. If KUTE system is fully complied, MIR will be a stock to closely watch and wait for a bullish alert before trading.

Molson Coors Brewing Company (TAP) is a holding company. The Company’s operating subsidiaries include Molson Canada (Molson), operating in Canada; Coors Brewing Company (CBC), operating in the United States prior to the formation of MillerCoors LLC (MillerCoors); Coors Brewers Limited (CBL), operating in the United Kingdom and Ireland, and other corporate entities. The company’s 3rd quarter earnings were up 37% due to higher selling price and cost cuts to beat market expectations. The bottom line earnings were better than estimates but much of it was due to tax benefits. The global beer sales were down by nearly 3% as consumers cut back on spending, causing the stock to closed down 8.5% last Friday. It seems that the conventional wisdom that alcohols were fairly recession proof is being challenged as the sales and revenue of the industry have suffered last year. I am not very comfortable with the declining operating income and operating cash flow. As for the technical, cycle trend chart is forecasting a downward decline and a black candlestick were formed. Most of the analysts are calling for moderate buy for this stock, but I would rather wait and not bother with trading this stock this week.

So what will I trade this week? I will add NOV to my portfolio, bet on MIR and leave MGLN and TAP alone. As for the stock I am still waiting to sell, PTEN, the candlestick is showing a bullish harami cross and with cycle trend indicating neutral, I believe the stock should hit my sell target this week.

By the way, since I am a computer idiot and posting cycle trend chart is quite difficult, I will not post any chart from now onward. If you are keen to see the charts, send me an email and I will be happy to send the charts to you.

Have a great week ahead.

Francies Cheng
BBus MAppliedFinance

KUTE's performance for the week

Good morning,

It’s finally the weekend and it is the day of the week that I always look forward to. It is the day that I evaluate my stock performance and fine tune KUTE’s stock selection process. Stock trading is dynamic and no system is rigidly fixed. Every day is a new learning experience to understand what causes the stock prices to advance or decline and decide if such factors should be included in or excluded from the stock selection process. Saturday is also the day that I can relax without having to read the financials early in the morning and write my summary to all my Investment Advisers. Most importantly I can sleep late on Sunday since this is the only day I take leave from writing this blog.

My friends at the gym asked me this morning if I had copied the stocks recommended by other websites and call it my own. I was sad to hear that but when they told me the reason they asked is because the writings were pretty good and they are following my blogs regularly, I am encouraged to continue. To be frank, there are occasions I thought of discontinuing the blog. After all, I have only one follower and I am not very sure if there are people reading my blog. Until my friend helped me to install the site meter and I realized the blog has many readers and some of them are from countries as far as USA. So if you are one of my readers, I would appreciate your contributions, be it agreeing or criticism since my key objective for this blog is for all traders to share their knowledge and methods so that we can all make money together.

Now let’s look at KUTE’s forecast and the selected stocks performance for the week. We will compare the prices at the beginning of the week and the closing prices last night. DJIA opened at 9712.13 at the beginning of the week and close at 10,023.12 last night to end the week at 3% higher. The lowest it went was 9647.06 and highest was 10,077.08. It traded broadly within the forecasted range. So KUTE was right with the volatility of the market its’ forecast that the market has a possibility to decline was not correct. As I mentioned last night that every trading session is a learning process and looking back at where it got wrong, I realized that Cycle Trend forecasts within the normal bell curve and special events, e.g. earnings and economic reports are outliers that will distort the forecast. Candle was right with its call for confirmation after doji for the future price direction. I will keep this in mind in future analysis.

The 2 stocks that passed through all stages of the KUTE’s selection criteria, CAH opened at $28.34 and closed at $29.50 and NBL opened at $65.63 and close at $66.74. The stocks that passed through the value filtering but did not filtered through the more stringent criteria of financial fundamentals and technical, DRIV opened at $22.83 and closed at $25.42, OSG opened at $39.25 and closed at $36.87, BHI opened $42.07 and closed $41.18, SKX opened $21.82 and closed at $22.80 and WTS opened $28.25 and closed at $30.25. So I was right for the 2 selected stocks and I missed out on DRIV, SKX and WTS but was fortunate not to buy OSG and BHI. Should I get upset with the missed opportunities? If I do I am allowing emotion to control my trade and deviate from the trading plan and rules of KUTE systems. Well, no system can be 100% accurate but if it is accurate for more than 80% of the time, it should good enough to make money consistently. Perhaps I should include stocks that both Cycle trend and Candles contradict as stocks to watch and wait for confirmation to buy. If both agree, the stocks will be a strong buy without the need for confirmation.

As for the stock that was excluded from the list and held by me, PTEN opened at $15.70 and ended the session at $15.78, and I am still holding on to the 2 positions because it has not achieved my target returns. I am not too worried because the stock’s fundamentals are sound.

Have a great weekend and I am excited looking forward to another session of KUTE’s recommendations. See you next Monday morning.

Francies Cheng
BBus MAppliedFinance

Back to above 10,000

Good morning,

My friend is happily making money trading the stock markets with CFD and I am really happy for him. He was retrenched from his job this year and since he couldn’t find another new job, he decided to turn his part-time night trading into a full time job. His target is to make at least $300 a day so that he can meet all his personal and household expenses of about $5000 a month. He was so excited of his new found career that he decided not to look for another job. My only concern is his trading capital is about 80% of his entire savings of $30,000 and he is always fully leveraged if he trades.

In my capacity as an investment adviser director, I have the opportunity to advise many clients in the region and regardless of who or how rich they are, one of the criteria I must know from them is their risk profile. It is very important to understand an investor’s risk profile before I can recommend the right asset classes and investment allocation plan. In finance, risk drives returns. To understand an investor’s risk profile, I need to understand both his ability to take risk and his risk tolerance.

During my time as a derivative broker, I came across many traders that lost all their savings and were sued for their losses for the counters they punted, hoping to make a quick buck from the volatility. These are the punters who have high risk tolerance but without the ability to take risk. Yet there are others who can lose their investment capital without losing their sleep, but chose to keep their money in money market or fixed deposits. These investors have very low risk tolerance but high risk ability. As for my friend, he probably has a very high risk tolerance but his ability to take risk is questionable. There are many financial behavior theories to explain risk tolerance and I think the reasons why he is taking risks in his CFD trading is because he has heard from many of his friends the success CFD trading stories in the current market and his desire to double his savings to support his lifestyle. Without a continuous income and using 80% of his entire savings to fully leverage on his trade, I can only hope that he will be lucky all the time.

I am glad that I do not depend on luck to make money in stock trading. I can sleep well even if the market decline since I am always applying my 30-20-50 rules for my CFD trading and my leverage principle is downward leveraged and not upward leveraged like my friend. I have explained this in my previous blog so I will not repeat again. The stocks are screened, filtered and current market and companies conditions are considered before selected to trade. So how did the selected stocks performed last night?

DJIA surged 203 points to close at 10005.96, 2.1% higher than previous session, S&P 500 rose 20.13, or 1.9 percent, to 1,066.63, its fourth straight gain and Nasdaq rose 49.80, or 2.4 percent, to 2,105.32, its biggest gain since a 2.5 percent spike on July 23. So the markets did move in broad range for the last 4 trading night as forecasted by KUTE. However, the prediction that there is a possibility of decline at the end of week and the participants were looking for direction was only half correct so far. Participants did look for direction and when the directions were clear that US economy is improving with the better than expected data, markets advanced. The decision was to buy at low and sell at target for the stocks selected and indeed these stocks did move in broader range than the markets.

CAH was up 1.72% to close at $29.63. The stock was $28.32 at the beginning of the week when KUTE made a buy signal and I suggested that CAH could be held for longer term and form part of the 30% portfolio. A 10,000 shares valued at $28,000.32 invested at 10 times leveraged of $2,800 would made $10,000.32 before commission for this stock. NBL was up 1.12% to close at $66.88.

As for the other stocks, SKX closed at $22.75 at 2.16% higher, OSG up 1.01% to close at $37.18, DRIV up 0.57% to close at $24.89 and BHI up 3.01% at $42.12. The stock I am still holding, PTEN, closed 2.1% higher at $16.07.

Have a great day!

Francies Cheng
BBus MAppliedFinance

The reasons for last minute sell down last night

Good morning,

Prior to the opening of the stock market, shares and futures around the world rose on speculation that the US Federal Reserve will hold on its’ stand that rates will stay on hold for an “extended period”. The key discussion we had was not whether the rates will be increased, but for how long it will stay at the current rates. Some of my friends who are new to stock trading asked me what has interest rates to do with the share prices. Well, those of us who are experienced in trading stocks know that it will increase operating costs if interest rates are increased and it will hurt operating profits of companies. Having less profits means there’s lesser to share amongst stock owners and the value of shares will decline. Sounds simple to us, but to the many it may be the first time they heard. What amazed me is that my friends are trading the stocks without the knowledge of fundamentals of stock trading. They are trading because they heard from their friends which stocks to buy. I suggested to them that they could be better off if they invest their money with a fund manager than to “gamble” their hard earned money.

In a volatile market such as stock trading, learning how to trade stock is crucial because there is no sure way of continually posting growths in profits for any trader year after year, stock after stock. Trading is a zero sum game, and for every winner there is a loser. The greatest myth about how to trade stock successfully is the need for the trader to be able to predict the stock price’s movements. This is grossly wrong, and the best way to make money in stock trading is to avoid approaches that rely on stock price predictions. The reason behind this is simply there is no person that can correctly predict stock price movement accurately and consistently all the time. The only way to be successful in stock trading is education and a systematic approach to select and trade the right stocks. The key to protecting yourself and be a winner in the stock market is to understand where you are putting your money, so it is important to invest in learning because knowledge is power. It seems like I am promoting my KUTE system training course, so let’s move on to my actual stock trading performance.

The US markets started the night brightly even as the markets wait for the FOMC policy statement and the new economic data. Stocks had risen ahead of the announcement as the report of rising commodity prices and labor market signaled that the pace of layoffs is slowing. However the rally fizzles after the Fed decided to leave the rates intact as correctly forecasted in my last blog. I believed the rally collapsed because many have expected Fed to keep the rates unchanged but it is not clear from the Fed’s statement how it will tighten the market to prevent inflation. Also, more than 2/3 of the House voted to accelerate the credit card reforms to 1st December that allows interest rate increases on existing balances based on limited conditions causing financial stocks to decline in the last hour of trading.

The market closed with 55% advances and 43% declines for NYSE and 38% advances and 59% declines for Nasdaq. CAH closed 1.64% higher at $29.13 and NBL closed -0.2% at $66.14. DRIV closed at $24.75, a whopping 10.89% increase; OSG was down -2.28% at $37.25, BHI down -5.85% at $40.89 and SKX down -0.98% at $22.27. So far so good for KUTE this week for the only 2 stocks the system picked, i.e. CAH and NBL.

The stock I am still waiting to offload PTEN closed at $15.74, down -0.69%. I am not too worried because of my 30-20-50 rule and that the stocks selected are fundamentally sound. It traded the day at the high of $16.10 and I sold off 1 position at $16.07 with slight profit. 2 more position to close and I look forward to another trading day.

Have a great day.

Francies Cheng
BBus MAppliedFinance

V or W?

Good morning,

I have been asked this question many times in the last few days: will there be a V recovery or W shape dip before recovering? To be honest, no one really knows. The current economy is presenting a tricky situation for the policy makers. Their policy choices, which can determine if it’s a V or W recovery, depend on the fundamental questions: Has the economy recovered? If it is, will it continue so if the stimulus are removed? Timing the tightening of the policy is crucial and they need to balance between having the economy running into hyperinflation and sending it into the feared W.

With the policy makers still combating recession, I doubt they will tighten the policy sooner. Perhaps they will only do so after the 2nd quarter of 2010. Last year’s financial and economy meltdown is like a strong earthquake. Once the big shake is over, we can continue to see after-shocks and economy growth will face sustained headwinds. We should see governments reducing their budget deficits once they believe recovery is firm and stable, but until the forecasted 2nd quarter of 2010, the market will continue to be volatile.

The market opened sharply lower last night as a wider than estimated loss at UBS overshadowed Mr. Buffet’s purchase of Burlington Northern Santa Fe Corp. Though the market reacted to the UBS report, I am slightly positive because this result will delay the policy maker’s decision to tighten their policy. I personally see this as a positive sign moving forward for the next quarter if the stimulus plans are not abruptly withdrawn. At the session close, the broader S&P 500 managed to post a modest gain of o.24%. DJIA was down only -0.18%. There were 59% advances against 39% declines in NYSE and 58% advances and 38% declines in Nasdaq.

For the stocks KUTE chose, CAH was down slightly at -0.07% to close at $28.66, NBL advanced 0.88% to close at $66.27. PTEN closed 1.34% higher at $15.85, but it has yet hit my target so I am still holding.

As for the other stocks, BHI closed at $43.43, 2.89% higher, DRIV up 0.45% at $22.32, OSG up 0.21% at $38.12, SKX up 2.18% at $22.49. These stocks performed as expected if only beta rules are applied.

So did I make money in these stocks? To be honest my exposure is already at the 50% of the 30-20-50 rule so I have yet made new trades for CAH or NBL last night. Since I am a position trader, I don’t trade every minute on intra-day signals and I don’t buy stocks that didn’t pass through all stages of KUTE system. Sometimes there could be missed opportunities but overall it is better to stick to my trading rules.

Have a great day.

Francies Cheng
BBus MAppliedFinance

Choppy start to the week

Good morning,

I read an article yesterday targeting retail investors that it is possible to make a million dollar from stock investment. It is not impossible, but it really depends on how long is the time horizon, the risk/return profile and the initial investment capital. Another article claimed that doubling the money is easy if their rules are followed. Based on the rule of 72, i.e., 72 divided by the rate of return will give you the number of period to double the initial investment amount. That is, $100,000 will take 7.2 years to double the money if the return is 10%. If it is 30%, it will take 2.4 years. So you can see that you need to have a large initial investment amount to start with and at the same time take higher risk to achieve a shorter period to double your money. Let’s assume if you have $50,000 to start with. At 10% annual returns, it will take about 31.5 years to achieve a million if it is compounded. At 20% it is 16.5 years, at 30% it is 11.5 years and at 40% it takes 9 years. To be compounded means the gains are not consumed but re-invested. If gains are realized, than it will take a much longer time.

What is troubling is that the million dollar dream is chased by most retail investors. Taking the world renown Warren Buffet’s stocks' returns as a benchmark, achieving more than 20% consistently per year is quite impossible for most professional fund managers, much less retail stock investor. I just wonder how many of these retail investors has $50,000 to start stock trading and believing they can achieve more than 30% per year consistently. I could only pray that their luck does not run dry before their dreams are fulfilled. Does it mean that we should not be trading stocks? No. We just have to be realistic and understand our ability and tolerance to take risk. The money set aside for stock trading should only form part of the total assets and the amount depends on the risk profile. So the next time you read any advertisement claiming you can double your money by investing in their seminars, think of the rule of 72 and decide if you have the money and if they can really achieve the high returns consistently.

US markets did what KUTE system had predicted last night. Stocks jumped after strong reports on manufacturing and housing but were fluctuating by the afternoon. The Dow Jones industrial average ended up 77 points after being up as much as 146 points. The stocks KUTE recommended did well on the first trading day of the week. CAH advanced 1.2% to close at $28.68. NBL closed at $65.69, up 0.09%, with the stock trading with a $3 spread during the session. Among the stocks I have decided not to buy because they do not pass through the final criteria of KUTE technical, BHI was up 0.33% at $42.21 trading around the spread of $2, DRIV was down -2.67% to close at $22.22 and OSG was down -3.08% to close at $38.04.

As for PTEN, I am still waiting for the price to hit my limits to sell. It ended the session at $15.64, up 0.39%.

Have a great day today.

Francies Cheng
BBUs MAppliedFinance

What's in for the week

Hi my friends,

It will be a very interesting week for the market. I was in my bar drinking last night and a couple of my friends asked if there is really a recovery given that the US unemployment is hovering near 10%. I am pretty sure there is, given that employment growth comes last after a recover starts. So how will the markets be this week? There are three big economic events coming up: Auto sales. The major manufacturers will report on Tuesday; the Federal Reserve meeting. The Federal Open Market Committee, the central bank's rate-making body, will decide Wednesday afternoon whether to leave the target for its key federal funds rate at 0% to 0.25%; and the monthly unemployment and payrolls report. This comes Friday before the market open and is the month's most important economic report. Also, there will be 92 S&P500 companies and 2 DJIA companies reporting their earnings this coming week.

Let’s look at the Cycle Trend and Candle technical for the market this week.

As we can see from the chart, the market is still looking for direction and will continue to trade broadly within range and will likely decline over the week. Cycle Trend is indicating a decline and the candle seems to confirm the cycle charting. While I am not expecting the Fed to increase its interest rates, I am not too optimistic with the monthly unemployment and payrolls report. With the market still sensitive to reports and looking for direction, I will continue to my buy at dip and sell at 10% target tactical plan.

The KUTE system has filtered the following fundamentally sound companies this week; SKX (Skechers USA Inc), DRIV, WTS, CAH, OSG, BHI and NBL (Noble Energy Inc). Dropped from last week’s list are PTEN, MLI, and EIX. It will be easy first decision for me, i.e. to sell PTEN when the markets open this week at my target.

Let’s look at the filtered stocks. The betas for the stocks are as follows: SKX 2.37, DRIV 1.46, WTS 1.11, CAH 0.84, OSG 1.53, BHI 1.57 and NBL 0.91. Based on the macros and the tactical plan to trade the stocks’ beta, SKX, OSG and BHI look interesting. I may consider adding CAH to the 30% of the 30-20-50 for longer term holding if the stock’s Free Cash Flow and Operating Income is in line with KUTE’s requirement. Let’s look further for the 2 new companies included in the selection this week.

Skechers U.S.A., Inc. (SKX), incorporated in 1992, designs and markets Skechers-branded contemporary footwear for men, women and children under several lines. In addition to Skechers-branded lines, the Company also offers eight uniquely branded designer, fashion and street-focused footwear lines for men, women and children. These lines are branded and marketed separately from Skechers and appeal to specific audiences. Its brands are sold through department stores, specialty stores, athletic retailers and boutiques, as well as its e-commerce Website and its own retail stores. Skechers operates 84 concept stores, 83 factory outlet stores and 37 warehouse outlet stores in the United States, and 16 concept stores and two factory outlets internationally. Most analysts are bullish with the stock amid the better than expected earnings and the drop in inventory and they are expecting the sales to increase for the near future. However, I am personally not comfortable with the decline in net income and inconsistent cash flow from operation with the company reporting a negative cash flow last year. Taking into capital expenditures, there is no free cash flow for equity owners. With both the weekly Cycle Trend showing a decline and a bearish engulfing candle, I have decided to give this stock a miss.

Noble Energy, Inc. (NBL) is an independent energy company that has been engaged in the acquisition, exploration, development, production and marketing of crude oil, natural gas, and natural gas liquids (NGLs). The Company’s activities include geophysical and geological evaluation and exploratory drilling on properties, for which it has acquired exploration rights. Most analysts have upgraded NBL to buy and the company has maintained a healthy financial and liquidity position. I am comfortable with the company’s consistent gross profit, operating income, positive operating and free cash flows. However with the company’s beta at 0.91 (with macro forecasted to decline) and with Cycle Trend showing a possible decline combined with more bears than bulls as shown in candle, I will keep the stock in my review list and will monitor closely.

BHI Cycle Trend is forecasting a decline and with the candle still bearish, I will also give it a miss. CAH’s Cycle Trend showed upside potential this week but from its candle it seems that the stock is still looking for direction confirmation with a possible decline in the coming week. With the stock beta at 0.84, I may consider to buy this stock. I am still uncomfortable with the technical of DRIV. OSG candle represents a selling pressure this week though the Cycle Trend indicates a possible advance for the week. With many analysts downgrading the stock and with its beta at 1.53, I will be careful with this stock.

So it looks like an easy week for me staying at the sideline. I will be looking at opportunity to sell PTEN and buy CAH and monitor closely the technical of NBL and OSG if it touches the first support at $35.20. I just got to remember not to trade if there is no signals at all. It's better to be safe than sorry.

Have a great week ahead.

Francies Cheng
BBus MAppliedFinance

ps. If you need the charts for the other mentioned stocks, please drop me an email...it's quite troublesome loading all here ...