Correlating Stock performance with Liverpool's results

Good morning,

I barely slept more than 2 hours on Thursday night. No, it’s not watching the US markets. It was an agonizing night watching Liverpool FC losing to a lower league team in the FA cup. I am sad that the team has lost, but I am glad that the curse of the Reds is no longer true. For once when Liverpool lost, the stock market ended in the black. It has happened so often before that whenever Liverpool lost, the stock markets will also bleed in the color of the team. It’s the same “mini-skirt” theory and though I am trained in finance and am fully aware that such autocorrelation is impossible, there were temptations to follow the fortune of the team when deciding to trade the markets. I am human after all, and I truly feel for the team.

Trading the stock market is fundamentally trading with our personal belief. It’s all about P/E. Am I talking about PE ratio? No, what I mean is either the trader chose to believe in Technical, i.e. the P (Price) or Fundamentals, i.e. the E (Earnings). The P could also represent the group of random believers, i.e. the market is efficient and the price accounts for the different levels of information that are known in the market. The P technical traders will religiously use technical methods to seek profits, and the E traders will work hard to determine if the stocks are over or under value and seek to make alpha returns from the mispricing. Any belief is not wrong as long as one can exercise discipline and emotion control to apply the belief system. What if stocks are traded without holding to any of these beliefs? Either you should observe the length of mini-skirts or continue watching Liverpool and hope that they will not lose another game again. (smile)

It’s Friday again, and so far this week is good for me. My sole position in DSX and one of the positions of RDC were squared at limits last night, making enough money for me to see my deposits with the broker crossing the 100% increased over the last nine months. If not for Citigroup, I would have achieved 150% returns on deposits for the same period. Well, looking forward, my returns will be better since I believe Citigroup stock should appreciate over the 12 months.

RDC gained 0.28% to close last night’s session at $24.93. I am still holding one position for this share in the money. NOV gained 1.32% to close at $46.96, DOX gained 2.01% at $28.43, NE gained 0.7% at $44.75, PDE gained 1.63% at $33.00 and DSX lost 0.8% to close at $16.05. With NYSE ending last night with 56% advances against 39% declines, I am glad that KUTE’s selections have only 1 stock that declined last night.

Have a great day!

Francies Cheng
BBus MAppliedFinance