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