Market Look Ahead

Hi Readers,

The first article that I have published with regards to short term local sentiment and US Dow Jones Industrial Average is bearish. Some of you texted me that market is up locally and so does US market as well. Yes, indeed market went up, however it is still too early to call it a bullish uptrend and reversal to the spike down in Dec'18. Am I taking too much risk for holding short positions? Am I going against the trend? Am I trying to time the market? The answer is No and it is calculated risk positions. 

Lets look at whats going on globally. The World Bank recently published its Global Economic Prospects and the overview: 

Global growth is expected to slow to 2.9 percent in 2019. International trade and investment are moderating, trade tensions remain elevated, and financing conditions are tightening. Amid recent episodes of financial stress, growth in emerging market and developing economies has lost momentum and is projected to stall at 4.2 percent this year, with a weaker-than-expected rebound in commodity exporters accompanied by deceleration in commodity importers. Downside risks have become more acute. Financial market pressures and trade tensions could escalate, denting global activity.

What does that means to us? For me, what it meant is that corporate earnings would be a challenge in general. This is true for both local markets and US markets and we have seen quite a few Fortune 500 companies projecting lower earnings for the upcoming quarters. From a valuation perspective, in a market where stocks seems to be "expensive", a smaller earnings (E) in the P/E ratio is a risk with the fact that global growth/economy is slowing down. In US, there is much hype going on that Fed is not expected to raise interest rates; in fact - most investors projecting two rates increase instead of original 3 rates increase in 2019 after what happened in Dec'18. That seems to be the reason driving the rebound in Jan'19 for US markets. Looks like investors are "expecting" what it should be or where it should be heading. Quite a risky bet in my opinion and I would expect volatility in the market to remain for quite some time. 

Closer to KLCI and how does it look like for economic projections perspective? On 9-Jan-2019, Nomura Global Markets Research downgraded the Malaysian equity market to ‘underweight’ from ‘neutral’ previously, on poor earnings growth prospects and higher fiscal deficit of 3.9 per cent for 2018. In response to the report, Finance Minister Lim Guan Eng issued a statement on Jan 10, saying that the Government was confident of achieving 3.7 per cent and 3.4 per cent of fiscal deficit in 2018 and 2019, respectively. This was further supported by World Bank economist saying Malaysia's economic fundamentals remain strong due to its diversified economy, despite the recent downgrade by Nomura Global Markets Research on the Malaysian equity market. Malaysia's economic growth continued to be stable and the World Bank has projected it to grow at 4.7 per cent for 2019. However, a closer look at World Bank's forecast for Malaysia GDP showing GDP is flat in 2019 at 4.7% against 2018 and drop to 4.6% in 2020. This will bring back to the valuations in our stock markets whereby a risk in corporate earnings and high P/E ratio. 

Chart extracted from World Bank websites

Now, how does the stock market looks like from technical perspective. I will compare S&P 500 index and the $VIX index. Volatility Index ($VIX) is derived from the price inputs of the S&P 500 index options, it provides a measure of market risk and investors' sentiments. It is also known by other names like "Fear Gauge" or "Fear Index." Looking at the chart below, one would have noticed that the $VIX is generally trending up in 2018/2019 (bottom right circle) while the S&P 500 index is trending down (top right arrow). This is quite similar back in 2008 (on the left side of the chart). We have not seen $VIX trending up for quite some in between 2008 and 2018. Hence, volatility is still in the market despite current Jan'19 trending up for US markets. Something that all of us should be aware of. 

Comparison of $VIX and S&P 500 index during 2008 (Great Recession) and Current 2018/2019

As for KLCI, I would like to bring you back down the memory lane. Lets have a look at what happened in 2008 below. The index continued to demonstrate lower highs and lower lows during the Great Recession in 2008. Any rebound during the period is short-lived and only to see a lower low. 

KLCI Index during the Great Recession in 2008

Lets look at KLCI at the present moment now and you would have noticed that we are seeing a lower high and one low point (orange circle). We have yet to see a new significant low and current uptrend in Jan'19 for me will be capped at 1720 (yellow circle). Some of you have seen this projections that I have shared few months back (the red curve arrow; and indeed it is behaving within expectations). Unless KLCI index starts moving above 1800 levels, my sentiments on the market is still cautious and bearish.

KLCI Index currently at 2018/2019

Combining both the macro economics prospects and the technical perspective of current market behaviors, that explained the rational behind my short positions. There is no right or wrong here as this is just purely my opinions / analysis based on available information. This sharing is meant for informational purposes only and for your reading. Additionally, I am using the Jan'19 rally here to trade as per my sharing to raise cash while maintaining some long term positions in fundamentally strong counters. 

I would like to wish all my Chinese readers a Happy Chinese New Year and may you and your family be blessed with good health, prosperity and good wealth.

Cheers, 

From the family of Alpha Patterns.

Where do you keep your money now?

Where do you keep your money now? This question was thrown to me two days ago. It was not a surprise to me as I am being asked similar questions on and off.

Since last year 2018, stock market has seen the return of volatility to most major stock markets after what was an unusually calm 2017, and arguably this higher volatility is a sign of a more healthy equity market. Whilst volatility is often associated with falling markets, it is actually a measure of uncertainty and variability – it can often provide as much opportunity as it does as threat.

We’re in an eventful time where the stock market is behaving like a roller coaster last year till now. The interest rates are climbing up as well. Can you make money in such situation? To see results in investment, most people tend to overlook the importance of consistency. Consistency in terms of your approaches, methods, or philosophy is the key towards your success . If you are in the stock trading, continue to trade and maintain the discipline of sticking to your methods. If you are in the property investment field, you have to be in that field all the time. Consistency on the asset type you invest in, and keep focusing on the area you know the best.

Again, same question to ask: Where do you keep your money now? Is it your...

a) Current account?

b) Fixed Deposits?

c) Unit trust account?

d) Central Depository Security account aka Share account?

e) ASN?

If you think carefully, it is either your saving account or your retirement fund in the form of EPF. You will be surprised that your EPF account is having more money than your saving account. Why? It is because of the consistency in terms of the monthly contribution into the account.

I was notified by a friend that it is easier to get ASN unit online. I manage to top up some today (Thaipusam Eve) into my ASN account. I am looking forward to continue with the consistency of topping up my ASN account. Cheers...:)

New Hobby

For past few month, I have a new hobby. Whenever I am free, I will go to the superbike show room to have a look, test ride etc. I cannot own a superbike yet because I still not pass my B full license.
Below are the few bikes under my radar and consideration.

Benelli TRK 502 and Yamaha MT09 are the only 2 shortlisted from my past 2 months survey.

Let say for a bike that Cost RM33000.
10% Down Payment = RM3300
Loan Margin = 90%
Tenure = 7 years (84 months)
Interest Rate = 0.6% per month

The monthly installment required will be RM680

Can I get it funded from Bursa market for the next 84 months? Is it doable? There are other will say that saved more money to buy it and become a debtor of hire purchase of motorbike loan. Majority people avoid stock value investing worry to lose money, they do not understand the important roles of stock markets. This is the main reason majority people is poor investor class but rich saver class.
Only minority investors are super richer than the majority poor savers.

Do follow our blog on the sharing stocks pick and investment ideas in the equity market. You may type in your email address so that the new article will send to your mailbox instantly.

Let money works harder for us rather than we work hard for money.

My Experience with Target Profit

Good Morning,

There was a question on whether should I take profit as AZRB price went up by more than 7% since posting on 14-Jan-2019 and then came down on 16-Jan-2019. Still holding a 3% gain. My take on this is every individual has different investment targets and different required rate of returns. 

I will start off with my own experience and it goes back to end of Feb'18 whereby I have entered a position for LEESK (8079). Upon entry, the price continued to go up and holding more than 30% running profit by mid of Mar'18. I did not exit the position as I was hoping that it will go up to RM1.00; meaning I am aiming for higher gains. Unfortunately, market sentiment turns negative and my running profit was totally wiped off. I was devastated though LEESK was a good counter and investment at that price. I am a human after all and I have emotions too. 

Green Arrow - Entry/Add Position; Red Arrow - Gain Wiped Off; Grey Vertical Line - Exited Position

I spoke to my wife about it as she is my biggest supporter in what I am doing all these years (in corporate life and investment). She gave me a simple advice; if your investment is giving returns more than the fixed deposit (FD) interest rates, that is really good. Bear in mind that FD rates is per annum and we are talking about similar percentage for each trade. I pondered for a while and she was right. And I asked her again on what if I have a losing position? She responded; treat it like a business and there will be ups and downs. As long as you know why you entered the trade, stick to it. If you made a mistake, get out of it and take it as a loss. With that, I added positions again beginning of Apr'18 and exited the position by mid of Apr'18 with a 22% gain. And another trade in Jun'18 which yielded a 17% returns. Looking at the chart, one may say I should have hold it longer or exited much earlier and etc. Again, this is my experience and how about your own experience?

Closer to stock markets - reflecting what she meant was really ignore the volatility driven by news and market sentiment for good counters. As for trading counters, any returns which is more than the FD rates, it is a good trade; yet to mention compounding the gains over time. Since then, I have been adopting these approach for trading counters. As for counters that I am investing for longer period of time, its fundamentals, valuations and technicals plays an important part in identifying entry and exit strategy. 

At times, traders / investors may make mistake as analysis done are based on available information and pricing. Be bold enough to cut loss. Ability to identify the support and resistance for the particular counter will be an added advantage. There are many methods out there to determine support and resistance namely moving averages, pivot points, Fibonacci Retracement and etc. 

Another fact that we all need to know is that women tends to do better than men based on the study conducted by Warwick Business School over a period of 3 years. Congratulations to the women readers / investors out there!!!

The study was conducted by Neil Stewart, Professor of Behavioural Science, which compared male and female investors through Barclays and their trading behaviour over a 36-month period. This looked at a range of criteria, including the type of investments held, age, trading frequency and the amount of money invested. The study concluded that:

• Men more likely to pick more speculative stocks
• Female investors have a more long-term perspective

Men tends to invest in more speculative stocks (lottery style investing), not wanting to let go of shares showing a loss and attracted to thrill of investing. The Warwick Business School analysis defines "lottery style" investing as a tendency to invest in more speculative, lower priced shares that might increase in value substantially, along with a desire to keep to shares that show a loss while selling off their winners – the ones that have actually increased in value.

In laymen terms: Are we (Men) taking too much risk? Being too emotional and possible some ego at play when it comes to losing position in the hope that it will recover?

With that, I hope this piece of writing will help all my friends and family members in their trading/investing journey and serves as a good reflection towards the long weekends. 

Good luck and all the best. 

BAuto (5248)

Good day,

Thought of sharing this counter that I invested since last year and hopefully you will be able to enjoy the dividend or capital gains in the long run as well. Disclosure: I am holding BAuto (5248) since last year and looking forward to add positions whenever it reaches my entry target or exit positions when it reaches my target profit level. I have no business relationship with BAuto and the information below is purely my own opinions. 

For those of you who are not aware, Bermaz Auto Berhad (BAuto) is involved in the distribution and retailing of Mazda vehicles, including provision of after sales service for Mazda vehicles. What drove me to put my money in this counter is because of its attractive fundamentals, good dividend and "cyclical" technicals. 

BAuto Financials: Improved Revenue, EPS and Free Cash Flow

Positive free cash flow, low debt/equity, improving EPS and operating margin are few key factors that I look for (first screening) when I am planning to invest in a company. In this case, BAuto met the criteria and it has also practically zero debt/equity and long term debt (balance sheet) with high free cash flow. What this meant is that BAuto will be able to support its sustainable dividend payout. Quite a few analyst provided similar coverage to BAuto's attractive dividend yield ranging from 6.5% to 9.5%; 15 to 19 cents per share. I have been enjoying the dividend :)

Auto industry is cyclical in nature and sensitive to business cycle whereby revenues generally are higher in periods of economic prosperity with expansion and lower in periods of economic downturn with contraction. If that is the case, we should see similar actions when it comes to its technicals; price actions. Attached below is the price actions which supports the cyclical technicals.

Daily Price Actions with Support and Resistance Levels

As you can see, the strongest resistance is at 2.40 and support at 1.84 to 2.00 levels. My entry or add positions is always at the level between 1.84 and 2.00; provided there is no change to its fundamentals. Often; negative market sentiments will drive the price to the level between 1.84 and 2.00; that is the best time to add positions or entry for long term investment. And my target profit is at 2.40 levels. 

As BAuto continues to pay dividend to its shareholders, you may be wondering what is the intrinsic value for BAuto. From a valuations perspective, I am using dividend discount model to determine its intrinsic value. 

My required rate of returns for BAuto investment is 15%; assuming BAuto is paying consistent 15 cents per share dividend for year 1 and year 2 and my target profit is 2.40. So, the intrinsic value for BAuto would be 2.06. 

What it meant is that whenever BAuto price is at 2.06 and below, it is a Strong Buy for me based on my required rate of returns, target profit and its dividend payout. Coincidentally, this matches with the technicals of the price actions whereby BAuto price at the levels (1.84 to 2.00) is always short lived. It will rebound strongly and serves as an opportunity for me to add positions for my long term investment. 

One can use the levels shared in the chart above and risk/reward ratio to determine the entry and exit strategy if you intend to trade it for short term. 

Good luck and all the best. 

SANBUMI (9113)

Hi Readers,

KLSE Stocks Analysis:

As I was updating my charts and searching for interesting trends development, one counter caught my attention. It is SANBUMI (9113). This counter is overall bullish as the current pricing is above major moving averages (20, 50 and 200 days). What is more interesting is the pricing yesterday showed that 20 days moving average is a good support as it went below it and rebounded above it within the same day with good volume. So, how does the overall trend looks like?

Rounding bottom observed starting late in 2017 and all the way to Sep'18; hitting low of 0.115 cents and high of 0.34 cents. It then went into consolidation between Oct'18 to Nov'18 (triangle; also known as pennant) and got out of consolidation to move up to 0.38 cents. Once again, it went into consolidation between Dec'18 to early of first week of Jan'19. It then move up again to the high 0.435 cents. Consolidations happened again and this time with flag formations (last two weeks) until yesterday whereby it is showing an attempt to get out of consolidations by staying above the 20 days MA. 

A closer zoomed view of the chart as below:

Every vertical spike is followed by consolidations and price continued to go higher each time after breaking out from consolidations. Overall trend remains bullish. Base on the current trend, it is likely that Sanbumi will attempt to test its resistance at 0.46 cents, consolidations and then continued with next resistance at 0.60 cents. Downside support is at 0.365 cents and followed by 0.30 cents. 

Using the levels above, one can use risk/reward ratio to determine its entry and exit strategy. 

Good luck and all the best. 

Short Term Local Sentiment

Hi Readers,

The intention of this blog is for friends and family members that are looking for opportunities to trade in KLSE. I am sharing my point of view with regards to the current trend of KLSE. In my opinion, overall sentiment is still bearish for KLSE and hence, I am still holding short FKLI futures for the month of Jan'19 and Mar'19 contracts. As for Dow Jones, I would categorized it as technical rebound with bigger picture of bearish. Looking to short at 24000. 

KLSE Stocks Analysis:

An interesting chart patterns development for AZRB spotted late last week; started to move uptrend. Below is the charting done by Alpha Patterns which is showing AZRB currently in consolidation phase after a vertical move from 0.275 cents. A breakout from the consolidation phase will see AZRB heading towards 0.425 cents with downside  support at 0.32 cents followed by 0.275 cents.