Sunday, April 12, 2009

Dow: Financials rotated back in favour

Wells Fargo (WFC) better than expected profit for Q1 elevated the market. Couple that with less than expected weekly job loss, Dow managed to close higher than 8k. This is despite many expected Dow to close lower due to the long weekend. As you may know, i have been keeping a keen eye on financial stocks. It's not hard to read through my recordings to find out how often i have written down that it seems that financial stocks are holding well at support while Dow pulls back. This is evidence to me that a normal bull market sector rotation may be in play. The tricky part however is that we are seeing broadbased rally and the opportunity to go long on a good risk to reward is rare. It happens so fast and quick that if you miss a day, it doesn't make sense to chase. 4 sectors are all i am eyeing for good liquidity... financials, properties, offshores and commodities.

On the last trading day, we saw how financial stocks pushed Dow higher. It may be too late to act on our local bourse for now as we have closed significantly higher on last thursday. I also observed that those resources stocks closed signficantly higher after a normal retracement. Indo agri, golden agri and Straits Asia all moved higher... however Noble and Wilmar on the contary nothing to shout about. I don't like it when the big brothers of the sector don't lead.

As for our banks... UOB seems to be the worse performer of the 3. Remember, the resistance is key here, if all 3 failed at resistance and the market seems to come to a stall... i will initiate my first batch of short.

HSI: Though there's a bearish divergence on MacD, I don't wish to short as yet. Clearly, we may head to 15.8k... i think any pull back maybe a chance to long. If the move is sharp and abrupt, 38.2% may work well. If you notice, most of the stocks are rebounding off this level. I have been to Borders at least on two occassions over the last week... i was hunting for a good Elliot wave book. I read something that makes a great sense to me... in a sharp market movement, most support levels may be too far away... traders eager to get onboard may find any form of support to be an excuse to go long. 38.2% thus works well in this kind of scenario.

Currently i have a long position in MS (NYSE). It swung in and out of profits during the last week. However it swings, it didn't failed the support level. This is confirmed accross the sector where goldman, BOA, Wells Fargo...etc.. exhibits similar pattern. With Wells Fargo good results, this stock may throw me a lifeline i so much needed. Tuesday and Friday is more important... this is where Goldman and Citi reports their earnings.

Along the way, there has been tempting opportunities highlighted from the ChartNexus forum discussions, traders club meetings and from our trainers conversations. However I cannot take new positions until i get one trade right. All i wanted is to get my confidence and momentum back. I need to grind the 20% ROI before i can try to hoot tua tua. This is how i trade... when i don't have a profitable position, i shall not take any more position... this is to avoid 5 wrong trades at the same time which can dent a big hole in my trading account. The logic is simple, if the one trade cannot make money, it simply means my reading of the market is wrong. Hence, why am i putting up so many positions? Waiting to be BBQ?

If Wilmar falls below 3.13... technically a small double top!

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