Small stock (2010-07-06 KwangSung Electric analysis)

So after analyzing so many large stocks which are highly affected by Hang Seng Index, I now give some recommendations on some small stocks which could possibly move in different direction. But before that, I have to warn everyone about the high volatility of these kinds of stocks. Please assess your ability of bearing risk before deciding whether to buy these stocks or not.



OK Let's get started. Above is the daily chart for KwangSung Electric (2310.HK). The main interesting part for doing analysis on small stocks is that you do not have to know what the company is and what the cash flow is. What I look at is the psychology and the actions of BIG guys who want to get profits from this stock, so basically candlesticks would be the main indicators, together with some basic resistance and support areas.

As we can see, in Jan2010, this stock surged from 0.43 to as high as 0.98 after a long horizontal movement starting from March2009. We would say the area from Mar09 to Jan10 to be "collection period". Then the stock price starts to shoot up and BIG guys gain. However, we have to look at whether these BIG guys are selling their stocks. As we can see, after going up to 0.98, the volume afterwards is not large. This somehow gives us hints that BIG guys are not selling yet. So we can expect the stock price going up again. First resistance would be at the red line which is at around 0.75-0.8. However, I think that it would break this resistance and go up to around 1.4.

Stop loss would be at the break of the lower support red line, which is at around 0.40.

Hanging in the middle (2010-07-05 HKEx analysis)

Above is the daily chart for Hong Kong Exchange (0388.HK). Following the 6 consecutive plunges in Hang Seng Index, HKEx is heading back to its support line at 115. This support looks quite strong that the price did not even have a false break. Once HKEx breaks 115, the red downtrend channel would become the support instead, which is at around 112.

It can be said to be in somewhere middle, and future movement depends on how HSI moves.

Still supported (2010-07-05 DJI analysis)

Above is the daily chart for Dow Jones Industrial Index (DJI). Currently the index was supported by its low in 2009 early November. It did not break this support last Thursday and Friday. It somehow shows that there are still some support remaining. It could not break downwards easily.

Once this support breaks, the next level would be at 9430, which is somewhere near the interception of the 61.8%-fibs-level and the red downtrend channel.

Blog Share --- Support & Resistance?

I am back from ZhuHai and have read an interesting post.

Forget Support & Resistance, Areas of Volatility in High Frequency Trading

url: here

Support and resistance can be seen as the entire basis of technical analysis. While most technicians would distinguish between these two levels based on expected buying or selling pressure, T3Live's Sean Hendelman sees them quite differently as a high frequency trading practitioner:

"Support and resistance are one in the same. Namely, points of increased volatility. These areas increase the uncertainty of future direction and therefore volatility."

Short-term Support in the Past

Traders have long used support levels as areas where they expect buyers to step in and hold because there were buyers at that level previously. Price levels exist because people, consciously and unconsciously, create them. Traders and investors remember their entry prices, or at least they see the cost basis on their brokerage statement. These prices are therefore breakeven levels for many with a vested interest in that price.

Often, by expecting others to be buyers at the level, technicians only work to further solidify the existance of support through their own buying. The idea of a vested interest is also why breaking a support level is seen as a sell signal. Those that accumulated expecting the level to hold ditch their positions and eager shorts enter believing no buyers remain.

Support in the High Frequency Trading World

Support and resistance have become far more elusive and the risk of entering trades based on them has drastically increased in the last 18 months. Short-term technical levels are now extremely fluid.

Volatility increases opportunity and the wild oscillations around technical levels grant HFTs the ability to profit by beating manual traders in and out. Consider the 2008 crash with the VIX reaching a high of 89%: short-term traders were offered incredible opportunities as volatility soared. Think of a large whole number in AIG as a microcosm of this type of uncertainty and volatility. The high frequency trader jumping in and out in microseconds, even nanoseconds, can scalp pennies back and forth.

Two unprofitable scenarios now occur much more often at support levels with the influence of HFT: 1) rapid breakdowns and 2) false breakdowns.

A trader does not risk to a level, he risks to whatever price he receives upon exit when the level breaks. As high frequency traders are typically first to the trade in the downdraft when a support level breaks, the price to exit is often much further away than anticipated. By the time he has hit the bid, the manual trader has lost far more than his pre-determined stop.

False breakdowns occur when a support level is broken but the stock does not continue lower, at least not within the trader's timeframe. How often does today's discretionary trader short the low only to find the stock subsequently swept higher? High frequency traders will buy new lows and force weak hands to cover as the stocks pushes back through the short price.

The high frequency trading world has very different interpretation of support and resistance and given their speed, it is tough to compete in that world.

Adapting Trading Strategies

Running stops is as old as trading itself. Floor traders on the NYSE used to run stops intentionally for bucket shop owners so the shoe string margin players would be wiped out. Squeezing out larger, weaker players is a tactic used since the day Wall Street was paved. High frequency traders' manipulations around technical levels are just today's modern application of an age-old strategy to beat others at the same game.

Short-term traders had it easy for a long time, buying breakouts and shorting breakdowns to make predictable profits. But this strategy in a more range-bound tape coupled with high frequency traders can be disastrous. Avoid the temptation, don't battle the machines. Let the machines kill each other and don't step in the ring.

Traders must anticipate moves to much greater degree and they must be happy with the size they have accumulated once the trade gets under way. Adding through levels can and will destroy many potentially profitable trades as HFT throws the trader in for a spin.

Slide after big surges (2010-07-02 GBPUSD analysis)

Above is 4H chart for the pounds. It has been moving well in the uptrend channel in the past few weeks and is now testing its upper resistance line. Obviously there is a bearish divergence on MACD. We could expect another slide which means being unable to break the channel and rocket. It is a good time to short GBP and place stop loss at above the channel.

I would be going to ZhuHai for a short trip in the next two days. See you guys on Sunday night HKT or probably Monday morning HKT.

No Good... (2010-07-01)

Jobless Claims in U.S. Increased 13,000 Last Week to 472,000

By Bob Willis - Jul 1, 2010
url: http://www.bloomberg.com/news/2010-07-01/jobless-claims-in-u-s-unexpectedly-increased-13-000-last-week-to-472-000.html

More Americans unexpectedly applied for jobless benefits last week, a sign the labor market recovery may be slowing.

Initial jobless claims increased by 13,000 to 472,000 in the week ended June 26, Labor Department figures showed today in Washington. The number of people receiving unemployment insurance rose, while those getting emergency benefits dropped after Congress failed to act on extending the legislation.

The jump in applications raises the risk that the turmoil in financial markets brought onby the European debt crisis is leading to additional cutbacks in staff. The Labor Department tomorrow may report the U.S. lost jobs in June for the first month this year, reflecting a drop in temporary federal workers who helped to conduct the decennial census.

“The labor market is not generating employment for anyone, even for people who have been out a long time,” said Steven Ricchiuto, chief economist at Mizuho Securities USA Inc. in New York, who forecast claims at 470,000. “What we’re seeing in the backup of claims is not a particularly healthy story, showing we can’t generate upside momentum in the labor market.”

Economists forecast jobless applications would fall to 455,000 from an initially reported 457,000 for the prior week, according to the median of 46 projections in a Bloomberg survey. Estimates ranged from 440,000 to 475,000.

Bad Holiday (2010-07-01 HSI analysis)

Today seems like a bad holiday for Hong Kong People. As I mentioned before, the pattern is just like what happened last time. However, there are a bit changes. Now the index drop through all the Moving Averages. This is a very bad sign. Yesterday DJI dropped around 1%. So enjoy this vacation and be cautious tomorrow.