Happy New Year 2011

Traders
I Wish You A Happy & Prosperous New Year 2011. Make 2011 your best trading year!
Manoj

Note: I could not update the blog due to some circumstances that I have to work on. But If you had followed the blog, I am sure what I shared with you will help make your own interpretation of the market now.

Hope to see you again soon!

Market Technical Analysis-Weekend Report-Dec 4th 2010

Trader,
Lets see where we are now and a couple of most likely scenarios. Positive market sentiment is an important factor for a country, specially for Sr Lanka. Sri Lanka is working on attracting foreign investors by making country investment friendly. Its said that country's stock market is a good indicator of economy performance.
 Last Monday's market reaction (-124 points down) and bringing ASI down to 6200 level was not a good market message.
My guess is Tue & Wed reaction was a push by CSE (government Institutional intervention). I think it was a well planned action by CSE to put the market back above the support level. Statement made by CSE chairman about extending credit clean up period cannot extend the market like that.However it was a much needed boost.
CSE's decision to curtail traders trading capacity by restricting credits had a mixed result. I strongly believe that market manipulators and inside traders should be heavily punished. But credit restriction actually penalized traders who were rightfully doing the trading business. One should not be penalized but appreciative of , if somebody uses his or her creativity to make profits in the market.

For the week ASI was up by massive 4.6% . If you look at the ASI graph above, you see that we are back above the support level. If traders and investors could keep the momentum for another 200 points up, that would break  resistance barrier in 6700 level.
Also I noticed that in 2009, we had a similar market behavior (but not that weak). In Oct & Nov 2009 market was in side ways and once it broke up, market had a nice uptrend in Dec 2009 and Jan 2010. (see the graph below)

Out of all the technical indicators, I pay special attention to Advance-Decline line. If you look at the latest A-D line, its still not showing a good recovery.

(I sent a special report and my worksheet on A-D line to traders who submitted broker survey, if you were one of them but has not received the report yet, please email me)

As a trader, try your best to understand what is behind the price action. To trade profitably, you got to eliminate risk as much as possible by analyzing technicals and timing the "entry/exist points". No one can do the exact market timing, but if you develop a simple but effective set of trading rules, you can make huge profits in the long run.

To your success
Manoj Balasooriya

Note: Appreciate if you can share your comments below or email your comments at <learn.manoj@gmail.com>

Weekend Report-Nov 27th 2010- Market Technical Analysis

Traders,
Even though market technicals have been weak, I really expected much waited budget proposal would lift the market or at least it would create a short term momentum. But it did not happen. This was an honest surprise to me.
Most of you may wonder why the market is behaving like this?
Lets see some possible reasons;
1.Some institutions and some big investors continue unload their stake slowly but steadily on the market
2.There are no significant new traders/investors coming into the market
3.Significant amount of retail investors and traders unwillingly cash their stakes for liquidity reasons

All these or combinations of these are creating more supply than the stock demanded by institutes, investors and traders.
Now, lets look at our favorite weekly ASI graphs;

We have been watching the 6500 support line for sometime now and market clearly broke it creating another leg down. How low will it go? I do not know. But I would definitely wait till the market confirms a 'change of direction'. Market has to show at least 200+ point recovery with decent volumes in order for me to test the water.

When stocks look cheap compared to previous high, people buy them guessing market has reach the bottom. Guessing the bottom is an expensive game. One alternative approach that I have been writing about is "scale up strategy".  This is an intelligent way to keep your losses very low. I learnt this approach from Jesse Livermore. More I trade more I understand the value of this simple but powerful strategy. (read my previous articles on Livermore for his key trading rules)

Lets briefly look at foreign buy and sell. I am taking this graph from JBS securities site;

Take a few minutes to understand this informative graph. There is lots of not so good trends here. But one positive indication you may notice is last three days net foreign buys, specially the last bar of the graph.

Lets look at  Financial sector for a moment. Is it holding its place or giving up the gains? Let's see;

Financial sector has relatively been holding to most of its gains but it also broke the support line with heavy volumes.
With all things considered, market is under Red light. We got to be patient here till  we see a silverline.

To your success,
Manoj Balasooriya

Weekend Report-Nov 20th 2010- Market Technical Analysis

Traders,
Though last week was a short trading week, it brought both frustration and hope. At one point, ASI dropped to 6451.55 which was below the support line we were watching. But very next day it climbed 93 points to 6565 giving some relief to the traders.
If you look at the last two trading days on the ASI daily graph, you will notice that it was under clear accumulation. There was heavy selling on Wed, but prices held on tight. And on Thu some traders/institutes clearly bought stocks on the bet that budget will uplift the market.
Let's look at three market graphs.
If you been following this blog, you should now be familiar with reading it.Market is back in the safety zone and reasonably good volume supported the uplift.
Thursdays market action is counted the first day of accumulation (after failing one such attempt in 3 weeks ago).If ASI can confirm can the positive trend at least two more days without heavy selling off days, one can buy shares on "Scale Up" basis.

Lets dig a little bit further;

Notice the Stochastic oscillator above trying to go up from the oversold territory. Also Money Flow Index (MFI) hit a substantial lower point on Wed and now trying to head up.

Finally, let see how stock accumulation happened on Thursday; Traders bet on budget!

 
This brings us a good point. Should you buy stocks on speculative news? Most of the traders do not have capacity to influence the market, specially the market leading stocks. But there are traders and institutes who can make the price if they wish to, because of their enormous trading capacity. This is common to any stock market. In a scenario like this, our best bet is to monitor the market and follow the line of least resistance, meaning if the market is clearly heading up Buy and if market shows weakness Sell. In other words, market should confirm the trend for us to get in.
That does not mean you can make money by betting on news. You can. But is it a good enough reason to bet your capital?. I don't think. Preserving your capital is the key to stay in the market. And losing a few points in waiting and evaluating market is a good insurance premium. It puts you in a better position and make you a prudent trader.
With this technical insight in mind, watch the market on coming days, and getting in on Scale up basis if everything is in your favor. If market shows sideways again, You know what to do...

To your success,
Manoj Balasooriya

Note: Please forward this article to your friends and trading buddies. And take a minute to leave your comments. They inspire me to take the time to continue writing. Thank you.

Weekend Report-Nov 14th 2010- Market Technical Analysis and 10 Priceless Trading Rules from a legendary Trader

Traders,
After a week of trading, its a good time look back and see how the market behaved and see what we can anticipate in the coming week.We'll start with the latest ASI screenshot;

Those who think technical analysis does not work, just need to look at the above graph. I have not come across a so clear support line than above in recent history. During last 45 days, ASI touched support line three times and was able to bounce back without breaking it.
Volume shrank to a very low amount. If you look at the last volume bar, you'll notice that its the lowest in the recent past.
Funds stuck in two IPOs, government annual budget, and heavy disturbing weather are three key things that affected the market.
Based on above the ASI behaviour, there are two scenarios that can happen in the next week;
1. Market will bounce further above the 6500 level. If this happens, its worth paying attention to leading stocks that are showing upward momentum. Reason is, budget is one week away and market can indicate some clues of what you can expect.
Financial sector is an obvious benefiter, because its where Sri Lanka's key advantage lies. Government has already indicated that its planning to reduce certain tax relating to banking profits. Also if you look at BFI index (Banking, financial & Insurance), you can notice that, it has been resilient to the recent market correction.

2.Market will break the support line. If this happens, I could say that it should be temporarily. Sometimes, a sudden breakdown and immediate bounce back could further shake away weak traders out of the market. And after, subsequent recovery could be stronger as a result.

My recommended strategy is to scale up on an uptrending market. But market has not shown clearly that its uptrending yet.
Observing the market till right time comes is also a strategy. Its natural to feel that you should trade everyday and thats a recipe for disaster. My favorite all time trader hero is Jesse Livermore. I could survive some bad times because of the wisdom that he passed on to others.

For your Trading Wisdom 
Once he said "There are times when money can be made investing and speculating in stocks, but money cannot consistently be made trading every day or every week during the year. Only the foolhardy will try it. It just is not in the cards and cannot be done." http://www.jesse-livermore.com/

His Trading Rules...

• Buy rising stocks and sell falling stocks.
• Do not trade every day of every year. Trade only when the market is clearly bullish or bearish. Trade in the direction of the general market. If it's rising you should be long, if it's falling you should be short.
• Co-ordinate your trading activity with pivot points.
• Only enter a trade after the action of the market confirms your opinion and then enter promptly.
• Continue with trades that show you a profit, end trades that show a loss.
• End trades when it is clear that the trend you are profiting from is over.
• In any sector, trade the leading stock - the one showing the strongest trend.
• Never average losses by, for example, buying more of a stock that has fallen.
• Never meet a margin call - get out of the trade.
• Go long when stocks reach a new high. 

You can read the full article at http://www.jesse-livermore.com/trading-rules.html

Read these rules over and over and over... you will benefit from them years to come.

To your success
Manoj Balasooriya

Tell me how you think about the blog and the articles and share your thoughts ideas. As always I really apprecite your comments.
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Eight steps for success; Eight goals for every trader.

Traders,

I found below article in http://blog.traderslibrary.com. Even though blog focuses on US market, there is plenty of good articles there.

As I mentioned in my blogs, be a student of the market;make reading a priority 

Manoj

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WARRIOR TRADING WITH CLIFFORD BENNETT

Clifford Bennett has written an excellent book on conditioning the mind for successful trading.  Bennett, a currency trader, outlines the stock trader's "eights steps of battle" in his book Warrior Trading: Inside the Mind of an Elite Currency Trader.   These eight steps are intended as a guide to the new trader and a reminder to the experienced.

1. Find Your Strength.  It is important that the trader determine what type of market, trending or consolidating, best suits their own personality and strength.  The best traders stay focused on one or the other and master it.

2. Know Your Market.  You should know your market when trading.  In other words, know the levels of support/resistance;  know how the instrument you trade moves with the general market; know who is likely to be on the other side and what they are thinking; and "the terrain of any market includes the "long-term charts" (140).

3.  Prepare Your Order.  Know when to get into a trade and why and know when to get out of a trade and why.  Just like a secret agent who will "never enter a room without knowing how to get out of it in a hurry" (142).

4.  Placing Your Order.  Once you have adequately prepared for a trade, it is then necessary to be ready to place the trade when the time is right.  Here "patience is the key...you must be able to wait for the market to tell you when the moment is right.  Wait for the market to generate the action; don't force it" (143).

5.  Sticking With Your Plan.  This is probably the hardest part about trading.  Once you enter the battlefield (enter a trade), the emotions of fear, ecstasy, greed, and sheer excitement can then take over and cause you to forget your well prepared plans for entry and exit.  You must enter a "Zen-like mental state" where you remain in control of your emotions.  Not doing so could spell disaster.

6. Identify When You Are Wrong.  "It is crucial to your survival to identify in advance whether your view might be wrong and to determine what price level, when broken, would be in support of the consensus view; therefore, you are building up your ability to defend the occasional probes against you" (145).

7.  Holding On To Your Winning Positions.  Set a trailing stop when your trade is moving in your direction thereby locking in profits while allowing the trade to work toward its maximum potential.  "A trailing stop loss keeps you in the war, keeps you in tune with the war, and, most important, leaves you in full readiness to instantly strike again" (152).

8.  Focus On Your Next Trade.  This is the most important step and is saved for last.  This step simply says to start anew with each new trade.  No matter if you won, lost, or broke even on the last trade, the next trade is a new one.  "You do indeed need to be starting every single trade fresh and alert without any baggage from the previous encounter" (153).

Eight steps for success; eight goals for every trader.

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Weekend Report-Nov 06th 2010- Market Technical Analysis & a Strategy

Last week has been a news full of week. As traders if you  had followed some of the news, you could see the positive expectations lots of companies and fund managers have towards 2011 specially in the finance sector. Since Sri Lanka finance sector has been resilient to many economic challenges, its expected to outgrow ASI return during the economic boom. So its well worth to allocate significant part of your portfolio to this sector. More on this later.. Lets now focus on the technical side of the market.

Market lost three days out of four it was open. Wed market action really caught my eyes. Trading volume was very high compared with recent 2-3 weeks but price did not drop significantly. This tells us that market is absorbing the selling pressure. Even though the volume was low rest of the week, market was able to put the break on downside.

Key points
1. Market is still above the support line (158 points above)
2. Price declining is gradually slowing down
3. Based on the trendline (thin blue line) its possible that market may hold on above the trendline next week.

Now, lets look at Yahoo graph week ending Nov 5th.

If you look at the 20 day 50 day MA (moving average), market has not significantly violated the MAs. So the reaction started in Oct still come under a 'short term'correction. Stoch (which shows over-bought or over-sold condition) and MFI (money flow index) is a bit disappointing, but still above the last week of Oct lows.

WHAT TO LOOK FOR WHEN A MARKET IS IN A TRADING RANGE LIKE THIS
When a market is trading in a range like this, it gives us the chance to evaluate which stocks/ industries are stronger than the market. And when price starts o climb up, stocks that held their prices tight will go up much higher than the market.
For example, let's look at recent HNB stock graph;

(Bloomberg.com)

When the overall market is trading in a range (and unable to break the upward movement), HNB is refusing to be in the group and showing a upward momentum. There are many stocks like that. So rather than waiting till prices to start going up, research these type of stocks and add to your potential list (watch list).

You may have noticed that I always mention the data source where I get this data from. This is to enable you to go to the same source and start your research work.

Get informed and get smart!, Have a great Trading week.
To your success,
Manoj Balasooriya

Note: Thank you for visiting the site and joining me here. Appreciate if you can take a minute and share your comments and thoughts;
Thank you.