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Welcome to Trading Tutors Weekly Review |
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This newsletter is written on a weekly
basis to help investors understand and learn the
principles of market analysis for themselves. We don’t
provide investment advice, but we do aim to provide a
straight talking review of the market action over the
previous days with a focus on how real life analysis
techniques could be applied.
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Issue #134 18 November 2005
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The Awakening Nikkei |
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Tom Scollon
Chief Editor
You could say it has been a lost decade for Japan – the world’s second largest economy. The scourge has been deflation – falling prices as opposed to inflation, where prices are rising. You might ask; so what is the problem, as we all like the idea of falling prices.
Maybe in the short term, lower prices may well sound great for the consumer, but long term it can be devastating as we have witnessed in Japan. The problem with falling prices is that we all put off buying, as consumables and durables will be cheaper next month. And when the whole population collectively withhold from buying, factory orders keep falling with no end in sight and ultimately jobs are cut.
Where in Japan the ‘cradle to grave’ employer philosophy helped make Japan one of the most efficient producers in the world throughout the 80’s and 90’s, this corner stone of employer employee relationships was ultimately jettisoned as business had to resort to desperate measures to stay alive.
But the negative growth which rose to an annual rate of 1% in the last 12 months now shows signs of exceeding 2% this year. Thus it is no surprise that there has been a resurgence in the Japanese Stockmarket with the Nikkei soaring 12.5% in September, far outstripping most western world bourses.
At 14,500 it is a long way shy of its record levels which were in excess of 26,000 in the early 90’s. The key question is; can this pace be sustained? Technically yes, it can go higher but with the usual proviso that there will be pullbacks. Investing in the Japanese sharemarket is maybe not so easy for the average investor, but there are many Funds that do invest there successfully and such an avenue is a way of participating in the upside that will be found there over the next couple of years.
Regular readers of our newsletter will be familiar with Sinan Koray's ‘Mind Matters’ articles on trading psychology. Response to his articles has been overwhelmingly positive. Many traders ask for more information on how they can apply trading psychology in their everyday trading. In response to this demand, Trading Tutors has crafted a two-day workshop to show you how you can make a lasting difference in your trading by unlocking the power that you hold in your greatest trading tool - your mind. We called it Mind Mastery.
You may not be able to control the external forces impacting on your trading. However, when you take charge of the emotions that can adversely affect your trading, you will create the opportunity to find greater trading success. If you would like to find out more information about the Mind Mastery Workshops click here.
Enjoy the ride
Tom Scollon
Chief Editor
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Would You Like More Sugar? |
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Noel Campbell
It’s been no secret that I have been talking about Sugar price movements as being one of the great trading opportunities of the past couple of years. Well, at least since the run in the Soybean market back in 2004. The Soybeans ran up late on a 30-year cycle, but the run did come. Sugar is testing our patience, in just the same way, with the culmination of its own 30-year cycle.
There have been big runs in the Euro (which is faltering), in Gold, in Oil and the list goes on. That’s the thing with the futures market, opportunities abound. One could say that is where part of the problem lies. There is too much opportunity, which leads to greed, a sense of not being sure just how much is enough. But that sounds more like a topic best left to Sinan to cover.
It can pay, at times, to just find a market where the conditions seem right and there is an opportunity worth following, then devoting a great deal more focus to this opportunity. That’s where we are at now with Sugar. The first article I wrote for the Trading Tutors Newsletter about Sugar was back when it was around 6 cents/pound; it is now near double that. But there could be a lot more left in this run - a lot more.
Chart 1 - Sugar Weekly Chart
click chart for more detail
Perhaps a few readers have read the stories on Sugar, but thought, that’s something I don’t know about, so therefore while interesting, I don’t see how that is going to make a profit for me.
Give me an hour and a half at a Trading Tactics Seminar with any reader and we will be 9 steps out of 10 along the way toward getting you ready to take a Sugar trade amongst other futures markets.
The first thing you need to know is that it trades on the New York Board of Trade (www.nybot.com). Secondly, it is quoted in cents per pound, but trades to a smallest price movement (tick) of 0.01cent/pound and each tick is worth US$11.20 per contract. Chart 1 is the weekly bar chart for Sugar (#11) where you can see the scale represented as cents per pound. The key contracts to trade are March, May, July and October. Right now we are focussing on trading the March contract. Now Sugar (#11) is deliverable so we need to be sure to trade our way out of any positions before expiry.
The expiry day for the contract is the last business day of the prior month. This means the March contract will expire at the end of February, so you’ve been warned! The risk on an average daily chart ABC trade is around US$150 to US$300 and on a weekly chart trade between US$600 to US$800 per contract. Many are surprised just how low the risk is trading a daily chart. Are you thinking futures trading is to be only undertaken and learnt by the big guys? Wrong, futures trading is very accessible to all who have the desire to learn and Sugar is a very reasonable contract to get started on.
I will be following up on Sugar over the coming months and discussing just whether this run eventuated.
Until next week......
Noel Campbell
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Fundamentals – Reflected In The Chart |
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Mario La Marra
Being a technical trader means not relying on fundamentals. In all honesty, who has the time or the inclination to peruse through reams and reams of company reports in order to find a share to trade? Even so, there would only be so much in the report that I would be able to understand and utilise in my trading.
The only fundamentals I will really pay attention to prior to entering a trade is to see if the share is due to go ex-dividend. When companies distribute a percentage of their profits to shareholders by paying out a dividend, the price of the share falls by roughly the same amount.
A most recent market example of how well the fundamentals are reflected in a price chart is that of Bluescope (BSL) in Chart 1 below. The price action in Bluescope created a double top on the 27th September 2005 and paid out a $0.44 cent per share dividend to its shareholders on the 28th September 2005. It should not have come as a surprise that the price of the share dropped $0.46 cents from a close at $10.06 on the day of the double top to an open price of $9.60 the very next day.
Going ex-dividend immediately after a double top would have given added downward pressure to the share price. The fact that the Australian market commenced a retracement not long after would have given even more confirmation to the direction of the price of Bluescope’s shares.
Chart 1
click chart for more detail
Having noticed the setup and the expectation of the fall in price, the aggressive trader may have chosen to enter the market with a sell order (shorting the market) prior to the share going ex-dividend.
The more conservative trader would have waited for a lower top to form after the double top, (the safest place to sell after a double top is at the next lower top) giving confirmation of the trend turning down. This trader may have entered the trade without even knowing the share had gone ex-dividend three days prior, simply because this fundamental news was reflected in the chart and picked up as a pattern to trade through technical analysis.
What is also interesting is that Bluescope made an announcement that hit major headlines on 4 November 2005 that caused the price of its shares to gap down dramatically.
Based on technical analysis and the confidence that the fundamentals are reflected in the charts, the savvy trader had already been riding this share down a month prior to this news hitting the market.
The chart will only tell you what you are ready to hear.
Trade Smart
Mario La Marra
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Relationships - The Good, The Bad and The Ugly |
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Sinan Koray
In Issue #126 of Trading Tutors I used the analogy of weight loss and suggested everything you do is either adding to your trading or taking away from your trading. The same principle applies to people in your life. They are either adding to your trading or taking away from your trading. Every person in your life belongs to one of three groups:
- those who don’t want anything to do with your trading,
- those who help you or your trading,
- and those who hurt you or your trading.
This applies to everyone: husband, wife, partner, kids, parents, relatives, friends, colleagues and associates.
Those people who do not want anything to do with your trading are treating this aspect of your life as an inconvenience. They like keeping their distance in order to feel better themselves.
Those who help you have the courage and the strength to go beyond where you are able to go on your own. Their presence alone can be a major help and they often do more than that: listen and, as appropriate, challenge you to enhance your trading.
Those who hurt you or your trading want you to experience problems and suffering in your trading because they do not have your wellbeing at heart. They are self-centred and are interested only in themselves.
Take a moment to count how many people in each category you are in touch with. This is different than counting your family members and friends. Simply look at each person and label them as ‘leaves me alone’, ‘helps me’, or ‘hurts me’. I must warn you, you may be shocked when you complete this exercise. After you complete this, adopt the following attitude:
- I will no longer discuss my trading with anyone who wants to leave me alone. It is not good for them or for me. They don’t want to help so I will leave them alone too.
- I will share my trading ups and downs, joys and sorrows with those who want to help me. I will accept offers of assistance from these people and will not let my pride, insecurity or doubt get in the way. I will ask these people to be a bigger part of my trading life.
- I will put a distance between myself and those who want to hurt me. I do not need to explain anything to them or confront them. I will not guilt-trip them or make them responsible for my self pity. I will not absorb their toxic effect on me and my trading. I will keep my distance when it comes to relating to these people about my trading.
Believe, achieve.
Sinan Koray
After you limit your sharing to those who are supportive, you may come to a point where sharing is no longer necessary or helpful to your trading. Some successful traders choose to be ‘an island’ when it comes to their trading activities. This is a place of self-reliance, self-sufficiency and self-sourcing. You have the capacity and the right to make these choices. It is your life, your trading and your money at stake.
This article was inspired by Dr. Deepak Chopra’s ‘The Book of Secrets’. |
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