Last updated on May 27th, 2018
How have you guys been! Been like 6 months?
Time has past by so quick that I’m now left with less than two weeks to serve my conscription NS. It has been an unregrettable and absurdly packed journey where I learned a lot into making decisions in tense scenarios and in effective working with all kinds of people (yes including the odd ones.. I know you know what I’m talking about).
But instead of sharing what I’ve learned in NS that helped me in trading blahblahblah(which could really be 2016’s Best Selling bedtime storybook), I will be addressing something more important and exciting. Something that had excited me since two months ago. Something is indeed happening to the world’s most known-to-be-traded indices (DOW Jones Index, S&P500, NASDAQ100). And to compare them with, I’ll throw in a quick review on our local Straits Times Index too. Here’s why they seem so anticipating to me.
First of, looking at Dow Jones Industrials Index:
Ever since the all time high created since May 2015, Dow Jones Industrials Index has been in a long due consolidation. It has been the longest consolidation to date, after the last global financial crisis in 2008. This brings us back to the good O’ rule that every technical trader knows about. And it’s ‘The longer the consolidation, The stronger the breakout’. And today, we are looking at a bullish breakout of a 2 years plus consolidation. That’s not all. If you realised, the index has also broken the psychological round number price of 18,000/share without a twitch in Jul 2016, proving the strength. Lastly, the bullish run is inveterated most by Jun 2016’s bullish engulfing/hammer pattern, giving the instrument a stronger bullish sentiment.
Secondly, S&P 500 Index:
As you can see, same thing happened here. A bullish breakout towards the stars with Jul 2016’s close. Even the consolidation started close to Dow Jones Index. The only difference here is that Jun 2016 candlebar was a long-legged Doji pattern, which means that supply and demand (Buyers and Sellers) are in near equilibrium and that is an indecisiveness in the direction of the index. Usually the next bar or two will determine if the trend is going to continue or reverse, which in this case, continuation of its uptrend since 2009. Hence S&P500 is giving us a thumbs up to its bull momentum once again.
Thirdly, we have NASDAQ 100 Index:
Although I cannot deny that all these three indices are extremely correlated, I have learned that analysing correlated pairs will double confirm (or triple in this case) my perspective of the underlying instrument. Then trigger a trade on the most volatile to maximize profits. So once again, a breakout on NASDAQ 100 index with just a little stronger (bigger rally) on Jul 2016 candlebar compared to the previous two indices. Will be interesting to see how it reacts to 5,000/share price in near future.
And lastly, our own little STI Index:
Singapore’s Straits Time Index (STI) is the most traded index in Singapore due to the fact that almost every broker and banks promotes it, under various marketing techniques in numerous shapes and sizes (monthly investment plans, blue chip investment plans, index investment plans, automated re-investments, index with lowest commission, etc). However, it still has low liquidity (obviously when compared to the previous three indices) and gaps too often to my liking.
First thing I see from the chart is the Fakeout. The second thing is the gapping. Okay, let me explain myself here.
Fakeout is when the price starts to break out strongly out of the main trend and ends back at almost the same spot before the timeframe closes. Which in another word, it attempts to scare away or stop out the current trend takers (bear traders in this case) but still end up within the trend itself (bearish candlebar within the bearish trend). Do also take into account that the trend line is drawn since Mar 2017, which proves that it is a well-drawn bearish trendline.
This move is very common in the markets, especially for low liquidity instruments, to wipe out almost half of the traders or even more. Some communities call this stop-loss hunting, but personally I don’t care and so should you. Understanding and respecting the market’s erratic moments will always prove to be profitable in the long run.
Secondly, the gapping. It might not seem obvious but there is at least a $7/share price gap from Jun 2016 to Jul 2016. If you zoom into the daily chart, you might see that it is usual for in-between days to have a $90/share price gap. This is a 3% change in a span of 15 off-market hours! It is just insane. If it constantly drops 3% against you every day, you will have barely half of your equity left by end of the month. Not including any leveraging financing or commission costs.
That is not to say to stay clear from STI. Of course there are a lot of benefits in investing in an ETF, more so in STI ETF for it’s reliability in the long haul and easy stable dividends. But always do your homework before you invest in anything. Don’t just donate your hard earned labour money to Mr. Market because frankly, he’s an evil banker just like your friend acting as banker in the game of Monopoly. 🙄
Till next time,
P.S. You can always connect to me via our contact form or an email to theia(at)theiablog.com
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