Daily PACS Dec. 9, 2011

Author’s additional notes:

Yesterday, I was supposed to update and write about how important the EU meeting this weekend to worldwide financial market  but I got very busy. Anyway, I don’t think it is too late to talk about it when we still have one more trading today to go before this week ends.

Last night, we got a preview of what is to come if the EU meeting doesn’t result into something positive. We are talking about four things:

1) Increase the funds of the European Financial Stability Facility (EFSF) to  more than 1 trillion. The ESSF can be likened into a special lender where people can go to borrow money during emergencies. The only difference is that we are not talking people here but rather European government who needs to borrow bridge money in order to pay debt owed to creditors.

2) Change Treaty to allow for the introduction of Eurobond

3) Agreement on automatic sanctions in order to discipline European countries who will breach the budget deficit. A way to make sure that the same problem doesn’t happen again.

4) persuade European Central Bank (ECB) to lend money to debt saddled weaker Eurozone nations through the International Monetary Fund (IMF). The ECB has governing rules that prevent it from lending money directly to problematic EU nation. The way to circumvent this rule is by lending money to IMF which in turn will lend money to the problematic EU nation.

Number four (4)  is now out of the picture. ECB had already shot down the idea therefore will not step up and help lend money. The result was an immediate 2% drop in European stock trading, EURO currency weakening and dow also down. This is a glimpse of what will happen to future trading which will deteriorate further if no progress is made during the EU meeting this weekend. Remember that Standard & Poor (S&P), a credit rating agency has already warned about a possible downgrade of Europe as a whole and their EFSF. The real trigger will come when it starts to downgrade. The downgrade will mean more costly borrowing for EU countries that needs the money on top of existing big debt that they still need to pay. It will be like a spiral fall leading to a European government default (not be able to pay debt to creditors) thus a confidence crisis part two. It will be comparable to first one that occurred in the US when Dow from 14,100 started to fall and bottomed out at 6450 back in 2008. That is almost a 50% drop in one year.

As they always say in the world of stock market, it ain’t over until the fat lady starts to sing. So we can’t really assume anything for now but that doesn’t mean that we have to ignore the possibility of  what might happen. As such, the real question is how should we position ourselves ahead of the EU meeting? The answer is very simple, “when in doubt, get out”. Stock market hates uncertainty that is one reason stock price drops when nobody know how things will turn out. One can always buy into the rally if fundamentals really show improvement.

Over on PACS, note that ALI is now hovering in near bearish confirmation point level and NI’s trend had already turned bearish. With regards to LC/LCB and ZHI, i suggest watching their bearish confirmation point level along with the mining sector’s trend for clues on whether to hold or sell your stock position.

I also want to congratulate those who followed and bought BEL after I issued the stock alert on FB and Twitter account. I think that was when Bel was doing around 4.40-4.50 price level. While the market was down and the public was busy buying LC which is a decoy, we were busy buying the real McCoy.  Just don’t forget to take profits off the table probably between 5.00-5.20 levels.

Here is the proof  of the stock alert I issued on BEl in my FB and Twitter account with time stamped on it and now ready to be for profit taking. 🙂

In PACS, we don’t act like a commentator. A commentator will always give you a news, an old history with information already known to many but that seldom translate into profits. Why? because the news has already been factored into the stock price. What a commentator really does is play on trader’s emotions. In the end, it results to poor trading decision.  Remember good analysis are done best before stock moves and not after all is said and done.

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*Please note that PACS’ price  alert level will always supersede any opinion coming from the author.

*Try not to chase stock and always try to buy or sell near PACS given level.