Daily PACS Dec. 21, 2011

Author’s additional notes:

Today I got some good news to share to you readers..I think we may have seen the peak of European crisis. Am not saying this just because Dow was up by 339 points last night but one good sign made me think and reevaluate my position over on EU sovereign debt problem.

Here it is:

I am a firm believer that bonds project a better forecast of what lies ahead compared to currencies and equities.  Last night, the yield of  10 year note Spanish bond fell to 5.07% (bullish sign) which moved further away from the dreaded 7%  threshold that troubled EU nation are avoiding.  Not only that the yields fell, the targeted amount offer was above from what was originally targeted.

Remember that with regards to EU problem, we are not looking for a solution but rather a stability of the financial system. Investor are more interested in knowing whether liquidity (money supply) will dry up or not. Well the success of Spanish auction somewhat gave us an assurance that the pipe is not yet broken and that money is still flowing. That to me is the initial step in bringing back confidence to the market.

Note that when US had a financial crisis back in ’08-’09, the market started to rally not because the housing problem was solved but because of the steps that FED had done to ensure the money will still flow into the financial system. US still facing the same problem now and yet DOW Jones is at better level compared to the first it appeared back then.

Another EU data is also set to be release tomorrow. This is the  statistics about a new, 3-year bank funding operation (LTRO) of the ECB (European Central Bank) which is meant to ease liquidity for the banks. In a way, it is like a bailout type program intended to flood banks with more money. Their hope is that the money they pump in will somehow find its way to buy sovereign bonds. I just think that eventually money will spillover to help fund government that are in dire need of money. More money into the system to me means more investor confidence.

This is why I am starting to think that the peak of EU crises may have already passed. Some will argue, how about the credit rating agency downgrade threat? Look back and review how the market reacted to each downgrade made. This may cause some hiccups but investors tend to look at this as a buying opportunity. Why? Most of the time before a downgrade is issued, the price have already factored in its effect already. It’s probably because credit agencies are always late in issuing report. I may be wrong but try to review how the market reacted when US lost its triple A rating in order to have an idea of what I am saying.

Over on PACS, we now have a mixed picture of the market. Property sector’s trend have turned up and became bullish. Market sentiments have somehow improved. I have also include PCOR, FLI, FAF, WIN and PHES into our list because I feel that they are starting to become active along with SCC, MEG, CYBR, MIC, AAA, PXP, LR, and BEL which are already in the list. I will monitor them closely in the coming days…starting today.

I am not saying to go out there and become reckless in buying stocks. Of course our stock purchase should still be bounded by the signals that PACS is giving. A prudent way to test the idea I presented is to do a test buy. That is the only way we may know if we are right or wrong. If we are right, price will continue to go up and then we can increase our exposure by adding into our position. If we are wrong..PACS will signal a trend change from bull to bear which will automatically take us out of the trade.

*For new readers check out “How to use” PACS page found at the sidebar or click this message.

*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.

Trading Education: Question regarding AAA trade – Dec. 21, 2011

sorry for the late reply….good question.

i failed to elaborate further on this. i forgot to point out regarding gap open which i was anticipating.

apparently i gave the first resistance at 3.57. i was thinking that if AAA opens higher and first resistance breaks,there is a chance that 3.68 will be tested. of course, there will are traders who will try to buy at the at the gap open.

the line that states “to cut if 3.68 don’t break” are addressed to those who are aggressive in buying and might have bought higher at the open. to be specific, these are buyers who bought at the break above 3.57. remember yun mga bumili ang iniisip eh ma-break ang 3.68 resistance. yun ang expectation nila nun bumili sila.

what happened was that this expectation didn’t materialize and therefore because the plan did not go as intended…the right thing to do is to get out of the position. lets not forget, when we trade…we always have to have a plan. the plan are your basis whether ang ginagawa mo ay tama or mali. kapag ang plano di natutupad alinsunod sa inaasahan then masasabi natin na mali na ang trade.

it doesn’t mean that once you exited trade eh wag ng balikan. pwedeng bumalik but we have to re-evaluate and come up with a new plan again. that plan will again serve as your basis if tama or mali again ang ginagawa.

how do we know that the plan didn’t materialize?

1) very obvious price didn’t go above 3.68

2) remember resistance becomes support and vice versa. after breaking resistance at 3.57, it automatically became a support. ang expectation was for 3.57 to hold after breaking kase it now became a support. if 3.57 holds then meron pang chance that 3.68 may be retested again and probably be broken. ang kaso, it didn’t. when the price pulled back, it went straight below it and therefore became a resistance. ngayon instead of one, naging dalawa na resistance…3.57 and 3.68. mas mahirap na sila ma-break.

*always remember that aggressive buying will always require aggressive cut loss mechanism. that is the only way we can insure that we don’t get burn on our trades.

on the other line which states sell if “3.32-3.30 breaks”…they are meant for those who will buy at the bounce from the support which are from 3.35-3.37.

why cut at 3.32-3.30 not immediately below 3.35 (the support)? the logic behind it is that…we want to give some room for the price to maneuver. kung baga, we are giving our trade the chance to prove its worthiness. like a parent, mahirap masyadong stricto sa anak natin. dapat bigyan din natin sila ng room to grow but at the same time we can’t also be too lenient at baka tayo sawayin naman.

*conservative buying must be given some room to wiggle in order to let it grow and develop but never get to lenient that it will hurt our capital.

there are smc backdoor rumors that are circulating around on this stock but i don’t want to go into that zone. once we start to dip our hands and trade on rumors, am afraid we can never go back to a safer way of trading which is following a method that works.

we can get lucky once or twice but when you get hit….it really hits hard that it tends to wipe out all the hardship and effort one have put into trading. there are those who can’t get back anymore because they loss a lot of capital. if you don’t believe me, ask those who traded BHI and IP at the top based on rumors and are now stuck. you will know what i mean. 

REMEMBER A TRADER CAN BE WRONG 80% OF THE TIME BUT CAN STILL MANAGE TO HAVE 50% OVERALL GAIN.
HOW? by minimizing the losses on 80% losing trade and maximizing profit on the 20% winning trades.
THIS IS THE HOLY GRAIL OF TRADING…its all about money management and the system/method that one employs.