Broad strategy: Buy beaten down stocks, sell them all in September.

With the Dow Jones Industrials up a stellar 142 points last Friday, I would anticipate that next week would see some interesting moves in good quality second-liners that are still less than 5% above their previous week's closes.

Personally, I have positions in Oriental Century, Lereno(bought on Monday), Celestial Nutrifood, China Sunshine( bought on that fateful Friday the 17th),Equation(bought on Tuesday), SingHoldings, Alantac, Yanzijiang Shipping, Oniontech(all bought on Thursday), Japan Land and Firstlink(bought on Friday).

In Malaysia, I have purchased small stakes in Hong Leong Industries, AsiaEP and Borneo Oil.
In the past week, I manage to reap gains on China Sun, Luzhou Bio, warrants of OCBC and Citydev, HLNTech, Advanced Holdings, People Food, Midas, Hyflux and Ferrochina.

In Malaysia, I made hundreds each on DNP, TA Enterprises, MAA Holdings, Kuchai Dev and smaller amounts on WTK Holdings, AsiaEP and Hong Leong Industries.







The chart of Orient Cent shows an MACD indicator that is near the bottom of a 'U' shape formation that usually portends an upward 'hook'. Anticipating this allows one to hitch a ride on the stock before it actually makes a 'breakout' upwards. Momentum traders(such as 77777 and Joshing on the Channelnewsasia stock forum) will only dare to enter when the stock has already risen 8-15% on high volume and the aforementioned hook up has already occurred.

I was emboldened in my decision to go long on this stock because the recent correction saw the stock touch the 61.8% retracement of the gain from January to July.

However, I believe in the modified adage that the earliest bird gets the fattest worm.

Maniacal panic, followed by equally maniacal exuberance...all in less than a week!

Just look at the chart above.

Isn't it just a picture of pure insanity driven by fear and greed?

The Hang Seng Index plunges 20% in the space of one-and-a-half weeks and then regains over 85% of that gain in four days!


Sure, many stock charts look like they've turned the corner. However, the recent catapulting indices look set to retrace some of the ridiculous overdone gains of the past four days.

I have sold off all the stocks I bought near the bottom on Friday, but am replacing them with cheaper stocks that have lagged the rebound.

Blue-chips in Singapore ended appreciably below their day's highs and the STI, which at one point was up 113 points or so, ended up 'only' 49, thus retracing over 60 points of that initial exuberant spurt.

I dipped my fingers into STI put warrants when the index was above 100 points up, but was disappointed to see that these warrants only rose 4.3% from where I bought them. I also managed to get some Hang Seng put warrants at the same time (before the market opened at 10am) and managed to get some at the day's low and one tick above that.

They had risen 10.3% by the close of trade.

Record day of profit for me, but opportunities may still abound...

The counters I made profits on were solely those I bought on Thursday and Friday, namely, OCBC call warrants, City Dev call warrants, People Food and Midas.

On Malaysia, I reaped profits on TA Enterprises and Kuchai but am waiting to sell my HL Ind shares that I bought in the closing minutes of Friday's session at RM3.56(now at RM3.80)at a higher price.

Why I think the current torrent of selling is overdone...again =)

Everything was sold down today, without exception. Many stocks are showing short-term bullish divergence, like Ferrochina below( which I entered at 3pm):





















Based on the daily charts, equity markets look set for a rebound.

Personally, I must admit that I was shocked by the ferocity of the selling in Malaysia, where both blue-chips and popular speculatives dropped like flies. News reports have conveyed today's selling as a 'capitulation'. What they failed to mention was that temporary lows occur around capitulation points!

Clawed back some on Equation, Alantac and Middle East.

Cut Alantac @24 after buying last week mistakenly @ 25, but also averaged at 17.5c so I sold all of it...sweeeet! Equation stays as my lucky stock as I sold @ 21.5c after buying @ 19.5c.Middle East: Buy @ 20c, sold @ 21.3c average.

I was wrong...but thinking of catching the inevitable big rebound.

The S'pore bourses' inability to respond to the Dow's huge 281 point rebound was the most frustrating aspect of the unpredictability of markets this past week. However, the belated rebound before the National Day holiday did allow me to reap some unexpected gains on call warrants of Wing Tai, OCBC and CityDev, to offset painful losses, so I was not so unhappy.
With Thursday's credit squeeze-induced plunge and Friday's near plunge, let's see what the charting crystal ball can tell us:















From the above chart, I observe that there is minor bullish divergence in the daily chart of the Dow Industrials and a doji formation, caused by the mid-morning turnaround in the index from a loss of 213 points to a slight gain, and ending with the small loss(that hopefully bodes well for the coming week).























I have boxed out the similarities in the February decline and the current one, with the current candlestick similar in position to the one five months ago that plugged a bottom in the correction.

However, the main difference is that the credit concerns now have wider implications and deadlier ramifications, whereas in February/March, the main catalyst was the unwinding of the Yen carry trade( where foreign funds which have borrowed vast amounts of the Japanese currency on low interest rates, buy it back to repay in a flood).

I would compare the current drop to the correction in '98(which also happened round about the mid-July timeframe coincidentally) that only bottomed out in October that year. That was a nostalgic time for me, as,with my partner, I was able to pick up OCBC at $3.50, CityDev at $2.49(we sold it for $7.70 in early November '98), Jardine Strategic at US$1.05(my partner STILL holds this share after buying me out at a price much lower than the current one) and in Malaysia, many others, including Time Engineering at 25.5sen(it peaked at RM6.40 in 2000).

Forgive me for waxing lyrical about those times, because it was an opportunity of a generation, and I was able to specu-vest full-time, without the need to put on a constricting tie, and be tied down to a restrictive, unrewarding job.

However, back then, a year of the Asian financial meltdown had already battered blue chips down by over 60% from all-time highs(and speculatives by over 90%) in some cases), so the downside risk was low, and my partner and I were able to buy with conviction.

Now, however, prices are correcting from all-time highs in many instances, and I plan to buy up to the hilt very soon, but only to sell for short-term gains of 20% to 50%.

Look at the chart of Fannie Mae, and you'll see what I mean:

















A 20% plunge from $70 to $56 in slightly over a month was followed swiftly by a 21% rebound to an intraday high of almost $69!

If a stodgy government-linked company's stock can trampoline in such a volatile fashion, all the more housing stocks( which I wouldn't advise even the most risk-courting investors to try catching) like Hovnanian(a rebound of 56%) and Beazer Homes(a spike up of 122% from lows):



























Even Germany's IKB, which had to be bailed out by Berlin, showed a 52% rebound in three days before Friday's descent(which incidentally did not bring the stock anywhere near those August lows):
















Bolstering my argument for a sharp rebound next week, several Dow components(especially financial issues which have born the brunt of furious selling) show signs of selling exhaustion:



















Citigroup(above) is showing signs that the strong support at $44-46 is holding up.

And JP Morgan's weekly chart shows that last week's plunge is a wee bit overdone:




















Even the 'bear' itself, Bear Stearns' stock, is showing the kind of chart that put a bottom to the '98 correction on the Dow:



















Looking further afield to the point-of-crisis stocks of BNP Paribas and Deutsche Bank( which earlier in the week halted redemptions on some funds), the candlestick charts indicate temporary double-bottom type formations:




















Additionally, many Dow components display the bullish crossover on the daily Stochastics, and some show similar, but impending, crossovers on the weekly Stochastics.


Finally, key tech issues seem to display unusual strength, one of which is Cisco.





In S'pore, interesting candidates for a rebound include Soup Restaurant, Fuzian ZY, Tiong woon an many others.


A caveat: For the medium-term, I still intend to unload all my shares by September.

My case for the Dow retesting 13700

Many financial stocks, which have bore the brunt of the recent sell-off on US sub-prime liquidity worries, have corrected to at least the February lows, if not lower to just above to June 2006 nadirs.

Venerated investment banking names like Goldman Sachs(GS):


















Merrill Lynch(MER):

















and banking giants like Dow component Citigroup(C):
















In fact, what I find most interesting is that Citigroup's share price seems to be tracing a downtrend channel of sorts, and the recent lows(and especially the price rebounding way of their lows within the aforesaid trendline channel) seem to suggest, technically speaking, that the price will re-explore the upper trendline in the inevitable rebound.
















But most curiously,Dow stalwart AIG,one of the world's leading insurers, shows the most astonishing hammer candlestick pattern, that saw prices plunge to a round number low of 60, only to rebound and end way off that magical number:



















Lastly, many Singapore stocks show signs of selling exhaustion, with the twin black candles of yesterday and the day before actually constituting a buy signal.


An example is SPH:



All images courtesy of Bloomberg