Stock Trader Man

LOU’S VIEW                                                                             Tuesday 13th January 2009

Closing Prices

Dow Jones down 125 @ 8,474

CRB Index down 9.36 @ 220.55  (This is the mother of all index’s measuring 19 commodities)

WTI Oil down $2.85 @$38.25

Copper(PhD in stock market forecasting) down 9.9 % @ $146.05

Gold down 4.3% @ $819 (one month low)

The Hindsight

1.Friday’s U.S unemployment was predictably dire with the rate hitting 7.2% and “non farm payrolls”(workers who don’t work on the farms-why not include them?) at 524,000 making the total job loss for 2008 a massive 2.59 mln, a level not seen since 1945. All the U.S data will continue to be negative so it’s hardly worth mentioning until there are finally signs of an upturn.I guess it sells newspapers and people love wallowing in bad news but, maybe, just maybe everybody now has finally got the picture.It’s getting like reporting on the Gaza conflict, at first the number of civillians killed shocked but after awhile we just get immune to the rising death toll.

So reading about dire economic data on a daily basis is almost pointless.However, there is one annual report worth noting ; the very closely watched National Institute for Economic and Social Research published on Saturday which painted a gloomy yet also positive picture. This blue chip poll covers the top 52 economists, CEO’s and acadamia forecasts.The concensus was that the recession will end in the 3rd quarter and return to “normal” levels in 2010 with unemployment only peaking only then,i.e there will be a uneployment hang over(that is according to 50% of them).Also CPI will fall by 0.4%(1st time since 1955) with GDP falling by 1.6%, these are concensus estimates with the most bearish being Merrill Lynch(shouldn’t that read Bank of America?) expecting a 2.8% decline to the most bullish Fedex expecting a mere 0.2% decline. The report also showed an even split on the U.S $ prospects with 48% believing it will be higher by December 2009.

The Foresight

To me this macro big picture is significant as if these gurus are correct and baring in mind the stock markets forward think by 9 months then stocks at present levels are extremly cheap. Not only on these grounds but more obviously on the fact that domestically cash rates will soon underperform share dividend returns.It’s a no brainer, just a question of “selection,selection and selection”. For example, NAB is presently yielding 9.2% f.f, far more than you get if you deposited money with them and not to mention actual capital appreciation….and yes the dividend is safe.

The Key Events

Today: China to publish Trade figures for December expected to show exports fell 4.5% with Imports down 19%.However these numbers were leaked yesterday and were better than expected with exports down just 2.8% and imports  down 21.3%. Also Chinese business confidence (again leaked) fell by 29 points  to 94.6, a record low.-any reading under 100 is negative.             ANZ J0b Ad’s (indicator for Thursday’s monthly employment figures).

Tuesday U.S Fed’s Beige book on the economy(renamed the black book)

Wednesday U.S Retail Sales expected @-1.0%.                               Oz Housing Finance for Nov’ expected up 3%

Thursday Oz December unemployment data expected up 4.5%(4.4% previously).       ECB expected to cut rates 50bp cut to 2%.    Fed Governor Bernanke talks in London on U.S economy.  RBA monthly bulletin. U.S PPI(Producer Price Index).  RIO report December production figures .

Friday U.S CPI, Industrial Production and Consumer Sentiment Index for January. All biggies!

The next 2 weeks will be critical for our market as the U.S banks report 4th Q figures(read  losses) starting with J.P Morgan and Wells Fargo.The key will be to see what they are saying about future prospects, or should I say just how bad things are going to get.Again,much bad news is built in so we should see a “relief rally” which will feed into our banks. Our Company reporting season starts in 3 weeks so expect further company profit downgrades ahead plus more volatility. Until we can get our first true picture of how bad/good things are I don’t expect “real,new” money to be invested in our market.So Febuary will be key!

For those of you who took my last trade recommendation to buy Suncorp @$7.45(Closed Friday @ $8.55) I would look to take  profits @ $8.90 with a stop loss at $7.45.

Expect our market to open 60 points lower on Monday however would look to buy BHP around recent low and old resistance level of  $30.30, particularly as copper made decent gains along with the all important CRB index.Indeed, the commodities this year have shown significant signs of rebounding, with copper already up 20% from it’s lows and remember Copper prices are a great indicator.So with all these “Talking Heads” saying commodities are in trouble be contrarian and look to buy Resource stocks(see below) as it’s all in the Price Action, not opinions!

Have a great day.

QUOTE OF THE DAY: “Time is a great teacher and healer but eventually it kills all its pupils and patients”

Recent trade updates

1.RHG.Long @ 11 cents,closed @16 cents. Take 50% profits @18 cents, stop loss @ 10.5 cents.

2.TNE Long @ 76 cents,closed @ 80 cents.Stay long, stop loss @65 cents.

3.IPR Long @ 11 cents,closed @ 7.8 cents. Stay long.It’s a dividend trade for 10% return.

4.LLC Long av’ @ $7.30, closed @ $7.05. Stay long. Buy and hold.

5.CBH Long @ 4.3 cents, closed @ 6 cents. Stay long, stop loss @ 4.3 cents.

6.PEM Long @ 17 cents, closed @ 18 cents.Stay long, stop loss @ 13.9 cents.

7.BHP Long @ $30.00 closed at $30.43. Stay long. It’s a core investment.

Thank you for visiting my web site and the new unedited daily market commentary and trading advice. I will be publishing this pre-market report daily with updates as the trading day progresses. Let’s call it “Lou’s View!”

So who is Lou?

As my profile says I have 28 years trading and investing experience principally from London, then Sydney and now Brisbane. I have over those years dealt and worked with the world’s largest Hedge Funds, discretionary trading and managed funds.
My principal success was establishing and developing Refco Inc’ as Senior Vice President  in 1984 from a 2 man operation generating an annual income of $100,000 to over $15 million…so I guess I must have done something right!

In 1995 I immigrated to Sydney and worked at Fimat as manager of their European/U.S shift and was then approached by Bankers Trust Sydney. It was there that I again raised the company’s profile (however not to the same magnitude as Refco’s!) but indeed I greatly increased profits by submitting innovative trading ideas to the most respected traders in Australia and Europe.

TRADING PHILOSOPHY.

Here’s why 90% of speculators/traders  go belly up within 6 months.

Again like trading I keep it simple:

1/Do not ever change  targets. If it’s a buy and hold on a say, 5 year view then don’t exit the trade after 5 days because it made you a quick 10% profit;the same is true vice versa. Don’t confuse an investment for a trade and don’t over trade reacting to every price change(it’s called 01 itis). After all, you wouldn’t trade houses the same way as stocks.

2/When trading cut losses and run profits by placing “stops”, if you don’t then the market will very soon stop you from trading. Most failures,nay all failures are caused by people doing the exact opposite.It’s called money management and you’ll live to fight another day.M0ney or risk management is the single most important factor which prevents you being another one of the 90% failures.The greatest traders that are still trading 20 years later all have the same mantra, it’s called risk management.Traders such as Richard Dennis,Paul Tudor Jones, Tom Baldwin, Larry Hite (not Warren Buffet, he is the greatest investor) all still manage billions and they all say only about 30% of all their trades made money.If you only read one book about trading(and believe me there is an awful lot of dross out there) then it has to be Market Wizards(interviews with Top traders) by Jack D.Schwager.It was written in 1989 and still I believe is the bible of trading.

3/Do not “personalise” the market, it’s not out there to “get you” so remove any delusions of paranoia and stay emotionally detached.In other words do not go ecstatically high fiving it on a winning trade and equally do not get upset on a losing trade. There are more books written on market psychology than on food recipes….I like to think I’ve just summed them all up!

4/Price Action, this is my favourite.Look at how the price is reacting to both positive and negative news, again this where charts overide fundamentals(or funny-mentals as they are often called). May sound simple but buy stocks that are going up not down! “The trend is your friend”.I have bought many stocks that are actually now higher when the S+P 200 index was at 5,150 because I followed the all important price action.

My mantra is “keep it simple!” In my experience traders over-complicate trading and can’t see the wood for the trees. Also, don’t trade off newspapers otherwise you’ll end up selling them. My view on analysts is that they are very much like weapons of mass destruction, firms have them because everybody else has them. Anybody can say why prices moved in hindsight; it’s foresight that makes money by utilising the most trusted and profitable system….BAR CHARTS. Obviously “Top Down” and “Bottom Up” fundamental analysis is very important but I can assure you having dealt with hundreds of the most successful proprietary traders all over the world it is safe to say over 90% trade off technicals and charts. However with so many chart systems to use many over complicate the signals by simply using too many, such as candlesticks (apt they use the term “hang man”) or Bollinger bands (use that and you’ll never be able to afford it!).

I use bar charts and the application used and known by seasoned traders as “Fibonacci”. In fact readers of my previous daily reports while I was with my previous firm  would have had the opportunity to be educated about the Fibonacci philosophy in relation to trading. Indeed, the response to all the daily reports spoke for themselves. After just 3 months the firm’s website went from 300 hits per day to a few thousand, it was commended by all clients,financial planners and indeed many “outsiders”;indeed I even enjoyed it  being plagarised! It certainly drew much attention, indeed  CNBC  invited me on their business show to talk markets. It was most certainly  cited by many as the reason they traded with the company.

I have been writing daily market reports for over 25 years with a readership of literally thousands from the professional trader to “Mum and Dads”.  I have frequently rejuvenated and re-wrote many companie’s old “cut and paste” way of “writing” reports to a subjective, informative and advisory one….without the “spiel”

I trust, like so many others before you, that you will find my reports informative, comprehensive, educational, profitable and indeed amusing.

I appreciate your visit to my site.

Please feel free to send me your comments/views. As I have always said, “In life, never take yourself too seriously, only the markets”

Best regards,
Lou Muddaris.