tutorials in applied · web view21/09/2018 · with the australian dollar hovering around $0.72...

Weekly for Saturday September 21st, 2018. Based on Thursday’s CloseCONTENTS

FINANCIAL LITERACY FAILS pg1 FOOTBALL SELECTIONS pg6 SOYBEAN FUTURES gp10 TVL STOP LOSS LINE FOR METASTOCK pg11 CNBC NOTES: AUSSIE CONTRADICTIONS RESOLVED pg15 NEWSLETTER OUTLOOK: SLOW RALLY pg16 PORTFOLIO CASE STUDIES: MONEY MANAGEMENT pg17

FINANCIAL LITERACY FAILS By Daryl Guppy

Much has been made of the 10 year anniversary of the Lehman’s collapse that in popular media mythology signaled the start of the global financial crisis.

The seeds of the next crisis lie in the growth and market dominance of Exchange Traded Funds. They have gone from a niche product to a dominant market force that distorts the behavior of the market. This market influence has been discussed in this newsletter, in conference presentations and in GUPPY TRADING. Investors need to be alert for the ETF initiated market disruption.

The seeds of some of the weeds planted during the GFC are only just being revealed. The criminality that is endemic in the Australian banking, superannuation and insurance sectors dwarfs anything revealed by Lehmann Brothers and US banks. Cutting these weeds down to size will takes years, and it will inflict an expensive hit on both the market where this sector dominates the XJO index, and on the value of superannuation funds that hold these as core assets.

It’s often claimed this has something to do with financial literacy or lack of it. If this is correct (and its not – this is just plain criminal behavior) then the financial media needs to accept some responsibility.

This recent breathless headline TIME TO INVEST IN US DOLLAR ASSETS is absolutely wrong and a fine example of financial illiteracy. It sums up why understanding a chart is more important than listening to the group think of ill-informed commentators.

With the Australian dollar hovering around $0.72 you are paying a 28% premium to buy US dollar denominated assets. The time to invest in US dollar assets was when the Australian dollar was near parity or higher. In simple terms, it made

September 21st, 2018A publication of Guppytraderscomsg Pte Ltd since 1996 CRN200409379K. Copyright © 2015

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buying US assets cheaper. That was a 2 year window of opportunity, spotted easily by just looking at the AUD price chart.

As the AUD slipped below parity we converted all our international contract agreements to US$ and we continue to write new contracts in US$. That’s around 28% extra when the contract price is converted to Australian dollars.

It’s too late to invest in US dollar assets, unless you believe the AUD is heading towards previous lows around $0.66, in which case there is a small advantage in buying when the dollar is at $0.72. The key guide for this investment decision is the chart – not ill-informed writers in the media.

Financial illiteracy is sustained by poor quality reporting, even in the financial press. A Chinese investors looking at this market board in this photo would be overjoyed by the vast swathes of red because red is used for rising prices, green for falling prices.

There is no excuse for the ignorance that underpins the caption for this picture.** There is a rush by people claiming to have seen the GFC coming. Most of it’s

a retrospective rewriting of history as the people making the claims did so in sotto voice at the time and more loudly proclaimed that there was no need to over-react (as they covertly sold stock) .

At the end of the first week on January in 2008 we published a market outlook in Singapore financial media identifying the head and shoulder pattern in the DOW and calling a substantial market collapse to 9000. We provided the same analysis in our CNBC blog, and in live interview with CNBC Squawk Box. Newsletter readers were also given the same analysis. Technical analysis led the way with these early warnings months before Lehman collapsed.

TRADE MANAGEMENT


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The IPD* bullish flag example has moved slowly. This has become increasingly typical of bullish flag breakouts in recent years. We apply the stop loss conditions in the diagram with a stop at $0.445. This is also the CBL stop value.

In the LOOKING FOR OPPORTUNITY article last week we added IPD* as a trade example. This is a flag pattern. The preferred entry is near the lower edge of the flag so traders can collect the full breakout move. For case study purposes the trade was entered at the midpoint in the flag near $0.43.

There are two projection targets. The technical target is $0.74. This is calculated by taking the height of the flag pole and projecting it upwards from the point where the price moves above the upper edge of the flag.

However the IPD chart shows a very strong support level near $0.66. This support level is most likely to become a resistance level, making it difficult to breakthrough and reach the technical target near $0.74. A sell order is placed near $0.66. This sell order will be adjusted depending on the momentum of the price breakout. If the momentum is strong then a new sell order will be placed near $0.74.

As the breakout develops the stop loss is adjusted to protect open profits. The breakout is the most critical pattern of the pattern. Once the stop value is above the value of the upper edge of the flag then the stop method can be adjusted to use CBL and ATR as stops.


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The spreadsheet shows the trade calculations.

Register on www.marketwiseasia.com


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http://www.marketwiseasia.com/

http://www.marketwiseasia.com/

You can download the ATR indicator for MT4 at https://www.mql5.com/en/market/product/29683 Use this to improve your trade risk management.

CASE STUDY EQUITY CURVE

The case study portfolio return is $9139.34 or 9.2% for the period starting July 1, 2018 and ending June 30, 2019.

For the year starting July 1, 2017-2018, the case study portfolio return is $115,330 or 115.3%. For the year starting July 1, 2016-2017, the case study portfolio return is $92,464.15 or 92.5%. For the year starting July 1, 2015- 2016, the case study portfolio return is $156,450 or 156.45%.

Equity trade size is generally kept constant at $20,000 in the case study portfolio so it is easier to compare the case study trades over this and other years. Unless otherwise noted in the trade management notes, all equity case study trades are managed on an end of day basis, with the exit taken at the best reasonable price on the day after the stop loss is triggered.

Warrant and CFD trades are generally kept constant at $10,000. Warrant and CFD trades are closed on an intraday basis using a guaranteed stop loss as this is a primary method of managing derivative risk.

FX trades are generally kept constant at $5000. Stops are managed intraday. This capital allocation reflects the risk in each of these asset classes.


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https://www.mql5.com/en/market/product/29683

https://www.mql5.com/en/market/product/29683

FOOTBALL SELECTIONS By Daryl Guppy

A popular financial commentator recently created a grand final strategy for shareholdings based on a football analogy. We look at the selections from a technical perspective. He divides this into Backline, Midfield, Forward, Interchange, Backs and then Midfield and Forwards again.

BACKLINEThis is the last line of defence to protect foals when play is moving against you.

We use weekly charts because these defensive positions are supposed to come from quality companies which provide stability when the rest of the market looks a bit uncertain. These are long term positions so we assess them against a monthly chart and their reaction to the 2008 crisis. This is a stress test and we would expect these defensive stocks to lose less than the 53% lost by general market index in 2008.

He starts with COH, a global leader in design and production.


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TECHNICAL ANALYSISVery strong trend support shown by the consistent separation in the long erm

GMMA. Pullback into the long term GMMA have delivered good opportunities to join a strong trend at a point of temporary weakness.

TECHNICAL CONCLUSIONStrong consistent trend behavior. However the monthly chart shows a drop of

45% in 2008.

Next on the list is SYD*. He notes high international tourist numbers and stable cashflows.


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TECHNICAL ANALYSISThe first feature is the very strong resistance level near $7.60.The second

feature is the decisive break below the long term uptrend line followed by 2 years of sideways action. There is weak trend support from the long term GMMA which suggests investors are hanging in there, but not attracting new bullish investors.

TECHNICAL CONCLUSIONThere is weak trending activity with upside limited by strong resistance. The

2008 crisis saw a 72% collapse in the share price. This suggests a high level of vulnerability rather than defensive strength.Next on the list is TCL with its road tolls in Australia and the US


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TECHNICAL ANALYSISThis chart has a similar pattern to SYD. The first feature is the very strong

resistance level near $12.50.The second feature is the decisive break below the long term uptrend line followed by 2 years of sideways action. There is weak trend support from the long term GMMA which suggests investors are hanging in there, but not attracting new bullish investors.

TECHNICAL CONCLUSIONThere is weak trending activity with upside limited by strong resistance. The

2008 crisis saw a 54% collapse in the share price not quite the stability you want in a serious crisis.

The final backline is RMD with its sleep solutions. It’s defensive because everyone needs a good sleep.

TECHNICAL ANALYSISTrend strength started in 2016 and has remained very strong for the past year.

Long term GMMA is well separated, and there is consistent separation between the two GMMA groups. This points to trend stability. TECHNICAL CONCLUSION

Strong trend behavior in past 2 years. Stress test loss in 2008 is 43% which make it’s the best of these defensive selections.

We add RMD as an example of this portfolio.


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Entry is near $15.43 and the stop loss is at the lower edge of the long term GMMA near $14.87. The exit is assessed against the trend behavior on the weekly chart.

TECHNICAL BACKLINE ASSESSMENTThe fundamental story may be sound good but the stress test results are not

impressive. Two lost a great deal more than the general market in 2008. COH and RMD out performed with a loss of 45% compared with the market loss of 53%.

Trend strength is the most important feature for defensive plays. Charts that have moved sideways for 2 years are not examples of strong trend behavior and these are more vulnerable to trend collapse when things go bad.

Next week we assess the midfield selections.

SOYBEAN FUTURES By Daryl Guppy

Soybeans have established the strongest trend behavior in more than two years. This is a decisive break below the lower edge of the trading band near 840. This gives a downside target of 640. Traders watch for consolidation near the 640 level. This is a technical projection and does not correspond to previous historical support levels near 500.


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TVL STOP LOSS LINE FOR METASTOCKBy Jim McAdam

Several readers have asked about the TVL line. Jim McAdam provides the Metastock coding.

The TVL line is a discretionary stop loss tool. Its value depends on the selected starting point. This is determined by your entry and stop loss points. This discretionary starting point is the major weakness with the TVL. However the TVL provides a very useful way to manage the subsequent trailing stop. It was part of the development process we applied with the ANTSYSS trading method. Editor

Having looked at the use of the TVL on the GMMA I found the concept of drawing multiple lines time consuming, prone to error and hard to read. Being one who prefers clarity, simplicity and the least possible repetition I decided to create an indicator on Metastock to let the computer do the work.

What we have to do when creating code for an indicator is to define what minimum data is required to define the TVL line. Well the first thing is of course the breakeven cost per share as a base line, also the date of entry which must be entered as day, month and year. This is all we need for we already know the EMA’s required, that is the internal and external EMA’s on the long term group of the GMMA, which are the30 and 60 day EMA’s.

So we open Metastock, click on the indicator button f(x) at the top of the screen, and a window for the indicator builder pops up, now click on new. This is where we add our code.

Give the indicator a name, i.e. “TVL stop loss” or similar, and now we define


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our data with the following codem1:=Mov(C,30,E);m2:=Mov(C,60,E);dd:= Input("DAY",1,31,1);mm:= Input("MONTH",1,12,1);yyyy:= Input("YEAR",2001,2030,2009);Cost:=Input("Breakeven cost",0,200,0); This defines the variables we will need, the two exponential moving averages - m1 and m2, the trade date - dd, mm and yyyy and our breakeven cost - Cost. When the indicator is first used on a chart you will be asked for the day, month, year and breakeven cost, more on that later.

The rest of the code sets the value of the indicator on the chart for each day of the chart. Dates prior to the trade are handled first.If(( yyyy>Year() ) OR ( mm>Month() AND yyyy=Year() ) OR (dd =>DayOfMonth() AND mm= Month() AND yyyy=Year()), cost, The first three lines ask if the chart date is before the trade date. (i.e. is it a year prior to the trade year, or is it the trade year but the month is prior to the trade month, or isit the trade year and month but prior or equal to the trade day). If this is the case then the indicator is set to cost (fourth line above) and the next day’s data is looked at. When we get to the case where we have passed the trade date then we must ask a different set of questions, and this is the next part of the code.

If( m1>m2 AND PREV< m2, m1, If(m1<m2 AND PREV> m2, m1, PREV)));


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One of the things we must know is whether we are trading short or long. In a falling GMMA the 30 EMA is less than the 60 EMA, in a rising GMMA the opposite is true with the 30 EMA being the greater. So the question is m1 greater than m2 asks is the GMMA rising (i.e. a long market). If so and if the previous value of our indicator has fallen below the 60 EMA it is time to raise our indicator to the 30 EMA(m1). If the market is short with a falling GMMA then if the previous days value is greater than the 60 EMA then we drop our value to the 30 EMA, in all other cases we keep the value the same(i.e. as PREV).

That is all that is required to build the indicator. It is very important to keep thesyntax exact , I would suggest readers download a word version of the newsletter,copy the code then insert it into the indicator builder. Make sure you copy only the section below FULL TVL STOP LOSS CODE

USING THE INDICATOR To use the indicator, open metastock and bring up a chart with or without the GMMA. Then place the cursor on the indicator drop down box (top and centre of chart) and select the TVL STOP LOSS indicator. Now drag the indicator over the chart. A window will open. Fill in the day, month and year of the trade also the breakeven cost and click on ok. Another window will open, select “merge with scale on right” and click ok. Any other selection and you may get odd results. You now should have the indicator line drawn in a staircase type line. This is your stop loss line after the first step on the staircase has been reached.

You can also see clearly the hope, confidence and certainty positions if the GMMA is included. If you are not sure what this is I would refer you to Guppytraders.com “GMMA TREND VOLATILITY MANAGEMENT”.

Full TVL STOP LOSS code---------------------------------------------------------------

m1:=Mov(C,30,E);m2:=Mov(C,60,E);September 21st, 2018A publication of Guppytraderscomsg Pte Ltd since 1996 CRN200409379K. Copyright © 2015

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dd:= Input("DAY",1,31,1);mm:= Input("MONTH",1,12,1);yyyy:=Input("YEAR",2001,2030,2009);Cost:=Input("Breakeven Cost",0,200,0);If((yyyy>Year()) OR ( mm>Month() AND yyyy=Year() ) OR (dd >=DayOfMonth() AND mm=Month() AND yyyy=Year()), cost, If( m1>m2 AND PREV< m2, m1, If(m1<m2 AND PREV> m2, m1, PREV)));

Jim McAdam, ex computer analyst/programmer, now a beekeeper and improving

trader.

CNBC NOTES: AUSSIE CONTRADICTIONS RESOLVED By Daryl Guppy

A few weeks ago we noted the market contradiction between the Australian dollar and the Australian market. The Australian market was making new 10 year highs but the Australian dollar was making significant lows.

Here was the contradiction– a falling AUD and Australian market making new 10 year highs.

Who is the dominant partner in this relationship? The answer is now in. It’s the Australian dollar. The collapse of the AUD pointed the way for the substantial retreat in the Australian market. As much as Australians like to think that Trumps trade wars have no impact on Australia, the reality is very different. Australia, a close ally of the US, is just so much collateral damage.

The Australian market is not immune from self-inflicted wounds. The criminality in the banking and insurance sectors being revealed by the Hayne Royal Commission is undermining the companies that make up the bulk of the Australian market index.

Traders who were alert for evidence of a pullback in the Australian market went short as the Aussie dollar failed to hold support near $0.74. The AUD is a lead indicator for the Australian market.


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The Australian dollar broke the long term uptrend in April and quickly developed a substantial downtrend. It reached 12 month lows at $0.74 and rapidly reached two year lows near $0.715.

A fall below $0.74 has a downside target near $0.715. This target is established using the support area tested in 2016 and 2017. The consolidation near $0.715 is weak. The short term GMMA is well separated suggesting that traders are committed sellers. There is a low probability of a rally rebound towards $0.74. Traders fade the rally for a move towards the next support level near $0.69.

There is a weak relationship between Australian dollar weakness and US dollar strength. The impact on the Australian dollar flows from revelations about a corrupted financial sector and the fallout from Trumps ramping up for tariffs. What hurts China hurts Australia and that’s before tariffs are directed specifically at Australia.

We use the ANTSYSS trade method to extract good returns from the potentially fast fall as the retreat develops.

NEWSLETTER OUTLOOK: SLOW RALLY By Daryl Guppy

The rebound from near 6140 is stronger than expected and there is the potential for a new rebound rally to develop. The index needs to move above 6240 before the rally can be called a new trend. Many of the technical features suggesting a new downtrend remain unchanged. Traders treat this as a slow reaction rally and use tight stops to protect profits.


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The index formed a small double top near 6355 and then simply gave up on continuing the uptrend.BearishThe index tested and then broke through the support from the lower edge of the log term GMMA.Bearish end of trend behaviour.The index fall rapidly towards the trading and support level near 6145.Very bearishThe long term GMMA has turned down very rapidly. The short term GMMA is below the lower edge of the long term GMMA.Very very bearish.Traders watch for consolidation near 6145. Any rebound from this level has

significant resistance obstacles so the rally rebound cannot be traded as a resumption of the uptrend.

Traditionally October is the horror month for the markets, but in recent years September has been the worst performing month with October usually ending higher at months end than it started the month.

Brave and aggressive traders will try to identify the pivot point low in this retreat and trade the rebound. The September rebound is often very rapid. It’s a high risk strategy.


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PORTFOLIO CASE STUDIES: MONEY MANAGEMENT

Starting cash position $100,000 - no brokerage or slippage 2% of risk = $2,000 NOTE Entered date is the newsletter date which contains the case study discussion.

OVERALL PROFIT TO DATE The case study portfolio return is $11,424 or 11.4% for the period starting July

1, 2018 and ending June 30, 2019. The case study portfolio return is $156,450 or 156.45% for the period starting

July 1, 2016-2017. Note that this includes 6 to 21 trade results. The case study portfolio return is $92,464.15 or 92.5% for the period starting July 1, 2015- 2016. Equity trade size is generally kept constant at $20,000 in the case study portfolio so it is easier to compare the case study trades over this and other years. Unless otherwise noted in the trade management notes, all equity case study trades are managed on an end of day basis, with the exit taken at the best reasonable price on the day after the stop loss is triggered.

CUSTOMER CAUTION NOTICE AND COPYRIGHTGuppytraderscomsg Pte Ltd (CRN 200409379K) Pte Ltd is not a licensed investment advisor. This publication, which is generally available to the public, falls under the Singapore Media Advice provisions. The information provided is for educational purposes only and does not constitute financial product advice. These analysis notes are based on our experience of applying technical analysis to the market and are designed to be used as a tutorial showing how technical analysis can be applied to a chart example based on recent trading data. This newsletter is a tool to assist you in your personal judgment. It is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any particular person's investment objectives, financial situation and particular needs because readers come from diverse backgrounds, with diverse objectives and financial situations. This information is of a general nature only so you should seek independent advice from your broker or other investment advisors as appropriate before taking any action. The publication should not be construed by any reader as Publisher's (i) solicitation to effect, or attempt to effect transactions in securities, or (ii) provision of any investment related advice or services tailored to any particular individual's financial situation or investment objective(s). Readers do not receive investment advisory, investment supervisory or investment management services, nor the initial or ongoing review or monitoring of the reader's individual investment portfolio or individual particular needs. Therefore, no reader should assume that the Publisher serves as a substitute for individual personalized advice from a licensed financial professional of the reader's choosing. The decision to trade and the method of trading is for the reader alone to decide. The reader maintains absolute discretion as to whether or not to follow any portion of our content. Publisher does not offer or provide any implementation services, nor does it offer or provide initial or ongoing individual personalized advice. It remains the reader's exclusive responsibility to review and evaluate the content and to determine whether to accept or reject any strategy and to correspondingly determine whether any such strategy is appropriate for a reader's individual situation. Publisher expresses no opinion as to whether any of strategy contained on this publication is appropriate for a reader's individual situation. The author and publisher expressly disclaim all and any liability to any person, whether the purchase of this publication or not, in respect of anything and of the consequences of any thing done or omitted to be done by any such person in reliance, whether whole or partial, upon the whole or any part of the contents of this publication. Neither Guppytraderscomsg Pte Limited nor its officers, employees and agents, will be liable for any loss or damage incurred by any person directly or indirectly as a result of reliance on the information contained in this publication. The information contained in this newsletter is copyright and for the sole use of trial and prepaid readers. It cannot be circulated to other readers without the permission of the publisher. Each issue now incorporates fingerprint protection that enables us to track the original source of pirate copies. If we find that you are redistributing the newsletter then, at our discretion, we will reduce the length of your paid subscription by the value of the multiple copies we believe you are circulating. Share with nine friends, and we cut your subscription period by 90%. Contributed materials reflect the personal opinion of the authors and are not necessarily those of the publisher. Articles accurately reflect the personal views of the authors. Stocks held by the authors are marked* and are not to be taken as a trading recommendation. This is not a newsletter of stock tips. Case study trades are notional and analysed in real time on a weekly basis. Any past investment-related performance .referred to may not be indicative of future results, and therefore, no reader should assume that the future performance of any specific investment, investment strategy will be suitable or profitable for a reader's portfolio, or equal historical or anticipated performance level(s). Guppytraderscomsg Pte Ltd does not receive any benefit or fee from any of the stocks reviewed in the newsletter. Guppytraderscomsg Pte Ltd is an independent international financial education organization and research is supported by subscription September 21st, 2018A publication of Guppytraderscomsg Pte Ltd since 1996 CRN200409379K. Copyright © 2015

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tutorials in applied · web view21/09/2018 · with the australian dollar hovering around $0.72...

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