KLCI June Performance

This is the performance of KLCI for month of June from 1994 onwards.

Entry Date	Entry Price	Exit Date	Exit Price	% Change	Draw Down %	Max Gain %	Bars Held
6/1/1994	991.60	6/30/1994	1011.58	2.01	-4.36	5.08	21
6/1/1995	1058.13	6/30/1995	1026.62	-2.98	-3.32	3.13	21
6/3/1996	1139.78	6/28/1996	1136.31	-0.3	-2.08	1.37	19
6/2/1997	1107.55	6/30/1997	1077.30	-2.73	-4.13	2.77	20
6/1/1998	537.60	6/30/1998	455.64	-15.25	-19.03	0.18	21
6/1/1999	742.70	6/30/1999	811.10	9.21	-1.81	12.07	21
6/1/2000	914.12	6/30/2000	833.37	-8.83	-12.82	0.25	18
6/1/2001	573.30	6/29/2001	592.99	3.43	-1.84	5.88	19
6/3/2002	741.90	6/28/2002	725.44	-2.22	-5.12	1.94	19
6/2/2003	672.92	6/30/2003	691.96	2.83	-0.42	3.41	20
6/1/2004	811.66	6/30/2004	819.86	1.01	-2.31	2.04	21
6/1/2005	861.05	6/30/2005	888.32	3.17	-0.26	5.22	21
6/1/2006	927.65	6/30/2006	914.69	-1.4	-4.78	0.83	21
6/1/2007	1348.36	6/29/2007	1354.38	0.45	-0.16	3.20	20

The records are pretty even with 7 winners and 7 losers. However, the average winning size is less than the average losing size.

KLCI Update

Some danger sign is appearing on the KLCI index. The rebound from 18 Mar has taken us from a low of 1166 to a high of 1305. The rally looks to be running out of steam.

The MACD cut below its signal line on 20 May 08. This suggests weakness in the short term.

The +DI has cut below the –DI line. The last time this happened on 20 Feb 08, the index went down from 1414 to 1173.

The index is also very near the base of the Bollinger Band. If it breaks below 1271, it will be bearish.

Let’s see whether the index can gather enough momentum to break through 1303. If the Bulls are able to push through this level, there will be another rally towards 1437

ASTRO Update (Symbol 5076)

ASTRO made a MACD Crossover on 22 Apr 08 and a trade was initiated on 23 Apr 08 with a buy stop order at RM3.46 and stop loss level of RM3.29.

This trade turned out to be a winner. ASTRO closed at RM3.82 on 14 May 08. That is a gain of about 10% within 15 trading days.

The price pattern made an inverted hammer yesterday. If the price goes below RM3.80 it will be suggesting weakness in the near term.

Both Stochastic and RSI indicator is reaching the top end which indicates that the stock may be reaching overbought condition soon.

MACD is still above its signal line so there is no sell signal from the MACD yet.

One approach will be to ride on the up trend and to take profit if the price falls below RM3.78.

KLSE Update

The KLSE index closed at 1286.54 yesterday. The 20 day moving average is showing a positive gradient and is rising since the beginning of Apr. This is a bullish sign.

The Bollinger is showing a slightly upward channel and the index looks to be moving towards the upper part of the Bollinger bands. If the index can break out of 1305 level, the uptrend will resume and the most likely target will be the Fibonacci Projection level of 1359.

The RSI has retraced back to the 50 level so that market is currently not in overbought situation.

The ADX is turning up and the +DI is greater than –DI. This implies that uptrend will most likely continue.

Pristine Swing Method

This is a method described by Oliver L Verez in his book, “TOOLS AND TACTICS FOR THE MASTER DAY TRADER”.

The method uses candlestick pattern and the relationship between the highs and lows of the price bar to determine entry points.

Entry Rules
1. Price made 3 or more consecutive lower highs
2. Price made 3 or more consecutive lower lows
3. Price made 3 or more consecutive black candle (closing price is less than opening price)
4. When conditions (1) to (3) are met, enter a long position at the high of the previous bar.

Exit Rules
1. Exit after holding the trade for 5 days.

Example of such a price pattern is shown below:

Lets apply this method to Digi.com Bhd (Symbol: 6947). Using data from 2003 to 9 May 2008, we have the following trades:

Entry Date	Entry Price	Exit Date	Exit Price	% Change	Bars Held
5/18/2004	4.42	5/25/2004	4.5	1.81	5
10/8/2007	20.4	10/15/2007	22.6	10.78	5
11/26/2007	23.8	12/3/2007	25.75	8.19	5

Dow Update

The Dow Industrial Average closed at 12745 points, down 120 points. For the week, the index was down 313 points.

The index is now resting at the lower trend line of the upward price channel. It is also near the 50% Fibonacci Retracement level.

Next week will be a critical week. Let’s hope the index will be able to stage a rebound from current levels.

US Yield Curve

The yield curve is simply a ratio that is derived by dividing a long term yield with a short term yield.

For example, the yield for the US Treasury 3 month bill closed at 1.62 and the yield for the US Treasury 30 year bond closed at 4.66 on Tuesday. Therefore the value for the yield curve is 2.88 (4.66 divide by 1.62).

The steepness of the yield curve can be used to predict the performance of the stock market. This is because when the yield curve is steep, banks earn money by borrowing short term and to loan long term. The reverse happens when the yield curve is inverted or flat. Hence when the yield curve is steep, banks have every incentive to loan out as much as possible and to borrow to the limit of their reserves. And when that happens, there will be excess liquidity to drive up the stock market.

I have done a study by using the data from Yahoo (Symbol: ^TYX - 30 year bond and ^IRX - 13 week Treasury bill).



The trading rule is simple.

Enter
1. Compute the Ratio = (^TYX)/(^IRX)
2. If ratio crosses value of 1.15, enter a long position

Exit
1. Closed the long position after 12 months.

The trading result is as follows:

Entry Date	Entry Price	Exit Date	Exit Price	% Change	Draw Down %	Max Gain %	Bars Held
6/2/1980	850.85	6/1/1981	991.75	16.56	-1.1929	21.1706	12
12/1/1981	888.98	12/1/1982	1039.28	16.91	-13.3861	21.3143	12
6/1/1982	819.54	6/1/1983	1199.98	46.42	-6.0473	51.8523	12
8/2/1982	808.60	8/1/1983	1199.22	48.31	-4.7762	55.9139	12
5/1/1990	2656.76	5/1/1991	2887.87	8.7	-11.7606	14.0656	12
9/4/1990	2614.36	9/3/1991	3043.60	16.42	-10.3295	17.3767	12
2/2/1998	7987.46	2/1/1999	9405.43	17.75	-7.6089	22.1845	12
4/1/1998	8818.50	4/1/1999	9825.29	11.42	-16.3157	15.1961	12
8/3/1998	8868.10	8/2/1999	10654.83	20.15	-16.7837	27.6667	12
10/1/1998	7749.42	10/1/1999	10335.69	33.37	-4.5118	47.4812	12
1/4/1999	9212.84	1/3/2000	11501.85	24.85	-2.3726	26.5482	12
4/2/2001	9877.16	4/1/2002	10402.07	5.31	-19.7448	15.7865	12
9/4/2007	13358.39	Open	Open	-2.91	-13.8464	6.8988	9

The trading result is not exactly spectacular but it is definitely better than return from fixed deposits.

Market Timing Using 30 Year Bond Yield

This method was described by Mark Boucher in his book “The Hedge Fund Edge”. The method makes use of 30 Year Treasury Bond Yield to decide whether to enter or exit the market.

The method is pretty simple. It will buy the S&P when the 12 month rate of change of the 30 Year Treasury Bond Yield is less than 9%. The position is held until the 12 month rate of change of the 30 Year Treasury Bond Yield exceeds 9% again.

According to his study from 1947 till end of 1997, the probability of win is around 65%.

When I apply this same method using Dow Jones Industrial Average from 1979 till Apr 2008, I obtained the following results:

Entry Date	Entry Price	Exit Date	Exit Price	% Change	Bars Held
2/1/1979	839.22	3/1/1979	808.82	-3.62	1
4/2/1979	859.93	5/1/1979	854.9	-0.58	1
6/1/1979	822.33	11/1/1979	815.7	-0.81	5
3/2/1981	974.58	5/1/1981	997.75	2.38	2
12/1/1981	888.98	1/4/1982	875	-1.57	1
3/1/1982	824.39	12/1/1983	1276.02	54.78	21
2/1/1984	1220.58	3/1/1984	1154.63	-5.4	1
9/4/1984	1222.39	5/1/1987	2286.36	87.04	32
5/2/1988	2032.33	9/4/1990	2614.36	28.64	28
10/1/1990	2452.48	11/1/1990	2442.33	-0.41	1
12/3/1990	2559.65	7/1/1994	3624.96	41.62	43
4/3/1995	4157.69	1/2/1997	6448.27	55.09	21
3/3/1997	6877.74	9/1/1999	10828.44	57.44	30
4/3/2000	10863.28	5/3/2004	10227.27	-5.85	49
8/2/2004	10138.45	5/1/2006	11367.78	12.13	21
10/2/2006	11678.99	Open	Open	9.77	19

There were total of 16 trades with 9 being profitable. The average profit is about 20% and the average loss is about 3%.