Volume 10 Issue 3

WIN
March 2009
INVESTING
MONTHLY NEWSLETTER
NEWS, EDUCATION AND RESEARCH FOR THE INVESTOR

The news and comment

Hello Mr Who is going to pay for it all?

As governments are announcing their funding packages, where is the money coming from?
Bond, I was
expecting I have lost track of the amount of money
that the UK and US governments are intend-
you... ing to spend on trying to prevent the global
melt down, although I know it is running into
trillions of dollars. In fact the spend is
Page 13 probably no where near finishing as a new
surprise seems to hit the market every day.
The question that an increasing number of
people are asking, is who is going to pay for
it? We saw a whip in volatility as there were
rumours that China was going to reduce the
amount of dollars they held and therefore
US treasury bills that they were going to buy.
Inside this issue: However, just as the major banks were all
pumping money to what they must have
The economy 3 known was poor quality borrowers, China et
The indices 4
al continue to feed the monster which one day
could implode leaving them with nothing.
What we are seeing at the moment is a mas-
sive move from equities to bonds as pension
funds etc attempt to move their money to
safety and spread their risk.
Unless you have a tracker mortgage you have
probably seen only a small part of the interest
rate cuts, as banks hold onto the difference.
Of course they have to fund the bonuses plus
pay back some of the massive debts they owe
in addition to accruing for further bad debt.
Undoubtedly we will be paying the banks for
years to come for the losses they made.
(Continued on page 2)

Gold 5
Introducing this month’s newsletter …..
Currencies 6 When it comes to trading, many people look means you would be making 30% every day!
at the end result of how much money they Of course you can make 30% in a day, but you
The virtual fund 7
want to make each year (and often these would be overleveraged in order to do it and
projections are entirely optimistic!). What you only have to have a bad day and you have
The market scans 8
they should do however is to chunk that year then gone and lost a bucket instead!
end figure down into a weekly or even daily
Stock Watch 9 amount. If you have a small account and can only trade
10 featured stocks £1 per point, what is a realistic return for
So for example, if I wanted to make £50,000 that? £20, £30, £50? I’ll leave it to you, but
Bonds 13 from spread betting this year, that means I this type of planning helps you to be a much
would have to make around £1000 a week more consistent trader.
or £200 every day. Take into account periods
Timeframe analysis 14 when I’m not trading (holidays etc) and I This month’s feature articles include trading
would realistically need to be making £250- bonds, a second look at timeframe analysis
£300 a day. plus we look at the psychological side of giving
It’s Best To Avoid the Thrill 15 in to temptation. All this plus much more
of The Chase Ok, that gives me a daily target that I need to make this month’s newsletter a must read.
achieve but I now need to ask myself if it’s
Bears and Bulls Leave Foot- 16 achievable? For instance, can I regularly Have a great month
prints make that amount of money with an account
Kevin, Kym & Dale
size of £1000? It’s highly unlikely as that
 Volume 10 Issue 3
The News Headlines
(Continued from page 1)
The governments have also got to recoup
their spending. This will no doubt be in the
form of stealth taxes. There has already been
a bill submitted in the US to impose a tax on
trading stock, options and futures. This is in
the form of a 0.2% tax which is expected to
raise $150 billion a year. It is not believed to
affect the smaller traders much, but overall it
might reduce some traders appetite and re-
sult in less liquidity.
Whatever, once again it is the general public
that picks up the bill either directly or indi-
rectly. The difference with this bill is that we
and our children may be paying it for many
years ahead.
WHEN FEAR PROVIDES OPPORTUNITY
I mentioned in our January issue that 2009
was going to be a great one. Well the contin-
ued volatility in the equity, bond and forex
markets has been well received by us. Whilst
on face value these markets may look bleak,
trading them has been awesome.
If you are still trying to swing trade or invest
for the longer term, it might well worth con-
sidering trading over a smaller time frame.
Whilst the huge ranging days we had experi-
enced in October and November last year
have dissipated for now, there is still plenty
of range.
As we see the main markets hit multi-year
lows, you can almost smell the fear. I was
talking to a fellow trader recently who also
had picked up on this. At times like this we
should see some good opportunities for a
reasonable bounce or relief rally. With the
markets so far away from their 200 day mov-
ing averages ( 10 months for the Dow, S&P
and FTSE and 7 months for the NASDAQ), we
are certainly due a rally.
Personally I do not believe we have seen a
bottom to this bear market yet. It may come
in the form of a number of low volatility days,
where no one wants to sell, yet do not have
the initial desire to buy. Just like a rabbit in
headlights, scared to move either way. The
moves on the way certainly make trading
rewarding.
BOOMING BUSINESS
Page 2
News
I was pretty surprised to be driving past an
IKEA outlet to see the car park absolutely full.
The fear in the
We had to investigate, as surely this kind of markets has resulted
business is only generated in boom times or
when they are giving something away for next
in the volatility that
to nothing. But no, there were no sale ban- has ensured day
ners or anything else beyond their normal
cheap prices, but there were queues at the trading opportunities
tills.
This follows on from discussion with some
local tradesmen. I was expecting them to tell
me how bad things were, but instead they
were telling me how much work they have.
What this leads me to, is that we are likely to
see a growth in people staying put and im-
proving what they have. This means the DIY
stores may actually start to fair better provid-
ing they target the right market and do not fill
their store with expensive garden furniture.
The lower priced stores are already showing
the best results and may well clean up here.
In food, Domino’s and Kentucky are seeing
large growth in sales and the car park at
Micky Macs look much fuller again, as cost
rather than healthiness dictates choice. If you
are looking for buying shares for the mid
term, these may be worth considering.
THE AIG DEBACLE
There has been much in the press recently of how
AIG has had to be rescued four times. The last
bailout top up was for $30 billion taking the total to
over $150 billion. The name AIG will
go down in history, not
Whilst there is an unsurprising outrage from many
smaller companies, that can not get credit lines,
there is a logical reason for it. AIG was foolish for sponsoring
enough to insure the banks against credit defaults.
To allow AIG to fall would equate to a potential
Manchester United or
implosion of the banking system, as the end bene- being the biggest
factor is not the company itself but the banks. In
effect it is the fall guy for the bad press. insurer in the world,
Whilst AIG undoubtedly was reckless in taking on but for being one of
the amount of risk, the credit agencies were proba-
bly entwined in the deal.
the worse run
All in all, the name AIG will go down in history for
companies. Glad I left
not being the worlds largest insurer, but instead them in 2001!!!
for being one of the worse run companies, along-
side the likes of Enron and Fanny Mae and Freddie
Mac. It is probably unjust that the ratings agencies
such as Standard & Poors and Moody’s are left
untouched, as they provided the high ratings to all
the trash in the first place. Right better get off my
Kym Watson
box now!
Volume 10 Issue 3 Page 3

The economies Interest rate 6

The story of the economies continues to be gloomy, although in the 4

last month there have been some data conflicting with the overall
malaise such as higher than expected mortgage approvals and 2
house prices rising 1.9%. Despite this, markets continue to drop the
world over and set new long term lows. The underlying problem con- 0
tinues to be tied to banks not doing what we’ve relied on them so Apr‐08 Jun‐08 Aug‐08 Oct‐08 Dec‐08 Feb‐09
heavily to do, lend money. On a recent business trip to the US, the
media (radio and TV) was so gloomy it was depressing, but behind
that backdrop big blue chips seemed willing to begin investing. Their UK Inflation
6
aim, to survive the downturn and be positioned to thrive in the even-
tual recovery. Is their intent to start investing a sign that we’re 4
through the worst? Who knows, but these little things can begin to
add up to something that gets things moving again. 2

UK 0
Feb‐08 Apr‐08 Jun‐08 Aug‐08 Oct‐08 Dec‐08 Feb‐09
It’s no surprise to hear that financial conditions remain difficult. This
month saw a new round of poor bank earnings results which did
nothing to help peoples perceptions of the state of the banking sys- UK Unemployment
7
tem, which is in even worse shape than previously thought. And
whilst the banks soak up the blame for the current crisis, media at- 6
tention has switched to individuals and their bonus and pension
plans to vent frustration. The realities that we face every day though 5
are that the governments 5-point plan has so far had little impact on
the markets or the economy as a whole. The lack of lending to busi- 4
ness continues to be a major barrier to growth, and despite public Mar‐08 May‐08 Jul‐08 Sep‐08 Nov‐08 Jan‐09
announcements this is being addressed, it appears this is not im-
proving where it counts. Concerns over things like inflation (currently
running at 3%) seem a distant memory especially as it is predicted to US Interest rates
fall well below the 2% target in the medium term. Concern weighs 5
more heavily on prospects for economic growth. Interest rates are at 4
a 400 year low, and tomorrow 5th March we find out if they will go 3
lower still. GDP is down 1.5% in the 4th quarter and 1.9% down year 2
on year, unemployment is up and pay growth is down, so the road to 1
recovery could well be a long one. 0
Nov‐07 Jan‐08 Mar‐08 May‐08 Jul‐08 Sep‐08 Nov‐08 Jan‐09

US

The US if anything seems to be fairing worse than the UK, even if

that’s only a perception based on their media output. Today (4th US Inflation rates 6
March), details of the Obama administrations housing rescue plan
are expected, and it’s reported that banks and mortgage services are 4

preparing for a spike in demand for loans and refinancing. In fact 2

some have been hiring advisors in anticipation. A $75B plan is ex-
pected to ease the burden of up to 9 Million homeowners in the US 0
as they restructure their financing to avoid foreclosure. A 1% fall in Dec‐07 Feb‐08 Apr‐08 Jun‐08 Aug‐08 Oct‐08 Dec‐08
GDP in Q4 2008 represented the largest decline since 1982, allied
with higher than expected unemployment figures have really created
a tough environment and a tangible sense of gloom. President US Unemployment rate
Obama's address to congress reconfirmed what the world now 7.5
7
knows, that this started with sub-prime lending. He did not however
6.5
absolve the taxpayers themselves from blame, saying “People 6
bought homes they knew they could not afford from banks and lend- 5.5
ers who pushed the bad loans anyway”. But as tempting as it is to lay 5
the blame wholly at the feet of the banks he explained that helping 4.5
them with Tax payers money is about helping people, and until credit Feb‐08 Apr‐08 Jun‐08 Aug‐08 Oct‐08 Dec‐08
is restored, the pain will continue.
Volume 10 Issue 3 Page 4

The indices
There are currently two downward sloping trend channels
running on the Dow. The first is on the weekly charts Dow Jones 30
where the lower trend line can been drawn from Octo-
ber’s and November’s lows and the upper trend line runs 9500
parallel from the October high through to the January
highs. The Dow has been working its way to the lower 9000
reaches of this channel which is currently at 6350. 8500

The second trend channel is the one which can be seen 8000
on an hourly chart of the same index. This has been 7500
tested on both sides several times and is well worth keep-
ing on your charts (if you have true cash market charts, 7000
not spread bet charts). This hourly channel will get broken 6500
at some point and considering it is downward sloping, its
likely to break to the upside but if price comes down to 6000
the lower trend line again, that would likely coincide with 01/12/2008 01/01/2009 01/02/2009 01/03/2009
the weekly trend line as per above so that would be very
interesting indeed.

Lots of commentators have been calling a rally in the past

week and that always gives me concerns if too many are S&P 500
looking for the same thing. Having said that, I cannot
deny that we are extremely oversold and in fact, from the 950
oversold levels we are at, rallies of several days have pre-
viously commenced. But then the market always wants to 900
keep us players on our toes doesn’t it? Maybe it needs
another push down to these trend line levels before 850
mounting any type of fight back.
800
Be rest assured that although this bear market is fierce, it
will end at a point when most of us don’t expect it. Kym 750
and I were trading through the bear market of 2000-02
700
and cannot remember anyone at that time (except the
usual fund managers) who were calling the bottom, most
650
were expecting prices to head lower.
03/12/2008 03/01/2009 03/02/2009 03/03/2009
So when the lows do finally arrive, we are unlikely to all
know for sure. But managers like Warren Buffett are actu-
ally optimistic over the longer run and we should be too
with the way technology is allowing us to innovate so
Nasdaq Com posite
much quicker than we could even 15 years ago. If we
look at bear markets the way Buffett does, these are the
periods when fortunes are created because this is possi- 1700
ble a generational move we are seeing here. I will cover 1650
more on this in next month’s newsletter. 1600
1550
SENTIMENT AND TECHNICAL ANALYSIS 1500
1450
According to data from Ned Davis Research, since 1965 1400
every bear market bottom has occurred within 15 days of 1350
sentiment reaching an extreme. This is an average read- 1300
ing however and so the greatest number of days between 1250
a bear market low and the low reached in sentiment is 1200
112 days. 05/12/2008 05/01/2009 05/02/2009

(Continued on page 5)
Volume 10 Issue 3 Page 5

The indices (Cont)

(Continued from page 4)
As of this week, it has been 132 days since the Inves-
tors Intelligence figures hit a low and 102 days since
the VIX hit its peak. Based on how long it has been
since these measures last reached their respective
extremes, it’s unlikely we have yet seen the bottom for
the markets.
The National Association of Active Managers weekly
surveys which polls money managers suggests an ab-
sence of extreme fear. This also does not bode well for
the markets if managers are sanguine to the market’s
prospects over the coming months.
SHORT TERM OUTLOOK
THE FTSE
The FTSE broke its January lows in February and has just penetrated
its November lows in March thus finally catching up with the Dow and
S&P.
The next major support for this index is its bear market lows of 2003
and many a savvy market analyst is predicting this level to be tested.
Currently, resistance comes into play at just under 3800 and then
3950. Considering this index has been trending so strongly, confir-
mation of a reversal is only likely once it has managed to close above
its 8 day moving average.
However, any reversal is likely to be an opportunity for bears to look
for new places to enter short positions once more. Kevin Burton

The McClellan Oscillator has been near extreme levels FTSE 100
which last produced rallies of several days or more but
from a technical perspective the markets may want to 4700
challenge trend line support as suggested earlier. Cer-
tainly if prices get down to those levels, I will personally 4500
be very interested in looking for a counter trend posi-
tion. 4300

The Dow has now been falling without anything more 4100
than a one day rally for 18 days now so we are likely to
see a bounce soon, but starting from what levels? The 3900
lower range of the weekly trend line is currently around
6350 and the projection from the triangle pattern we
3700
had gives us 6000. These levels should be close to a
low. We will then just need to look at the sentiment if/
3500
when we get there.
02/12/2008 02/01/2009 02/02/2009 02/03/2009

Gold
Gold managed to rally to the psychologically important
$1000 level last month. It then posted two doji candle- Gold
sticks and has subsequently sold off back to its 50dma.
This could be an area where a bounce signal develops so 1050
I will use a combination of price action plus a stochastics
indicator that I will cover in an article for establishing any 1000
swing trade position.
950
In the longer term, the weekly chart makes gold's rise 900
still look too steep so should the yellow metal start to
rally in the coming days, traders should be wary that it 850
could roll over so they would need to stay nimble.
800
You can draw a trend line across the lows on the weekly
750
chart and should this be penetrated, another leg lower
could be assumed and then I would be looking for short- 700
ing opportunities…. 10/30/2008 11/28/2008 12/29/2008 01/28/2009 02/26/2009
Kevin Burton
Volume 10 Issue 3 Page 6

Currencies— review and outlook Currencies

Risk aversion, risk aversion, risk aversion... There you go, that has been
the theme once again, so say no more. Well if I didn’t you might rightly
claim that this is an empty page and feel robbed. GBP/USD 2
If you have been listening to my free forex updates, you would have heard
me provide this as a reason for the dollar increasing in value, even though 1.8
the US economy has been in reverse at a far greater pace than Kevin
drives forward (that is not slow, he picked up a ban a few months ago, 1.6
bad lad!).
1.4
In the old days, oh dam I have said it, I remember when, oh dam again,
but I do actually remember when bad news came out in the US, the dollar 1.2
was sold off. And when good news came out the dollar was bought. But 01/09/2008 01/11/2008 01/01/2009 01/03/2009
now we are seeing bad news come out and the dollar being bought and
when luke warm news (there has been no real good news that I can re-
member) comes out, it ermmmm, gets bought.
What we are actually seeing here, is the affect of panic. If you have been EUR/USD  1.5
watching the equity markets you will have noticed that the bad economic
news is having the normal affect, i.e. they are selling off. In fact there is
so much brown smelly stuff hitting the fan that we are seeing them sell of 1.4
on a regular basis. As a consequence pension funds and many other insti-
tutional investors are moving money out of equities into ‘safe’ Treasuries. 1.3
As the likes of the UK government bonds are so oversubscribed, there is
just the good ole US of A that is willing to take the money. This means that
1.2
money is moving into dollars to buy these bonds and consequently selling
01/09/2008 01/11/2008 01/01/2009 01/03/2009
pounds, euro’s, yen etc etc.
Sterling
We have seen a firm base put in around 1.4000 against the dollar over
the last few days. The problem is the more it hits this level the more USD/JPY  120
chance we have of it breaking through and heading south. If we see a
break down, we have support at 1.3912, 1.3714 and 1.3515. The latter 110
being the January low and the monthly Pivot S2 level. Resistance is at
1.4429, 1.4500 and 1.4648 100
We have seen the base rate cut to 0.5% and things are still standing up
against opposing pairs. The reason why is simple, every country is in the 90
same mire to some degree or other and the differences have probably
already been priced in. Now there is a case for a dollar melt down, but 80
that is for another issue. 01/09/2008 01/11/2008 01/01/2009 01/03/2009

Euro
The euro has been flirting with the 1.2460 level for a couple of sessions now. Overall the traders sentiment as shown by the
COT report, would suggest that the shorts are reducing which we would have thought would have translated into a bounce
against the dollar. This has yet to happen but the current pattern may suggest it is not far away. Now that the base rate has
been cut (to 1.5%) this may be seen as a positive for the economy and consequently the currency.
Key support levers currently sit at 1.2428, then 1.2304. Resistance sits at 1.2732, 1.2885 and 1.3009.
Yen
The yen has lost some ground across the board, but particularly against the dollar., weakening by 12 yen (13%) over the last
six weeks. The previous strength was largely built on the unwinding of the carry trades and possibly the belief that Japan may
weather the storm better than others. Reality has hit home, there is not going to be any country that misses out on this one.
The only thing here is that the carry trades are unlikely to be built back up, as interest rates of all the traditional ‘safe’ coun-
tries wind down to 0.5 or less. This may in effect put a ceiling on the yen.

Key support sits at 95.09, then 93.48. Resistance sits at 100.05, 101.36 and 103.24.

Kym Watson
Volume 10 Issue 3 Page 7

Sector performance, stock selection The Scans

Once again we are trying for the near impossible in this market, finding stocks to trade over the
medium term. As mentioned elsewhere, this is a hard job when the market is so volatile but as
usual we will try our best.

STOCK SELECTION see gold miners there. We have seen gold

It was a difficult shout at the beginning of
February as to where the markets may move.
To that end we had chosen a number of
stocks which may have benefited from a
move in either direction. As the market ini-
tially ran up then dumped it triggered quite a
few which would have done quite nicely.
Whilst they are not meant to be stock tips,
we would recommend that you follow them
and even paper trade them. The actual proc-
ess of watching the set ups evolve can be
extremely useful and form some essential
practice for when you are trading live if you
are not already.
rally strongly over the recent months before
just putting in a bull flag. The gold stocks
have all responded although many are The outlook for stocks
ahead of the game meaning we might be is still not good, but
late entering at this point.
there are still
It is probably quite surprising that we have opportunities out there,
not seen silver miners there as well as it too
has had a good move. It maybe because it is whether bullish or
seen as a industrial metal as opposed to a
precious metal that it is lagging.
bearish.
The bottom of the list looks in line with what
may be expected, although I would have
thought we would see Automotive sector
amongst the worse performing.

As we have said on a number of occasions,

Best Performing Industry sectors US weighted
we do not believe that the market is suited to
swing trading at present, but if you were to 1 Auto parts stores
cut your teeth in such conditions you may do
2 Music & Video stores
very well when the markets eventually pick
up. 3 Mining gold
4 Agricultural Chemicals
As for this moths selection of stocks, due to
the sell off we have been experiencing, it is 5 Semiconductor –Integrated Circuit The best traders are
difficult to find many that are set up, as oth-
erwise we would be relying on pure momen-
6 Copper those that adapt to the
tum. The trouble with this is that you never 7 Internet service providers current market. With
know when a move is just about to stop. Buy-
ing or selling on pullback and reversals is
8 Sporting Goods stores this in mind, we would
always much safer. 9 Healthcare Information Services suggest that if you have
Generally in these conditions we would just 10 Drugs Generic
been swing trading that
go to the bottom sectors and select some Worst Performing Industry sectors US weighted
bearish stocks providing we are seeing some you look at the
pullbacks. The problem is, these are few and 1 Textile Manufacturing
far between however we have managed to
timescale over which
2 Resorts & Casinos
find some stocks that are either set up or you expect the move to
approaching a set up. 3 REIT—Hotels/Motels
4 Major Airlines
be made. The increased
SECTORS
5 Credit Services
volatility has meant
Once again we have just a few sectors that
6 Life Insurance
that often targets are
are positive over the past six months on my
weighted system as show in green on the 7 House wares and Accessories
met in a single day
sector list and the rest all negative. This just
goes to show how negative the markets are 8 Lumber/Wood Production
right the way through. 9 Paper & Paper Products

Looking at the top sectors, it is no surprise to 10 Regional Mid Atlantic Banks Kym Watson
Volume 10 Issue 3 Page 8

Stocks
HMY
Current 11.43

52 week High 14.56

52 week Low 5.47

P/E 23.31
PEG 0.34

Sector Metals

% Price growth
1 month -4.08%
6 months 38%

Support 10.20

Resistance 13.00

Outlook watch

Considering the current market environment and where we are in the current leg down, it is best for most swing traders to stand on the side-
lines and paper trade or trade with very small positions. HMY has pulled back to its 50dma and formed a reversal candle. A close above the
high of this should result in higher prices thereafter towards recent resistance.

DXPE Current 9.78

52 week High 34.14

52 week Low 9.67

P/E 5.16
PEG 0.29

Sector Wholesale

% Price growth
1 month -21%
6 months -64%

Support 10.83

Resistance 9.50

Outlook Watch

This stock is in a steady downwards trend although it is now at support levels from late last year. Should it bounce off this potential double
bottom, look for a close above the 8 day exponential moving average. Should it manage this, a counter trend rally could establish itself push-
ing prices up to test the $13 area in the first instance.
Volume 10 Issue 3 Page 9

Stocks
TRK
Current 10.70

52 week High 29.31

52 week Low 10.63

P/E 7.22
PEG 0.97

Sector Leisure

% Price growth
1 month -24%
6 months -49%

Support 10.50

Resistance 11.48

Outlook Watch

This stock is in a steady downwards trend although it is now at support levels from late last year. Should it bounce off this potential double
bottom, look for a close above the 8 day exponential moving average. Should it manage this, a counter trend rally could establish itself push-
ing prices up to test the $12 area in the first instance.

RIMM Current 38.19

52 week High 148.13

52 week Low 35.09

P/E 12.27
PEG 0.55

Sector Telecoms

% Price growth
1 month 27%
6 months 65%

Support 36.60

Resistance 42.30

Outlook Watch

Ahh, the darling of day trader’s stock picks over the last several years! RIMM is consolidating in a sideways range on the daily charts so look
for a breakout in either direction for an potential move at least the same distance as the size of the consolidation.
Volume 10 Issue 3 Page 10

Stocks
COF Current 8.77

52 week High 63.50

52 week Low 8.50

P/E N/A
PEG

Sector Finan-
cials

% Price growth
1 month -38%
6 months -76%

Support 8.50

Resistance 15.10

Outlook Watch

Capital One has the potential to establish a stick sandwich candlestick pattern on the weekly charts. The way that it has established itself
would imply a break to the downside so watch the weekly chart for a potential breakdown below the support levels we have given.

MOS
Current 40.09

52 week High 163.25

52 week Low 21.94

P/E 5.08
PEG 2.12

Sector Agg Chemi-

cals

% Price growth
1 month 10.59
3 months 47.97
6 months -56.83

Support 37.50

Resistance 44.40

Outlook Watch
break

Mosaic’s stock price has made a reasonable recovery since late November after having fallen from $163 to $21.94 (86%) in just 5 months.
What we have seen recently is a number of lower highs and higher lows, thus a triangle has formed. It is difficult to know which direction it
might break, so we would leave it to break and then pull back to test the line. At this stage either a long or short position would be taken. The
target would be around $10 in normal circumstance. With the markets as volatile as they are at present an initial $2 target may be wise.
Volume 10 Issue 3 Page 11

Stocks
DSX
Current 12.09

52 week High 41.10

52 week Low 6.85

P/E 4.07
PEG 0.79

Sector Shipping

% Price growth
1 month -11.5
3 months 65.75
6 months -53.51
Support 10.00

Resistance 13.00

Outlook Bearish

Having made a reasonable recovery after losing over 60% of its price, we have seen a further sell off in Diana’s stock price.
However, in the last few days it has made a small recovery forming a bear flag. A break down from here may give us an entry
with an initial target of $1.70. If it runs a little further up we will wait until we get a reversal in the key moving averages above.
If it breaks through these we would step aside.

NSANY
Current 6.45

52 week High 18.92

52 week Low 5.59

P/E N/A
PEG N/A

Sector Auto

% Price growth
1 month 5.44
3 months -4.48
6 months -58.71
Support 5.80

Resistance 6.60

Outlook Bearish

Along with the rest of the motor sector we have seen Nissan’s price fall quite hard. More recently it has made a partial recovery
running into the 50 day moving average. We have been left with a hanging man, a break of the bottom of which would give us
a short position. Our first target would be around $5.80. If we get a continuation up, we would stand aside.
Volume 10 Issue 3 Page 12

Stocks
SCSC
Current 14.77

52 week High 37.50

52 week Low 13.58

P/E 7.61
PEG

Sector computer

% Price growth
1 month -21
3 months -1.45
6 months -50.50
Support 14.70

Resistance 19.80

Outlook Bearish

ScanSource’s stock price has been in a strong downward trend since late January. More recently we have had two up days
which were inside days to the previous down bar. This has been followed with a further down bar which has closed lower than
the previous low. This pattern is similar to what I refer to as a bedstead. We might short it if it breaks the low of the last bar
and look for a target of around 70cents. If it breaks upwards and takes out the high of the last bar we would stand aside.

QLGC
Current 9.56

52 week High 20.21

52 week Low 8.69

P/E 11.22
PEG

Sector Circuits

% Price growth
1 month -17.49
3 months -9.80
6 months -49.25
Support 8.82

Resistance 9.79

Outlook Bearish

QLogic Corp’s stock has been in a strong downward trend until recently when it has out in a bear flag. This coincides with the
10 day moving average which has been the resistance for nearly two months now. The last bar is a spinning top which might
suggest a change in direction. A break of the bottom of this level might give us a short position with a first target of around 50
cents.
Volume 10 Issue 3 Page 13

Bond, James Bond.... Education

Well actually not quite James Bond, but here we look at what might as well be a top secret for
many as they have never ventured into the world of bonds. If you have been trading the forex
markets or even just watching the pound, you night have noticed the correlation between it
and the US Indices particularly recently, this is due to the flight of money to safety, or bonds. The bond market is
The worlds bond markets is significantly big- markets as show in the two charts below.
significantly larger
ger than the stock markets. There are nu- The lower volatility makes them attractive to than the world stock
merous offerings ranging from Treasury those that find the volatility of the equity mar-
(government) Bonds, to Municipal bonds, to kets too much. markets. Whilst they
corporate bonds. To keep things simple, I am has an inverted cor-
going to focus purely on US Treasury bonds
in this article. S&P 500 relation with the in-
SO WHAT ARE THEY?
dices, the volatility is
US Treasury bonds are claimed to be the
safest debt of all , anywhere. They are issued much lower making
by the US Treasury to raise funds to run the it more attractive to
country. In simple terms they are an IOU as
at an agreed point in the future they will pay traders who find the
you back your money. With some you are current conditions too
also paid interest every six months until they
mature. much.
There are three types of US Treasury bond,
5 Year Note
these are;-
Treasury Bills (T-Bills), which are short term,
ranging in terms from 4 weeks to 52 weeks.
They are sold at a discount to face value,
thus no interest is paid on this type. These
bills have actually been bid at par recently,
i.e. no interest has been paid on them at all,
but people have still been keen to buy them,
as it is seen a safer place to put your money
than a bank!
Treasury Notes (T-Notes), which are medium
term, ranging in terms from 2 years to 10 From my analysis I have found that the
years. They earn a fixed rate of interest every shorter term notes have the least volatility,
6 months until maturity. with the longer term note and 10 year bond For more experienced
Treasury Bonds (T-Bonds), are long term,
with a term of 30 years. Again these pay a
offering slightly more. For a move that oc- traders, bonds allow
curred on the S&P equating to 32.5 points
fixed rate of interest every 6 months. (325 points), the 5 year note moved 0.85 (85 them to hedge posi-
WHO BUYS/TRADES THEM? points), the 10 year note moved 1.45 (145
points) and 30 year bond moved 2.09 (209
tions, or hold on to
Treasuries are bought and traded by indi-
viduals, institutions and governments points) trends for longer peri-
(central banks). Their motive for owning The good news is that for short term traders, ods whilst taking
them may vary, with individuals and institu- you can use a CMC spread bet account to
tions generally buying them for yield. trade either 2, 5 or 10 year notes or 30 year short term trades on
Part of their appeal is that they are seen as bonds. The spreads are just 4 points and
these can be rolled over. There is no interest
the equity indices.
being safer than equities as they are less
volatile. They are always seen as where the paid, you are purely trading the bond price.
money goes as institutions are moving to This offers traders the opportunity to be in a
risk aversion when they are unsure of the longer term position with lower volatility in
direction of stocks. bonds, whilst taking shorter term positions in
CORRELATION the indices. Or just trading the bonds them-
As they are seen as a point of safety, they selves. Kym Watson
have a inverted correlation with the equities
Volume 10 Issue 3 Page 14

Timeframe analysis continued….. Education

Following on from last months article on using timeframes, I received a number of emails re-
questing more on this type of trading so here’s the second and final instalment for now. Re-
member this type of analysis can apply to all timeframes, not just intra-
intra-day…..
Last month, I demonstrated a short setup
after a candlestick reversal pattern had
formed on one timeframe, then executing a
short trade off the lower timeframe. This
month I am purely demonstrating overlaps of
resistance points at which a short trade
setup takes place.

The first chart is a 30 minute chart of the

S&P futures. My arrow points to the 200
period moving average which marked a re-
sistance point of that timeframe. Now this by
itself is not necessarily a trade setup so I
would want to see other overlaps of resis-
tance in that same area too.

The middle chart is of the DJ 30 cash market

and has pivot levels displayed. My arrow
shows that at that same high as on the top
chart, the Dow was hitting resistance from
its R3 pivot level. As the Dow and S&P move
in tandem pretty much, we can use this over-
lap on a different index as another resis-
tance point.

The third chart shows a 5 minute chart of

the S&P futures. It had obviously had a very
rapid rally but these types of moves always
put in corrections—it’s just a matter of find-
ing the point at which to short.

Added to these resistance levels, there were

plenty of plus 1000 Tick readings. Ticks help
us to determine when the market is becom-
ing exhausted. All these factors together
enabled us to sell short pretty much at the
highs of this chart.

I would like to say I had run that short all the

way down but alas, I just took a healthy
profit instead which was at the end of a very
good day’s trading anyway.

How do you determine where to take profits?

By using intraday support levels where price
could bounce back up again from. This is the
type of trading I do each day but swing trad-
ers can use overlaps of moving averages,
pivot points and even Fibonacci levels too.
Just use timeframes and a few tools such as
moving averages and pivots/Fibs and you’ll Kevin Burton
be impressed!
 Volume 10 Issue 3 Page 15

Education
It’s Best To Avoid the Thrill of The Chase
Entry into a position is an important skill to develop when learning to trade effectively. There
are two common mistakes made in getting into a position, and both can lose you money.
Don’t give in to temptation and chase an opportunity that has already passed you by— by—
I’ve done it. I'm willing to bet that if you’ve ample the trade triggers, but you have missed
done any amount of trading that you’ve done the entry, it’s ok to re-assess the chances of Buying or selling a
it. In fact I’ll happily bet ALL traders have donetaking the trade on a pull back, but you
it at some point. should consider how far past your entry the
stock with upward or
price has moved before the pull back occurs. downward momentum
You know the feeling!! You’ve been watching In my trading plan, most of my setups have a
for a particular setup or price action in order pre-defined initial target. If I miss an entry is usually a good
to give you an opportunity to take a trade. point, and price reaches my initial target, and thing. But, if you
You’ve been waiting hours, maybe days or then falls back into my entry range, I would
even weeks for this chance to take a trade, NOT take that as a chance to take the trade. miss your initial entry
and here it is, a perfect setup. However, at the This event could be a “Fallen Star”, and is
moment of truth you are (select your favour- something to be avoided.
it may be best to let it
ite), walking the dog (my dog has cost me a go. Be sure to consider
fortune), on the phone, in a really interesting A fallen star occurs when an instrument
business meeting, or any number of other meets your setup criteria, triggers and heads
how far it’s moved be-
things that mean you miss your perfect entry. off in your intended direction, and makes
So, what do you do now??
fore thinking about
good headway only then to fall back into the
area where you felt there was a trade on. The entering the position
You could chase the trade and take it anyway, temptation is to use this as a chance to re-
even though it’s moved some way past your take the position. In this instance, if the initial
on a pull back to your
ideal entry but this is one of the two most move has already made your first target, and original entry zone.
common ways in which trade entries are then retraced, there’s a chance that some-
messed up. The other mistake many people thing has changed and maybe the move has
make is to anticipate a move before it has lost momentum.
triggered and get into a trade too early. Know-
ing how NOT enter a position is just as impor- It’s human nature ( a curse for traders) to re-
tant as knowing how to enter one. gret missed opportunities and want to have
the chance to make up for the “loss” of not
It’s important that when you’ve made a trad- taking their perfect setup. Chasing the posi-
ing decision based on your plan, that if your tion is one of the most common causes of
entry is missed you don’t chase after it, de- losing money at the point of entry into a trade.
spite the temptation. It can be really frustrat- But, if you've missed the move, it’s much bet-
ing to watch the market run away from you ter to let it go, there will be another one along
after triggering your set-up, but it’s more frus- soon enough and remember, the pain of
trating to watch it, and watch it some more “missed money” is much less than the pain of
and then when your emotions kick in and you lost money.
HAVE to jump on-board, watch the price imme-
diately reverse! As part of your trading plan then, it’s essential
to build clear rules about how you will enter a Fallen stars should be
This doesn’t mean you can no longer take the trade, but equally importantly how you will
trade, and you should consider another way to NOT enter one. When testing your strategies, avoided as they suggest
get into your original position cost effectively. think about what your initial target will be that an initial move
So, rather than just diving straight in, (a deci- whether that’s in terms of a number of points
sion based on emotion), re-evaluate what’s in the chosen direction, or a percentage of the has lost momentum
happening from the comfort of having no value of the stock and then determine that if and the balance of
money at risk, and see where price would you miss the entry, and it moves beyond your
need to move in order to give you another bite first target, you will have the discipline to pass power has shifted.
at the opportunity. that trade up and wait for the next one.
This is where it’s important to have a very well The words in the song, “Catch a fallen star
defined trading plan for your setup. If for ex- and put it in your pocket” cut no ice in trading! Kevin Burton
 Volume 10 Issue 3
Bears and Bulls Leave Footprints
As traders the hardest part of our job is watching for signs that clue us in to potential moves,
and then acting on them. Consolidation can provide strong clues as to when the market is
ready to move.
Stock charts can be seen as footprints of trad-
ers’ emotions. The more difficult part of our
job as traders is to identify when a change of
emotion can move price so we can profit from
it, whether we look to spot the early stages of
a rally or a decline. There is no way to predict
with 100% accuracy when a rally or decline is
about to begin, but technical analysis can pro-
vide strong clues as to areas on a stock chart
where the probability is high of a turning point
occurring. There are many ways to try and
identify price moves, but one method that can
be very useful is to look for areas of consolida-
tion. Imagine throwing a tennis ball in the air.
Initially the ball will move up rapidly, and at
some point physics, specifically gravity, takes
over. The ball will slow, until at some point it
has stopped moving (albeit very briefly), then
its motion reverses and it heads back down to
earth. This is analogous to price that has been
rising, losing momentum and then reversing.
Now imagine you are drilling a hole in a plas-
terboard wall, or a piece of wood. Initially there
is resistance to the drill moving through the
material, but then as you break through the
plaster or the wood to the other side, the re-
sistance disappears and the drill moves
quickly through (hopefully not into a water
pipe ... another story!!) As price action com-
pletes a move it will experience a period of
slowing momentum or consolidation. This con-
solidation could precede a continuation in the
same direction or a reversal and can highlight
an area where bulls and bears are locked in
Page 16
Education
battle. Whoever wins the battle often defines
the direction of the next significant move. A bearish reversal be-
Learning to recognise these “battlefields” gins with the bulls
puts a trader in a strong position to benefit
from the result. As the fight proceeds, many
driving price action.
traders are waiting for the outcome, which Then momentum
when it comes lures traders to jump into the stalls and a fight be-
market in the direction of the “winners”. The
bearish continuation, for example, starts with
gins to control the
the bears clearly in control. The tussle begins next move. If selling
at an area of support and we see the develop- is happening at lower
ment of smaller indecision candlesticks, with
the highest point of the candle getting lower and lower prices
there’s a strong chance
bears will win the bat-
tle and a reversal
move is likely.
all the time. This suggests selling taking place
at a lower price level in each time period, i.e.
the bears are winning. When the bulls be-
come weak enough, and the bears penetrate
the support line, there’s a good chance price
action will continue in the original direction.
The sudden sell off is enhanced by traders
who have been waiting to see the result of the
battle. Those who bought hoping for a rally,
quickly sell to get out of their losing positions Charts show when
and those already short, realise they were greed or fear is driving
“right” and add to their winning positions.
Recognising these repeating patterns gives
price. Our challenge as
you the chance to be prepared to take advan- traders is to identify
tage of them and build a plan around how to when a change of di-
trade them. I have described one of the four
possibilities in this article, I’m sure you can rection is likely so we
now work out the mechanics of the other can profit from it.
three scenarios, giving you the opportunity to
watch for consolidation and profit from its
Dale Peters
potential.
Volume 10 Issue 3 Page 17

Newsflash  Coming up in next months

Newsletter……….
 Warren Buffett’s company, Berkshire Hathaway had
its worst year in its history last year. However, Buf-
fett sees huge opportunities ahead….once America
has navigated its way through a bad 2009 first!
 We take a look at the Commit-
 After the initial decline in 1930, the Dow dropped ment of Traders report and
an additional 60% over the next five months. A simi- how it can help you gauge sen-
lar decline over the same time span would see the timent
Dow Jones trading around 3000 by the end of July!
Take note however, that the Dow did manage to
 Plus 10 stocks and usual mar-
recover from this plunge within 2 years, painful as
they may have been!
ket analysis.

All information provided is collated from a number of sources

including SEC reports, information direct from the companies,
attending conferences and other leading authorities believed to
be reliable.
WIN Investing LLP
The Media Village
The publisher is not responsible for any errors or omissions, or
31-151 Great Titchfield Street
London for the results of actions taken based on information contained
W1W 5BB herein. Nothing herein should be constructed as an offer to buy
News desk phone: 01604 870196 or sell securities or to give individual investment advice.
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This document must not be copied, emailed, lent or resold.
Editorial and research Kym Watson
Editorial and research Kevin Burton Rights of reproduction and distribution are reserved by the pub-
lisher.

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