What I've Learnt In 2010 Thus Far...

Lesson #1 ~ Follow the advice of 'gurus' only with a large pinch of salt


Being only a passive observer of futures markets since late last year, I did not, fortunately, have to pay a monetary price for admiring and believing my favourite 'gurus' : Jim Rogers and Marc Faber.

Had I had an active account since late 2009, I would most likely(and most conceivably) have blown my balance going long on agricultural commodities like Wheat
and Sugar.

I actually entered a long position in my Virtual Trading account in late December @ 538.5 and was sitting on a nice profit as the market rallied to about 575 by early January, feeling pangs of regret at not expediting my account opening.

That sentiment ended as abruptly as the about-face in the grains complex started shortly after, dragging Wheat to 468 currently, and also almost all members of the Grains complex with it.


Sugar fared even worse, as it broke all supports as the price collapsed 33% from $30 to briefly below $19 recently(chart below).




(My pet Chihuahua named 'Sugar' grew fatter than ever in direct contrast over the period. Not that I'm complaining as I love my pets fat and furry)


Make no mistake: My convictions still lie on the side of 'ol Jim and 'ol Marc.

However, I no longer worship any one investor as a 'God' as some peoples' timing may be slightly off.

And the slight deviation in timing, in these volatile investment environments, can make all the difference!

Possible double bottom in Petra Perdana?

The stock had a gargantuan rally from $1.20 to a high of $2.08 the last time the candle chart saw a bullish engulfing pattern.

I was caught at a high price of $1.78+ the last time and got out with relief at point with the red circle, at a price average of $1.9511.


Could history repeat itself?

Whither goes Volatility from here?

Having only learnt of this variable at the onset of the turmoil in July 2007, I have a general notion that it increases dramatically when the price of risky assets fall, and vice-versa.

After a brief spike from 17 to almost 30 in the most recent stockmarket correction, it has now dropped back to around 18.30.






Looking at the chart above, it seems that the CBOE Volatility Index has reached what is a relatively strong support line(in yellow).


Also, notice the divergence(blue and red arrows) between price and the MACD indicator.

This chart suggests strongly that a sense of complacency has returned to the markets and that we might just see a spike up in Volatility soon.

Some see Bond yields rising in the near future

A prominent technical analyst was interviewed on Bloomberg over the weekened and she said she saw a 'reverse head-and-shoulders' pattern forming on the chart of US Treasury bonds.

I looked today and verified the truth of that.





Looking at the yield on the 10-year Treasury bond, the line on the bottom right hand shows a possible 'neckline' for the reverse head-and-shoulders that the analyst was referring to.

Yields have dropped from 8% in the mid-90s to a low of about 2% at the height of the Financial Quake in late 2008, indicating that prices have gone up over these years and peaked at the time that yield on these bonds plumbed to their lows.

I didn't know what Marc Faber and Jim Rogers were talking about when they asserted that there was a bubble in the US Treasury market.


Now I know. And I agree.

Pondering whether to take the bold step to open a Futures trading account.

Was a bit discouraged when I saw a stock that had looked bullish with a possible flag breakout pattern drop today on moderately heavy volume.

I have already received a stack of forms on request to open a Futures trading account.

However, I'm starting to have cold feet, especially when I try to imagine myself caught on the wrong side of a contract like that for Wheat or Sugar.


Look at the chart below. If you had cut off the chart at Feb 1st 2010 and only seen the patterns to the left of that day, you might have concluded that the Sugar contract had a bullish breakout of a pennant consolidation pattern(in technical analysis parlance), a move that usually continues in the direction of the prior move.

However, I have circled the MACD and Stochastics indicator to speculate that this contract may be overdue for a sharp rebound.



But look what happened instead. The contract suffered a sharp decline of almost 28%, undoubtedly inflicting huge losses on those bullish on the prospects of the crystalline solid who were not quick enough to cut losses.

Even as I surmised that, had my trading contract been opened already, I had a bullish feel for the Wheat contract and might have entered a long position at around $4.90-$5.05,I find that the contract declined from a high of around $5.11 to $4.90 currently.

Not pretty.