Talking Stock With The Doc

This Blog has been created for the purpose of sharing my ideas on investing on Bursa Malaysia using Technical Analysis. Stock market investing is a science & TA a scientific tool used by investment professionals. TA also has its sceptics but this is an oportunity for you to follow TA based investing ideas. So welcome to my blog and may you "Live Long And Prosper".

Saturday, September 23, 2006

DocTS - A New Trading Strategy Using TA

As promised here is the new trading strategy using several different indicators/signals to predict stock price moves. It is a pure Technical Analysis strategy. I call it 'DocTS' (pronounced 'Doctors') - i.e. Doc's Trading Strategy. I would also like to give credit to Isaac who also uses many of these signals & shared them with us. This is a lower risk strategy with a strong success rate & is ideal for use by traders or investors who don't have much appetite for high risk.

The indicators we will use are DMI & ADX, MACDH (Histogram), Simple Moving Averages (7,14 & 30 day), Bolinger Band, Support & Resistance & finally Candlesticks. I explain briefly how the indicators are used but if you are not familiar with them then please read up more from the links I have provided & also use other sources. It will not be possible to discuss the merits of each indicator.

To demonstrate the use of DocTS I have selected Salcon, Utama & Tebrau. Salcon was a strong gainer over the last month, Utama is starting its strong trend now & Tebrau has been trending down. For you to truly benefit from DocTS you have to select & chart stocks yourself. I am happy to discuss your selections but I will not be able to provide anyone with tips if they don't do it themselves. So please don't ask "Doc, RHB how ah, can buy ah?". But if you say "Doc, RHB is meeting all the requirements, but its close to resistance what do you think?" then yes I will be glad to comment. God only helps those who help themselves & so will I .... 8))

The signals & rules are as follows:

1) DMI (Directional Movement Index) & ADX (Average Directional Index)
In DMI we have +ve & -ve DMI. When the +ve DMI crosses -ve DMI, then a positive trend is starting. To choose a stock that is making a positive move, this is the first signal we shall use (you can use others but I prefer this to point to a starting trend). [Click here for info on DMI - http://www.investopedia.com/articles/technical/02/050602.asp]

The ADX is used to gauge the strength of the prevailing trend. ADX is measured on a scale between 0 and 100. Readings below 20 are used to indicate a weak trend, while readings over 40 indicate a strong trend. ADX is not used to determine the direction of a particular trend, but only to gauge its strength. If the +ve DMI is above the -ve DMI & the ADX is above 40 then we have a strong uptrend. But if the -ve DMI is above the +ve DMI & ADX is above 40 then the downtrend is stronger.
http://www.investopedia.com/terms/a/adx.asp

Selling is indicated when -ve DMI crosses +ve DMI, that is when the trend changes & we have then to look at getting out of the stock.

2) MACD Histogram (H) is the 2nd tool. When the H turns upwards (even when it is below zero) it shows that the trend is turning positive & when it crosses the zero line it is a strong positive uptrend. When there are divergences between price & H then trend change is possible. The H is an early indicator of a trend change. Click for more on H - http://www.incrediblecharts.com/technical/macd_histogram.htm

Confirmation 1 - So when we see a +ve DMI crossover & also confirmed by H turning +ve, we have 2 early signs that the stock price is starting a positive move. This puts the stock on the watchlist immediately. But when H reverses itself & starts moving downwards after reaching a high, then a reversal could be beginning. Coupled with -ve DMI crossover, a Sell may be indicated.

3) The Moving Averages are the 3rd tool. Here I use simple MAV not exponential. Both can be used but I use simple MAV because the Bollinger Bands use the simple so to be consistent with BB I also use simple MAV. I use the 7, 14 & 30 day MAV. The BB middle line is a 20-day MAV so this basically gives us 4 MAV to use.

The first sign is look for prices to rise above the 7 & 14 day MAV. These are the early signals. When prices rise above 7 & 14 day MAV it shows a rising price trend. Next the MAV itself must make +ve crossovers, i.e. 7 day (7D) MAV must crossover the 14 day (14D) & ideally both 7D & 14D must crossover the 30D. They must also crossover the middle BB line (i.e. the 20D MAV).
When the shorter term MAV are above the longer term MAV then we have a solid trend in place. So 7D above 14D, 20D & 30D; and 14D over 20D & 30D; and finally 20D above 30D; then we have strong rising trend. See Salcon chart for this example point X marks the spot where this happens. Click to read more on MAV http://www.incrediblecharts.com/technical/moving_averages_three.htm

When prices are above all these 4 MAV we have a strong uptrend in the stock as shown in Salcon chart point X.

Confirmation 2 - when prices rise above MAV & short term MAV are above long term MAV & this compares to early signs in DMI/ADX and MACDH, then we have a consistent confirmation that a good trend is in place. When all are in positive territory a BUY is definitely indicated.

In reverse, when prices fall below the MAV starting with 7D a reversal may be in progress. But 7D is not strong indication. If prices fall below both 7D & 14D then we must be very careful as a reversal is a strong possibility. If it falls below the 20D (i.e. Mid BB line) then a reversal is definitely confirmed.

Also when the MAV themselves cross below each other a reversal is indicated. So when 7D cross below 14D or both cross below 20D then a reversal will already be in progress and a Sell is indicated.

4) Bollinger Band is a very powerful tool. While it is difficult to master all the nitty gritty of BB, it can be used in a simpler way when coupled with other signals. Here we will look for 3 moves in the BB.
- 1st the BB should ideally be either flat or starting to move upwards (widening with prices moving upwards & upper line moving upwards). A BB that is pointing downwards is still negative & needs to be observed.
- 2nd prices must move upwards within the BB. They can be moving up off the bottom channel line but price must not be going down (this is unlikely to happen if DMI & H are positive).
- 3rd prices must be moving up into the upper channel line or must already be within the upper BB channel (i.e. above the mid-BB line). If price is within the upper channel then it is a strong positive sign esp when BB is widening.

The ideal scenario is:
a) Prices that are in the upper channel or moving into the upper channel.
b) BB is moving up or starting to widen with prices moving up
c) A breakout from a narrow BB with prices moving up is a powerful sign of strong upside breakout. Read more on BB -
http://www.bollingerbands.com/services/bb/

Confirmation 3 - When prices are positive re BB, coupled with DMI/ADX, H & MAV, we have 4 powerful tools to confirm a strong bullish sign and a strong BUY. But when prices cross below midBB line into the lower channel & BB also starts trending down, a Sell is indicated. When this is confirmed with -ve DMI crossover or -ve MAV crossovers then a Sell is a definite possibility.

5) Support & Resistances
In all cases S&R are very important. When prices are rising & hit a strong resistance we can expect it to either slow down the rise or stop it. But if it breaks out of the resistance then a continuation is likely. We will always continue to monitor S&R, but mostly R in uptrends.

6) Candlesticks - While we can see the buy signals using above indicators it is still necessary to spot early signs of price exhaustion & impending reversals. Candles are very good to show top reversals. Look for bearish engulfing, harami, shooting star or evening stars both in daily & weekly charts. The earlier signals are trend indicators, change in trends using DMI/ADX, H, MAV & BB may be slower but coupled with candles we should be able to spot reversals quite well.

Summary of DocTS
So here we have it, 4 strong trend indicators & 2 reversal indicators. With these 6 signals we should be able to spot good BUYs and SELLs. Some examples are given below.

DocTS - Examples of the Strategy

Let us look at some examples of how the strategy works. Click on the chart to see comments.

1) Salcon which we could have spotted very early in the uptrend & made 50% profit


2) Utama which is making a move now, but we could have spotted it on 11 Sept & made 18% already.


3) Tebrau we can see both the buy signals & also the sell signals. As you can see this is a powerful tool & also less risky.


4) Can you spot others?
Can you also spot the buy signals for Puncak (15/9), RHB (8/9) & LKT (15/9)?
Can you find other stocks that are just beginning to give buy signals that we can buy into next week? Share & discuss & lets find a winning strategy for everyone.

Friday, September 22, 2006

KLCI & Futures

KLCI - rose as expected Thurs, but is now reaching the strong resistance of 970 same as the Futures. Indicators are still positive, its riding the upper Bollinger Band channel, above the 7,14 & 30-day MAV, MACD is also +ve & there is no candle reversal pattern. On the -ve side there is strong resistance at 970 & the possibility of a double top if it cannot penetrate the 970 decisively. Again at this stage we have to be rather cautious as it has reached decision time, to cross 970 or fall back.


FKLI- Futures are same as CI, indicators positive but reaching strong resistance at 970 too. Its certainly toppish.


We'll have to see what happens Fri. Are there any drivers that can help push it even higher today or is sentiment weak & a fall back is the most likely outcome. Dow dropped 100 pts (expected as it was rather toppish) & oil prices rose (but still within very comfortable range). But Thailand seems to have resolved itself & there is no otherwise negative news around. Impossible to make a call other than to advise caution.

Thursday, September 21, 2006

KLCI & Futures - Up Again Thursday?

KLCI - continued its minor correction Wed but found critical support at the mid BB line & the 7 & 14 day MAV. The 953 support is also holding it up. I have used the MACD Histogram today for a change instead of the usual MACD. MACDH is flat perhaps an indication that the correction will not get worse tomorrow. The trend may continue up today as the supports above are quite good. There is also a small hammer indicating a possible rise today.

Still the 970 resistance will be hard to break but if it does then prices may rise to 980 or even 1,000. But if it fails to breach 970 then further correction or sideway movement will follow; which it will be will depend on the candles. Fundamentally the Thai coup seems to have been settled with the King apparently favouring the Generals, the US Federal Reserve did not raise rates, Dow & Nasdaq moved up & oil prices fell further. So fundamentally, there is no bad news in the market, all good news externally. The market should rise based on both fundamentals & TA. For now the trend is still up.



FKLI - CI Futures reversed Tuesday's fall & rose quite strongly Wed. Good support at mid BB line & also the 960 level. Indications are that it will continue the rise today. Next target is 968.

Wednesday, September 20, 2006

RHB & Supermax

RHB has formed a Doji at a strong resistance level at 1.32. If tomorrow it opens below & stays below 1.31 then it will confirm the evening star & a reversal of the uptrend. Support is at 1.15. RHB is thus in negative mode.


Supermax on the other hand is looking good. It bounced nicely off a long term support at 2.67 with a nice hammer candlestick. It is also in the upper channel of the Bollinger Band. We may see a couple of days of flat moves but it is likely to continue up after that. MACD Histogram is also looking positive. Only concern is that Vol is not rising as much. Resistance at 3.14 & 3.52. If it can breach that then stronger resistance is at 3.96.

Ordinarily this would rate a buy after 1 or 2 days of some correction but the coup in Thailand & the Aeneas/Priam investigation may create some tension in the market, so it may be better to hold off buying until those issues resolve themselves (at least the coup issue anyway).

Syndicated Stocks Update

Well the call to buy syndicated stocks could not have been timed worse. The investigation into manipulation by Aeneas & Priam exposed by the media Tues sure cut down penny stocks very fast. The 4 stocks at the centre of the investigation Iris, Mobif, Farms Best & Kosmo were the worst hit. Unfortunately news like this cannot be worse for all penny stocks & all those I recommended also fell.

Bad timing or is there something more sinister. Did they push up penny stocks last week because they were selling out before the news came out? There is no way to know this. Regardless, if you had bought these then you should have cutloss & got out by now, thats the purpose of the cutloss. If you did lose out then my sincerest apologies. The lesson is never listen to anybody even me, make up your own mind & have your own system.

I will work very hard to give you some recommendations on which you can make some money just to make up for this loss. So please be patient. All the best.

KLCI & Futures

KLCI - The news of investigations into Aeneas & Priam may have affected sentiment on penny stocks but most analysts don't think it will affect the CI. That remains to be seen. We saw some weakness but that is also due to it reaching close to the strong resistance of 970. There is good support at 953 & the mid Bollinger Band line. A breach of these will be negative. And the futures will play a part too.

Futures - is worse off. It could not stay above the 960 strong resistance & is now at a 6 pts discount to the CI. There is support at 951 & mid BB line. But a breach of this will lead to further selling & possibly will also pull down the CI with it. Generally the CI & Futures are slightly weaker. Will the coup in Thailand cause a bigger fall on Wed? Caution is required this week.

(No charts today bec Blogger is not quite working as well, its not loading the charts).

Tuesday, September 19, 2006

Bursa Update

KLCI - at 965.5 is just at a 2 points discount to Futures. If futures climb it looks like CI will too. There is very strong resistance at 970 & it may take more than one attempt to break this strong resistance. Good support by MAV & it is within upper Bollinger Band channel. Still bullish but must break 970 to progress further. Vol is also picking up, another positive sign.


FKLI - CI Futures are on a strong uptrend. It has crossed the 960 resistance & now targeting 990. Daily MACD almost golden cross, another up day & it will cross. It is within upper Bollinger Band channel. So it looks positive. Any pullback will be supported at 960. As long as this is not breached bullish momentum will be maintained.


Syndicated stocks did not move much yesterday. Just some very small moves either up or down. The daily candles do show slight weakness but after some strong rises last week this is to be expected. As long as cutloss is not breached I will hold & watch. It is still very early days yet. Monday's strong rise in CI & component stocks means retailers stayed on the sidelines yesterday. Lets see what happens over the course of the week.