ALSI Update and Trade

Mixed morning ALSI Session

It took a while and much discipline to wait for this morning's ALSI trade.After waiting 2 hours for a set up that gave me a signal on my strategy, it finally presented itself.

We went long at 10h35 at 16518 level and closed for almost 100 points as the ALSI went to the top level of our morning range. The range was sitting between 16500 and 16600 for quite a while. It took the positive opening of the FTSE as well as support from strong trading on the SNP and DOW as well to push our stock market to the upside.

Overall market outlook for today is that we may see a pullback again in DRD GOLD which would be mainly fuelled by the gap it left at 887c. In addition to this possible downside also consider that there is a double-top setting up at 950c with a neckline at 767c which gives us a 180c (estimated) target to the downside if the neckline is broken.

Once again, my recommendation in this instance is to keep track of gold and silver. One can refer especially to the New Gold ETF in order to analyse the chart for a view on gold's position.

Grindrod has defied all the stock markets odds and went positive from our call at 1126c last week we have seen it go to 1220c which is not far from our 106c target. In essence, this amount does warrant closing if you are edgy about the market today. Considering the move by the FTSE after it's open one may speculate that JSE will look to the upside. One would do well to consider that a sell on Grindrod today could be a fairly good move considering the overall market sentiment is in negative territory.

To give you an idea of the short term trade on GND last week this is how it reads:

• We call a long end of last week to enter at 1126c in the morning wih a stop loss level set at 1100c straight but utmost stop loss of 1080c due to the overall negativity of the market on Friday morning's open.
• Based on the price of the share we would calculate that we would trade with 30 contracts which gives us an exposure to 3000 shares for only 15% of the capital required, if you decided to trade the shares instead of using single stock futures to trade.
• So, if a contract price is R120 per 100 shares (there are 100 shares in each contract) I would have used only R3 600 plus brokerage in order to purchase 3000 x R11.26 = R33 780 worth of shares.
• I sell my Grindrod shares at R12.20 which gives me a gross profit of 94c which is the same as if you had bought the shares.
• We take the 3000 shares x 94c = R2 820 gross profit less brokerage of about R600 in total (estimated at higher end).
• I make R2 820 using R3 600 which is 78% return.
• As a share trader or someone using shares to trade on the short term you would have used R33 780 to make R2820 nett.
• That is equivalent to just over 8% using the full capital instead of leveraging your capital.

Moral of the story? Learn how to trade with your capital and make it stretch using leverage!

BUT IT'S RISKY!! Ask the right questions! If Grindrod went to 1100c and we both had to close the trade due to the stop loss kicking in, what would we have both lost?

1. In your example, the share lost 26c from 1126c to 1100c. Right? Take your 3000 shares x -26c = -R780 (loss) plus your transaction costs ie brokerage.
2. In my example, the futures contract lost 26c as well. Take my 3000 shares or 30 contracts x -26c = -R780 (loss) plus my transaction costs.
3. What's the difference? Not much! Right? Yes, I am!
4. Is there more risk in trading futures?
5. NOPE!

The risk only comes in when you overexpose yourself. If you are not aware of how leverage and margin works then you could get yourself into trouble. One should never, in general terms, leverage more than three times your portfolio size.

If your portfolio size if R50 000 you shouldn't leverage your trades to a value of more than R150 000. Effectively, you are controlling your leverage by keeping the margin you put on the table low.

You see, you could get leverage of 10 times on your account. This means that with R50 000 in your portfolio you could trade up to R500 000 worth of shares using a single stock futures. Don't go there...

Instead, come learn how to trade ALSI, Futures, Forex with us.

Financial & Investment Workshops, ebooks & financial freedom @ www.alsiapprentice.co.za

Alsi & Market update

After a fun-filled afternoon on Friday with our market rallying after the US unemployment figures came out, it was a great way to end the week!

The SNP 500 closed down below the critical 700 level as I discussed it could last week. This bodes well if you can short the local stock market. It doesn't give me a warm fuzzy feeling about our local rally or bounce right now except for one thing: Resources.

The ALSI created a bullish engulfing candle formation at the close on Friday. This gives some impetus to the weak going forward being bullish. There is also positive divergence on the stochastic.

The trouble is that the ALSI is made up of the financials and resources. The financials are being hit pretty hard and so if the resources don't rally hard the ALSI could take a tumble.

The Resources opened fairly negative this morning with DRD gold being a star performer again last week seconded by Anglo Gold and Anglo American. Silver has the potential to trigger a falling wedge formation and therefore suggests further upside in gold this week.

After the gap in DRD however I suspect it may be exhausted. We may see a retest to the old high of 950c before it goes to close the gap at 887c. Be aware that the candle chart is showing a potential double top formation on DRD.

Grindrod, is certainly making a go of it. As we discussed late last week, the chart was looking very oversold. The assessment was to look to buy it at 1126c with a stop loss at 1100c and at worst case 1080c. This is with a view to take a short term trading profit of around 106c and a swing trade profit in equities at say 1303c. Note that this trade is against the overall trend as Grindrod is below its 89 moving average.

Yes and so it happened. The market fell out of bed from 9h45 with a great 200 point drop on the ALSI. I grabbed 160 of them and that's why the delay in this post this morning... I went short at 9h45 and was out at 10h10.

We are holding an investor's club meeting tomorrow night at Wanderer's Sports Club. You're invited to come along. Visit www.wealthskills.co.za for more info.

Our Financials & Industrials index is falling like a hard rock in a big pond. This combined with the fallign resources will cause havoc on our local stock market - at least for the Monday morning session.

Resources seem to be following suit after the Financials heading south. Anglo Gold and DRD seem to be holding out as well as Grindrod. Watch these shares this week. Kumba opened way down today and is probably following a drop in copper prices. This will have an effect on Billiton, Anglo American, Metorex and other copper miners.

Trade well, not often.

Financial & Investment Workshops, ebooks & financial freedom @ www.newsweek.co.za

ALSI Update

Since the original negative outlook on the ALSI 40 since 16th Feb, we have had a fall of another 1900 points. The 16191 level is old support from Nov 08. This level was broken this morning as the gap on the open raced passed this level to 16071 before bouncing from this level to challenge the gap.

The 60 min outlook on the ALSI is a recovery to 16430 level as resistance but first the gap must be closed at 16494.

With my next Fib level being 16700, how close did the ALSI get to that before turning south. The short triggered now at 17h15 has reaped 200 pts and ought to be closed about now.

Gold recovered well today with AngloGold up 3% and DRD both up after the pull back. That was great. Anglo American is very oversold and indicators imply that the share could experience a retracement/bounce with R134 being a fair support level. The upside target later this week is around R154.

Both Kumba and Implats had sterling days on the market clsing up 7% and 9% up respectively.

Keep an eye out for our new Forex Mentorship

Financial & Investment Workshops, ebooks & financial freedom @ http://www.newsweek.co.za

GOLD ~ The winning sector

Many moons ago I learnt a really powerful yet simple equity methodology for determining the performance of the different sectors against the market. I do this because I want to know where the money is. Whose money you ask?

The Fund Managers and the Institutes money is key to really making decent money in the stock market. One could follow what the fund managers are doing after the fact and buy what they buy. I prefer to pick it up from the market itself. Generally speaking, the fund managers can't dump hundreds of millions on the market all in one day.

After learning this great skill, albeit simple, I am able to track down the Big Daddy money out there. Once I have done that I go over the sectors with a fine tooth comb to find the shares within those sectors that are the best performers somewhat hand-picked to be on the fund managers team. Those left behind after all the slots are taken get a seat on the bench and don't get to score.

The Gold Index signalled a recent buy in the week of the 16th-23rd of January 2009. Some of the gold mining shares have doubled in less than 2 months. Is it time to get in there now? Not likely. Chances are you have missed the boat. Better not to chase it now...

DRD Gold and Anglogold signalled on my Big Daddy Money system in December already. DRDGold triggered around the 2nd week of December at around 435c and is now over 800c. AngloGold has gone from around R200 to over R300 this week.

But I will be waiting to add to my investment positions as there could well be a pull back or retracement before the gold shares move onwards again. But I will be keeping an eye on it like a hawk.

DRD has been the best performer with Anglogold following closely behind. Some less traded shares like Afgold and GBG Gold also have had some really good moves.

Keep an eye out for our next post about the Yield X on the bonds. Do you own a homeloan? Well, as the debt cycle peaks and the interest rate committee begins to waver under the economic pressures of a debt-laden consumer you could bank money as the interest rate drops off.

Look out for that as we develop some more info on that topic.


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