Sembcorp Industries: Potential Short Term Trade

I've identified Sembcorp Industry as a potential short term trade.

Following Alexander Elder's triple screen trading system, let's go systematically:

1.) Find the Market Direction and trade with the market tide
Basically, if said stock is on uptrend, trade only from the long side. If Stock is on a downtrend, look for opportunities to short.
Let's have a look at Sembcorp Industries' Weekly chart:

As you can see from my blue line, the long term uptrendline is still intact, and Sembcorp Industry is currently hovering over it's uptrendline support. 13week EMA is also up.

Second Screen- Identify a Market wave that is against the tide
Like Salmon swimming upstream, a wave that is against the tide is bound to dissipate. So let's have a look at Sembcorp's Daily chart:

According to Dr. Elder, for oscillators like Elder Ray, Stochastics and Force Index, on an uptrend, take only BUY signals and ignore SELL signals(vice versa for downtrends). MACD Histogram for uptrends should also be at lows, but ready to turn up. He considers MACD histogram and divergences more important than crossovers and the like.
For those familiar with Triple Screen, we are in the autumn season.


For Sembcorp, let's have a look at MACD first. MACD is at oversold region, and the 2 lines show no sign of turning up. However, MACD histogram shows oversold bars that may or may not be ready to turn up.




Oscillator wise, I have 2 on the chart. Elder recommends we BUY when Force Index is negative on an uptrend. Looking at the chart again, Force Index is negative but upturning. As an added bonus, Force Index also shows a bullish divergence. I've used the 2day EMA to smooth things out, but editing FI to 13 day eMA also shows a bullish divergence.

Stochastics also shows oversold region, indicating a BUY on daily chart.
Hence, second screen shows an almost unanimous BUY signal.

Third Screen-
The Third Screen is basically where to put your stops and buy stops.
Elder recommends BUY when uptrend is intact, a retracement is occuring and BUY signal is indicated, unless multiweek lows are reached. In this case, Sembcorp Ind. is at it's lowest level since 11 weeks ago. So it's a question mark regarding the multiweek low thing.

If I do enter this trade, Elder recommends having a BUY stop order at 1 tick above today's closing price to catch any upside breakout, and BUY order will NOT be filled if there's a downside breakout. Hence reduces the trader's risk, at the expense of a few ticks profit.

For Singapore Market I doubt we have this kind of buy order, so it must be done manually.

So what should my buy price be? Today's HIGH was $4.93, so I should be buying ONLY when prices reach 4.94/4.95 bid/ask. If tomorrow downside breakout, I won't be caught, but I'll be sacrificing that few ticks of profit.
What should be stop loss be then? Elder recommends stop loss 1 tick below the low of the past 2 days, whichever is lower. Looking at Sembcorp, my stop should be when Bid/Ask is 4.81/4.82.

This leaves me with a total downside risk of $160 per lot if the trade goes awry ($4.95 to $4.81), with a target sell price of around $5.10 to $5.20, a reward of $150 to $250 a lot. (includes round trip commission) This leaves me with Risk/Reward Ratio of roughly 3:4, not very good actually.

I will see how it goes tomorrow. :)

Readers who would like to open an OptionsXpress account to trade in the US Market, kindly contact me :)
OptionsXpress commission is USD 14.99, lower than E*Trade, and also they have an office in Singapore, so fund transfer can be done via I-banking or Singapore Dollar Cheque with no TT Fees. Currency Exchange is also done at the JP Morgan Institutional Rate, which offers a spread tighter than what you can exchange on your own.

Sale of KeppelCorp Warrants, cessation of my short term trading for now

Today I sold off my KepCorp warrant for a tidy 4.37% after accounting for all brokerage fees. As I bought heavily into it, my absolute amount gained is pretty high. :)

Having said that, I bought the warrant on Wednesday and sold it off today. On Wednesday, I was showing a paper loss of about 8%, and today I realised a 4.37% gain. That's a 12.37% swing in just 20 hours of trading. What a difference a day makes.

I will be ceasing my speculation for now, at least until I am more familiar with Technical Analysis. Why do I say so?

1.) Playing with financial derivatives is very risky. As Warren Buffett puts it, "risk is not knowing what you're doing." I understand how warrants and options work, but maybe it's time for me to take a step back and understand more about TA and charting before I plunge into speculating again. Then, playing with warrants would be, by definition, less risky for me.

2.) The way I'm using TA is obviously wrong now.
Example in point:

My top earner: SembCorp Marine, which I held from 3/12 to 10/12, was in my understanding, bearing many traits of a bearish stock. In that period, RSI had negative divergence, MACD was showing negative divergence, PSAR was above the stock price, which were all bearish signs (or so I thought). Only Stochastics was showing an upward trend. With all the bearish signs showing, you'd expect the stock price to drop, but instead it rose slightly, and with my huge leverage, I earned a tidy sum.

My top loser, Neptune Orient Lines, which i held from 3/12 to 15/12, was in my understanding, bearing many traits of a bullish stock. In that period, PSAR was constantly bullish, MACD line was above the signal line AND both of the lines were above 0, Stochastics was showing blue line above the red, AND, both on an uptrend toward 80%, which I believed were bullish signs, and yet, the stock price dropped quite a bit, and I quickly stopped my loss. (which is a good thing, considering that I would have lost another 25% had I sold off today-NOL dropped again)

This leads me to the conclusion that:
1.) My TA is too simplistic and hence largely incorrect, AND/OR
2.) I'm interpreting the signs wrongly,
3.) I'm too caught up in the excitement and anxiety that I make rash decisions.

Hence, I will be ceasing my warrant trading at least until CNY. This is also to help me take a step back and not make rash decisions like buying warrants on a whim, and to analyse them closely before making a purchase. As I have been on leave the whole of last week, I've been waking up and reading the finance news before logging on to POEMS/sgx.com at 9am. Which is not a good sign.

I will also be using the few weeks to CNY to brush up on my TA, of which I am only somewhat familiar with MACD, Stochastics, RSI, Volume, Moving Averages, PSAR and Bollinger Bands.
I will of course look out for good stocks to buy. 
My current KIV Stock list:
1.) Dapai
2.) CapMallAsia
3.) SATS
4.) STI ETF (Thought I'm reluctant to buy into STI now, many of the stocks are pretty overvalued, like Genting, City Development, Jardine, DBS, Olam, SGX, ST Engineering and our favourite way to fly, SIA, with PE of 84x)
5.) First REIT (div yield of 9.5%)  


I have also just applied for an OptionsXpress Cash Trading account, which allows me to trade in the United States market with a MUCH lower commission rate (USD 14.95) than POEMS, and with no custodian charge.

I will be researching on the Standard and Poor's "dividend aristocrats", which are companies that have given rising dividends every year for >25 years running).
I am most interested in McDonald's, ExxonMobil, the Standard and Poor's S&P 500 ETF (Otherwise known as SPDRs-Standard and Poor's Depository Receipts) and of course, Berkshire Hathaway B shares.

Merry Christmas and a happy new year to all. :)