Monday, June 11, 2007

New level in trading psychology

I think i've reached another level in trading psychology.

Somehow today I wasn't feeling too excited. This is a stark contrast because in the past, after a period of downturn, a upday like today would make me excited and all ready to buy. But I wasn't excited at all. In fact, I just stop monitoring after some time because there isn't anything left for me to buy.

Why do I call it a new level in trading psychology? This is exactly the kind of contrarian thinking that I need to cultivate in order to survive long in the market. I must buy when others are dumping and sell when others are buying. Do the opposite, act in contrary to 'common sense'.

That's why I wasn't too excited when STI went up 53 points to close at 3545 (1.54%) at heavy volume of 4.56 billion transactions. This was mainly held up by the very crazy cosco corp (up 0.400) and sgx (up 0.650). Crazy...irrational exuberance.

Actually I was looking at STI puts, particularly the one with strike level of 3400 ( I believe that's our support level). I'm just studying the volatility of the warrants, might not enter it after all. Looking for signs of distribution again, and further direction by the very volatile Dow.

Above is the chart for capitaland. I'm eyeing the warrants for this stock to ride on the next earnings seasons. Capitaland had been battered quite badly over the last month, from a high of 8.60 to today's close of 7.95. There's a downtrend line connecting the highs from 27th April till today, with the price always closing below it. That should be the moving resistance line. Price seems well supported at 7.90, and also below ema50 days.

I expect big movements in the next trading sessions. Either the price will move above the resistance line (hence breaking the downtrend) or the price will go below the support (hence continuing the downtrend, in fact, accelerating the downtrend since support level is broken). Volume has been thinning, and I believe downside is quite limited, thought there's plenty of things to overcome if it wants to go up. I should monitor the stock for some time, including its warrants to study the volatility and reaction of the warrant to the underlying.

Last year, capitaland reported half year results on 1st week of August. The last reported result was 27th April. Roughly adding 3 months would give me 11th August. That means my expiry date for warrants better be after 1st/2nd week of August. I want to observe 2 types of warrants, one is in-the-money but with strike price near support level of $7.90, the other is out-of-money with strike price near resistance of $8.55. Both must have some volume, otherwise it's very hard to liquidate.

Here's the ITM warrant i've identified:
CAPITALAND SGA ECW071126 with strike at 7.8518

Here's the OTM warrant:
CAPITALAND SGA ECW070924 with strike at 8.2494
CAPITALAND DB ECW070903 with strike at 8.3984

I'll put them on my watchlist to monitor their movement with the underlying before I decide. Connection to blogspot is like crap...that's all for now