Covered Call & Suspension: Does ACH Know What They Are Doing?

The decision from Australian Clearing House, the clearing house for Australian Securities Exchange (ASX) to reject the security as collateral for its own option has shown to the world that perhaps ACH does not know the real effect of what they are doing. If you are option trader, in particular doing this covered call aka buy write aka share renting, or option broker or anybody else that understand option, you will need to know this bungle and found out that the solution is pretty damn simple…

Full Story: Covered Call & Suspension: Does ACH Know What They Are Doing?

Extra Monthly Passive Income With Little Effort (no, not scam)

Have a little bit saving in your account ? Or do you have already a stock of a company that sitting there doing nothing?

The next sentence will look like those scams : “If you want extra money – monthly, passive income – with very little effort, then this is for you“. But it’s not scam. What is it? Check out this educational article (no, not selling anything)

ASX Beats Dow Jones: The Magic of Technical Analysis

What happen if Dow Jones Industrial Average Index tumbles 400 points? The next day, the rest of the world will tumble as well. Then what happen when the next day the dow go up by 500 points? Yes, again the rest of the world will go up to follow the Dow. Like it or not, Dow Jones is still the major light house of the share market - it leads.

Of course not always. But if you see the movement of 150 or higher from Dow Jones compare to other index, including AUstralia’s ASX, you can derive the conclusion that such significant move by the Dow will be followed by other stock exchange -although the percentage difference might not be the same.

On Wed 19 Nov 2008 – Dow Jones hit 5 yrs low after went down 417 points to 7997. This 5% drop followed by the rest of the world including Australia. The next day, Australian’s ASX All Ordinaries Index down 127 points to 3515, a 4 years low.

Then a day after, the Dow make another dramatic tumble and close 11 years low after shedding another 445 points to 7552. A level never been seen since 1997!

Dow Jones Index 19-20 Nov 2008 (Source: Google Finance)

 So as expected, the index of the world followed the Dow. ASX is down as low as another 132 points to 3201 – a 5 years low. Another bad day in the market ? Wait a minute… see the chart !

Australian All Ordinaries Index (Source: Yahoo finance)

ASX beats Dow Jones ! After 1 o’clock – as if all trader in Australia have a magic lunch and back to trade with new attitude – the index just climb and end the day in positive territory with plus 79 points. Total swing of the day is 211 points or around 6.5% ! So despite Dow Jones fall more than 400 points, ASX is up 79 points ! This is quite an achievement Furthermore, once ASX pull this bounce, the rest of Asian and European market follow suit and refuse to follow the Dow !!

So what’s really happened ? I search and look everywhere looking for extraordinary happening – locally, regionally and globally – nothing really happened at that particular time – no news , no announcement, no nothing. Is it really the magic lunch ? No! After I open my historical chart, I found the very answer: THE MAGIC OF TECHNICAL ANALYSIS……

All Ordinaries Index 1987 - 2008

Let’s see… about the year of 2001, we can see a consolidation with resistance on around 3200 points. It’s quite obvious. After failing to puncture that resistance, the market went down for the next 2 year until it started the strong long bull journey to all time high. This significant resistance then become strong support during the retracement. Not a complicated analysis!

Then, if you overlay fibonacci level from the Black Monday in Oct 1987 to all time high in 2007, we can see approximately that 3200 level is on around 61.8% retracement – the strongest among all fib level.

Just lucky? Perhaps. But I believe everything happen for a reason. This is what technical analysis is all about: to anticipate a bounce or reversal based on historical data. And if enough trader apply the same analysis above, then it become self fulfilling prophecy – that’s the magic of technical analysis.

If you understand only a part of what I write above, try “Share Trading By Me“, a fast growing website, where all stock market related aspects are explained in plain English for the very beginner to advance trader/investor. “Learn about stock market and stuff !

In the mean time, wish you good luck with your trading and don’t forget buy put for protection.
‘Til then — The Smiling Investor

Queen Birthday Holiday: ASX vs Dow Jones

In Australia, every Monday in the second week of June, we enjoy a public holiday dubbed as “Queen Birthday Holiday”. This year’s holiday was on Monday, 9 June 2008.

(As member of Commonwealth nations, Australia’s head of state is in fact Queen of England, hence the public holiday. The funny things is the actual birthday of the Queen is on 21st April. So, some people marked the day as the start of snow season here in the southern hemisphere.)

The Tumble

As we know, on Friday 6 June 2008, Dow Jones Industrial Index fall dramatically by almost 400 point due to a surge in unemployment figure from 5.0% to 5.5% (the expectation was 5.1%), crude oil shoot $16 up in the trading session before closing $11 up at $138.5 a barrel.

And from an event like that, usually the market will bounce back the next day as buyer who sitting on the fence will jump in and also because short sellers need to cover the position and buy back the stock.

And we also know that the rest of the world, especially Australia and Asia, will usually follow any significant lead from US market, i.e: Dow Jones the next day.

Since the next trading day is public holiday in Australia, how does the market react accumulatively ?

Easter Holiday 2008: ASX didn’t miss out millions on Dow Jones lead

For once, I did not know that US market open on Easter Monday.

Well, as we all knows, Dow Jones is the leading indicator in the world and without exception, Australian Stock Exchange will follow every strong lead (read: I would say any 100+pts movement) from the Dow the day after.

On 18-Mar 2008, when the Fed cut that interest rate and send DJI went up 420 pts (3.5%), AORD (Australian’s All Ordinaries Index) was also went up 3.6% (185 pts) the day after. See the graph and table below.