Navigating the panic

Over the last century, the world has suffered through a number of financial crises and market crashes, ranging from the panic of 1929 to the 1987 crash.

With global markets stalling in the last week, investors might be forgiven for fearing that the bear market is back – or perhaps never left.

But one message should be shouted loud and clear above all the other mixed signals you’re probably hearing right now, and that is don’t panic.

In the midst of panic

Global markets have rallied strongly since March, most up around 50% from the lows.

However, the recovery remains shaky, and any sign of economic weakness is pounced upon by the bears.

In the last 24 hours, the UK, Australian and other global markets have dropped 3% or more.

The selling was precipitated by a re-emergence of credit fears, after a large state-sponsored company in Dubai requested an extension on paying back debt.

Why is there panic?

The panic settles in because people are confronted by a market situation that is far from normal. Panic in financial markets, just like panic in everyday life, is explained in psychological terms by the fight-or-flight instinct.

It looks like the flight instinct is the most prominent one when it comes to market psychology, however. The present market situation is seeing not only individual investors taking flight, but big financial institutions, too. Financial firms lose their confidence in the market, and, in a state of panic, lose their ability to transact business as usual.

But the very definition of panic is a state of irrational despair – a state whereby people or bodies act in ways that contradict reality. In its very essence, panic is therefore not a logical, or justified, state to wallow in.

That isn’t to say that the wide-spread selling occurring across global markets right now is totally irrational or panic-driven. The selling can be seen as somewhat logical, as it makes sense to move from a risky to a safe environment when the financial system looks broken, and a serious economic slowdown is on the cards.

But selling based on panic alone isn’t smart selling, and the fact is that investors who are sellers right now should be operating from a standpoint of cold, hard logic, not runaway emotion.

It’s smart to remember, too, that just because markets are behaving irrationality, this isn’t an open ticket for investors to work in the same way.

Some analysts believe that the current irrationality stems from one aspect of the market alone: from the financial sector. For instance, a large part of the nonfinancial part of the economy is strong, and statistics show that these sectors are much stronger than during the Great Depression – another time of global economic panic.

With strength still evident in some parts of the market, it is illogical to react to your entire portfolio with panic. Oh, and there’s that one significant point that panic blinds investors from seeing: that the current dismal state of affairs is not here to stay.

Wait out the storm

The good news is that financial panic doesn’t last forever. Though fight-or-flight instincts are now seemingly driving the market into the ground, the market must recover, or (brace yourself) crash first and then recover.

Either way, a recovery will come. Unfortunately, it is also a fact that recovery takes longer than a crash.

Benjamin Graham, the father of securities analysis, said all the way back in 1934 that a market crash stems from three forces: the manipulation of stocks, the lending of money to buy stocks, and excessive optimism.

When you remember the high-spirited bull market we enjoyed leading up to this crash, and the money that has changed hands in an attempt to stop this market drop, you might have to admit that Graham has a point.

Survival the key

It is true that the current situation is one of uncertainty, but behaving in an irrational manner won’t help the situation. Earnings growth has slowed and might continue to slow, but many companies still possess fantastic balance sheets, so when we come out of this crisis, we can expect pretty strong growth.

In other words: don’t follow the herd fight-or-flight mentality and jump out of the market because you’re feeling scared. Use sound advice to guide your actions. There are no easy solutions to the state of the markets right now. The issues guiding the markets at the moment have been building for decades, and won’t be solved in a day.

It’s rough at the moment, but the future will bring promise. Every generation has its own stockmarket crash, and this is ours.

And guess what? Each generation’s crash passed, and those that came out on top were those who used their heads – and didn’t panic!

Fundamental Analysis for the Technical Analyst

Most technical analysts aren’t interested in Fundamental Analysis (FA).


By ignoring some of the very useful information FA affords, traders are cutting themselves off from a potentially valuable aid to their decision-making process.

Contrary to popular belief, using FA to help you trade doesn’t have to mean spending hours poring over boring balance sheets. Quite the contrary!

There are some simple FA techniques, tips and pieces of information that even the most ardent TA follower can quickly get their hands on and benefit from.


When trading shares:

√ Reporting

It’s pretty hard for even an ardent FA follower to stay on top of, and dissect every announcement made by a company. However, it is important to pay attention to basic reporting dates. As a minimum, companies report first-half (1H) and full-year (FY) results, and these can move prices significantly.

The dates of upcoming results releases can be found in our calendar, or on listed companies’ websites. The extra volatility that can flow from these releases can be a reason to either trade or else refrain from trading, immediately before these dates.

√ Dividends

Keep an eye on ex-dividend dates. These have the potential to push shares lower, and can interfere with support lines and other technical aids. These can be found in our calendar, or on a company’s website.

√ Broker reports

A stockbroker’s view of a company can have a huge impact on its share price, and this is especially the case with smaller stocks.


√ Currencies

Currencies, especially the AUDUSD, can play a big part in a company’s fortunes. A rising AUD is good for importers, like retailers, as it makes imports cheaper to purchase (given a stronger AUD).

However, a strong AUD is bad for companies that have large international operations. This is because revenues earnt in another currency reduce in AUD terms, as the AUD strengthens.

Exporters are also hurt by a rising AUD, as this makes their products more expensive, and thus less attractive, to purchasers in other countries.

A weakening AUD has the opposite effect on these types of companies.

√ Keep an eye on commodity prices

Quite often, energy and mining stock prices will be highly correlated with oil and metals prices.

Therefore, when trading energy stocks, keep an eye on your oil charts.

Similarly, when trading mining companies, keep an eye on base metals charts.

Oil, gold and base metals prices can also be important for non-resources stocks. For example, higher oil prices will be bad for transport or airline companies.

√ Inside buying

Fund managers and company directors are often buying and selling large chunks of shares. This activity can, and does, move prices, especially the smaller stocks.



When trading indices:

√ Public Holidays

When trading equities indices, particularly overseas equities indices, you should be aware of any upcoming public holidays, as you may not be able to trade on these days.

This may leave you exposed to large adverse price movements when your market reopens for trading.

√ Major stocks going ex-dividend

When you are long an equity index, and a relatively large company within that index goes ex-dividend, you can expect to see some of the effects of the share price fall feed through to the index.

This is particularly so with capitalization-weighted indices, such as the Hang Seng, where a company like HSBC comprises a very large proportion of the index.

When trading currencies:

√ Keep an eye out for economic data

Key releases include interest-rate announcements, CPI, GDP, PPI, jobs data, confidence and manufacturing data.

These can be found in our calendar. Again, the extra volatility that can accompany these releases can be a reason to either trade or not trade immediately before the releases.

When trading commodities:

√ Focus on the US Dollar

Most commodities are priced in US dollars, so their prices are influenced by movements in USD.

For example, if the USD starts falling, it should be bullish for commodity prices such as crude oil. So when trading oil, keep an eye on the USD against the other major currencies.

By using the above checklist in addition to your TA tools, your understanding of why the markets move the way they do should improve, and this can only increase your chances of becoming a profitable trader.

Orica Outlook

Orica Ltd (ORI) is a diversified manufacturer company that produces industrial and speciality chemicals, polyethylene, surface coatings for vehicles, food and beverages flavouring and fragrances, packaging and appliances. Orica also supplies explosive and blasting services to the mining, quarrying and construction industries. Orica businesses which operate globally are Orica Mining Services, Orica Consumer Products, Orica Chemicals and Minova.

Orica Mining Services offers a range of blasting products, services and technology to the mining, quarrying and construction industries. These operations run globally across Australia, Asia, Europe, Africa, North America and Latin America. Orica have been pioneering new technology in view of adapting to the global changes in the mining industry. The recent completion of the Dyno Nobel integration which delivered cost saving and improve in their production.

Orica Chemical is major supplier and trader of chemicals, services and technology to the water treatment, mining chemical and industrial chemical markets that are based in Australia and has operation in United States, the United Kingdom and Asia. The Chemicals group has three separate businesses; Mining and Specialty Chemicals, Watercare and Chemnet.

Demand from recently resource hungry China is decelerating at an alarming rate which is proving disastrous for even the biggest miners. ORI has enjoyed a recovery over the past few weeks but we feel the buying might be overdone and the problems it faces are far from over.

Looking to the bigger picture, ORI’s daily chart is still trading in a long-term downtrend, and remains well below the 200-day exponential moving average.

After gapping higher from $17.00, ORI has run into strong resistance around the swing point at $20.18. ORI’s price has started to consolidate in a tight price cluster, and this signals that the recent trend higher may be exhausting.

If the trend does run out of puff, ORI could see a quick reversal back to the lower boundary of a recent gap, around $17.

Disclaimer :This is just an opinion for general information only.

IMF releases global report card

On 22 April 2009, the International Monetary Fund (IMF) released two semi-annual reports, the World Economic Outlook: Crisis and Recovery (April 2009) and the Global Financial Stability Report: Responding to the Financial Crisis and Measuring Systemic Risks (April 2009).

According to the joint foreword to the reports, ‘global activity is projected to contract by 1.3 per cent in 2009. This represents the deepest post-World War II recession by far. Moreover, the downturn is truly global: output per capita is projected to decline in countries representing three-quarters of the global economy. Growth is projected to re-emerge in 2010, but at 1.9 per cent it would be sluggish relative to past recoveries.’

The joint foreword notes that ‘[t]he difficult and uncertain outlook argues for continued forceful action both on the financial and macroeconomic policy fronts to establish the conditions for a return to sustained growth. Whereas policies must be centred at the national level, greater international operation is needed to avoid exacerbating cross-border strains.’

It goes on to state: ‘At the root of the market failure that led to the current crisis was optimism bred by a long period of high growth and low real interest rates and volatility, together with a series of policy failures. These failures raise important medium-run challenges for policymakers. With respect to financial policies, the task is to broaden the perimeter of regulation and make it more flexible to cover all systemically relevant institutions. Additionally, there is a need to develop a macro prudential approach to both regulation and monetary policy.’

The full summary version reports are available at www.imf.org

Addictive trading

Famed trading psychologist Brett Steenbarger has delved into the deepest drivers of trading behaviours, covering regions most other trading psychologists don’t dare touch.

Most trading coaches, brokers or trading publications won’t discuss this topic, because without addictive trading behaviour, trading professionals are out of a job – or at least losing work.

The thing is you don’t need to be trading constantly to be a successful trader. In fact, constant trading will more likely see you losing money than making money.

You trade the market because an opportunity has become available to make money. You don’t trade it for the simple action of trading.

And if you are trading just for trading’s sake, or because you are bored, then you might have an addiction problem.

The nature of addiction

We hear a lot of talk about alcohol addiction, gambling addiction and addiction to drugs – but not trading addiction.

Trading addiction isn’t a “hot topic” in psychology circles, but the funny thing is if you talk to any successful trader they’ll be able to tell you story upon story of colleagues and friends who are addicted to trading.

Addiction is driven by repetitive behaviour that generally comes from a loss of discipline. And in the market in particular, losses of discipline are related to addictive trading behaviour.

Addiction occurs when a stimulating activity leads to psychological (and sometimes physical) dependence over time.

And it makes sense, when you think about it, that trading could become an addictive behaviour. You get a buzz out of making a winning trade, and what is addiction but a constant need to feel a high from repetitive – yet stimulating – behaviour?

An addiction generally becomes apparent when it interferes with your life. And when you are unable to stop an addictive behaviour, it generally has consequences on your life.

You can see this in your trading behaviour if you find yourself seeking out trading activity even in the face of negative consequences.

Signs of addiction

It’s hard to identify that you’re addicted to trading – or rather, it’s hard to admit it to yourself.

There are a few signs that will tell you if you’re addicted to trading. Steenbarger identified the following questions as important in identifying whether or not you have a trading addiction problem:

* Have there been times when I told myself to stop trading, but still found myself placing trades anyway?

* Do I find myself over-trading by putting on positions with too large a size or by trading during periods when nothing is going on?

* Have my trading losses created problems for me in my relationship(s), or have they caused financial problems for me?

* Have people close to me told me that I need to stop trading, or that I am trading too much?

* Is the pain from losing more extreme than the satisfaction I get from winning?

* Do I find that my moods fluctuating with my P/L?

* Do I trade simply out of boredom sometimes?

* Do I find myself preoccupied with trading outside of market hours at the cost of other work and relationships?

Anyone who knows anything about addiction can tell you that the word “trading” here can be substituted with other forms of addiction, such as drinking or gambling, because all addiction problems are caused by the same root and characterised by the same repetitive, damaging actions.

It’s a good idea for any trader to ask themselves this question, no matter how successful they feel or “in charge” of their trading behaviour they seem.

This is because it is incredibly hard to admit to oneself that trading has become an addiction – and you’ll often hide the signs of addiction from yourself.

A false sense of security?

It’s dangerous to succumb to trading addiction in these times when the market is so volatile and things are, for the most part, rather bearish.

Right now trading addicts need to be very wary.

Each bear market will see what is known as the “bear market rally”, where a sudden spike in equities makes it look like we’re entering a new bull market.

It is important not to have your confidence overly bolstered by temporary rallies or bullish comments from trading bodies. That is, don’t take too much heart in those who say that though things are tough now, they will pick up in the second half of the year. They might, they might not.

Taken from Australian Stock Report

Excellent earnings and no debt

Carnarvon Petroleum NL (CVN, formerly Metana Petroleum NL, MTP) is an oil and gas exploration company with projects across Australia and Thailand.

The company continues involves generating exploration success and transforming that into larger reserves, stronger production and higher earnings. At the same time the company remains fiscally disciplined, with no debt and a strong cash position of around $80 million, despite difficult market circumstances. This has meant financial stability and no prospect of dilution for ordinary shareholders, unlike so many other distressed resource companies out there at present.




From a charting perspective, there has been an encouraging improvement to the outlook for CVN over recent months. As evident on the daily chart, a solid range of support has emerged in the 25 cent to 23 cent region. In my opinion, downside risks are limited to this region.

Although initial rally attempts have been limited to the 37-cent level, the recent period of base building has the potential to support a sustainable rally in the months ahead. Combined with the resilience of the broader upward trend, CVN continues to offer solid longer-term potential.

In the Elliot Wave 09, we can see that wave for is between the 32 cent and 34 cent region. This will be a good buying point. That will complete with wave 5 at the 41 cents region.

CVN’s interim net profit after tax was $21.7 million, a substantial increase from $5.1 million a year earlier. The increased profit primarily reflects higher production combined with lower operating costs. For full-year 2008/09 , anticipate earnings of around $43 million, putting the company on a prospective price-earnings multiple of just five times, dropping to just three times in 2009/10 as anticipate profit growth to around $80 million.

This is outstandingly value, particularly for a company that has a proven track record of delivering on its exploration and production ambitions. CVN is in a good position with no debt, medium to long-term production and a growing bank balance compared to other peer in the same industry.


Disclaimer :This is just an opinion for general information only.

Aussie 200 edge higher

The market has drifted higher today, slowly grinding away without a lot of resistance.

Most of the big banks are trading higher, up around 1-2%. CBA is the sole loser of the big four.

It has been another interesting day in the resources space. BHP has raised €2.25 billion in fresh bond issue, adding to the US$3.25 billion last week. BHP says will be used to pay for general business purposes (most likely to pay off short-term debt), but some expect the big miner will use the cash to fund acquisitions.

Market-sensitive stocks ASX and CPU are enjoying good days today, a sign of the market’s current confidence.

For the past 2 weeks stock across the whole have been rising to the new level for 2009? Is this a bear market rally or this is the beginning bull market? Will the market keep going up to the next resistance level of 3700?

Aussie Dollar on the Rise

It has been a awesome week for the AUD, with the Fed's planning to inject US$1 trillion into the financial system seeing the US dollar fall sharply against its rivals. With this announcement, the AUD gained ground. It is also backed by the rise of the commodity prices.

This is the highest level that the AUD reached since 12th January.

AUD will set to rise higher? From the time being it looks bullish. There will be resistant at 0.7101 or higher at 0.7293.

This is just an opinion for general information only.

Australian pre-open market depth

Why are there considerably larger parcels under the bid/ask in today's Australian pre-open market depth? What is the significance of today (March 19th) for buying and selling such large quantities into pre-open in so many major equities? Obviously Institutions, but why are they all re-balancing their books today?

The significance of the 19th is that the March SPI futures contract expires. As a result, all the funds with large futures positions will be doing one of two things. Either they roll out of the March contract into the next month, which is the June contract.

Mr. Market

Mr. Market is very obliging indeed. Everyday he tells you what he thinks your interest is worth.

Benjamin Graham
The Intelligent Investor

RBA cutting cash rate from 4.25% to 3.25%

On the 3 February 2009, Reserve Bank of Australia board has decided to cut the cash rate by 100 basis points, to 3.25 per cent in a bid to cushion a flagging economy. The significant deterioration of the global economic conditions has affected household and business confidence and has a major impact to the financial institution with results in a sharp economic contraction in the December quarter that followed the Lehman Brothers collapse. There is also a sign of declining in the global inflation since the middle of 2008 and it is likely to decline further.

China is also showing sign of economic slowdown even though the Chinese economy is still growing but it has contracted since the boom period. This reduces Chinese commodity consumption which indirectly affects Australian economy because Australia exports commodities to China. This rate cut will also lower the cost of funds and over time it will increases the household expenditure and businesses investment. It will be very likely that housing affordability is expected to improve due to the massive rate cut by the RBA. This also meant that mortgage repayment will be lower and gives the consumer more spending power on other goods and services. With the RBA cutting the cash rate, it will help to cushion the Australian economy from the contractionary effects that are coming from overseas economy.

The All Ordinary ended up 0.16% higher after the government announced the fiscal stimulus package and the RBA cut interest rate by100 basis points. At the end, the market closes higher because it was pushed up by the financial stocks which received the news positives.

Fast growing and cash positive companies

Despite the current economic gloom, there are some companies out there that are defying the trend and posting outstanding performances. This free member showcase highlights three interesting companies:

> Universal Biosensors: Mark Morrisson, Managing Director
> M2 Telecommunications Group Limited: Vaughan Bowen, Managing Director / CEO
> XRF Scientific: Terry Sweet, Managing Director

Event	Showcase: Fast growing and cash positive companies
Date:	Thursday 16 April 2009, 12.00pm to 2.00pm
Venue:	Shaw Stockbroking, Level 21, 90 Collins Street, Melbourne
Cost:	Free for members; $44.00 non-members
Register:	Online or download the event registration form

More great professional development events in Melbourne

Don't miss our next Women in Finsia networking event on Thursday 21 May, featuring Professor Carol Adams, Deputy Dean, La Trobe University. Visit www.finsia.com/events for more details or a full listing of events around the country.