March 2016 – Adaptiv

Bursa Malaysia Changes Direction

March 18, 2016April 13, 2022

Dictated by the simple fact that emerging markets are outperforming U.S. equities since January, we’re continuing our world tour with this research. We don’t dismiss that U.S. equities have been on quite a rally since their early February low. However, as impressive as that’s been, emerging markets have been even more so. Today, we’re taking a look at Malaysia using an ETF that mirrors the Bursa Malaysia (formerly Kuala Lampur) Stock Exchange. The ETF we’re using is EWM.

Here’s the weekly chart of EWM.

We quickly notice that Malaysian equities have been in a downtrend since mid-2014. The 42% depreciation was fast and fierce until Summer 2015, where price met demand at the 6.75 level. This level has historical significance dating back to 2010. Looks like buyers/sellers have a good memory. Since finding buyers near 6.75, Malaysian stocks have continued to attract more buyers, driving price into a new potential uptrend.

This recent breakout (annotated on chart) is significant and one we can use to our advantage. Nothing is guaranteed, but this setup has potential. Looking at the daily chart, we can see that EWM has been outperforming the S&P 500 (upper pane).

We can also see well-defined risk and potential reward. It is skewed in our favor. 8.40 is an important support level based on the principal of polarity (former supply becomes demand). Below 8.40 and we don’t need to own EWM. Above 8.40 and we like the reward potential. Malaysian stocks are worth owning until price tells us otherwise.

Disclaimer: Nothing in this article should be construed as investment advice or a solicitation to buy or sell a security. You invest based on your own decisions.

Breakout

Mother Russia!

March 17, 2016April 13, 2022

While most are watching U.S. equities rip higher, we’re continuing to see strength from emerging markets. Previously, we highlighted the breakout taking place in Brazil. Up 13% since we released that research, Brazil hasn’t disappointed. Though nothing is guaranteed, and price knows more than we do, we are seeing a similar development out of Russia.

Using a weekly chart of RSX (an ETF that mirrors the Russian Trading System Index), you’ll see exactly what we’re talking about.

Russia has broken out of steepening downtrend that dates back to 2011. With a a 67% drawdown since then, Russian equities have been subject to significant discounting. We’re not interested in buying stocks that are in a downtrend. But when the supply and demand dynamic changes, and buyers step into the marketplace, we sit up and take notice. In late 2014, and recently again earlier this year, buyers stepped in near the 12.00 level. More importantly, there was enough buying demand to push RSX through the downtrend line (in green), signaling a potential change in trend.

We can take advantage of this opportunity by making sure we identify the risk involved with this trade. We should never enter a trade without understanding potential risk versus potential reward. Technical analysis allows us to do just that. Here’s a daily chart of RSX:

The breakout is clear. There is more demand than supply, causing prices to breakout. We like that. We also see a logical level (16.00) where buyers should step in if there is any pull back in prices. And if they don’t, we’re out of the trade. It’s as simple as that. We’re long RSX above 16.00. Below 16.00, we’re out. Bila ne bila.

Disclaimer: Nothing in this article should be construed as investment advice or a solicitation to buy or sell a security. You invest based on your own decisions.

Breakout

Singapore Straits About to Spout Off

March 11, 2016April 13, 2022

If you follow us on Twitter (@360Research), it’s not a secret that we’ve been talking about emerging markets and other international indexes outperforming US stocks. One such market is in Singapore. After seeing the Straits Times index decline 30% over the last year, we’re now seeing new demand enter Singaporean stocks. The Straits Times Index is a capitalization-weighted stock market index that is a benchmark for the Singapore stock market. It tracks the performance of the top 30 companies listed on the Singapore exchange. And it’s a great barometer for us to look at when trying to identify our next opportunity in Singapore.

Using the weekly chart below, we can see the downtrend in prices that began in early 2015. We can also see that in early 2016, prices dropped below the late 2011 low, only to sharply reverse and break out from the downtrend (upper green trend line).

Looking closer at The Straits times using a two-year daily chart, we can see the false breakdown and subsequent clean breakout of this important index.

We don’t have the ability to trade the Straits Times Index directly. But in today’s world, we have access to all sorts of investment vehicles that grant us entrance into many hard-to-reach markets. For us, and this article, the ETF: EWS is our vehicle of choice. It mirrors the Straits Times Index, allowing us to appropriately manage our trade and help us identify risk and reward. We should never enter a trade without knowing when we’re wrong. Remember, the markets don’t care what we think. And we don’t care about being right. We care about being on the right side of the trade.

When looking at the daily chart of EWS, we notice that 10.40 is a logical area of previous supply that has now become an area where demand should step in. If price drops below that level, we’re no longer interested in this trade. It’s simple, we’re long above 10.40, and out below it. Our upside reward is between 5 and 15%. We like a lot of what we’re seeing from Singapore, the Merlion and even the Durian.

Disclaimer: Nothing in this article should be construed as investment advice or a solicitation to buy or sell a security. You invest based on your own decisions.

Commodity

Time To Buy Oil

March 4, 2016April 13, 2022

Do you know the best time to buy oil? Or, any asset for that matter? It’s simple, yet we all love to make things more complicated than they need to be. The simple answer is that we should buy an asset when the reward dramatically outweighs the risk. So, when we hunt the best opportunities, we need to be able to identify the risk and reward. Technical analysis allows us to do just that. When we study price (aka technical analysis), we can see the dynamics of supply and demand at work. When we study price, we are studying economic law, not theory. When there is more demand than supply, price goes up. When there is more supply than demand, price goes down. And for the last 18 months, we’ve seen plenty of supply when it comes to the price of one of the world’s favorite commodities: OIL. In that timespan, the price of oil dropped 74%. Anyone recognize that percentage? (HINT: Read yesterday’s research article. Could they be related? Um. Yes.)

Technical analysis showed us that there was no reason to own oil back in early August, 2014. There was too much risk compared to the potential upside reward. Once West Texas Crude ($WTI, $WTIC) broke $96, it was apparent there were more sellers than buyers. Supply was too great. A year and a half later, and things have changed. We are seeing buyers step in at current levels. Let’s take a look.

[click chart to enlarge]

The chart above is a weekly chart of West Texas Crude dating back to 2007. We can see the low in late 2008 / early 2009, where oil found demand (aka buyers) near the $35 level. We can also see where oil broke down in late summer 2014 and dropped precipitously through that important 2008/2009 low. However, the last few weeks have changed the demand/supply dynamic. The price action during this time has been very constructive for this important energy commodity. Buyers have stepped in and price has broken through the year and a half downward trend line. In addition, price is back up to that very important $35 level.

[click chart to enlarge]

Moving in a little bit closer on this weekly chart, we can see that momentum and price have been diverging for over a year. Momentum leads price. When this condition lasts long enough, it can create some pretty powerful price moves once price decides to catch up to momentum. In addition, we can see that if price were to break above the important 2008 / 2009 level, a false breakdown will have taken place. As we wrote yesterday, from false moves come fast moves in the opposite direction. The weight-of-evidence suggest that buyers are back in a big way and it’s highly likely oil will move quickly upward if price can push through the $35 – $37 window.

[click chart to enlarge]

Now that we know upside reward is likely, we need to know when our opinion is wrong (assuming a position is wrong is a great way to remove yourself from bias and opinion). We don’t care about being right. We care about being on the right side of the trade. By identifying previous areas of supply and demand, we can identify a proper exit and practice prudent risk management. Using the daily chart, it’s easy to see the importance of the $33.75 price level. That price defines our risk. If the price of oil is below $33.75, we’re no longer interested.

Keep it simple.

Disclaimer: Nothing in this article should be construed as investment advice or a solicitation to buy or sell a security. You invest based on your own decisions.

Brazil

Brazilian Breakout

March 3, 2016April 13, 2022

For the past 5 years, Brazilian stocks have been hammered. Since the top in 2011, equities in Brazil have experienced a 74% drop. But that appears to be changing. You wouldn’t think that if you used the financial media to make your investment decisions. You would think that the worst is yet to come. For example, take a look at this headline that posted just a few hours ago.

If you followed our research before, you know we’re not big fans of financial media. It’s not that we have anything against reporters. After all, they have a job to do. But at 360 Investment Research, we don’t use financial headlines to invest. It’s noise. We use price.

Let’s take a look at what’s really happening in Brazilian stocks. Below, is a weekly chart of the Brazilian ETF EWZ. It dates back to 2008 and shows the bottom put in late that year during the Great Financial Crisis (GFC). In addition, we can see the significant drop in Brazilian stocks dating back to 2011. We also notice a significant development – price has recently broken out from an 18-month downtrend. Just as significant, we can see that price originally broke below the late 2008 lows, but quickly reversed back up over that level. This is known as a false breakdown. And from false moves come fast moves in the opposite direction.

Taking a closer look, using a daily chart, we can see just how clean this breakout is.

We are a fan of this setup. Our risk is well defined while the upside reward is definitely significant. We can see previous areas of supply that mark our targets for exiting any trade long. These levels represent anywhere from an 8% to 40% return. Obviously, nothing is guaranteed and we don’t marry our opinions. If EWZ drops below 21.00, we’re no longer interested. Price knows more than we do. Price knows more than the financial media.

Disclaimer: Nothing in this article should be construed as investment advice or a solicitation to buy or sell a security. You invest based on your own decisions.

Month: March 2016

Bursa Malaysia Changes Direction

Mother Russia!

Singapore Straits About to Spout Off

Time To Buy Oil

Brazilian Breakout