Wednesday, 29 May 2019

LET US PITCH BITCOIN BETTER THAN TOM LEE EVER COULD

Smug BTC owners post-USD8,000


PART 1 : REVISITING BTC

If you had followed this blog from the beginning (you absolute weirdo), you may have caught a whiff of our pungent sentiment towards Bitcoin. Having missed out on the late 2017 rally, we anticipated a major fall in BTC prices. We pretty much equated that rally among the all-time historic bubbles.

We wrote all about that here. And you know what? We were right.. kind of. Having written about BTC when it was trading at around USD13,500, the cryptocurrency fell like a ton of bricks, losing about 77% of its value by the end of 2018.

Not that it mattered much to us. We couldn't exactly make money from this short selling angle (the only way to short BTC at the time was through CME BTC futures, which were too cumbersome for us to realistically deal with as a trade).

We took comfort from the fact that the whole thing really was a bubble - just another one in a long line of asset bubbles. But we were also crucially wrong on a few things; more on that later. This chart below clearly showed that 2018 was a soul-sucking year for BTC holders/traders/investors.


We've had a fair bit of experience with assets that experience unjustifiable and unsustainable rallies. In fact, we encounter bubbles all the time on Bursa Malaysia, whether it's a new sexy stock or a explosion of interest in previously unloved call warrants.

You know what else had 'done a Bitcoin'? How about HENGYUAN in 2017? The chart looked like this:


Not BTC.
Within two months (November 2017 to January 2018) the stock rose 156%. The next three months after that? It dropped by 66%.

At around the same time, BTC rose as much as 280%, before dropping by 63% over the same period. The buy-and-holders in either of these would have died.

Our point is that we have identified, seen and studied bubbles before; they happen more often than you might think. (Editor's Note : Unfortunately, we make no claims that we are better informed or smarter as a result of this)

More importantly, bubbles tend to share very clearly defined characteristics. That BTC price rally was simiar to any old stock bubble: not even Dutch Tulips, but the ones that occur on Bursa Malaysia a couple time a year (for another example of a swiftly burst stock bubble, check out DWL Resources).

So what are the characteristics? Well, for starters: all time high volumes, all time high trading values, prevalence in media, your auntie/uncle/Grab driver asking you whether it's a good long term investment, and most prominently, a complete mania-driven detachment from the fundamentals

When hype overcomes reason (as it most assuredly will), what you're left with is an unsustainable price rally. What goes up must come down; perhaps for a lot of people for whom cryptocurrency is their first trading venture, this was not apparent.

At the risk of sounding like bitter old fogeys, we wish to point out that we have experienced all this before. The highs of a bubble, easy money, feeling like geniuses. Conversely, we've also gone through the lows - indeed, we have been the bagholders during an asset bubble's last dying breath, suffering losses of money and dignity.

But enough about that. What we are exploring is this essential question: is it time to reconsider BTC as an investment proposition? The time is ripe for an evaluation; after all, the coin has already doubled in value this year as of May.


 Yasss.

To do that, we suggest that you get acquainted with the following concepts. We strongly believe that if people don't realise these things, they're just buying cryptocurrencies blindly, with little to no justification. That's the last thing anyone should do. 

We are no experts in BTC or Blockchain tech. Our perspective is simply from a trader's point of view. But we are not going to bend over backwards to postulate some sort of fundamental justification for the direction of BTC prices; there really is none (Editor's Note : it's OK, there are tons of other assets with little to no fundamentals attached to their prices, like gold and diamonds. Don't worry about it :) ).

But is there a justification to actually buy BTC at the moment? There could very well be, with manageable downside risk for you. But first, a few fiery hoops for you to jump through.


#1 : A Lot of BTC-related Media Coverage is... Bullshit

So helpful wow.

Unfortunately, the worst time for you to buy into cryptos is when the media breathlessly reports on that new high price point since whenever. Even worse, the talking heads (or their online counterparts) would squeeze their precious brain matter into finding some sort of justification for BTC's price movements.

Better yet (or worse), you have biased 'experts' trying to sell their positions (if you had seen any of these people on CNBC or wherever else last year, rest assured that they had endured about 365 sleepless nights).

You will keep seeing unrealistic price predictions by people who are either too smart for their own good, or too stupid to tell the difference between expertise and utter fakery.

Please, buy all the BTC you want, just don't end up like this guy.

Read more here.

Excerpt from the article:

Fundstrat Global analyst Tom Lee explains to CNBC why the Consensus 2018 Conference did not spark a bitcoin price rally despite predictions that crypto prices will shoot up during the event.


In fact, crypto price dipped during the conference with the market losing $40B. Bitcoin dropped 3 percent. However, Tom Lee stands by his $25K end-of-year Bitcoin price forecast.


According to Lee, crypto experts believed the large turnout at the conference and the crypto players banding together will help re-energize confidence in the market. 

Permit us to say this : that last, highlighted line was just about the dumbest thing we've ever heard.

Then this happened:

 Fresh BS. Source.


 Then this. Well, you know how it goes. We don't think we even need to attach the link to the article.



Our message is simple : "Hey Tom, while you clearly look like you could have a future career as Jho Low's stunt double in an upcoming Hollywood production, predicting is a fool's errand. You are clearly out of your depth but the media doesn't know any better, so they will keep inviting you to comment on cryptos. You're simply hyping up a market in which you have a vested interest in, with no understanding of the asset. You'd be better off in the multi-level marketing industry."


 "There's still time to sail away, Tom". Source.

#2 : Be Wary of Dumb Reasoning, or ANY Reasoning, on why BTC prices are moving 

Let's stick to our boy Tom Lee. Might be a tad unfair to keep on harping about him, but his views are illustrative of a very simple but widespread phenomenon that everyone commits, from superstitious peasant to the well-traveled burgeoisie : confirmation bias.

Simply put, most of us try, and are desperate, to explain unexplainable things. Worse yet, we would throw in our pre-existing biases into this un-testable theory for added comfort. Clutching straws are always preferable to admitting that by nature, we have zero clue why things are the way they are.

Half the time, BTC's price movement is clearly sentiment based. Yet another crypto exchange hack would see prices plummet, while positive regulatory developments could drive it another way. The other half is where there is no discernible reason at all. Any attempts to explain are just guesses.

Here's some choice commentary espoused by Tom in the same article. Read it; it's filled with groundless conjecture and straw-clutching. It borders on parody, and we would have treated it as such, had it not been a serious market conversation on freaking CNBC.

Our comment: Millennials will use their salary to buy BTC, thus supporting the market and bringing it up to USD25,000? How many milennials? From where? Why would they chose BTC over gold? It's like saying milennials will work and generate income to buy stocks, so the S&P will triple in 5 years. Doesn't make sense at all? Yeah, we thought so.



Our comment: wha? Where's the proof? Are you saying that millennials already own a pile of gold (equivalent to several units of BTC per millennial, at least)? They are not remotely the same asset class; why the direct comparison?

If durian prices surge 200% within a year while toothpaste prices remain the same, is it correct to say that Malaysians prefer the sweet, sweet taste of durian over rotting teeth? It's a stupid comparison - same as the one in the above statement.

And why would (or should) BTC directly capture market share from gold? It's hardly a like-for-like, other than a 'storer of value' as Tom so eloquently puts it. He said 5% of the gold market is worth this much if they all go into the BTC market, yet he goes on to predict a suitable price point for BTC (USD50,000!) were this to happen.

Here's the thing : nothing of this sort is happening, and there's no reason to suggest that it's happening, or ever will. Nobody's transferring tens of billions of dollars out of gold into BTC, as far as anybody knows.

Our comment : Now you're just talking like you're CEO of TalkCock Industries.  This entire statement is rubbish.


PART 2 : OUR PITCH FOR YOU TO BUY BTC

We can only offer a stock trader's perspective as to why you should relook into BTC. We are not promoting widespread blockchain tech adoption, we don't think people are going to pay for their apam balik with BTC anytime soon, and we are not contemplating the re

vival of the scam-filled, and scum-filled, ICO industry.

These look great. Source.

These are essentially the same points to justify buying BTC that you may have read about a year ago, or two years ago. But now they have an extra appeal since the first phase of the bubble is already over. In classic trader's parlance, there is an opportunity to own a valuable asset with great upside potential and low downside risk.

To cut down on the BS, we won't share any unqualified price predictions for BTC over any timeline. But, assuming you're willing to pump in the cash for the medium-to-long term, there's a chance to realise yields of 20% or more within a year.

So should you buy now, as the coin looks set to breach USD10,000 sometime soon? Even after nearly tripling in value since the start of the year?

The answer is : sure, but do so for the right reasons. The least important reason is to make quick cash; instead, contrary to everything we usually stand for as short term stock traders, we urge you to look at BTC as a viable long term investment for the right reasons (and making quick cash is the wrong-est reason of them all). 

One thing that Tom Lee neglected to mention is that at the moment, cryptos are a great hedge against currency depreciation. Not all millennials have the capacity to convert their ringgit and stash their foreign currencies in a safe. Obviously this may not even be a preferred option as we increasingly move towards cashlessness / digital payment solutions.

The ability to buy fraction(s) of BTC, a USD-denominated crypto, allows buyers to transfer smaller portions of their hard earned money into something that is accessible.

With the Ringgit hitting RM4.20 currently, and with its vulnerability to both the US Dollar inflationary pressure and lousy crude oil prices, keeping some of your money in BTC makes sense. It is a riskier option than owning US dollars outright, but think of it this way; the 'fiat' currency stands to gain perhaps 5% in a good year. With BTC, your holdings can either drop 20% or rise 50%.

Provided that your BTC stash is money you can afford to lose, and assuming you're not a 70-year-old retiree, the risk is worth taking. From a risk-adjusted returns standpoint, we are willing to buy BTC simply to protect against the Ringgit's decline, with the added bonus of possibly capturing the double digit upside. It is obviously not an asset for the conservative or defensive minds.

You'd own something that already has some utility from the very beginning, as opposed to a speculative instrument, which most people are treating it as.

PART 3 : ANOTHER WAY TO LOOK AT IT...

Well that escalated quickly...


You can also frame the opportunity in a trading context.

BTC is a dollar-denominated asset with a growing global market, and growing support for regulatory standards, has undergone a historic decline. Things looked bleak - indeed, most who were burned have already sold off this asset. It went nowhere for a few months. Given the general skepticism and fear, it seems to be the best time to buy.

This asset is incredibly volatile - it's a bit like physical commodities like natural gas or cocoa, and the prices tumble around as much as they fly. Looking at its history, there's a possibility that this asset can drop by 40% in value within a year.

Perhaps you can buy it at around USD8,000. With a potential 40% decline, you're looking at a depreciation to USD5,000 at worst. Let's cap that downside and set a stop loss point. Perhaps a 20% maximum loss point - if you hit that, you exit no matter what. Of course, the asset can and might lose 20% overnight - you'll have to accept that risk.

So what can you get out of that asset? The chance to make 100%, if we're being super optimistic. Besides, you're not using margin finance, everything is paid for. You have the luxury of time.

The reward-to-risk ratio (5:1) makes it a good commitment. Consider it the riskiest part of your portfolio of assets. Your losses are capped, and your long term horizon is comfortable enough.

An upward movement of less than USD1,000 means that you'll already be 10% up. It's worth a shot - in a bad market such as the one we're going through, naturally there will be increased demand for a non-correlated asset. BTC's one of the more obvious choices.

And one last mea culpa...

In our previous post last year, we characterised the asset as a bubble. This view was flawed - it was the price movement that was the bubble. We think BTC is here to stay. Not so sure about the other coins; at the end of the day, BTC is the most followed, most traded, and most influential crypto benchmark. A fraction of BTC probably has better upside potential than an alternative crypto coin(s) of equal value.

It is futile to make predictions about BTC's prices 5 months, 1 year, or 2 years down the road - learn from Tom Lee. It is also futile to lean too much into blockchain tech as a positive catalyst for cryptocurrencies - that ship has passed, and you don't need to rely on coins to develop your blockchain tech.

We urge you not to play guessing games and make unproveable assertions like this dude here.

This is the failure of correlation and causation. As humans, we struggle to connect the dots sometimes, hence the reversion to lousy reasoning as well as dumb theories. Anything to avoid bruising our own ego. We tend to be wrong, and we tend to be clueless. Move beyond these realisations, and perhaps you'd feel better about cryptos.

Prices will go where they want to go. What you should focus on instead is a simple question : why would I own this thing?

Making money is the motivation of every investor buying into anything, but understand that it is the outcome, not the explanation.


We'd own BTC for clear-cut reasons:

1) It's the most accessible USD-denominated asset for, yes, Malaysian millennials who can't easily open foreign bank accounts to keep their foreign currency, or stash their piles of dollars under their beds. Digital beats physical.

2) It's a hedge against the worsening ringgit. Hell, even if the ringgit moves the opposite way, it hardly diminishes your yield potential from BTC. It's only USD denominated; its movement does not correlate with the currency.

3) Anything that offers a reward-to-risk ratio of 2:1 or higher is worth salivating over.

4) The downside risk sucks, and the potential for huge losses is real. But the best you can do is set a loss limit, or a signal to exit. At least the potential yields make it worth the trouble.

Nascent technologies tend to go through distinct phases. The first one is unbridled enthusiasm and an asset bubble - the heydays of the Internet and the late 90s dot-com boom are testament to that. A crash is inevitable, and from the dot-com wreckage emerged the titans. People started to tell apart the Amazons from the Pets.com. The bubble was real, yet so was the tech.

This is where unlike the Dutch tulips, or the South Seas Company, we think BTC is here to stay. People say that the worst thing that can happen to cryptos is if their prices become flat, or boring, unlike late 2017. We think it's the best thing that could happen: stability of prices lends the asset a degree of credibility. A lot more cash would flow into cryptos if they are no longer seen as a speculative instrument, and we do feel the wind is blowing that way.











Wednesday, 22 May 2019

FINDING THE RIGHT STOCK TO TRADE IN A HORRIBLE MARKET

Die already lor. Source.

We have a naughty confession to make : we are perma-bears

Always bearish, glass half empty, the world is going to collapse soon. Our inclination is to be negative on the market, though it does not stop us from trading.

The signs are everywhere. A frothy bull market globally on ever lower liquidity. Risk is seen as completely manageable and stable. Cash burning tech unicorns are rushing to IPO at a fast rate. We have enjoyed a 10 year bull market already - something's gotta give.

We have already been bearish since 2016, and of course we have been somewhat wrong since (at least the KLCI has now assuredly entered a bear market). We're already in a bear market, but no one seems to realise it yet. We are pinning our hopes for a continued bear market on... Trump?

But never mind all the signals. We promised to show you what stocks you can plausibly trade in a horribly weak market like last week's, where the KLCI continued its descent to a three-year low. Can we actually identify such stocks? Yes we can.

But before we get to that, you need this to be able to trade in a lousy market : a lot of guts (the gender neutral term) or, a lot of balls (the toxic masculinity term). If you're squeamish, stay away from the market for a couple of weeks. Refresh your state of mind and reconsider. Cash truly is king in such circumstances.

For the long term buy-and-hold investors, they won't admit it but they will no doubt be enduring sleepless nights every time the S&P or KLCI drops 2% in a day.

Now tell us, who is truly married to the market's whims? Value investors, or the traders? *wink*

There's another thing: this post is not about a successful trade. It's about a trade that got away. But we think it is illustrative of the methods that we use not only to find the right stocks, but also to trade profitably in a bad market. There really is a way.

 Yer gonna need 'em. Buy some here.

TWO WAYS

This subject is fertile ground. We have extensively covered tactics to utilise when navigating a bad market. Our core philosophy is simple: if we can trade a good market, we must be able to trade a bad market as well. A 'bad market' is not a call for 'risk aversion', as it might be to most people, but there is no way you're going to outperform the benchmark yields if you stay on the sidelines with your balls (guts) in your hands.

Simply put, there are  two ways to trade profitably during a bad market:

1) Trade index call warrants (catch the downside) and index put warrants (buy for momentum). Here's a handy guide.

2) Trade the most volatile market leaders, whose stocks are expected to fall the hardest in a downturn (catch the downside). Here's a handy guide.

These methods can be daunting for the average trader. They are definitely intimidating, and could result in third degree burns if utilised improperly. As with everything, you need a concrete plan. 

Index linked warrants (our favorite is the Hang Seng - more volatile, more money) deserve an entire thread of its own, so we'll focus on stocks for now.

STEP # 1 : Find That Stock

So, what's a good stock that has been going through some crazy movements lately?

You guessed it! It's the Bandar Malaysia stocks - EKOVEST and IWCITY. Here's a handy guide on how we almost blew up this trade.

Why these? Simple: they enjoyed the most active trading lately, coupled with volatility (to the upside), strong price movement - you name it. 

On the flipside, panicky investors would rush to exit these stocks when the market suddenly drops. The more panic, the faster and steeper the price decline. 

And you can buy into the stock when it's declining steeply, because you have already identified that it is artificially mispriced! Sounds easy enough?

Let us demonstrate. This was on 14 May, where the KLCI was hit so badly by the fall in US markets that the index dropped 27 points at one point that morning.

 Sad face :(

Now, it is clear why we chose the stock. It's also clear why we cancelled the above order for EKOVEST-WB; a lack of scrotal gumption.

Buying would have been the absolute right thing to do. We would have nailed it.  Within hours, EKOVEST-WB shot up by 16%. In a day.


So by now we have established that balls are important. 

You also have a rough idea of what kind of stocks you should target when the market drops. The 'market leaders' term works both ways; they also lead when everything is in decline.

The fact that they're heavy in trading volume is an assurance that when buying interest does come back, there will be enough buyers supporting your position and carrying it to the realms of profitability.

You could've made a 16% yield when the whole world's markets are collapsing. Imagine that.

However, there's one last component you should consider.

Step # 2 : Crunch the Negative News, Catch the Recovery

We like to say that we can smell fear (except on first dates with that new hot thing from Tinder). It's more of an art rather than science. It helps if you enjoy reading the news and a little bit of geopolitical analysis (don't worry, we're not going to go too much into that).

To illustrate this, understand that market fear always operates within a finite timeline. The lengthier it is, the more the fear will dissipate. Fear is reinforced if new, bad news emerges. But then we will go through this cycle again.

Anticipating the market recovery is all about identifying the breaking point of this cycle. This is simply when there is no more bad news to process in our collective minds. Note that the timeline here is pretty short (mere days, if you want to trade EKOVEST-WB or the index linked warrants), so bear with us.

Yet again, it's all about this guy.

Get off the stage ya noodly-haired orange turd. Source.

As you might have read, the trigger that sparked the recent market declines was Trump's declaration of additional tariffs, on 6 May. To be fair, the Chinese were said to have reneged on some key terms, but we don't really care about that, eh?

Markets went into free fall throughout that week. Everything is in a tailspin, yada, yada, yada. We've seen this episode already.


The S&P 500's decline. Bigly

As an aside, here's what we really think about this trade war debacle, represented in this picture here:

Further definition here.

Anyway, the tariffs kicked in at 12:01AM US time on Friday, 10 May. No last-ditch concessions; more fear. Markets fell further.

On Monday, 13 May, US markets went into another vicious free fall. This was pretty serious. Asia markets are going to be in trouble (bigly!) the following day.

Going into this, we had already anticipated a large fall in the KLCI. We even toyed with accumulating a massive position in EKOVEST-WB on 14 May (alas, we lacked the courage in the end).

Our trading angle is based on the belief that market fear has well and truly peaked. So, going back to the earlier part about the fear cycle, what was the trigger to break this?


Full story here.

So what? Here' why:

1) It took China a full week to announce retaliatory tariffs.
2) These tariffs are fully expected.
3) There weren't any drastic moves by China - they're content with leaving that to Trump.
4) Over the weekend, the Chinese trade reps agreed to continue talks with their US counterparts.
5) There were murmurs of a Trump-Xi meeting at the G20 summit in June, presumably to smoothen things out.

In other words, all concerns have been fully priced in by the market (at this time). There is room for a recovery, and this not only have a bearing on EKOVEST-WB's fortunes, but also the entire bloody global markets.

Did we act on this understanding? Well, we didn't do much, but we did anticipate the short term recovery correctly.

 Note the timestamp!


For lack of a better phrase, the FBM KLCI at between 9:00AM and 9:22AM was in the shits. But shortly after that...


The market did rebound strongly, as we had anticipated. Our application would also have been profitable, had we managed to get into EKOVEST-WB around this time.


By the way, here's how things turned out for the KLCI, by 4PM on 14 May:


These are all the tools you need if you're interested in profiting when the market is lousy. Find the right stock, analyse the market, determine if a rebound is imminent (by reading the news, duh!), and make money.

And if you were smarter than us, you could also have bought the index call warrants...








Sunday, 12 May 2019

THE BANDAR MALAYSIA TRADE : A WEEK OF BOOM, BUST, AND BOOM

 

If you had seen the above page in online forums/newspapers, you know what this story is about. 

But far from our usual boastful manner and arrogant know-it-all behaviour, this time you have the privilege to laugh at our misfortune and stupidity. We will demonstrate, in excruciating detail, our mistakes and why we ought to have known better when it comes to trading. We were the market fools this time, but on the other hand, this story does have a happy ending.

Our experience in trading the Bandar Malaysia stocks was about being stupid, but also about the rewards of staying calm under pressure. We ultimately prevailed, though we sacrificed a lot of money through a series of bad decisions.

It is our genuine hope that you don't partake in such stupidity - consider this a survival story.

Which one would you swipe right? Source.

ROUND 1 : BOOM

Friday, 18 April 2019

It seemed like an ordinary day but for one thing (two things, actually). Following a bout of weakness, we saw that both IWCITY and EKOVEST opened the day strongly. They were really showing the best kind of 'gap up' behaviour. EKOVEST-WB in particular went into overdrive.  From an intraday low of 8 sen on 17 April, the warrant hit 16 sen the next day. A 100% gain in 24 hours is bloody ridiculous: there must be something going on.

(Editor's Note : we are understaffed and do not have access to all available information. We only found out much later that the trigger was an exclusive story in a Chinese newspaper reporting on the looming reinstatement of Bandar Malaysia by the government. As usual, on that day we were operating purely based on the technical chart movement and the price/volume activity of the stocks).

By 4:40PM, it became clear that the stocks were going to end the day strongly. At 4:45PM, news started emerging that the project had in fact, been reinstated, with IWH-CREC at the helm (same terms as before). We were old enough to remember the "Great 2017 Boom-Bust Bandar Malaysia Trade", so we knew the stakes.

                              If you weren't there during G2017BBBMT, is life worth living?
 

By sheer luck, we managed to acquire a small position in IWCITY during the closing period. We fortuitously managed to get an order met at 4:58PM. It proved to be all the difference. The stock closed near its highest intraday point of RM1.02.

Obviously, throughout the weekend we were salivating at the thought of massive profits and limit up scenarios. So would you, if you were smart/lucky enough to buy into any one of IWCITY, EKOVEST, or EKOVEST-WB. Guess what happened next?

Monday, 21 April 2019

As we wiped our collective drool on Monday morning, it quickly emerged that the pent-up sentiment towards these Bandar Malaysia stocks is, to put it in one word : intense. IWCITY  hit limit up. EKOVEST opened close to limit up and eventually ended there as well later during the day.

And then there's that beast known as EKOVEST-WB. By the afternoon trading session, the warrant also hit limit up, or a very pretty 166% rise within a day. Trading activity in all these stocks and the warrant seized. People just couldn't get enough of it.

As for us, having been too late to catch the signs and find a trading angle in the two EKOVEST stocks, we decided to get cute instead. We correctly surmised that there's only one way to get into these limit up counters - trade an associate call warrant that's still available for sale.

That's how we ended up with a huge position in EKOVEST-CS, an illiquid, short-tenured call warrant that was also exhibiting crazy moves. The logic is simple : with no chance to get into EKOVEST or EKOVEST-WB, the call warrant is the only viable thing to buy into for everyone else.

Essentially, the call warrant is trying to price in the expected value of EKOVEST when it opens the next day. We got into this call warrant as early as we could, while the rest of the market caught up with us.

And so that concludes our activities on this day, as we went almost all-in on the Bandar Malaysia angle.

So did the trade work?

Well, if there is heaven on Earth, it probably looks like this:


There they are, in the flesh. Once-a-year kind of exceptional, extraordinary profits. Great move. Wonderful insight. It was pat-ourselves-on-the-back-time.

We realised much later that we committed a cardinal sin: several, in fact.

The number one, major, undisputable warning sign was this : we boasted about these extraordinary paper profits without contemplating an exit. In other words, pure ego got the better of us.

To understand this very human failing, think of it like this : we're like the Instagram influencer who took pictures with flashy cars and clothes without actually owning them. In this case, we didn't take ownership; we failed to convert paper profits into real ones.

We had our rules, but failed to stick to them. It should have been plain and simple : at our maximum realistic profit target of 30% (return on investment), we ought to have exited completely. We even had that rule in writing. We'd be lucky if we get a single trade that yields 30% during an entire year.

But we didn't oblige. To be frank, we got greedy and started fantasising of another round of limit(s) up. For most of you who stayed in these trades, we're sure you contemplated the same.

Most embarrassingly, this was not the first time we encountered this behaviour. We have let slip a profitable trade of 30% ROI before - several times!

Not only that, the 30% profits could turn into a massive loss, with no chance of exit in between. This is the price to pay for volatility. What goes up fast can come down fast... and hit you squarely in the face like a rotten egg.



Swipe challenge version 2 : My App Just Crashed. Source.


Some of you may not realise this, but it is not in a company/major shareholders' best interest to see their stock prices go absolutely nuts. There is in fact a great degree of regulatory scrutiny that comes about. Regulators can come down hard on companies that conceal materially important information. Millions of ringgit in fines had been given out in past cases.

So the two companies - IWCITY and EKOVEST, did the responsible thing (of course they did!). This involved a clarification of something patently obvious to anyone with a partially functional brain.


We're not making light of this announcement. It had to be done to temper the speculative frenzy - the very same one that we (that includes you) were a part of. Of course, it would have been great if it wasn't announced, but we can only play with the cards we were dealt with.

You will find the real reason why the companies did this shortly, but for now, we knew we were toast. Very burnt toast.

So this next part must excite you to no end!

ROUND 2: BUST


Tuesday, 23 April 
 

Of course, our positions disintegrated like a snap from a big-headed, purple man.

The previous night, we came up with different permutations of the extent of losses to expect. We even contemplated a limit down for the prices of EKOVEST and IWCITY. Mentally preparing for this possibility was no fun, but we had to process it.

While there was admittedly a tinge of regret and disappointment, we had to clear our minds quickly to deal with the market open. There was no time for sentiments when these positions are being traded.

That morning, EKOVEST opened down 15% at 82 sen, just like that. IWCITY also fell exactly 15% at the open to RM1.11, from its previous closing price of RM1.32 (the limit up point). These are huge big double-digit one-day price shifts.

Even more spectacularly, our position on EKOVEST-CS fell in value by a staggering 41%! And yes, we had to contemplate this very scenario the night before. The fact that it actually happened is, of course, no fun at all.

Blergh,

This was when we had to really focus. We had a game plan to minimise the damage. In other words, we had to try to undo the snap.

The first order of business is to decrease overall exposure in this mess of a Bandar Malaysia portfolio. We decided early on to sell our IWCITY stake at the best available price. This we did during the first 30 minutes of trading on 23 April, at RM1.16. While not a 30% profit, it still brought returns of 13% within 2 days, and for that we were grateful. The stock eventually went up a bit more, but we had other more pressing concerns.

The next stage is to manage the EKOVEST-CS position. We initially acquired these call warrants at the 17.5-20 sen range. When the call warrant closed at 24 sen the day before, everything was wonderful. Today, it was a fight for survival. Oh, we also had in excess of 100,000 call warrants, so this was a big deal.

We made a calculated decision to increase our exposure in EKOVEST-CS. And we absolutely did not flinch when we bought an additional 100,000 call warrants at 13.5 sen.

There are multiple reasons (we hate to say it's all instinct), but the main ones are as follows:

1) This was a classic example of a pure market panic. The selling frenzy almost assures us of a good entry point when buying the call warrants at the lower price, even if we were already incurring losses from our existing position. This was not averaging down: it's about identifying mispricing and value, and we managed to do this.

2) On a larger scale, we knew that there will be buying volumes at these lower prices. Given the trajectory of the stock recently, overall volumes, and sentiment, this phase of volatility and price decline is not the end of the Bandar Malaysia trading angle. We have seen similar situations before : it seemed that this was only Round 1, and there's money to be made for the courageous trader.

Essentially, we were angling for a price recovery in EKOVEST once the frenzy dies down. This phase was helpful in the sense that the movement essentially established a bottom. If this is not breached, there is nowhere else to go but up.

EKOVEST's chart essentially screamed this, having briefly touched the 80 sen mark before subsequently recovering. We made a call that a Round 2 is imminent.

Nice bottom.

With our positioning in EKOVEST-CS secured, we retreated for the rest of the day. There was nothing to do but wait, and watch for signs that our expectations would be validated (or invalidated). The call warrant closed unchanged on that day at 14 sen, still 41% down from the previous day's peak.

Remember that part about companies needing to pre-empt the speculative frenzy? In this case the explanation turned out to be straightforward. EKOVEST announced this after the market close:

It's a private placement proposal, with an indicative price of around 79 sen per share.

This was a useful benchmark, because we will know very quickly how the market will react to this. A negative reaction and the rally would be well and truly over, with the stock price breaching 79 sen and below. A good reaction? Again, there's only one way to go - up.

After all, a placement proposal brings many more interesting questions. Who's taking it up? This is an extremely important question when it comes to a company as well-connected as this.

We don't care about the answer, really. At least it wasn't a bloody rights issue.


ROUND 3 : BOOM


Wednesday, 24 April


Our logic was this : with that announcement out of the way, the stock would really, finally, be left to its own devices. There is no more surprising clarification or out-of-the-blue disclosures to be wary of. That ship had just passed.

In other words, if EKOVEST was going to recover, these next 2 days would be it. Nothing excites us more than a stock that keeps going up after all the news have been priced in. If that's not an indication of buying strength, we don't know what is.


We were quite confident, as you can see.


And yes, EKOVEST practically followed our script, closing the day with an 8% gain on very heavy volume. The closing price? 93.5 sen, or within striking distance of its recent peak of 97 sen. The developments have been well and truly priced in. And it's still going up.

EKOVEST-CS, our sole position in this Bandar Malaysia trade at this point in time, closed at 17.5 sen, or a 25% increase in one day. Our purchase at 13.5 sen earlier made all the difference. We were reaping the rewards of not panicking, and for identifying the mispricing at a most opportune time.

Being back in business, it was time to plan for the incoming buying frenzy.


Thursday, 25 April


 Avenge the fallen. Source.

Managing profits can be a hard and inexact science, but it's our favourite problem to have.

Crafting an exit plan can be as simple or as complicated as you want to make it. But they have to follow a rigid set of rules and logic. The intention is to exit at the very best price point, all things considered.

For EKOVEST-CS, our exit plan was as basic as we could make it. Too complicated and we'd get confused, ruining the execution phase.

Before the market opened on 25 April, we specifically envisioned this scenario : there will be an attempt for EKOVEST to break its recent high of 97 sen. It can go to RM1, or RM1.10. Given the previous day's positive sentiment, there will be a short window of opportunity to sell into the frenzy.

To be more precise : as soon as EKOVEST breaks 97 sen and makes an attempt to break RM1 (which by this point it most likely will), we would sell ALL positions in EKOVEST-CS. For the call warrant, we'd be fine with letting go of the call warrants at the 19.5-20 sen range, even though they may very well go further.

This is the difficult part : to not get greedy, and to sell when everybody's buying.

This scenario pretty much unfolded as we had anticipated. Take a look at the 5-minute chart for EKOVEST below during the opening hour of trading on 25 April.

The optimal selling point, encircled.

The rate of change, and the intensity, was how we identified the above area as the best moment to exit. The stock broke the RM1 mark within 15 minutes with no sweat. We were always skeptical of its ability to stay above RM1 anyway, so we thought this was as good as it will get for EKOVEST, at least for the next few days.

Again, remember that after all, the news have all been priced in. The extent of the rally is probably capped, if there is no fresh news. Previously, there was nowhere to go but up, and by now it has done so. What did you think was going to happen afterwards?

Below is proof that we sold into the rally, with conviction. We ended up selling EKOVEST-CS at the 18.5-20 sen range, though the call warrant eventually did hit a peak of 22 sen.


So what essentially happened was that although we sacrificed incredible profits (those 30% gains from the two stocks earlier), we managed to recover without a single sen of loss. In fact, from a percentage gains standpoint, the final profits were still terrific, and in the end that's what this trade would be remembered for.

To put it another way, we managed to turn RM6,000 in losses into RM7,000 in profits within 2 days.


17% profits? You don't get those every day. And having just lost out on gains of 30% (twice), we did not fail to realise that fact this time around.

Adding to the earlier IWCITY profits, our final take comes to about RM9,800 for a week's work. It was not easy, but it really never is.

Remember this : stupidity doesn't have to be temporary. Improve and you can win.






Saturday, 4 May 2019

TRADE OF THE WEEK #12 : DWL RESOURCES BHD


 "What does your portfolio look like?"


This is not an inspiring story about bouncing back from adversity. It is definitely not a story of I-told-you-so's or we're-so-great (you can find those here). 

We're not going to start with analogies like comparing a trade to a marriage (you're more committed with your second one) or having a child (you're less committed with your second one). It is doubtful you'll even learn anything from this post.

This is a story about how easy it is to lose perspective, and how dumb luck can make all the difference in life (or a trade).

TRADERS = SCUM?

Bursa Malaysia has just recently moved to implement T+2 settlement in a move to discourage speculative trading. By eliminating one entire day from the settlement period, essentially you're given a choice of buying big or going bust. It's like losing a queen and both bishops at the start of a chess game. 

But in fact, we sort of agree with this move. In Malaysia, speculative trading can get out of hand very quickly. Some trades are the result of misinformed investors plowing into the next hot thing. In other cases, investors - with little money - are suckered into fueling the speculative frenzy to benefit the rich. We have seen so many gullible investors lose their money from the latest get-rich-quick stock; it is never a pretty sight.

As traders, we have to deal with some tough questions. If we benefit financially from said speculative frenzy, are we just preying on the less informed, or less skilled, in the market? Are our profits the result of someone else's suffering? Aren't we the ones helping to fuel speculation by tweeting about it or writing self-aware blog posts??

Admittedly, trading is a zero-sum game. We are bastards, but not naive bastards. We make money by identifying mispricing in stocks. And yes, they may be the result of unrealistic expectations or the greater fool theory (there will always be one just down the street). 


"Buy EKOVEST and DAYANG at their intraday highs or die trying"

Deep down, we are supporters of fundamentally solid companies. We hate to see good companies get ruined by their stock being a subject of speculative trading. These companies sometimes end up being unable to raise funds (over-inflated valuations due to hype) or get unfairly labeled as a 'crap gambling stock'.

Our existing trading strategy means that T+2 shouldn't affect us at all; our time frame tends to be a lot shorter. But we have been in situations where holding on to that extra day helps boost our profits. But if you want to trade like it's T+3, you just have to sell and buy back again, which can be the hardest thing in the world to do.

Speaking of selling and buying back... here's our experience with DWL Resources. This was a tough one. This trade defenestrated us. It emasculated us. It dropped us into a meat grinder with the setting on 'gooefy'. But it brought us back, and when we regained perspective, the rest was easy.

Change makers? Pottery to construction to wha?

Here's the weird thing about being a trader. We're forced to envision fantastical scenarios. Things that hardly happen must be given equal weight as ordinary things. Sometimes we even pretend that we can predict the future; we can't, but if you're thinking this one stock can rise by 20% in a day, you need a healthy dose of imagination.

DWL Resources is the new name for Spring Gallery Bhd. We see these weird name changes all the time on Bursa Malaysia, but at least this time it sort of makes sense (we have no godforsaken clue what the initials stand for : let us know). We first saw the stock come alive in mid-April.

 Is this Michael Jackson?
NOBODY CHARTS LIKE THIS

During this time, we searched for news and found little but the buying interest seemed real. There was this little nugget, yet it wasn't very enlightening. Then we saw an interesting name and did some basic digging:


 Which led to this piece of news:


After making sure that each of our Bangladeshi brother-in-laws are safe and accounted for, we thought: so what, right? It's just a well-connected figure. We were completely clueless, but we were guided by the stock's movement.

The second part of the Bursa announcement on April 12 did shed some light:

We liked this: it's a big block. It signified that changes are afoot, and not just because the company changed its name to a seemingly random set of acronyms.

We'll spare you the suspense. A few things have emerged since, and we had zero clue about this. It's not that we don't care, but our homework was not extensive enough to anticipate the hidden links and deep relationships.

To keep the story short:
1) DWL now becomes a fully fledged construction company.

2) 18 April - DWL ended up in a joint venture with Gadang 

3) 19 April - Out of nowhere (???) they hired the former MRT Corp CEO, as CEO. 

These are the type of news that smashes stock prices. Especially one as illiquid as DWL. We liked the stock enough to trade it.

Yes, there was little fundamental basis that led us to trade this. We just liked the stock movement. Maybe instinct helped. 

ROUND 1


 15 April - OK the last part is wrong: over-eager imagination, remember?

We had three different options to trade - DWL, DWL-PA, or DWL-WA. We chose the last one as it's the most reasonably priced and arguably the least illiquid. If there is no active buying and selling, we'd get killed.

So naturally we got killed during the first round. Essentially, what happened here is that we bought at 42 sen and were knocked out at 38.5 sen within 24 hours. Losses were around RM2,000, just like that. In case you were wondering: it hurts.

 Death.

There was no liquidity. The warrant stopped moving. And because our sizing was fairly large, we couldn't stay invested. there was nothing to do but avoid a larger loss. 

We of course had a seemingly foolproof plan and all sorts of stop loss thresholds to rely on. But we couldn't rely on anything once the trading (volume/buying activity stops). At this time, the mother share was having trouble staying beyond the RM1 mark. Helplessness is the easiest route to feeling dumb, and we sure felt that.

To be frank, we were trapped and we knew about it early on. One of the key signs is that the warrants literally stopped following the mother share. The warrant was already trading at a discount to the mother share's intrinsic value (here's the details for you warrant nerds) but the spread widened. More on this at the end... we have a valuable indicator for you to use.

But at the time, this was bad news for us - we had expected the warrant to follow closely. And when it stops moving, the momentum shifted. People are led into selling the warrant, and prices fell quickly because the volume was not there.

We goofed both ways - by ignoring the apparent sign (the spread widening) and by not reacting fast enough (to sell). The trade was a spectacular bust.

ROUND 2

After a couple of days of cooling off, we were ready to kiss and make up. We noticed signs of consolidation in DWL-WA (support point near 40 sen) and DWL itself (stubborn refusal to breach the RM1 support point). We spent some time mentally purging the very recent loss in order to jump back in. 

It's not hard to do when the breakout is so clear. So on 18 April, before all the news came out, we initiated another position in DWL-WA as all signs point to a big move. That occurred at precisely 2:35PM on 18 April. (Editor's Note ; we initially weren't aware that the DWL-Gadang JV news had already come out, at 1:50PM. We traded the warrant first)

14:35 was time to buy

When this kind of chart makes itself known, we bought into DWL-WA swiftly and decisively. It was a bit delayed, but our expectations were suddenly quickly validated. Technicals and overall trading activity converged to give us that conviction to go in.

We accrued a position at around 44-44.5 sen, which is close to where the warrant traded for the rest of the day. The position was slightly over 50,000 warrants.

DWL's stock was obedient this time, and it gave us another vital clue. The intraday high closing is something that we cherish, and this it did, ending the day at its highest price point of RM1.10 despite  low overall trading volume.

The next day, 19 April, the stock and the warrant went ballistic. And of course, that other news came out.

 Validation = sweet

We ended up making back all our previous losses from round one. This second traded yielded a return of 25% - a wacky amount. It proved to be a worthy trade, with solid net profits. We somehow made a 10 sen per share profit within 24 hours. Offsetting the earlier losses, our RM5,000 in profits came to this:


Is there a lesson? Probably not, other than the fact that if you get knocked down, get up quickly and be ready for that one important shot. You might be smart, or lucky. You might never know which one.

Also, profits are not always linear. Sometimes you have to go under before you return to the surface.

Before We End...

Remember the part about DWL-WA no longer moving to reflect the mother share price fairly? This is actually a leading indicator. If you're flustered/bamboozled/confused by the widening spread between warrant and stock, take it as a negative sign.

Simply put, it means that the warrant has priced in the mother share's near term growth potential. When it no longer moves, the expectation is for the mother share to fall, and fall hard.

So when you see this movement - Sell. Sell. Sell. If you don't believe us, check out how the stock has performed since, up until 3 May 2019.

You're welcome.





Outcome
Gross Profits : RM3,442
Return on Investment (ROI) : 6.1%
Duration : 4 Trading Days









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