Fundamental Trades

[waza1960]

I would like to hear from others experiences regarding Trades based mainly on fundamentals .One example of a trade which I think shows a good risk/reward would be shorting the dow using some of support/resistance lines for stops.Time frame would be a few days to a few weeks.

 

[CanOz]

So let me get this straight Waza, your thinking behind this is that the macro economies fundamentals are poor right now so your going to short the index or indexs? You can use DOG to do this, its an ultrashort ETF for the DOW. Or you can short the financials with SKF.

Personally I've taken a 3 year view on commodities and added three commodity US ETFs to my first fundamental portfolio, DBA, DBB, and DBC. I have a level that i will sell if I'm wrong and i will add to positions once a strong trend gets into place.

I can post a couple of charts if anyone is interested.

Cheers,


CanOz

 

[MRC & Co]

Yeh, I would be interested Can. Interesting your adding ETF commodity longs I gather? Out of interest, what do those ETF's comprise? Are they mainly energy, base metals, precious metals, softs?

Your making some great posts at the moment, and seem to really be coming into your own as a trader, it's great to watch!

Thx.

 

[beamstas]

Interesting
When did support and resistance become f/a?

 

[CanOz]

Yeh, I would be interested Can. Interesting your adding ETF commodity longs I gather? Out of interest, what do those ETF's comprise? Are they mainly energy, base metals, precious metals, softs?

Thx.

Hiya Mr.C

DBA is Agriculture
DBB is Base metals
DBC is a Commodity index

I suspect that we may see some retracement in these short term if risk aversion sets in and the flight to treasuries becomes the scene again. Long term (3 yrs) i will hold these as inflation sets in and the US dollar collapses.

If I'm wrong, then I'll bail out sooner. These are weekly charts.


Cheers,


CanOz

 

[MRC & Co]

Interesting Can, thx.

 

[MS+Tradesim]

Can,

I like your picks. That's the kind of play I'm looking to setup but probably direct into shares. But those charts look nice at the moment.

 

[waza1960]

beamstas Re: Fundamental Trades

--------------------------------------------------------------------------------
Interesting
When did support and resistance become f/a?

I said mainly F/A would still use T/A for stops/confirmation . That is my thinking Can and I like the idea of using EFT's

 

[sammy84]

Good thread here. MS and Can OZ I always thought that you all were purely T/A traders, with an awareness of the economic situation for debating purposes. How do find fundamental fits in with you tech analysis? Do you keep your fundamental and TA trades totally distinct? I have tried previously to emulate darvas's only investing in growth areas idea within my T/A however things just got too discretionary.

 

[MS+Tradesim]

Sammy,

I have a range of strategies. Currently, I've been focusing on day and short term trading which is just price and volume.

But longer term I will be returning to trend trading based on fundamentals. I have two approaches. One is mechanical in which I take signals that have good fundamentals or high potential. The other is discretionary in which I form an idea about what is likely to do well and then search for companies which fit what I'm looking for. Medium to long term I'm focused on China and am looking for candidates to buy that fit my views. I then use charts to look for entries and exits.

My expectation is still for at least one more major leg down though so on the long term horizon I'm waiting until that occurs before taking fundamental trades. However, I'm prepared to take small positions in the meantime if it looks like the market is bottoming.

Soros is my inspiration for this style of trading and it is the most comfortable fit with my personality.

 

[CanOz]

Can,

I like your picks. That's the kind of play I'm looking to setup but probably direct into shares. But those charts look nice at the moment.

That post is gold MS, i like the way you think. My thoughts are not totally original, but living here certainly helps to develop original thoughts on emerging market growth and the potential for investors. I also like Jim Rogers and Soros and try to read everything i can get my hands on from them as well as Faber.

Nick put me onto Donald Dony, an analyst from Canada that puts out The Technical Speculator, a broad market based newsletter. I use his thoughts and analysis for the basis of most of my longer term decisions.

I also like the emerging markets, especially Taiwan and China and am awaiting a pullback for those ETFs, as well as a switch in my Super, as they've run hard lately.

This should be a good time to start accumulating some key longer term investments, other than just equities.

Sammy, i trust this answers some of your query?

Cheers,


CanOz

 

[MRC & Co]

Sammy,

I have a range of strategies. Currently, I've been focusing on day and short term trading which is just price and volume.

But longer term I will be returning to trend trading based on fundamentals.

The other is discretionary in which I form an idea about what is likely to do well and then search for companies which fit what I'm looking for. Medium to long term I'm focused on China and am looking for candidates to buy that fit my views. I then use charts to look for entries and exits.

My expectation is still for at least one more major leg down though so on the long term horizon I'm waiting until that occurs before taking fundamental trades. However, I'm prepared to take small positions in the meantime if it looks like the market is bottoming.

Soros is my inspiration for this style of trading and it is the most comfortable fit with my personality.

LOL.

That's very very similar to how I do it.

Short-term, price and volume are the main drivers, along with occasional news that comes out to interupt this and changes the flow.

Long-term, deviations from my percieved fundamental value, using charts to aid entry and exit......

I've actually made money using both, but not nearly enough........yet

Perhaps we should use this thread (or create another) for a discussion of any longer-term fundamental views and areas to potentially exploit? There are discussions on such things on individual threads, such as gold, oil, agribusiness, but it would be a lot easier to combine information only relative to what is fundamentally under or over-valued, due to overdone positive or negative feedback loops (reflexivity) or whatever you wish to use.......might surprise ourselves and it will help keep out all the short-term price movement noise that isn't really as relative to a longer-term view........

 

[MRC & Co]

Thought I would get this thread started by posting your post to the forum Tradeism:

I initially sent this as PM to MR but for the record I'll share my unsophisticated thoughts in the open....

Up front, I'm not that economically inclined. I don't really know the ins and outs but I do know how people think and that's what I'm betting on.

China recently made some comments about having the IMF special drawing rights become the reserve currency. I don't know if I see that happening, or certainly not soon, because the USA will take a protectionist policy stance. They won't give up their position lightly.

However, China understands what most of us know - the US dollar has got big problems. They're inflating the crap out of the dollar with the amount of debt they're issuing in order to pump back into the system to try and support their already debt-based economy. We know that can't end well. Debt supporting debt. That's how the current crisis originated. It's beyond credulity to think it will be the solution, yet that's the play of Western govts. It's my belief that the US dollar will eventually lose its reserve status and that's when their chickens will really come home to roost.

I believe that will be informing Chinese policy as they shore up gold reserves, base metals etc in order to deplete their US dollar reserves and have something more tangible backing their wealth reserves.

So I'm just thinking out loud there to say I completely agree with you. China has to wind back their reliance on exports and the safest way for them to do that is to internally provoke consumption demand. How they will do that from a policy perspective I have no idea. But I do know human nature and the way I see it, the Chinese are getting a taste of Western consumerism and they like it. The growing middle class are enjoying their new found 'luxuries', especially those who are children of the revolution that endured a quite spartan lifestyle for decades. They're not going to just sit back and wait for the USA to start filling Chinese coffers again.

Further, unpegging their currency will increase their own foreign purchasing power. What can we expect to result from that? Given they currently have the market cornered on cheap manufacturing what are they likely to want to buy from other countries? Apart from raw materials, I don't know yet but I'll be doing some more thinking on that to look for opportunity. Possibly food. Will some countries basically become farms to feed China? Fertiliser companies to increase farm productivity? Wool for clothing? etc etc. Like I say, I don't know but there is a large domino play here which will prove very lucrative for those who get it right.

I don't know the timeframe this will play out over. I'm not banking on it in the near-term to profit off in the next week, or month or 6 months.

As a side-note, one long-shot that might unfold is America becoming the next China....massive unemployment, debt-distressed economy, rising Asian and Chinese affluence....perhaps the future of the USA is cheap manufacturing.

Just some of the thoughts I'm ruminating on these days.



I'm going to go through some of my old textbooks for my Uni days (funnily enough, I did an Economics degree and used my other degree to major and minor in all the various economics electives to cover everything economics and still I only remember tiny bits)

Will give the memory a refresh and try add some thoughts to yours, think a lot of what you said rings true, except for the part about the US becoming a cheap manufacturing economy. Also have to remember all the fundamental inputs into what actually moves a currency and the implications of a floating V fixed exchange rate (know they differ completely in relation to monetary and fiscal policy (later is not as effective with a floating exchange rate and former is not as effective with a fixed exchnage rate).

Anyways, I'll get back to this.

Cheers

 

[MS+Tradesim]

This should be good. Look forward to other views.

As I said, the bit about the US is a very long shot. While I don't think it will happen, in reality, nearly anything can happen. Black swans are why we're here now.

 

[MS+Tradesim]

Lol. I was just thinking about oil in relation to China and then I ran across this.

I think oil is a fairly obvious long term play. Not only for energy but also plastics and synthetic fibres. Expanding middle class = more demand for computers, electronics and toys (all require plastic). Portable consumer electronics also equals demand for power, significantly lithium. (I was cheesed beyond description when ADY offloaded their massive Li resource to a private company).

 

[doogie_goes_off]

Lead and Zinc are performing well, TRO (tailings resource and in ground resources) have not moved that hard & if lead and zinc run, these guys will already on the blocks although they may be handicapped at 15m they may just run harder when the gun goes. There are already plenty punting on those already jogging on the spot. I hold and and I am looking forward to the end of the week... I think. DYOR, I don't believe the chart.

 

[doogie_goes_off]

The long target would be around $0.22 but I'd need to recheck my figures to be sure. DYOF too.

 

[MRC & Co]

Still researching and I think I am even more confused now than when I began! Still waiting for my lightbulb moment, but I think that will take months, if not years of more research and discussion into fundamentals and an understanding of the complexities of the international financial markets!

Still, I see agribusiness having the biggest potential, with surely a move in developing economies to more grain intensive diets and towards education, as opposed to traditional farming careers. I have also read, that imports in such products in China are on the rise, upto 6 times faster than other products on the Chinese import list.

I cannot see already developed economies reverting back to food production (or that of primary products) unless the 'price is right', and areas such as Africa just do not have the natural landscapes to compete in food production as a competitive advantage in trade.

This would also suit traditional theory, both on the supply side of the Heckscher-Ohlin model and on the demand side of Staffan Burenstam Linders' 'Linder Theory'. The ultimate cause would be a price rise in agribusiness products due to an increasing demand and a supply restriction in that the nations this task would be passed onto in the 'flying geese model' would be without the factor endowments to produce at a competitive cost, leaving such production back in the hands of the exorbitant West, who would only come to the supply party if it was viable in a monetary perspective.

Add in an ever growing global population, natural disasters decimating plantations (perhaps due to global warming), and that last part itself a cause perhaps of greater continued demand for bio-fuels, yet another demand positive.

It really only leaves me with one view, but it just seems too obvious..............? The thing with this is, even though it is 'known' and believed by most, how many do you know who are invested in agribusiness? I myself am not. So it is not until this idea is actually acted upon (perhaps it will be after the fallout of this crisis, currently being held down by all the de-leveraging and moves towards cash and risk management), that price will actually rise and the positive feedback loop will kick in.

On another note, does anyone know a way to short residential housing prices in Australia without using the ASX listed Property Trusts which have already taken a battering and prior to those housing futures being released at a later date?

The bubble just looks over-done to me and this looks like a perfect storm of 'reflexivity', where perceptions have changed fundamentals, which in turn, have altered perceptions. What could change these perceptions and move price back to an 'equilibrium'? A period of potential wage deflation, immigration cuts, unemployment and particularly an ageing population, could perhaps do so?

Anyways, there are some quick thoughts, back to the research.

 

[questionall_42]

Interesting thread which raises a whole gamut of thoughts about how our economic and financial systems may change. Couple of over-riding thoughts (well, ramblings rather):

1) If the USD collapses due to hyper-inflation in a sea of debt, what will be the reserve currency or commodity that will replace it? Or will it be a financial system that is decentralised with all currencies, commodities exchanged freely without one that is dominant? If you can pick what that may be (e.g. gold, another currency), then you most of your LT trading strategy can be set. Or else just short the heck out of the USD.

2) Currency fluctuations may become more volatile if the USD is not the reserve currency of the world. Trade it, or live outside the system. Where you live in the world will have great repurcussions in this new order.

3) What are the consequences of hyper-inflation, particularly if you have debt? Scary stuff... ... How much can the government intervene to help out? Solution for yourself - Get rid of debt. Own property outright as it is a tangible asset.

4) Shorter-term, if an inflationary environment takes hold, "stuff" will be more valuable. As MR&C said, agribusiness will be critical. Hard commodities too. Is China already stockpiling metals now with the understanding that their $B in US T bonds will fall in value?

5) Climate change. Any discussion about fundamental trades MUST consider the ramifications of how the earth is changing. No rants about tempatures rising 2c will result in blah blah. Just look at land degradation coupled with an increasing population, less arable land etc. That is what I mean by climate change. Of course, legislation will be a key driver in this space, but innovation in renewable fuels, alternative modes of transport CAN take place without a friendly regulatory framework.

One aspect with this that makes it bloody hard is time - what are the time-frames that we are talking with this? The balance between short and long term perspectives is often schizophrenic, and at the very least, difficult to navigate. So all of the above means little without a clear time-frame for action.

 

[MRC & Co]

All good points questionall.

It is an interesting topic, as there is a lot of talk about fundamentals all over various blogs, forums, but there is very very little on it's application and actual effects on price, and as you say, time horizons.

Personally, I believe each individual trade has to be taken, with some kind of wide or logical stop encase you are wrong (either price or time stop), and has to be constantly re-evaluated. For me, long-term means anything 12+ months.

As to your points, yes, I believe the Chinese probably are stockpiling metals now, US T bonds will surely fall, with the constant raising of money and the fact that if we do infact hit inflation (an idea of Soros), then the rising interest rates will diminish the value of current bonds held.

However, if we go as far as to see the USD collapse, there will HAVE to be a reserve currency, as pegged exchange rates will need something to mirror and thus, will need to keep excess reserves to maintain the peg. Or, could we possibly revert back to the gold standard, and have paper currencies pegged to gold?

Out of interest, does anybody know the time horizon of trades of Soros? I just read nearly half his current portfolio is in energy! Very interesting, and that he has also recently started accumulating more agribusiness stocks (namely Potash Corp), buying into it's recent dip.