TAIEX Outlook - Week of June 6th

Apologies for not getting this out on the Sunday as I originally planned. So, without further adieu:

First off, let's check how the markets unfolded after my last update:

Looking at the $SSEC that has already begun a bounce off the lows, it would make sense that the TAIEX follow similarly. Targets for a bounce are a 50% retracement from recent highs to lows at around 7400, which also coincides with a gap fill. Above that, the 200DMA could be within reach at the 7600 price level.

I specifically noted the 7400 level as an area to watch for the first signs of distribution. While the TAIEX did not quite hit 7400, it came mighty close to that level, at 7373.98. Good enough for me! Now here comes the tricky part - where do we go from here. Here's a current chart of the TAIEX:



I'm afraid this week I'm actually at quite a loss for where it might be headed. The chart certainly looks a bit more volatile, with gap downs and gap ups a-plenty over the past couple weeks. At the least, I would be looking at a range-bound market between 7000-7400. Until the Taiwanese markets decide to break out of this range, I foresee more choppy prices.

Lastly, what does the trusty Shanghai Composite forebode for the TAIEX?



What we see here is orderly selling, something that is not indicative of a bottom. Short term and intermediate term bottoms usually occur on climatic selling. Accordingly, I would not be surprised if there was more downside for the Shanghai Composite in the near future.

The interesting thing is that most experts including your local investment adviser at your bank will likely tell you that this sell-off is just part of a normal correction that happens all the time in bull markets, and that they foresee higher prices. While I certainly don't know what the future may hold, neither do they. All I know is that the economy is worse than everyone thinks, and as such you should trade the markets accordingly.

TAIEX Outlook - Week of May 23rd

Not to say I'm good at this stuff or whatever (because I'm not), but it just shows that "fundamentals" and "news" does not really matter when trading stocks. I simply look at a chart, see support and resistance levels, trend lines, volume, and Fibonacci numbers.

What did I say back on the May 9th update when the TAIEX was hanging right at the 200DMA @ 7600 and change?

From here, I'm looking for some consolidation (sideways movement) before a lower high before moving lower once again. Again, looking at the Shanghai Composite Index, as long as it continues to slide, so goes the the TAIEX and likely the U.S. markets.

Well what do you know, it was as if the markets were listening to me. While I wasn't completely spot-on (the day after I posted that, the TAIEX dropped below the 200DMA before assuming the sideways consolidation). What did proceed after that was the lower high as well as the moving lower once again. Here's a snapshot of the market of where it stands now:



As you can see, the lower high was made at 7782.32, followed by lower lows. So that's that. Did I know about any earnings that may have "caused" Taiwanese stocks to go down or other "news" that experts claim have caused the markets to go lower? Not in the slightest.

So where to now? As I've mentioned before, I look at the Shanghai Composite Index for indications of where the TAIEX may be headed.



Looking at the $SSEC that has already begun a bounce off the lows, it would make sense that the TAIEX follow similarly. Targets for a bounce are a 50% retracement from recent highs to lows at around 7400, which also coincides with a gap fill. Above that, the 200DMA could be within reach at the 7600 price level.

Keep in mind that all markets have been under heavy selling pressure over the last month, and that it pays to be cautious being long. I firmly believe we will still see lower prices across world markets later this year. As a result, I am cautiously long SPY calls as of this moment and looking for an exit around SPX 1106-1117.

TAIEX Outlook - Week of May 9th

My previous post indicated my belief that the TAIEX would soon be under more selling pressure. Why? The potential setup was the double top forming, as well as the Shanghai Index leading the way down. Furthermore, the past week or so has started to see some distribution in the U.S. markets. The result is a swift move back to the 200DMA for the TAIEX:



From here, I'm looking for some consolidation (sideways movement) before a lower high before moving lower once again. Again, looking at the Shanghai Composite Index, as long as it continues to slide, so goes the the TAIEX and likely the U.S. markets.

For the 6th of May, the U.S. markets got shaken up quite a bit, with the DJIA down over 1000 points at one point today. It was definitely one crazy market, and one that I even got burned in. If you need anymore reason to not be invested in the markets, today is the prime example. Whether you believe it was actually a trader error (which I don't really believe) or not, the fact is that there is no one really trading this market anymore. It's all machines and "high-frequency trading" that is going on. How can your money be safely invested in the markets when the potential for a 1000 point drop in less than 5 minutes can occur?

Anyways, here's a live clip of the crash occuring on CNBC, followed by this funny video of a guy going crazy during the crash (live as well):

TAIEX Outlook - Week of April 25th

I'm looking for a potential double top here on the TAIEX. Chart below:



Adding to my belief that the TAIEX may soon be under more selling pressure, here's the Shanghai Composite Index chart, where it looks like the bears are in complete control:



Keep in mind that the Shanghai Index was the first to bottom during the global meltdown in the markets in late 08 and early 09, leading the U.S. markets up, and now perhaps leading the way down.

Lastly, the U.S. markets took a plunge today, down more than 2% in one of the largest down moves in recent memory. While there's still a lot for the bears to prove before things get rolling to the downside, it's a reminder that being long in this over-extended market can be brutal.

TAIEX Outlook - Week of April 11th

Another month has passed since I last checked up on the TAIEX, and it is currently hanging out just below the 8100 mark I mentioned in my previous post here.



Above 8100, a good long setup is in place for a run to the recent highs at 8395.38, if not new highs (if you are not already long).

A look back at what I said a month ago:

Above 7900 on strength, there's not much resistance above, and could quite easily make a run for the '10 highs at 8395.38, with a test of 8100 gap resistance first

And while the chart above does not have volume indicated, the ETF for Taiwan (EWT) had that "strength" that I talked about - it traded 60 mil shares on the day of the breakout, 4x the average volume of ~15 mil.

For those in the U.S., you should note of days around April 15th as a potential top in the markets as that is the last day for individuals to fund their IRAs for the 2009 tax year. Until then, there is that possibility of the additional inflow of cash into funds to continue to prop up this market. Just so happens OPEX is April 16th, and things tend to get crazy on those days.

And oh look, someone else also had mentioned the resistance level of 8100. This is another good reason to have knowledge of technical analysis when you invest/trade. Whether you actually "believe" in TA or not, it is nice to look at a chart and see price levels that everyone else is looking at. In a way, it's like a self-fulfilling prophecy.

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In lighter news, Taiwan's "Susan Boyle" has become viral. I'm a day or two late, but if you are somehow in an e-cave, here you go, so you can be in the know.

TAIEX Outlook - Week of March 7th

With the recent correction in the markets across the world over the first two months of 2010, many traders are wondering where we go from here. As far as the TAIEX is concerned, it is coming up on overhead resistance in the 7800-7900 area. I would watch what happens in this distribution area for signs of where the next couple months may have in store for the Taiwan markets.

Above 7900 on strength, there's not much resistance above, and could quite easily make a run for the '10 highs at 8395.38, with a test of 8100 gap resistance first.



As of now, going long or short is not the right move. The right move is to wait for the market to reveal itself.

TAIEX : 4th Break of 50DMA

On the news of potential defaults by Dubai, the world markets sunk over Thanksgiving and into black friday. Glancing at the TAIEX, which along with the other Asian markets, has lead the way up in this rally since March, we should note what happens over this next week. Here's a 6 month daily chart of the TAIEX- take note of the times that the 50DMA was breached, and then taken back within the next 3-5 trading days.



If the TAIEX fails to regain the 50 within this next week, I will be looking in greater interest to establish a good short position on the markets. Careful out there! The markets have come a long ways since the lows in March, and a correction should be anticipated.

Continued 'Bull' on TAIEX

“Taiwan is a buy story as the economic and commercial assumptions from cross-strait ties are positive for the market,” he said in a phone interview today. “Asian markets will rely on company earnings beating expectations in 2010 as good year-on-year economic data in the first half of 2010 is mainly discounted.”

This above quote from this bullish article on the TAIEX. The author claims that increased cross-strait agreements and potential upcoming ECFA and MOUs and whatever other agreements they come up with, will strengthen the position of Taiwan equities.

Consider these few points, and take from this what you will.

The article mentions Ma Ying-jeou took office in May 2008 (specifically the 20th of May), and whos' platform consisted of "easing curbs on investments and increasing transportation links with China." May 20, 2008 marks the high over the past 2 years on the TAIEX. Despite all the "fanfare" over increased links and cross-strait agreements, the TAIEX has never seen those prices since.

What does this say? Well, it goes along with the saying, "Buy on rumor, sell on the news." Buy on rumor that Ma is likely to win, sell when he actually does. If you did? You made out like a bandit.

Furthermore, it sort of shows that fundamentals and the news that supposedly drives stocks, doesn't really drive price. If so, why did TAIEX trade down after news of the oncoming "Chinese stimulus" into the Taiwan economy? If so, why are global markets trading up since March, despite worsening economic numbers (U.S. "official" unemployed now over 10%!).

I will continue to watch the TAIEX carefully, as it may well turn out to be another "buy the rumor, sell the news" opportunity. Of course, higher prices are definitely possible, but my point here is to not trust these so-called "experts" and "analysts" at face value. How many can you recall, actually came out and downgraded stocks and called for the crash of 2008?

"God works in weird ways, markets work in twisted ways, to accomplish the most obvious in the most unobvious ways."

SinoPac - TAIEX to 10,000

Update 10/5/09: Based on my price levels, I took a short position on EWT at $12.25 (1 cent off the days high) via Dec 13 puts @ 1.05. Targets are seen below.

So with all the hoopla of the impending MOU, ECFA, and whatever other alphabet soup acronym they come up with, a fund manager sees the TAIEX jumping another 33% by the first half of next year. So let's see where does that put the TAIEX-- currently trading at 7411.88 right now, another 33% puts it circa 9857.80, about 1.5 points shy of the '07 highs of 9859.65.

Now the number make sense, but the question is do we get there? I certainly don't read the future, but I just read charts. Similar calculations on EWT (the ETF for the Taiwan Index on the US stock exchange), also puts a 33% jump on EWT at the previous highs of $16.17 to the penny. Impressive huh? :)

Take a look at this 5 year chart on EWT below:



Closed yesterday in the US side at $12.16 and likely to open lower tomorrow if the TAIEX continues to struggle today. You can see that it's hitting some decent supply area in the $12.20-$12.50 region, where there's a cluster of previous support and resistance over the past years.

Rather than taking a long position based on this recommendation to buy on the TAIEX, I would rather short the EWT anywhere in the $12.25-$12.40 region with a stop above the highs at $12.40, with targets of $11.72 - $11.47 - $11.00 - $10.60. Of course, his time frame is in the months, and mine is short-term.

But, that just means I believe you can get a better entry going long the TAIEX in the short to intermediate term if you wait for prices to come back from these overbought conditions. If you are so inclined to take a long position on the TAIEX, I would wait until it gets to around $11.00.

TAIEX Jumps 5.6%

A pretty good day for the 'street' in Taiwan. It sure must have been nice for Ma's administration to conveniently piggy-back the FRE/FNM news with their own "vows" to help the slumping market. I hope investors don't see this as another miracle that supposedly Ma has helped conduct, rather, a small bump in what will be another leg down. Coming over the AP Wire, and I quote:

TAIPEI, Taiwan (AP) - Taiwan shares soared Monday as investors took cue from a planned government package to stimulate the sagging economy.

and then secondly, they mention the real cause:

... News of the bailout of U.S. mortgage giants Freddie Mac and Fannie Mae also boosted sentiment.

Perhaps a bounce would have been seen regardless of the FRE/FNM bailout news, but surely not worthy of a 5.6% bounce. I'm going to have to give it to Ma's administration here, they have wonderfully played the timing game; they have perfected it to the point where it might just be impossible for Ma to ever be criticized and hated as much as Chen, Shui-bian. Even as Ma walks the unification road, the country is too caught up in the Chen, Shui-bian fiasco to even notice it. [Note: No support for Chen's acts here; just pointing out the coincidental timing of everything.]

Anyways, as far as the markets go... I still believe the worse has yet to be seen, and when the bottom is in, you will know it. None of this wishy-washy, maybe yes, maybe no, maybe so of where the market standing is. Capitulation. You'll know it when you see it, and until then, well... just don't get too optimistic.

Taking a Breather from Politics, Sort of

As I haven't posted much stock news lately as I barely have enough time to blog on politics, let alone do my own due diligence on stock picks, I've decided to tie both stocks with politics in this one.

Remember the 20,000 TAIEX "promise"-turned-"just kidding" by Ma's presidential campaign staff/advisors/whoever it was that said it? Taipei Time's article covering yesterday's rally against Ma's performance, or lack of performance in the first 100 days provided a few quotes by some Taiwanese who were rallying [Side note, here's great coverage on the event by Michael Turton, citing participants > 100,000 compared to the most of the media reporting only tens of thousands showing]. This quote I want to note:

“In his presidential campaign, he said he would boost the TAIEX to 20,000 points ... After I lost NT$2 million [US$63,000] on it, he said he was just kidding — but I blame myself too for believing him,” Chen said.

Although my loss is not nearly as much, I also took the same road by picking up the equivalent ETF that tracks the TAIEX, ticker EWT, a week or so before Ma's inaguration.

Entrance Strategy: Buy on speculation of a magical economic boom once Ma steps into office.
Exit Strategy: "Buy on rumor, sell on news"

Long green bar indicates entering long position. (May 8th)

Result: Bought on the 8th of May and was at a high of 17.50 on the 19th. Planned to sell on news the next day, but the day the "news" came out the TAIEX went opposite of what I planned and ended up moving down a lot. Being not so smart, I held, and held and held. To this day, I'm still down 20% on EWT, and may exit soon for a loss.

My thinking behind it was, well the DPP lost, and at the very least, why not profit off of Ma's populartiy and assumed economic boom that he promised. Let's ride this sucker for what it's worth. As an investor that has read numerous investing books of all ranges, I know that what I decide is ultimately my own doing. This is what investors like to call, doing your own DD (due diligence) on ultimately selecting a stock to invest in. What I didn't do this time was my own DD. I took the words of Ma Ying-Jeou and ate them up, even though I didn't believe his words during the election campaigning. How stupid and naive of me. In my attempt to be more pragmatic in response to Ma Ying-Jeou winning, you could say I was just trying to "give him a shot." My dad, who bleeds green, was quick to point out how I was wrong on that trade and told me to sell it off. No matter the reason I gave him, he simply responded "bo kou lin" [不可能] [impossible].

Believing Ma, Ying-Jeou this time was "simply" a financially costly mistake, but continuing to believe in his empty promises may prove to be a mistake that cannot be afforded and resolved by simplying working harder to earn back that lost money; it may be a mistake that we will not realized what we had until we will have lost it.

"This summer is the coldest summer in Taiwan"

I guess it was actually the Minister of Economic Affairs that made the comment about the TAIEX reaching 20,000 as a result of implementing Ma's economic policies. Regardless, for anyone to make that kind of prediction in a terribly bear market, is quite arrogant as the article states.

Things are looking extremely oversold right now, and while I have protected all my positions on the downside with covered calls and puts for insurance against further falls, a lot of murmurs about a short term bounce/rally have been circulating the internet lately. While it's certainly possible and I would much rather see a short term rally than this continual downward spiral, I can't help but think that when everyone thinks the short term bottom is in, that it actually isn't. If everyone is predicting the bottom is in, then everyone will be making money in the next week or two- but we all know not everyone can make money. We shall see, if I wasn't already long on some stocks, I'd much rather be sitting out this very volatile market for the time being.


Here's EWT's chart for the past 6 months. It looks like it could set up for a triple bottom, and that would fall in place with the short term rally people have been calling for. If we do indeed get that rally, I will try to exit the position at the 50/200DMA, both of which are at around $15.50. I entered EWT before Ma's inaguration and was hoping for his "honeymoon" period to carryover into EWT for at least a week before exiting. Now that people have realized how over-hyped Ma's impact would be on the economy would be, I am not hopeful on EWT going long.

"Airline stocks plunge as direct flights take off"

Oh the irony in the title "Airline stocks plunge as direct flights take off," is ridiculous. This title is of an article appearing on TaipeiTimes for today. Today (well yesterday in Taiwan) marks the first day which Chinese tourists will come into Taiwan via direct flights. The funny thing about all of this is that Ma and Wu have made many concessions to China in order to get these direct flights in order to boost Taiwan's economy. It seems that everytime the so called economic savior plan or thing is implemented, the corresponding stock falls.

Example, Ma Ying-Jeou inagurated on 5/20/08, and since then the TWII is down over 20%. Look at this wonderful chart for short sellers below:

Now, the inagural direct flights between China and Taiwan have sent Eva Air and China Airlines stocks down in a similar fashion with both trading down about 7% and 6.5% respectively today.

Critical supports have been broken on the TAIEX (^TWII) and I'm pretty sure we're going to see the 6000s before we see the 8000s again.

But, don't blame Ma, Wu, and company, because after all- this was never as bad as when Chen Shui-bian was in power, right? Right? Yeah, keep telling yourself that. Look at this chart of GDP growth rates for previous years compared to a few other countries. Since 2001, Taiwan was on par with many countries of the world, and with better GDP growth rates than countries like U.S., Japan, and France. Everyone has heard of the saying, "What goes up, must comes down." And it will be oh so fun for Taiwan when Taiwan gets it's economy so tied up with China that when China's boom, busts, so will Taiwan's economy.