The Shanghai Cross Trading platform gives investors access ... · 19/04/2019 · By Daryl Guppy This early Easter newsletters comes just a few days since the last newsletter,

April 19th, 2019 A publication of Guppytraderscomsg Pte Ltd since 1996 CRN200409379K. Copyright © 2015

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Weekly for Saturday April 19th, 2019. Based on Thursday’s Close

CONTENTS

AN ELECTRIC VEHICLE FUTURE pg1 MANAGING EYEBALL TRADE SELECTION pg5

TRADING IN A UNIVERSAL LANGUAGE - PART 2 pg11 US DOLLAR PERSISTENT BULLISH TREND pg13

NEWSLETTER OUTLOOK: RESISTANCE TEST pg14 PORTFOLIO CASE STUDIES: MONEY MANAGEMENT pg16

AN ELECTRIC VEHICLE FUTURE

The current election campaign features utes and electric vehicles. Europe and China are moving to phase out the production of diesel and petrol powered vehicles within the next decade so the Australian ute debate may be entirely irrelevant. (as a

side note, this has impacts on oil production and exploration) Warren Buffet infamously bought into Chinese Electric car maker BYD. The

investment initially turned sour and many joked that BYD stood for Break Your Dreams. Now that’s no longer the case. Shenzhen has replaced its entire taxi fleet

with electric vehicles, most of them manufactured by BYD. China is heavily committed to cleaning up pollution. Investing into the Chinese

clean-energy industry offers many opportunities.

Part of the policy initiative is the rapid phasing out of petrol and diesel driven vehicles and their replacement with electric vehicles. Foreign companies are already

expanding into this market and using China as a test bed for the design and development of vehicles that can be exported to Europe as the same pollution measures are applied by the EU.

Volkswagen plans to build an electric sports utility vehicle for the China market, which will go on sale in 2021, taking on the Chinese market leader Tesla’s Model X.

The new SUV is the latest move in Volkswagen’s growth strategy in China, where electric cars are given preferential treatment by authorities. VW said they plan to produce more than 22 million electric cars in the next 10 years. Around half of VW’s

engineers were working on products destined for China. Volkswagen AG is considering expanding its stake in its Chinese electric-vehicle partner Anhui Jianghuai Automobile

Group Corp. (JAC) after rules on ownership were eased last year.


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The Shanghai Cross Trading platform gives investors access to other Electric Vehicle manufacturers and manufacturing hopefuls. These include SAIC, JAC, BYD and FAW.

Some like SAIC (600104) are well established and listed in Shanghai. Like the general Shanghai market, SAIC has emerged from a prolonged downtrend. It has

established a new, if erratic, uptrend. It offers good shorter trend rally and retreat trading opportunities.


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VW partner, JAC (600418) has already been boosted by the VW announcement

with a sharp 48% rise. This fast rally is pulling back, and investors will watch for the development of a smoother long-term uptrend. Traders will enter on the rally rebound.

BYD (002594) listed on the Shenzhen exchange as a tech start-up but like many on this board it has settled into more stable trend behaviour. BYD is trading in a

steady uptrend and approaching previous resistance levels. There are regular opportunities to enter at points of temporary weakness.


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FAW (000800) has more of the characteristics associated with a high-tech Shenzhen listing. The uptrend is punctuated by fast up moves built around a steady uptrend. Most recently FAW has seen several days of ‘limit up’ trading where price has

been locked at the maximum 10% daily move. Traders will struggle to get a position, but these sustained ‘limit up’ moves offer good trading opportunities once normal

trade activity returns. When Warren Buffet bought into BYD it was a difficult process requiring layers

and layers of approvals. Today the China direct investment opportunity is much

easier. The Shanghai Connect and Shenzhen Cross Connect platforms allow for direct trading of Chinese stocks. The global universe of trading opportunities has expanded

and it’s easily accessed. This gives investors an opportunity to take early positions in Chinas electric vehicle future.

TOO LATE We consistently suggest in this newsletter that you can do better than much of

the financial industry. We were little astounded Wednesday to receive an email breathlessly headed China A50: Firing up the cylinders. It’s quite correct. The Shanghai index is up 27% since February. The email note would have been much

more useful if it has highlighted the beginning of the trend, not after it had already added 27%.

Readers of this newsletter were alerted to this trend change in January as it developed. That’s why learning to do your own technical analysis delivers better

results than relying on others.

You can download the ATR indicator for MT4 at

https://www.mql5.com/en/market/product/29683 Use this to improve your trade risk management.

https://www.mql5.com/en/market/product/29683

https://www.mql5.com/en/market/product/29683


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CASE STUDY EQUITY CURVE

The case study portfolio return is $58,389 or 58.3% for the period starting

July 1, 2018 and ending June 30, 2019. For the year starting July 1, 2017-2018, the case study portfolio return is

$115,330 or 115.3%. For the year starting July 1, 2016-2017, the case study portfolio return is $92,464.15 or 92.5%. For the year starting July 1, 2015- 2016, the case study portfolio return is $156,450 or 156.45%.

Equity trade size is generally kept constant at $20,000 in the case study portfolio so it is easier to compare the case study trades over this and other years.

Unless otherwise noted in the trade management notes, all equity case study trades are managed on an end of day basis, with the exit taken at the best reasonable price on the day after the stop loss is triggered.

Warrant and CFD trades are generally kept constant at $10,000. Warrant and CFD trades are closed on an intraday basis using a guaranteed stop loss as this is a

primary method of managing derivative risk. FX trades are generally kept constant at $5000. Stops are managed intraday.

This capital allocation reflects the risk in each of these asset classes.

MANAGING EYEBALL TRADE SELECTION By Daryl Guppy

Delayed entries into well-established trends? Probably a poor idea. EXL and last week, ELS suggest that traders are better off taking an

apparently higher risk by entering as the breakout momentum trend develops. The EXL trade management requires courage and discipline. These results are disappointing for the case study portfolio, but its useful

information for evaluating trading approaches in the current market environment.

Know it’s the ultimate low tech, but I love eyeballing charts as a means of finding trading opportunities. Eyeballing simply means scrolling through the charts on the lookout for opportunity. With even just a little experience you should be able to


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quickly identify potential trading opportunities. If is not clear-cut, then simply move onto the next chart. Eyeballing should take no more than 1 second, or less, per chart.

Initially you might end up with many stocks that you will later discard, but as

your eyeballing skill gets better you will move more quickly, and the shortlist of stocks will not require much modification. In fact, the most difficult choice is in deciding

which one or two to trade. To demonstrate how we apply this selection and analiysis method we have

eyeballed just all the stocks beginning with E. This limits the starting pool and we

came up with 4 candidates, each of which offers a different trading approach. It took around 5 minutes to eyeball the E listings. With another spare few

minutes we could move onto the G listings etc. There is no need to eyeball the entire market in one sitting.

EHE – TREND REBOUND AND RESISTANCE BREAK

The primary concern with EHE is not the strength of the uptrend, but the resistance feature that has developed near $2.85. A breakout sets new target near $3.20. These are calculated by taking the width of the

retracement move and projecting this upwards. However, to protect profits the stop is lifted to the value of the lower edge of the short term GMMA.

Readers may remember EHE was added as an earlier trade and closed as price began to retreat after the initial breakout spike. The rebound activity proved the

strength of the trend, so it offers another entry opportunity. The entry follows the rebound rally as price starts to cluster around the upper edges of the short term GMMA. This has the potential to create a tweezer pattern with a breakout above


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$2.85. This is important because this level is also the starting point for the gap down activity that developed in September 2018. This is often the first resistance point in a new rally and breakouts above this level can be powerful.

Entry is near $2.70 with the stop loss near $2.62. Stop loss is the value of the

lower edge of the short term GMMA. This puts $592.59 at risk or 0.59% of total trading capital.

EGD – GMMA TREND

Minor resistance has developed near $2.05. It’s minor because it does not correspond to any historical resistance levels. There is no change to the GMMA trend characteristics. Stop loss is the lower edge of the short term

GMMA. This is a slow-moving trend.


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This is a classic GMMA trend trade. The long term GMMA is well separated showing strong investor support. The short term GMMA is consistently separated

showing trading support. The degree of separation between the two groups of moving averages is steady and this confirms a steady trend development.

Entry is near $2.01 with the stop loss near $1.99. Stop loss is the value of the lower edge of the short term GMMA. This puts $199.00 at risk or 0.2% of total trading capital.


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EXL – ATR TREND This is a gap down exit. The stop loss is a combination of ATR and CBL with a close below the stop as an exit signal. Let’s closely examine how this

worked. First is the close below the ATR. This is the higher value stop loss. A

close below this level is an alert signal. A close below the lower value CBL stop loss is the exit signal. Second, there is no close below the value of the CBL line, so the trade

remains open. Price dips below the CBL but closes above the CBL. No action is required. Had price closed below the CBL then an exit would have been

taken on the next day at the best reasonable price. The gap up rebound on Wednesday would have provided this exit condition with an exit near $5.05. BUT there is no close below the CBL, so the trade is not closed on the

rebound. How is the stop set in this new situation? It requires a move above

$5.93 before a new CBL can be calculated. The ATR would need to be calculated from the $4.57 low and this and this will take several more days for the ATR value to move above the CBL line.

Traders wait until either a new CBL or ATR stop is established that is higher than the current CBL stop. The higher stop is used to manage the

developing trade. Until then, it’s the current CBL stop that acts as the trade exit trigger.


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This started as a simple trend momentum trade opportunity. The risk is

that the fast trend will end soon after the entry and in fact this is what may have happened. Its too soon to know if the rebound is sustainable and a continuation of the uptrend.

This is a delayed entry into a well-established trend. Entry is as the price moves above the consolidation area and is designed to trade the continuation of the fast

trend.


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Entry is near $5.05 with the stop loss near $4.72. Stop loss is the value of the

ATR or CBL. This puts $1,306.93 at risk or 1.31% of total trading capital. These four different types of trading opportunities are found by eyeballing the E

list of stocks. Eyeballing provides a fast and efficient method of identifying trade opportunities. It helps to identify robust trades.

TRADING IN A UNIVERSAL LANGUAGE - PART 2 By Karen Wong

In the article Trading in a Universal Language (TIATA, Part 1 published 13 April 2019), I discussed the concept of trend as a universal language for traders. A trending stock on a chart is obvious to all traders who are able to apply methodology and

identify trend. After identifying a good trend, we enter a trade in order to extract as much profit from that trade as we can. In Part 2, I will look at an ASX strategy for

staying in a trade for as long as possible and apply this same method to a stock on the Shanghai Stock Exchange.

Regardless of which market in the world we’re trading in the question remains

how can we stay in a trade without getting stopped out too early. When we find a good looking uptrend in our analysis we want to remain in the trade for as long as

possible. Setting an ATR stop loss on the Weekly gives us this possibility. A focus on the Weekly chart eliminates a lot of the price action noise found on the Daily chart. Volatile price activity on the Daily can sometimes lead to a premature closure of a

trade.


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The Daily chart of 601888 shows how the daily fluctuations of price noise can affect an open trade. We draw a 2*ATR line on the chart underneath price on the day of entry. A couple of weeks later price drops to close under the ATR line and we would

be stopped out at ‘A’ as marked. If we were to open another trend trade shortly after the beginning the Short Term GMMA expansion we could recalculate the 2*ATR as

marked by the second arrow under price. This second trade rides the uptrend longer but is stopped out again when price closes below the ATR line at ‘B’.

Compare this trading activity on the Daily chart to the Weekly chart of 601888.

The days on which we would have closed out trades using the Daily chart are marked at ‘A’ and ‘B’ on the Weekly chart. Price does not close under the 2*ATR line drawn on the Weekly, allowing us to comfortably remain in the trade while our profit continued

to grow. Using the 2*ATR stop loss on the Weekly chart keeps us in the trade for a much longer time.

The following table shows the outcomes of trading 601888 using a 2*ATR stop loss on the Daily chart compared to a 2*ATR stop loss calculated using the Weekly chart.

Two trade exits on a Daily at A then at B resulted in a net profit of only 1.54%.

Compare this to the one trade on the Weekly returning a much higher profit of 28.89%. Including brokerage this result becomes 26% and is still a decent return.

For this particular stock, trading from the Weekly chart maximized profit. A good strong trend has the potential to deliver good profits. If trend is the universal language of traders then profit is surely the universal goal of trend.


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US DOLLAR PERSISTENT BULLISH TREND By Daryl Guppy Several months ago, traders were ready to go short as the US Dollar bumped

against $0.97. The shorting opportunities did arrive, but they were comparatively weak following three rallies that tested $0.97 as a resistance level. Each retreat was

shorter, fell less and was followed by sustained and steady uptrend recovery. The pattern of rally and retreat has confirmed the USD dollar is trading with a

bullish bias rather than within a trading band between $0.93 and $0.97. The

underlying trend, shown by the Guppy Multiple Moving Average indicator, is not strong, but it is persistent.

A strong trend is indicated by an increase in the degree of separation in the long term GMMA. This would show increasing investor strength and backing for the uptrend. This has not developed. The rate of separation has been steady, but not

particularly wide. A strong trend is often defined with a consistent degree of separation between

the long term and short-term groups of averages. This has not happened. The short-term group of averages has compressed, turned down, and rebounded form the long

term GMMA in two occasions. The current degree of separation is small. These behaviors confirm that the uptrend is not strong and that it is unlikely to develop a fast breakout move. These behaviors do show that the bullish bias is

persistent, so traders have stopped taking short positions. Traders are now building long-side positions in anticipation of a breakout above resistance near $0.97. The

pattern of test and retest of resistance, along with persistent uptrend strength, suggests that then next move for the US dollar is up.


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The latest test of resistance has resulted in the dollar clustering near the resistance level. The pullbacks have been minor. A breakout above $0.97 is bullish for the US dollar with a longer-term target near $100.5. However, the current

behavior suggests there is no need to rush to take a position as the dollar continues its slow stately rise.

There remains one note of caution in this bullish outlook. The RSI indicator shows a bearish divergence. The new highs in the dollar, shown as A, B and C, have not been matched by new highs in the RSI. The trend line across the first 2 peaks of

the dollar movement is an up sloping trend line. The RSI trend line using the peak above 70 shows a down sloping trend line. This is a bearish divergence and it usually

suggests that the dollar will be unsuccessful in any breakout. Divergence analysis is accurate around 70% of the time and its increasingly looking as if this may be one of the exceptions.

We apply RSI analysis only to the peaks above the 70 range or below the 30 range. All other RSI activity is just market noise and has no significance. Traders will

watch for an RSI reading above 70 because this invalidates the RSI divergence signal. Aggressive traders will take early long positions in anticipation of a breakout. Conservative traders will wait for the breakout and RSI confirmation before taking

new long-side positions.

NEWSLETTER OUTLOOK: RESISTANCE TEST By Daryl Guppy

This early Easter newsletters comes just a few days since the last

newsletter, so there is little change in the market and no significant update for these XJO notes. Traders are watching for a successful retest of

resistance. The XJO failed the resistance test. This confirms the 6300 level as a significant

resistance point. Despite the failure the trend remains bullish as shown by the

continued wide separation in the long term GMMA. Three support features are emerging. The first is the upper edge of the long

term GMMA. The second is the value of the lower edge of the trading band near 6120. The third is the lower edge of the long-term GMMA which is approaching the 6120 support level.

Traders wait for a rebound from the support features as this is bullish and comes with a high probability of a breakout above 6300.

Aggressive traders watch for consolidation rebounds and enter in anticipation of a breakout above 6300.


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The most important change is trend resistance. Whilst the index was above the

trend line there were only historical resistance targets near 6300 that impeded the

uptrend. Now the index is below the trend line so any rebound will encounter resistance from the trend line value. The market is still bullish, but it is less robust

than it was when the index was above the trend line.


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PORTFOLIO CASE STUDIES: MONEY MANAGEMENT

Starting cash position $100,000 - no brokerage or slippage 2% of risk = $2,000 NOTE Entered date is the newsletter date which contains the case study discussion.

OVERALL PROFIT TO DATE

The case study portfolio return is $58,389 or 58.3% for the period starting July 1, 2018 and ending June 30, 2019.

The case study portfolio return is $156,450 or 156.45% for the period

starting July 1, 2016-2017. Note that this includes 6 to 21 trade results. The case study portfolio return is $92,464.15 or 92.5% for the period starting July 1, 2015-

2016. Equity trade size is generally kept constant at $20,000 in the case study portfolio so it is easier to compare the case study trades over this and other years. Unless otherwise noted in the trade management notes, all equity case study trades

are managed on an end of day basis, with the exit taken at the best reasonable price on the day after the stop loss is triggered.

CUSTOMER CAUTION NOTICE AND COPYRIGHT Guppytraderscomsg Pte Ltd (CRN 200409379K) Pte Ltd is not a licensed investment advisor. This publication, which is generally available to the public, falls under the Singapore Media Advice provisions. The information provided is for educational purposes only and does not constitute financial product advice. These analysis notes are based on our experience of applying technical analysis to the market and are designed to be used as a tutorial showing how technical analysis can be applied to a chart example based on recent trading data. This newsletter is a tool to assist you in your personal judgment.

It is not designed to replace your Licensed Financial Consultant or your Stockbroker. It has been prepared without regard to any particular person's investment objectives, financial situation and particular needs because readers come from diverse backgrounds, with diverse objectives and financial situations. This information is of a general nature only so you should seek independent advice from your broker or other investment advisors as appropriate before taking any action. The publication should not be construed by any reader as Publisher's (i) solicitation to effect, or attempt to effect transactions in securities, or (ii) provision of any investment related advice or services tailored to any particular

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copies. If we find that you are redistributing the newsletter then, at our discretion, we will reduce the length of your paid subscription by the value of the multiple copies we believe you are circulating. Share with nine friends, and we cut your subscription period by 90%. Contributed materials reflect the personal opinion of the authors and are not necessarily those of the publisher. Articles accurately reflect the personal views of the authors. Stocks held by the authors are marked* and are not to be taken as a trading recommendation. This is not a newsletter of stock tips. Case study trades are notional and

analysed in real time on a weekly basis. Any past investment-related performance . referred to may not be indicative of future results, and therefore, no reader should assume that the future performance of any specific investment, investment strategy will be suitable or profitable for a reader's portfolio, or equal historical or anticipated performance level(s). Guppytraderscomsg Pte Ltd


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does not receive any benefit or fee from any of the stocks reviewed in the newsletter. Guppytraderscomsg Pte Ltd is an independent international financial education organization and research is supported by subscription fees. Please note that in the interest of timely publication of the newsletter, this document may be incompletely proofed.

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Documents

The Shanghai Cross Trading platform gives investors access ... · 19/04/2019 · By Daryl Guppy This early Easter newsletters comes just a few days since the last newsletter,