Technical Analysis has its weaknesses

Technical Analysis is one of the most reliable mode of analyzing the financial markets. If I have to rank them, Technical Analysis is even more important than Fundamental Analysis as it can parallel the movements of real time trading which Fundamental Analysis cannot do. Hence, Technical Analysis is widely used in the investment community to decide on the direction of the market. However, many times, users of Technical Analysis have chose to ignore the weaknesses in Technical Analysis. I will briefly mention the weaknesses here.

How I started with Technical Analysis?

Back in 1997, I picked up a book on candlesticks written by Steve Nison. In the book, he explained the mechanics of candlesticks in detail and willingly shared his experience of using candlesticks on financial markets. This triggered off my interest in technical analysis, and from there, I followed up by reading another few books written by the 'founders' of Technical Analysis in the various school of thoughts.

I was obssessed with this mode of analysis, believing it would provide all answers to making investment decisions. I started to use Technical Analysis in my personal investment in the stock and futures market, applying religiously what the books preached. As I carried on to learn and practise my technical skills, I got so well versed in Technical Analysis that it eventually got me a job as a Technical Analyst in an international investment advisory company.

I was thrilled by the offer as my responsiblities were to analyse bonds, stock indices in Asia and some currencies. However, my encounter with Technical Analysis did not just end there as a perfect note. Through the years of practising, I realised that Technical Analysis has its weaknesses which users must be aware of.

How GH model generate stock signals?

GH model was formulated to generate stock signals. These stock signals were then back-tested for its accuracy. Only stocks with stock signals that consistently has an accuracy of above 80% annually and for the whole period of study, are considered to be accurate.

To ensure that the back-tested stock signlas are still accurate during live trading, these accuracy rates are continued to be monitored. The consistency of the results between back-tested stock signals and live trading have so far been very satisfying.

Yes! The stock signals are very responsive to live trading!

Advantages of stock signals generated by GH model

The main advantages of GH model are as follow:

1. Predicts stock price - the model predicts where the price will be heading
2. High accuracy in prediction - each prediction is accompanied by a high chance of success! (between 80% to 99%)
3. Gives profit objective - investors will know of their profit objective based on the difference between the live trading price & predicted price.

With the above advantages, an investor will be able to make an informed decision and invest with certainty!

Other advantages are:

1. Ease of use - No technical knowledge required, just reading of numbers!
2. All purpose - GH model can be used as the sole analysis method to decide on an investment or one can use it to complement or supplement their existing methods of analysis. For the more sophisticated investors, GH model blends well with other methods of financial analysis such as Fundamental Analysis, Technical Analysis and Inter-Market Analysis.

Performance of Portfolio as at end of December 2007

Shiseido Co Ltd

Update 4/1/08: Target fulfilled!

Date	Price(Yen)	Target Price(Yen)	Downside	Accuracy	Status of Target Price
12 Dec 2007	2 745	2 630	4.2%	98%	Fulfilled on 4/1/08

Source: GH model

Review: Ajinomoto Co Inc

Summary: GH model forecasted on Nov 13 that counter would recover to 1310 yen with 95% chances; target achieved!

Mortgage rate freeze to counter subprime crisis

Review: Cathay Pacific Airways Ltd

Summary: Counter fulfilled target price of HK$20.90 published on Nov 12 posting; position closed

On Nov 12, I posted that GH model indicated that Cathay Pacific Airways Ltd would head for HK$20.90 with 95% success. Based on the indication, it was suggested that a good entry at that point of time was HK$19.52. The difference between the exit and entry prices would give a profit of 7% for the trade.

After the posting on Nov 12, the counter further weakened to a low of HK$18 on Nov 19 before strengthening in the following days. Today, the counter traded at a day high of HK$20.95, fulfilling the target price of HK$20.90 forecasted by GH model. With this, another signal of high success rate had been achieved.

CITIGROUP INC

Summary: CITIGROUP INC targeting US$37 with an accuracy of 93%

SUBPRIME MORTGAGE CRISIS

What is a subprime mortgage?

Subprime mortgages refer to mortgages given out by lenders to borrowers with low credit ratings. These borrowers usually do not qualify for conventional mortgages. To compensate lenders for the higher risk associated to such borrowers, subprime mortgages are attached with an interest that is higher than a conventional mortgage.

How the subprime crisis started?

The current subprime mortgage crisis that is escalating in the United States started in 2006. Rising interest rates lead to increasing adjustable mortgage rates. This led to a higher cost of borrrowing and resulted in the subprime borrowers unable to service their mortgages. The higher interest rates coupled with declining property values caused a sharp rise in foreclosures.

By mid 2007, the large number of foreclosures led a few major subprime mortgage lenders to file for bankrupties. As the year approaching the end, more and more prominent financial institutions that have businesses in the subprime mortgage market reported huge losses.

Impact of subprime crisis on equity markets in Asia

The major losses in these financial institutions resulted in a nose dive in their respective share prices. It also brought about a ripple effect on the broader stock market in the United States. Soon, the effect was felt across Asia when the region's stock markets took a beating. It eroded a big portion of the gains from equities on the back of strong economic growth in Asia. As the subprime mortgage crisis continues, investors are cautious of equity markets for fear of a looming recession in the United States next year.

Coming soon! GH model maps out the directions of a few stocks listed in Hong Kong, Japan, United States and Singapore.

Review: STI component stocks

The signals (exit prices) forecasted in the above table was first posted on 29 Oct followed by a review on 4 Nov.

In this review, I am glad to say that another signal forecasted by GH model has been closed. With the closing of the signal on F&N, 3 out of the 4 signals have been fulfilled.

From the above table, one can see that the last signal that remains open is Allgreen. Based on the trading range on 12 Nov 2007, it was fairly reasonable to enter the stock at $1.45. This is on the back of a forecasted exit price of $1.74 indicated by GH model on 29 Oct. The difference between the exit and entry will give a return of 20%. The counter ends the day at $1.51 on 23 Nov 2007.

Good day!

Next review on this table will be after the signal on Allgreen has been fulfilled.

Ajinomoto Co Inc

This component stock of Nikkei 225 closed at 1234 yen after trading at lower levels earlier in the day.

GH model signalled an exit price of 1310 yen with a success rate of 95%. An investor who choose to enter the counter at the previous day's close of 1234 yen can expect a profit of 6%.

Cathay Pacific Airways Ltd

GH model has generated a signal for Cathay Pacific Airways Ltd. The model indicates an exit price of HK$20.90 with a success rate of 95%. If an investor is to enter the counter at HK$19.52, a level within today's trading range, he can expect a profit or return of 7%.

Cathay Pacific Airways Ltd is listed in the Hong Kong Stock Exchange.

Review: Stock prices forecasted by GH model

This review is a follow-up from the posting on 29 Oct 2007.

Summary of review: 2 out of 4 exit prices forecasted on the 29 Oct 2007 have been fulfilled. The 2 signals that remain open belong to Allgreen and F&N. The possiblities of fulfilling the exit prices at the pre-determined success rates are 98% and 96% respectively.

Have a nice day!

GH model is highly accurate

GH model has been formulated to predict exit prices of stocks. Each prediction is accompanied by a pre-determined success rate.

Its formulation is based on Macroeconomic and Microeconomic factors, Fundamental and Technical Analysis. The high success rate of each prediction generated by GH model ranges from 80% to 99%. These high accuracy rates are achieved after rigorous back-testing of stock data.

With the certainty of these high success rates, one can really invest with a peace of mind!

GH model predicts stock prices

GH model predicts exit prices of stocks. With it, an investor has the flexibility to decide on the entry price of a stock. Upon entering the stock, the investor can look forward to liquidate it at the predicted exit price.

The difference between the entry and exit price will be the return of that trade.

Click on image for illustration.

Performance of Portfolio

The portfolio has produced a return of 6% since its inception in April 2007.

It is meant as a low risk portfolio with the objective of obtaining consistent returns over the long term.

The portfolio invests mainly in stocks listed in the Singapore Exchange and government bonds and bills.

GH model predicts price targets of stocks

Table updated on 30 Oct 2007:

GH model predicts stock prices with high accuracy rates

GH model is formulated to predict price targets of stocks. Each price target is accompanied by a pre-determined success rate.

Its formulation is based on Macroeconomic & Microeconomic factors, Fundamental & Technical Analysis. The high success rate generated by GH model ranges from 80% to 98%. This high accuracy is achieved after rigorous back-testing of stock data.

With the certainty that GH model provides, one can really invest with a peace of mind!