Still bearish on KLCI? Let's take a look at DOW

2 พ.ค. 2020

I was planning to unload part of my put warrant position on KLCI earlier on Thursday, seeing how Dow broke out on it's range and might potentially challenge the 25,000-25,500 region ( 61.8% fib retracement level ), while the KLCI being suspiciously bullish on Thursday. Although it was obvious that it's just the month end window dressing, I was thinking to be more on the safe side by cutting off 50% of my put warrant position, but by around 3pm, I noticed a lot of stocks ( O&G stocks being the exception ) are starting to retrace from it's day's high, and remained low approaching the end of trading day. I then decided to keep my full position, although they are now suffering a 10% unrealised loss. I continue to monitor Dow the same night, and notice it started trading lower. On labor day itself, Dow surprisingly gave up more ground and now we are looking at a hammer weekly candlestick being formed at quite a crucial resistance level. Obviously one hammer candle is not a strong enough evidence to guarantee the market will fall from here, but I think chances are pretty good that next week we are at least gonna see some level of sell-offs. When put together side by side, you can really see how much the KLCI is tracking Dow's movement, and I am willing to bet if Dow is going to have a bad week, or even a bad month in May, the KLCI is surely gonna follow suit.

I know this is probably not the most risk averse strategy, but I am planning to buy even more put warrant next week, anticipating the market to fall further over the next few months. Am I biased? Absolutely. I don't think any traders can be 100% objective, especially not in the current market. The current market is purely emotion based, and one bad week can quickly trigger another aggressive sell-off, which is the result that I am currently betting on. My puts are mostly 6-7 months away from expiration, part of me is very worried about the time frame, because even if I get the general direction right, but if the market does not comply in the timeframe that I expected them to, I will still lose money on my put because of the damn time decay. But my gut is telling me, the market is never so obvious and kind, especially to new comers. Too many new comers are smiling their way to the bank, thinking they are the next Warren Buffett, and the volume traded is constantly 1.5-2x of it's value, which screams unsustainable speculation. I obviously do not wish for another wave of Corona, but judging by how the world economies are all too eager to open their cities again, even before stabilising the situation, I think we are all underestimating the serious damage a second wave of Corona can do to us. Again, I am very bearish biased, hence this might be confirmation bias playing it's trick on me. But if I am wrong, I am more than willing to lose money on my own conviction. Again, I truly do not believe this sharp rebound is sustainable. Best case scenario, we should see the indices and stocks retrace about 50% from the current level. Worse case scenario, they visit the bottom they formed in March, and the absolute worst is we will be seeing another new low even lower than the March's bottom.

Tentatively, my trading plan remained the same. Continue trading small positions on stocks that are still looking strong, and use the profit to build on my Put warrant positions. I will continue to post a weekly update, at least until I sold all my put positions. Until then, be safe, and trade well.