Research ASX200: Forte Energy NL (FTE)

StoneBridge Snapshot – Forte Energy NL (FTE $0.11) – Excellent high grade U3O8 potential in Mauritania

• FTE is focused on exploring for uranium mineralisation at its two West African projects in Mauritania and Guinea.
• Areva NC, the world’s leading nuclear fuel cycle company, backed FTE with a $2.7M placement @ $0.135/share. Areva now has a 14.4% stake in FTE.
• The Bir En Nar project in Mauritania is the most prospective, where drilling in late 2007 returned a number of high grade intersections.
• FTE is set to commence a second round of drilling at Bin En Nar project in Mauritania in July 2009.
• Results of the second drilling program at the Firawa project in Guinea are being assessed and FTE expects to release an initial resource in the next few weeks.

View FTE Research

Research: Norton Goldfields Limited (NGF)

Norton Goldfields Limited (NGF $0.25) – Leveraged production with growth upside

Initiating Coverage with a BUY recommendation and $0.45/share price target

Key points

• NGF offers excellent leverage to Australian Dollar gold prices through its 100% owned Paddington Gold Mine in Western Australia.
• Paddington is currently producing around 130kozpa from low grade open pits at a total cash cost around A$800/oz.
• The company is planning to add high grade underground ore in late 2009 which will lift gold production to nearly 200kozpa at similar cash costs.
• We are initiating coverage on NGF with a BUY recommendation and set a $0.45/share price target.
• Aside from movements in the gold price, key catalysts for NGF’s share price include the release of an updated life of mine plan in August and the commencement of ore supply from underground mining in late 2009.

View Full Research Document

ASX200 banks – Considerations for the short-seller

Event

ASIC is due to review the status of its ban on covered short-selling of financial stocks. The ban is currently in place until Sunday, 31 May 2009.

Impact

Less scope for an absolute short. The outlook for Australian banks has improved considerably over the past few months. first half 2009 results showed improving levels of capital, coverage and funding. As visibility continues to improve, the majors will be able to demonstrate that impairment risks are manageable, and unlikely to result in capital erosion.

In the eyes of the short-seller. In considering a potential short-position in Australian banks we expect most investors to place less emphasis on the standalone story (which is good), and more emphasis on the relative arguments. On this basis, Australian banks are likely to find themselves on the short-side of most trades.

Relative fundamentals. Australia is on the cusp on an economic downturn. Credit growth is slowing; impairment costs are rising; capital ratios may decline; and all against a backdrop of rising unemployment and contracting GDP. Conversely the US, UK and European economies have already suffered several quarters of weak operating conditions, suggesting the scope for recovery in offshore markets may be better than in Australia.

Relative valuations. Australian banks look expensive relative to regional and global peers. On the one hand, we’d argue this is justified given higher levels of near-term and sustainable returns (ROE). On the other, higher relative valuations suggest the scope for share price recovery may be less than international peers.

Outlook

The reintroduction of short-selling will, by definition, increase selling activity in Australian banks. Our analysis of the global sector suggests global investors are likely to view Australian banks as expensive, with a less attractive recovery story.

We find very little cause for an outright assault on share prices. However, in our view the relative story for the major banks and their large market capitalisation (~9% of the Top 30 banks market cap) mean Australian banks are a viable funding source for pair-trades within the global sector.

Our sector preference remains WBC, ANZ, CBA, and NAB. We highlight potential pair-trades within the domestic sector in this report.

Source: Macquarie Private Wealth

Stock, CFD, Fx and Forex Options – Data and Trade Signals 20-5-09

Calendar

What’s going on?

• The rally in stocks stopped at the release of the US housing starts and building permits that both disappointed badly. We are getting very close to the 200 DMA (now 942) in S&P500 and believe that it will be “magnetic” in the next couple of days – i.e. buy on dips until we get a test.
• Japanese GDP out at abysmally -15.2% annualized – but slightly better than expected. Exports are down 50% YoY.
• Crude Oil may be close to a break higher – despite bearish inventory situation. Watch out for DOE storage today and Crude above 61.20.

FX

Equities

Futures

FX Options

RIO Ratio Put Spread – Great Risk vs. Reward

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For full information in regards to this trade including entry levels, please call or email Eden Hage on 1300 368 316 or info@TotalTrader.com.au

May Stock Market Update & Asset Allocation

Click on the video below to watch the May Stock Market update.

Stock,CFD, Fx and Forex Options – Data and Trades

Calendar

What’s going on?

• Yesterday’s ADP Employment Change was a lot better than expected – and the March figure was revised higher by 34K. Today’s Jobless Claims will probably confirm that we stopped losing jobs at an increasing pace… BUT the US economy is likely to continue losing jobs for the next two years.
• Stocks went higher again – completely disregarding the trend in earnings. We respect the S-T trend, but remain L-T bearish. The S&P500 might test the 200 DMA (now 958) or the big-picture resistance around the 1000 or 1014 (38.2% Fibonacci).
• Copper is rallying strongly and could break higher above the 220-level. That would lead to more (unwarranted) stock optimism.

FX

Equities

Futures

FX Options

Loss Control from Stocks and CFDs, too Forex.

Suppose you have $5000 to trade with, and you lose 50% of this amount. How much money in percentage terms do you have to make to breakeven on your next trade? If you automatically said 50%, this is incorrect. You need to make 100% on your remaining $2500, to make up the lost $2500, and break-even! Things are never as intuitive as they first appear. This table emphasizes the importance of keeping your losses small so that you can recover and continue to trade.

If you lose 25% of your account, you must make 33.3% profit on the remaining equity, simply to break-even. Keep your total equity drawdown to less than 20% and you have a chance of surviving in the sharemarket. Trading is not about avoiding risk – it is about managing risk.

Types of Stops

An initial stop is designed to protect your capital. Even successful traders find that they only make winning trades around 50% of the time. As long as the dollars gained outweigh the dollars lost, then you will be profitable, even if your hit-rate is quite low.

A breakeven stop will help lock in a no-loss trade. This type of stop is implemented once a trade has begun to co-operate and there is now little threat of your initial stop being hit. At least when you have moved your stop to breakeven, there is a chance that you will end up with a profitable trade. Especially with the application of leverage, it is important to move your stop to breakeven as soon as reasonably possible. This will minimise the potential drawdown of your account.

Trailing stops are designed to protect your profit. Once the trade has trended strongly in the expected direction, you can follow the trend by moving your stop. You could also decide to extract money from the position if the option hits your profit target. I only use profit targets for option and warrant trades, not for share trades. Profit targets tend to cap available profits. Learn to protect your profits as well as protecting your initial capital and you will be well on the way to trading effectively.

Sell in May and Buy Protection

Investors should “sell in May and go away,” or so goes the old adage.  We compared the returns for the Dow Jones Industrial Average since 1928 for the periods November-April and May-October to see how well this adage has held up in reality.  Our findings are in the table below.

Clearly, the November through April period has outperformed over the last 80 years – the difference in both the mean and median returns is enough to warrant further study.  What also caught our attention is the difference in the average annualized monthly volatility, itself already a very smoothed measure.  The most immediate practical implication is that a strategy that buys the Dow Jones Industrials during the months of November through April and sits in cash otherwise should have returns with lower volatility:

Returns above exclude transaction costs and returns on cash, and are logarithmically scaled. Higher risk-adjusted returns are very desirable, and one way to capture the lower return volatility of the “sell in May” approach while not giving up absolute returns might be to lever up during the November-April period and remain in cash or in a reduced portfolio otherwise. Just for kicks, we tested an approach that shorts the market during May through October (the “ShortInMay” line above); the Depression-era tumult really ruins that approach, as does missing out on the still-positive average returns of the maligned May-Oct period.

Conclusion: given the lower average historical returns and higher volatility of the May through October period, large-cap stock investors may want err on the side of buying more portfolio protection in the form of index puts during that time.

Source: Condor Options

Oil Outperforming Oil Stocks

While the price of oil has risen from the $30s to $50, oil stocks have not really rallied much.  Below we highlight the ratio of oil stocks (S&P 500 Oil & Gas index) to oil (the commodity).  When the line is rising, oil stocks are outperforming oil, and vice versa for a declining line.  As shown below, when oil spiked in early 2008, the ratio dropped to its lowest level in years.  Then when oil tanked in late 2008, the ratio spiked to its highest level in years as oil stocks held up much better.  Recently, however, oil has rallied and oil stocks have been stagnant, causing the ratio to come back down.  At the moment, the ratio is resting just above the average since 1990.

Source: Bespoken Research

Options Income Strategy

How the Income Strategy works:

Step 1: Sell Puts: This is how you buy the shares. If you are happy to buy the shares at the market level sell an at-the-money put. This means your breakeven on the share purchase is lower than the current share price. This is demonstrated in the below examples. If the the share price is above the strike price at expiry you receive the premium and look to sell another put. If the share price is below the strike price at expiry you are exercise and buy the shares (Step 2)

Step 2: Buy Shares: Once you are exercised on the sold puts you buy the shares at the strike price. Immediately sell calls (Step 3)

Step 3: Sell Call: Sell the calls at a strike price above your breakeven and receive a premium. Even if you are exercised sell the shares and lock in a profit.

If you still wish to trade that share then look at sell at put. The aim is to always be selling premium and look to receive income every month either through sold puts and sold calls.

This strategy can be implemented with protection (buy puts) which is a more conservative approach. You do not currently use protection on your covered call portfolio but we could look at this in the future if you decide to.

If you would like the to find our more details about this trade including strike prices and risks or about options tranding in general please contact Eden Hage on 1300 368 316 or eden.hage@stonebridgegroup.com.au

Stock Market Trading Plan

A trading plan will not guarantee your success in the markets, but a good plan will enable you to work methodically toward your trading goals while reviewing on a regular basis what is working and what is not. It will act as a roadmap for your trading journey. It will enable you to respond positively and constructively no matter what happens with your individual trades. And, most importantly, it will help you control the only thing a trader can control: his or her own actions.Finally, trading is a business. It can be a fascinating and sometimes thrilling business, but in the end it is a business. A trading plan helps you treat it as a business.

Successful trading begins with a winning trading plan. It’s as simple as that. If you develop a well-conceived trading plan to guide your actions in the market you will already have the advantage over most of your market competition. Put simply, it gives you the edge you need to win over the long haul.

Here are some important elements of a trading plan.

1. Why am I trading? What are my goals?

The answers to these questions might seem obvious, but they usually are not. Take some time to ask them of yourself, and seriously consider the answers. You may be surprised by what you learn. And whatever the answers, you will have a clearer picture going forward of what this enterprise means to you, and that will help you survive any rough patches.

2. What markets am I going to trade and why?

It is often best to specialize, especially for beginning stock market traders. Many pros make a great living trading the same stock day every single day for years. Choose a market that is appropriate for your experience level and trading style. Consider other factors such as available margin, volatility and liquidity.

3. What is the concept or philosophy behind your trading methodology?

Your trading system must have a concept behind it. Whether you are a value investor like Warren Buffet or a trend trader like George Soros, you should understand why you are doing what you are doing, how your beliefs about the markets define what you will do as a trader.

4. What will be your specific method?

In other words, specifically how will you execute your trading ideas? Will you buy breakouts or pullbacks? Buy oversold or sell overbought? Or will you use specific technical setups such as moving-average crossovers or another indicator-based strategy? Under exactly what conditions will you enter? When will you know to exit?

5. How much money will you risk on any single trade? On trading in general?

This is critical. Of course, start small. But just as importantly, have a plan in place for how much you will risk, emotions don’t cloud your judgment when the time comes. The key is to find an allocation that doesn’t cause any stress but still makes the trade worthwhile financially. One of the biggest problems with newer traders is that they are trading way too big in relation to their account size. Like when you are forex trading. Trading forex at 50-1 leverage. Yes, you can do it, but that doesn’t make it a good idea.

6. What will my trading rules be?

This is also critical. Your trading rules include entry and exit rules, rules governing maximum daily, weekly or monthly losses, maximum risk on any given trade, the maximum number of trades per week, etc., etc. These rules enforce discipline and keep you out of trouble. What price will enter at, what price will I will exit. Be discplined.

7. How will I record and evaluate my trading performance?

Allow me to repeat myself: This is critical. In fact, this might be the most important element of trading for new traders in the stock market. A new trader who evaluates his trades, winners and losers, in an effort to learn what works and what does not, will make quantum leaps forward in terms of ability and profitability. If you have a working trading plan and evaluate every single one of your trades after you have closed it you have already beaten 95% of the competition.

8. What are my rules for managing profits?

What’s the problem with profits? Well, believe it or not there is one, and it’s a serious one. It’s called euphoria, and it clouds the judgment perhaps more than any other emotion related to trading. Start piling up the profits for the first time and it won’t be long before you are convinced you are king of the world. About 30 seconds later you’ll be broke, following a series of unwise and exceedingly risky trades. So have a plan for protecting closed profits when you have reached your goals for the week or the month. Don’t give them all back.

9. How will I reward myself for following my trading plan?

Don’t leave this out. Following your trading plan will bring rewards in the form of profits, but you should also consciously reward yourself for doing so because it is such an important part of successful trading. So if you finish the week or the month (or even the day) without having broken any of your trading rules, find a way to reward yourself. You deserve it. You are in rare company.

If you follow your plan you are improving your chances of becoming sucessful stock market or forex trader.

Source:singapore trader report

BHP Long-Dated Calendar Spread

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If you would like the to find our more info about options tranding in general please contact Eden Hage on 1300 368 316 or  email info@totaltrader.com.au

Ritholtz: Three Things to Remember in this Rally

• Follow the Playbook: Ritholtz writes that “the smart investor’s playbook is very different in bear markets than bull markets”. In bulls, you buy the dips, and “lower prices are an opportunity to buy into equities at cheaper valuations”. Buy & hold is the simplest and most cost-effective strategy in these times, he says. In bear markets, he adds, you sell on the rallies. “Buy & hold is a losing strategy – trading what the market presents to you is the best risk management strategy,” he says.
• Beware the ‘Conspiracy of Optimists’: Overly positive views of the world occur leading up to a bull market peak, and warning signs get ignored. Ritholtz says recent economic reports were spun to appear to be bullish signs, when the data really was terrible. “Understand the difference between an economy that is improving versus one that ‘getting worse more slowly,’” he writes. “We are experiencing the latter.”
• Buying the Very Bottom Isn’t Your Goal: “The problem with this approach is that we don’t know for sure when it’s the bottom or top until after the fact,” Ritholtz writes, adding that, sometimes, even buying the bottom doesn’t ensure you of fast, big gains.

Ritholtz says to “consider as your goal maximizing your returns on a risk adjusted basis. This means being more conservative with your investments when risk levels are higher, and more aggressive when they are lower.” Dollar-cost averaging can be a good way to do this, he says. “It is efficient and cost effective. If you want to be a bit aggressive, you can increase your contributions once the markets fall 30% or (like now) 50%. The time to throttle back a bit? After a 4 -7 year bull market run.”

Is the Stock Market Cheap?

An old-fashioned way to answer this question is to look at the historic Price-to-Earnings (P/E) ratio using reported earnings (as opposed to earnings estimates).

The “price” part of the P/E calculation is available in real time on TV and the Internet. The “earnings” part, however, is more difficult to find. The authoritative source is the Standard & Poor’s website, where the latest numbers are posted on the earnings page in a linked Excel file (see column D).

The number we want is the sum of the reported earnings for the previous four quarters. Since the first quarter of 2009 earnings aren’t available, we’ll use the earnings through Q4 2008. With 99% of earnings reported as of March 31, Q4 earnings were -$23.25 per share (negative earnings). That negative number added to the three previous quarters puts the 2008 reported earnings at $14.88. Thus the 2008 year-end P/E ratio for the S&P 500 is the December closing price of 903.25 divided by 14.88, which gives us the stunning P/E ratio of 60.7 – the highest in the history of the S&P Composite since 1871. The average P/E over this timeframe is only 15. In fact, at the top of the Tech Bubble in 2000, the conventional P/E ratio was a mere 30. It peaked north of 47 two years after the market topped out.

But wait. It gets worse. If we calculate annual earnings based on Standard & Poor’s earnings estimate for the first quarter, the number drops to $6.66. That gives us a P/E at the latest close (April 9) of 128.46.

As these examples illustrate, in times of critical importance, the conventional P/E ratio often lags the index to the point of being useless as a value indicator. “Why the lag?” you may wonder. “How can the P/E be at a record high after the price has fallen so far?” The explanation is simple. Earnings fell faster than price. In fact, the negative earnings of Q4 is something that has never happened before in the history of the S&P Composite.

The P/E10 Ratio
Legendary economist and value investor Benjamin Graham noticed the same bizarre P/E behavior during the Roaring Twenties and subsequent market crash. Graham collaborated with David Dodd to devise a more accurate way to calculate the market’s value, which they discussed in their 1934 classic book, Security Analysis. They attributed the illogical P/E ratios to temporary and sometimes extreme fluctuations in the business cycle. Their solution was to divide the price by the 10-year average of earnings, which we’ll call the P/E10. In recent years, Yale professor Robert Shiller, the author of Irrational Exuberance, has reintroduced the P/E10 to a wider audience of investors. As the accompanying chart illustrates, this ratio closely tracks the real (inflation-adjusted) price of the S&P Composite.

With this method, the historic P/E average is 16.3, with a March 2009 monthly average P/E10 of 13.5 and a monthly close at a P/E10 of 14.2. The ratio in this chart is doubly smoothed (10-year average of earnings and monthly averages of daily closing prices). Thus the fluctuations during the month aren’t especially relevant (e.g., the difference between the monthly average and monthly close P/E10).

Of course, the historic P/E10 has never flat-lined on the average. On the contrary, over the long haul it swings dramatically between the over- and under-valued ranges. If we look at the major peaks and troughs in the P/E10, we see that the high during the Tech Bubble was the all-time high of 44 in December 1999. The 1929 high of 32 comes in at a distant second. The secular bottoms in 1921, 1932, 1942 and 1982 saw P/E10 ratios in the single digits.

Where does the current valuation put us?
For a more precise view of how today’s P/E10 relates to the past, our chart includes horizontal bands to divide the monthly valuations into quintiles – five groups, each with 20% of the total. Ratios in the top 20% suggest a highly overvalued market, the bottom 20% a highly undervalued market. What can we learn from this analysis? Over the past several months, the decline from the all-time P/E10 high has dramatically accelerated toward value territory, with the ratio dropping from the 1st to the upper 4th quintile.

A more cautionary observation is that every time the P/E10 has fallen from the first to the forth quintile, it has ultimately declined to the fifth quintile and bottomed in single digits. Based on the latest 10-year earnings average, to reach a P/E10 in the high single digits would require an S&P 500 price decline below 600. Of course, a happier alternative would be for corporate earnings to make a strong and prolonged surge. When might we see the P/E10 bottom? These secular declines have ranged in length from over 19 years to as few as three. The current decline is now in its ninth year.

Revised Minimum Order Values for CFDs and Stocks

• New Minimum Order Values for CFDs and Stocks will apply from March 2009.
• The minimum order value applies to all equities trading, including CFDs, CFD DMA and Stocks, and is in place to prevent traders manipulating the underlying market price.
• You will not be able to open new positions via the platform below the minimum order size for the relevant exchange.
• See the table below for details of the new Minimum Order Values

Three Key Tips On How To Buy And Trade Penny Stocks Wisely

More people are inclined towards buying and trading penny stocks rather than regularly traded stocks because it is deemed as a cheaper option. Also, the easiness of entering the penny stocks market is attracting more investors, but this does not mean that less risk is involved. In fact, most people do not know that the penny stocks market is highly volatile and always changing.

In its simplest sense, penny stocks are also referred to as a microcap stock or nano stock. The usual trading price is under $5 per share. It is common practice that penny stocks are offered by companies who are just in the startup phase or companies who are facing financial problems to inject additional and quick cash in their businesses.

Before you delve in the buying and selling of penny stocks, keep in mind the following tips to be able to do so wisely.

Do your research

Many people are more prone to buying and trading penny stocks because these stocks are low in cost. But before you actually take an active part in this, you must do your research well. If you go online, you will be able to look into a lot of websites discussing penny stocks. Read through them and educate yourself to have a better grasp of what they are. In times like this, especially if there is money involved, it is advisable to be wise in your decision and the best thing that you can do is to use the information that you have accumulated to your advantage.

There are also many online websites that do stock analysis and gives a list of attractive stocks that are selected through studying stock market trends.

Use expert analysis in deciding which penny stocks to buy

If you are new to the buying and trading of stocks, you can turn to the analysis of experts when you are choosing which kind of penny stocks to buy. These experts will be able to tell you the specific kinds of penny stocks that are very attractive to buy at a given time. They can also give you advice in terms of keeping or getting rid of the current stocks that you have. If you want to be a successful stocks trader, you must be able to determine when to buy and when to sell, especially for smaller stocks.

Choose the right stock analysis system

You must be able to choose the right stock analysis system that will help you in deciding what specific kinds of stocks to buy and trade. Remember that in this kind of business, losing money is inevitable. There is no stock analysis system that is completely accurate all the time.

Now that you know different tips on buying and trading penny stocks, you will be in a better position to actually go out in the market and put these tips in actuality. The most important tip is to educate yourself. If you know how to use the information that you have to your advantage, you will be a successful investor of penny stocks in no time at all.

By: Nir Dotan

5 Things to Do Before Trading

Here they are.

1. Understand your personal financial situation
2. Understand diversification
3. Select the right portfolio holder for you
4. Do all the research necessary
5. Realize that it will be a bumpy ride

Let me address them individually.

Understand your financial situation
I would actually say “financial and life” here.  Trading is part of your life, not sepeate from it. That is something you need to take into serious consideration. There is the obvious decision about how much money you can put to work in the market. On top of that you also have to think about how much time you can commit.

Understand diversification
For traders this is a bit different than for investors. Diversification in investing is attempting to keep from having all of your money negatively impacted by one set of circumstances, like a downturn in a certain sector. Because traders are in and out of positions relatively frequently, this isn’t as much of an issue. Diversification in trading is more about making sure you have sufficient trading opportunities. Generally speaking, the longer your trading timeframe the more markets and/or securities you need to play.

Select the right portfolio holder
In investing this can mean any number of things from brokers to mutual fund companies to DRIP managers. There are a number of considerations involved there. In trading it really comes down to just the broker. You need to find a broker that suits your specific needs and with which you feel comfortable. By all means seek information and feedback, but in this end this is a decision that only you can make.

Do all the research necessary
Trading is not something you can just jump into and expect to do well. It’s pretty much like any other activity worth pursuing. It takes time to get good at trading. It takes work and study and practice. At times trading will be frustrating and in the beginning it can most definitely be overwhelming with all the different markets, instruments, and ways to trade them. Realize going in that you’re going to have to put forth considerable time and effort.

Realize that it will be a bumpy ride
This one pretty much speaks for itself. There have been all kinds of adjectives used to describe trading and dozens of metaphors applied to it. While it may not make things better, going into trading with the realization that there are going to be any number of ups and downs can help make riding them out a bit easier.

Now I’m not going to say these are the five things to do before trading, but they are among the things you should do before taking the plunge.

Oil Search (OSH) – Calendar Spread

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If you would like the to find our more about Calendar Spreads, please contact Eden Hage on 1300 368 316 or email info@totaltrader.com.au

Gold Bounces Off Support Again and Internals Look Strong

By Chris Vermeulen

Gold bounces off support again today with some indicators pointing to much higher prices.

GLD Gold ETF Fund – Daily Trading Chart

This week gold has been pulling back after last week’s massive one day rally. Hopefully that rally was not a one-day wonder but rather a sign that smart money is still moving into gold and not most retail traders trying to make a quick buck.

Gold Stocks/Gold Bullion Ratio – Weekly Chart

This chart shows we now have a clean breakout, which is extremely bullish for the price of gold. This signal is not fully confirmed until we have the closing price Friday at 4pm ET.

GDX Gold Miner Stocks Fund – Daily Trading Chart

This chart shows a nice rally to the February resistance level with a small bull flag and a daily close above resistance. Wednesday’s price action is very bullish but our support trend line is much to steep for gold stocks to maintain. Those with a high-risk appetite may like this, but I prefer to wait for a more conservative setup.

The USD is Half Way Done It’s Move

The Dollar broke down sharply a few weeks ago and is now forming a bear flag chart pattern. This pattern generally forms at the half way point of a move. If the trend continues, we can expect to see much lower prices for the USD in the next 1-2 weeks.

Gold Trading Conclusion:

While gold bullion is looking a little top heavy, the internals like gold stocks and the USD are shouting the opposite. Gold is currently at support, which is generally a good place to add to positions. If the price of gold breaks down from here, there is a clean exit point, which is a daily candle close below the support level on the GLD gold fund chart.