How to Profit by Swing Trading

It’s not exactly breaking news. A buy and hold strategy hasn’t worked for the last decade. You probably know as much if you’ve opened your retirement account statement lately. The Dow, S&P 500, and NASDAQ are all flat or down over the last 10 years.

It’s time to face facts, the old-time buy a few large-cap blue chips and hold them forever strategy has gone the way of the Dodo bird.

So, what’s the answer for this particular market?

Personally I swing. Swing trade that is.

I like swing trading for this market because it takes advantage of momentum… or trading in and out of stocks and sectors that are seeing a temporary boost. There’s no ‘buy and hope’ strategy at play here.

Let’s take a look at how swing trading works.

In a nutshell swing trading is… buying the lows and selling the highs. Ok, I know what you’re thinking… how do I consistently buy the lows and sell the highs? It seems like it is easier said than done.

Although there’s a lot of different ways to approach it, my favourite is looking for technically-based short-term trends. And taking a position to profit from the trend.

Here’s something you might not know; swing traders don’t care why a stock is trending. If the technical’s show there’s a trend, it’s not your job to figure out why. You just want to profit from it.

But here’s the catch… the stock market isn’t just flat over the last 10 years. It’s flat over the last few months too. Lots of volatility but no real trends.

You may be happy to see a flat market – especially after last year. But for swing traders like me a flat market is worse.

So how do you overcome a flat US market?

By not limiting yourself to just the stock market.

Here’s why. You won’t always find a trend in the US stock market. So I’ll trade foreign markets, bonds, commodities and even currencies. Until recently, access to these markets was difficult and often required separate trading accounts.

In the past, many individual investors found it hard to trade these markets. This helped give rise to the notion that a buy and hold strategy is the best way to invest.

Now, there’s an easy way to trade ASX stocks, foreign stocks, bonds, commodities, and currencies using momentum. It’s quick, cheap, painless and you can do it all from one trading account.

Want to know what it is?

That’s right, ETFs (Exchange Traded Funds). These are the one investment that can give you exposure to all of these markets. Today’s ETFs are revolutionizing the ability to trade currencies, commodities, and foreign markets. You can now really drill down and focus on specific subsectors of all these markets.

As I said… follow the trend. If you can’t find it in the US stock market, you now have easy access to an entire array of markets with ETFs.

I believe that the big money over the next few months and years will be found in the ’specialty’ ETFs that are popping up. The value of these ETFs can be derived from commodities like gold, currency pairs, corporate bonds, and any specific subsector you can think of. The list goes on and on.

And now you can go long or short with two or even three times leverage. Talk about spicing things up!

And remember as a swing trader you don’t care why the ETF is trending. The patterns and trends you use as a swing trader hold up regardless of the asset being traded. So you can apply the same technical analysis principles that you use with stocks.

Combining technical analysis, momentum trading, and specialty ETFs isn’t a bad way to trade this market right now. And it sure beats the heck out of buying a few blue chips and holding on for dear life!

CFD Intraday Trade Idea – Newcrest Mining (NCM)

Selection of ASX stocks likely to move on an intraday basis.

Our preference: as long as 32.1 is a resistance, a decline towards 30.8 and even 30 seems likely. Alternative scenario: a break above 32.1 would open the way to 32.5.

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Trade Disclaimer

Stonebridge Research: ING Office Fund (IOF)

Stonebridge Research: ING Office Fund (IOF) $0.61 – Still value here

KEY POINTS:

IOF operates under a simple trust structure collecting income from blue chip office properties spread across Australia (55%), Europe (20%) and the US (25%). At 31 December 08 IOF’s property interests were valued at approx. $3.5bn with Aus Govt & blue chip tenants accounting for 64% of income. Occupancy sat at 96% and the WALE 4.9yrs.

The average portfolio cap rate was 6.8% at 31 December 08, falling from 6.3% at 30 June 08 (7% asset value decline in total) and 5.8% at the peak in December 07.

IOF raised $414M @ $0.80/unit in Dec 08 to reduce its gearing levels however has not traded above this price since over concerns that the groups proximity to debt covenant limits and downward pressure on valuations would lead to a covenant breach and further equity raising.

In response to this issue, management has stated it would pursue an asset sale rather than equity raising strategy with progress made today on announcement of the sale of 412 St Kilda Rd, Melbourne for $42M (6.7% discount to 31 Dec 08 book) and that terms had also been agreed for the disposal of a further assts to the value of $115m.

Whilst an asset sale strategy is a more appealing course of action in terms of dilution to address the covenant issue, this may be a drawn out process with transactions still scarce. As such the recent improvement in the unit price (from $0.36/unit to $0.62/unit in the last month) may make an equity raising more palatable than before to put the covenant issue to rest.

Valuation metrics around IOF remain attractive despite the recent share price strength and at $0.62/unit trades on an implied cap of 10.5% v 6.8% book and 50% discount to our estimate of the December 08 adjusted NTA of 1.23/unit (post $42M asset disposal).

Whilst we believe asset values have further to correct, even if cap rates are assumed to expand to 8.05%, our revised NTA estimate is still $0.94/unit (33% discount at current pricing). Furthermore if we incorporate an equity raise of $400M @ $0.50/unit on top of this asset value decline our NTA estimate falls to $0.83/unit (25% discount) implying that significant dilution has already been incorporated into the unit price.

We estimate FY10 EPS of 7.5c/unit (P/E 8.2x), incorporating a reduction in occupancy to 94% and DPU of 5.9c/unit (9.5% yield) assuming maintenance capex is funded moving forward from operating cashflow and no further equity raised.

IOF’s FY10 ICR is estimated to be ~3.2x v 2.0x covenant limit.

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