The Art of Speculation Series 5 - Understanding Support and Resistance and Who sets it

When you look at a chart, you will notice there are days where the market is heading upward and days the market heading downward. These gyrations in prices are called the ‘tides of speculation’. These tides of speculation are the result of the battle between the bulls and the bears. When bear wins there will be a downtrend and when the bull wins there will be an up trend.



Support and Resistance Level

Support is a price area where the demand of the stock exceeds supply and hence will prevent a further drop in the price. Whenever the price of the stock touch the support level, buyers will appear to support the price level. It can be shown by the purple line on the above chart.

Resistance is a price area where the supply of the stock exceeds the demand and will prevent further advances in the stock price. Again when the stock price approach the resistance level, sellers will appear in numbers to offer their stocks. Thus will prevent any further rise in the stock. It can be shown by the red line on the above chart.

However, a lot of traders do not know the difference between a major and minor support and resistance. A major support refers to a situation where a stock is declining to retest the prior low. A minor support refers to a situation where a stock is declining to retest a prior high. Hence, the opposite will be true for the major and minor resistance.

As can be seen from the above chart, once the major resistance is broken it will become the minor support. This is because the stock will be retesting the recent high that is broken.

Trade using Support and Resistance

How do we trade using Support and Resistance? As shown by the above chart, any Breakdown from the support level ($60 in above) represents a shorting opportunity or a selling opportunity. This is where sellers overwhelm buyers.

Any Breakout from the resistance level ($47 in above) represents a buying opportunity. This is where buyers overwhelm sellers.

It is also important to understand that the price ranges between the support and resistance is not registered there for nothing. In fact there are SET by the Insiders and Big Money.
They are the people who have enough funds to set the support and resistance prices.

They are the people who have enough purchasing power to buy hundreds of thousands if not millions of shares in order to influence the support and resistance prices. The main reason for them to set the support and resistance prices, is that it will enables them to ‘Accumulate enough Shares’ before their next BIG Move. Sorry to say, it is not me or you or the rest of the folks out there that can influence those prices.

This is good news because when we know it is the insiders and big money that set those prices then we can more or less track their money trail. Knowing about insider buying and selling can boost your returns in the following ways.

1. Help you align with the savviest investors around

2. Help you discover hidden gems early

Any breakout from the resistance level represents a buying opportunity because this is where buyers overwhelm sellers. That means someone knows something that we don’t.

This is important because once a stock break through either the support or resistance level with good volume, then there is a strong tendency for it to continue in that direction for an extended period of time.

In conclusion, by understanding support and resistance, it will enable you to ‘Buy What the Big Money and Insider Buys’

Using Fourier Transform to study relationship between Politics and Oil, By Professor Tom Therramus

This is an interesting piece of article from Professor Tom Therramus which first appeared in oil-price.net. It shows how by using Fourier Transform, analyst are now able to predict the relationship between oil and politics. It is not surprising because all these events are somehow influenced by 'market cycles'. As for your information Fourier Transform has been used in many  physics and engineering applications. It is used in measuring aircraft wing vibrations, processing signals such as light waves, seismic waves, radio waves and also images.

 As far as i know, it has already been adapted into stock market analysis by studying the waves.Technical analyst from large brokerages and investment banks are using such tools to predict market movements. Stock market is known to run on waves presumably like a sine wave, so by incorporating Fourier Analysis as a tool to study the waves greatly enhances stock market predictability. Anyway below is the link for the article,

http://oil-price.net/en/articles/is-oil-fueling-rise-in-political-partisanship.php

Is Oil Fueling the Rise in Political Partisanship? By TOM THERRAMUS for OIL-PRICE.NET, 2011/11/21

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The Art of Speculation Series 4 - Stock Market Pyramiding

It is everyone’s objective to make money when investing in the stock market. Taking losses will be the last thing they had in mind. So when a stock goes down, they tend to buy more or average down because they believe that when the market rebounds later they are able to make back their losses ‘at one shot’. It is a conventional argument that in stock market investment, anything that is cheap is good and hence the bigger the price drops the more we should buy.

Pyramiding Up

When you have done your homework and analysis, there are two possibilities that may arise when you decided to take the plunge. One, the stocks that you bought moved up and the other is it moved down. The problem is how should you react to both situations? I am sure you would like to increase your profits when your stocks moved up. How can you do it?

There are two ways to increase your profits. One is by trading more frequently during the up trend and the other is by increasing your positions. Trading more frequently will be out of the questions because the commissions and taxes will kill you. The other alternative is to increase the size of your position or in other words leverage up.

Leveraging up or what we call pyramiding up is another strategy that can help you maximize your profits when the market goes up. The question is how much to pyramid up so that it will help you maximize your return and minimize your losses? Basically there are three ways to pyramid up and we shall examine them individually.

Three different scenarios

There will be three different scenarios when pyramiding up.

1. Buy on decreasing quantity when price go up
2. Buy on even quantity when price go up
3. Buy on increasing quantity when price go up

Lets analyze the above scenarios below based on the following assumptions.

1. total quantity bought is 500 shares
2. price increase at $1 per interval
3. shares bought on 5 different time intervals

Chart 1. Buy on decreasing quantity of shares for every dollar increase.

No	Price	Quantity	Total
1	$10	200	$2,000
2	$11	150	$1,650
3	$12	80	$960
4	$13	50	$650
5	$14	20	$280
Total		500	$5,540

The average price for this purchase is $11.08 ($5,540/500)


Chart 2. Buy even 100 lots for every dollar increase.

No	Price	Quantity	Total
1	$10	100	$1,000
2	$11	100	$1,100
3	$12	100	$1,200
4	$13	100	$1,300
5	$14	100	$1,400
Total		500	$6,000

The average price for this purchase is $12 ($6,000/500).


Chart 3. Buy on increasing quantity for every dollar increase
 

No	Price	Quantity	Total
1	$10	20	$200
2	$11	50	$550
3	$12	80	$960
4	$13	150	$1950
5	$14	200	$2800
Total		500	$6,460

The average price for this purchase is $12.92 ($6,460/500).

The Best Strategy when Average Up

As you can see from the above three charts, the lowest cost and best strategy is achieved in Chart 1. Total cost outlay is $5,540 and average cost is $11.08. Chart 3 is the most costly and inefficient strategy with total outlay at $6,460 and average cost is $12.92.

Now, what happen when the market corrects? In normal conditions, when the market corrects it will give back 50% of its gains. In this case, the gain is $14 - $10 = $4 and 50% of $4 is $2. Hence the stock price will retrace back to $12. As you can see, in Chart 3 the average cost is $12.92 and hence this strategy will be making a loss. Chart 2 will be back to square one, however Chart 1 still provides you with a winning strategy.

So, what we can learn here is that when we average up our bets, make sure that the quantity is on a descending scale.

Missing Dangerous Nuclear Materials, by Andrew McKillop

Missing Presumed Dangerous - The World's Missing Nuclear Materials

By: Andrew_McKillop

About 50 heads of state will attend the Nuclear Security Summit on Monday and Tuesday 26 and 27 March in Seoul, South Korea, drawing US president Barack Obama and Russian president Dmitry Medvedev as well as leaders from potential transit countries such as Moldova, Lebanon and some African states that smugglers may use to move illicit nuclear materials. Iran and North Korea, which are in violation of United Nations resolutions demanding a halt to their nuclear work, are among countries excluded from the summit because the conference organizers’ are seeking consensus.

Consensus is critical for the 5-nation Declared Nuclear States of the UN Security Council and the 41 other members of the UN accredited Nuclear Suppliers Group - nations which sell nuclear goods and services from reactor building and fuel supply, to reprocessing, waste handling and IT services for the now troubled nuclear industry. With officials still unsure on the basic information they need to gauge how much highly enriched uranium and plutonium has been lost or is unaccounted-for, worldwide, leaders meeting in Seoul want reassuring and convincing majority decisions for the modest measures they will put to vote, and which will appear to better protect civil populations from the rising risks of nuclear terror.

Even a small nuclear blast by terrorist organizations would cause enormous casualties and heavily disrupt the world economy. The most recent nuclear catastrophe, at Fukushima, is estimated as causing some $50 billion of economic damage only in the 3-year period 2011-2014. Long term damage from this disaster, like Chernobyl, will probably exceed $250 billion. In the Chernobyl case, including death tolls of the "Liquidators", the total body count from this disaster almost certainly exceeds 50 000. The legacy of the Soviet Union’s breakup, inadequate atomic stockpile controls worldwide, and the proliferation of nuclear-fuel technology effectively means the world is awash with the materials needed as weapons ingredients, ripe to be picked up by terrorists. Rather than the media-touted image of "suitcase bombs" the cheapest, most effective and most likely modus operandi for nuclear terrorists will be simply spreading high level nuclear wastes in city centers - forcing their total evacuation - in so called Dirty Bomb attacks.

MISSING AND DANGEROUS

Nuclear security advisers, obligatorily speaking off the record explain that "loose materials" are very easy to dissimulate. Taking them off the radar screen of trackers of stolen and lost nuclear materials is easy, resulting in a de facto situation where it may already be impossible to either contain or account for them. In particular, this concerns highly-enriched uranium and plutonium, the two most-basic ingredients for nuclear weapons, and in the case of plutonium the most deadly (and man-made) material that exists on this planet, with massive cancer-causing effects at doses of a few millionths of one gram.

Stocks of plutonium, only at France's Cap de la Hague site, and the UK's Dounreay site, may exceed more than 350 tons, equivalent to the plutonium needed to build and explode 35 000 Hiroshima-sized atom bombs, or more than 45 000 bombs of the more plutonium-efficient type developed by Abdul Kader 'Bombs R Us' Khan, of Pakistan in the late 1980s.

Security officials in all of the 5 Declared Nuclear states of the UN Security Council (the US, Russia, China, France and the UK by rank of their declared bomb inventories) are still seeking the most basic information about how much high-enriched uranium and plutonium has been lost or is unaccounted-for. Due to critical lack of clear information, leaders meeting in Seoul on 26 and 27 March will be forced to settle for modest but reassuring measures, adapted to the slender intellectual status of their middle class voting publics, which would seem to protect these key voters from the risk of terrorists obtaining nuclear materials or building and exploding a nuclear weapon.

US simulations of worst-case Dirty Bomb attacks tell another story. A nuclear-armed terrorist attack on a key strategic port like San Jose, California, would kill 60 000 people and could cost as much as $1 trillion in damage and cleanup, according to a 2006 Rand Corporation study commissioned by the Department of Homeland Security. Even a low-level radiological or dirty-bomb attack on Washington, with low level numbers of deaths, could cause economic damage of $100 billion, according to Igor Khripunov, the former Soviet Union’s START arms-control envoy, now a leading analyst at the US Center for International Trade and Security.

Because a terrorist needs only about 25 kilograms of highly enriched uranium or 8 kilograms of plutonium to improvise a bomb, the margin of error for material accounting is small. Plutonium oxide, easily vaporized and spread across cities using crop-sprayer aircraft, could make entire city centers uninhabitable and a total economic loss in a weekend surprise attack.

NO LIMIT TO STOCKS

Taking only declared and known weapons-grade material, there are at least 2 million kilograms of stockpiled weapons-grade nuclear material left over from decommissioned bombs and from civil nuclear power plants, according to the International Panel on Fissile Materials, a nonprofit Princeton, New Jersey Research institute that tracks nuclear material. Each year, the world's 440 civil reactors (excluding the more-than-300 military and dual function reactors), produce an estimated 75 tons of plutonium.

Present known or declared stocks are enough to make at least 100 000 new nuclear weapons, over and above the weapons stocks of the 5 Declared Nuclear states, of about 22 000, already stocked in their weapons delivery systems such as submarine launched missiles, and in their weapons stockpiles. For the USA former senator Sam Nunn “The elements of a perfect storm are gathering,” and his Washington-based Nuclear Threat Initiative provides extensive lists of plutonium and highly enriched uranium weapons-capable nuclear materials spread over several hundred sites, in 32 countries.

Nunn's research group underlines that a massive majority of these materials are poorly secured. At the same time, the "nuclear genie is out of the bottle", as shown by Abdul Kader Khan producing highly effective and efficient atomic weapons - some 25 years ago - before moving on to offer the know-how to all comers, especially those with an Islamic flavor and the needed cash.

French Greenpeace, the anti-nuclear environmental group provided total proof on how easy it is to breach security at EDF (Electricite de France) reactors, in December 2011. Where reactor sites also include fuel cooling stores, the jackpot for terrorists is only larger, but physical intrusion is in no way obligatory for "taking out" nuclear reactors, causing a worst-case meltdown, and the maximum possible release of deadly toxic nuclear materials.

At least since 9 / 11, nuclear states such as France have reviewed existing barriers around reactor sites, and moved to lower cost security upgrades such as guard dogs and tasers, but fully functional antiaircraft missile batteries would be needed, around every large reactor, to provide total security against drone attacks or crash-landed hijacked airliners. This protection is not economically possible, and several nuclear operators at the Seoul conference will present briefing papers on how saboteurs, if they penetrated a reactor site and disabled the power supply, can trigger a sequence of events similar to what happened when the tsunami struck the Fukushima Dai-Ichi plant in Japan, in March 2011: nuclear fuel rods would melt and there would be massive release of radioactive materials into the air.

INFILTRATING THE ECONOMY

The Global Zero Initiative, whose US chapter is headed by former nuclear negotiator Richard Burt, said in February 2012 that the greatest nuclear security threat in Russia comes from bases in western Russia that house tactical nuclear warheads targeting Europe. These bases provide inadequate security against theft or sabotage, according to the report, whose authors included Russian former arms-control negotiators. In particular, and in a macabre link with the global economy and rising commodity prices, nuclear contaminated materials also including copper, manganese, tin and other high-value metals are increasingly stolen, transported and sold for their scrap value.

About 100 grams of weapons-grade highly enriched uranium, lodged inside a nuclear fission chamber, was plucked out of a Rotterdam scrap- metal yard in late 2009 by Jewometaal Stainless Processing BV’s radiation-safety chief. This recycling company, the largest in Europe for stainless steel, has since 2005 received increasing amounts of radioactive contaminated metals and runs regular radiation checks on incoming scrap.

Quantities of these materials are unfortunately not possible to accurately estimate, but at the end of the Cold War, in 1989, the Soviet Union had about 22 000 nuclear weapons stored in Russia and in satellite states of the Warsaw Pact and Armenia, Belarus, Kazakhstan and Ukraine. Highly reasonable doubt exists that all of this weapons-usable material was recovered when warheads were repatriated to Russia and hastily dismantled under chaotic conditions with either incomplete or no records.

The legacy of the USSR's collapse and the operation of so-called "civil" reactors have created a context where accurately accounting for weapon-capable nuclear material around the world is a major obstacle to eliminating the threat of nuclear terrorism: if we do not know what is available, estimating the risk will be very difficult. Other countries not invited to the Seoul conference include Belarus, home to about 200 kilogram of known highly-enriched uranium, and Niger, the West African nation falsely accused of supplying uranium to Saddam Hussein of Iraq before the 2003 war, in part justified by an alleged Iraqi nuclear-weapons program *****

By Andrew McKillop
Contact: xtran9@gmail.com
Former chief policy analyst, Division A Policy, DG XVII Energy, European Commission. Andrew McKillop Biographic Highlights
Co-author 'The Doomsday Machine', Palgrave Macmillan USA, 2012
Andrew McKillop has more than 30 years experience in the energy, economic and finance domains. Trained at London UK’s University College, he has had specially long experience of energy policy, project administration and the development and financing of alternate energy. This included his role of in-house Expert on Policy and Programming at the DG XVII-Energy of the European Commission, Director of Information of the OAPEC technology transfer subsidiary, AREC and researcher for UN agencies including the ILO.