Enlightenment by a Market Wizard, Michael Masters on CATALYSTS

Accordingly to wikipedia definition, Catalysis is the process in which the rate of a chemical reaction is either increased or decreased by means of a chemical substance known as a catalyst. Unlike other reagents that participate in the chemical reaction, a catalyst is not consumed by the reaction itself. The catalyst may participate in multiple chemical transformations. Catalysts that speed the reaction are called positive catalysts. Catalysts that slow down the reaction are called negative catalysts or inhibitors. Although catalysts are not consumed by the reaction itself, they may be inhibited, deactivated or destroyed by secondary processes.

The analogy seems similar if applied to financial instruments such as stocks. I learnt this valuable piece of information from Michael Masters, who defines Catalyst as an event or an upcoming event that has the potential to trigger a stock price move by changing the market's perception about a company. Catalysts are repetitive events - earnings are reported four times a year; retail companies report same-store sales monthly; airline companies report load factors monthly and so on.

Even though this concept might seem rather simple and straightforward, I might not have been paying too much attention and neglecting it til now. Luckily, it always never too late for anything. Let me run through my thoughts and record this important lesson down as my personal learning log, and best method is to apply it to what has happened to some counters which can be explained by this phenomenon.

BYD - Brought to limelight due to investment by Warren Buffet. Further enhanced by planned listing in Chinese Exchange in 2010 and recently speculation of additional investment interest by Warren Buffet.

Midas - announced planned HK listing on 22 Sep 2009.
















Wilmar - Proposed listing of chinese subsidiary on HKSE. Price keep climbing even during reaction and falling oil price.















Noble - Huge investment by CIC - china investment corp announced on 22 Sep 2009















Another type of catalysts which is predominant recently is the issue of right issues by companies to raise cash, which is normally accompanied by a run up of prices before announcement and subsequently prices trading higher followed by the issue of the rights. Possible explanation could be market perceiving this as a positive catalyst of raising cash to expand business and of course increased liquidity.

Examples are as below:

Sinomem















Sinotel

Surprise earnings Catalysts
Hiap Seng















Tiong Woon















Failed Catalysis even though perceived positive investment by a synergistic fund and a fundamental strong stock failed to take off.
Tat Hong

Shanghai Index - Given a steriod jab

Sept. 5, 2009 -- China plans to raise the amount foreign funds can invest in stocks by 25 percent to $1 billion, encouraging inflows after the benchmark index slumped into a bear market last month. I have basically no idea what the chinese officials are doing. They seemed rather inexperienced when dealing with bubbles. In that case, they might as well engage experts like George Soros, but I guess there are too many agendas and political issues involved in engaging a foreigner to deal with internal affairs. In their attempt to curb the rapid rise of the chinese equity market just few weeks ago, it resulted in a huge reaction, much to their displeasure. They are now reversing their stand and is now taking measures to increase and allow foreign funds to partake a bigger stake in their market so as to prop up the market. Does it not occur to them in doing so, it will accelerate the market to an even more bubbly condition? Not that I am complaining since I am now bullish and have been increasing my stake in the market, but I am just very curious at the controversial measures they have taken since they came into power few years back. 

From the chart point of view, as I have anticipated, the least line of resistance is to the upside. The downtrend line is now broken and thus reduce the risk and likehood that it will be a bear rally. I have also updated the uptrend line with the reaction now over, although it is not a perfect one. In my humble opinion, trading is not an exact science. It is more of an art form, so is drawing a trendline.

It does seems now that the probability of the index going from current level to retest the recent peak is rather high as the trend resumes as mentioned in my earlier post. With this in mind, its time to get myself busy once again.

Shanghai Index - Trend continues.....

Today probably makes the turning point as the market resumes its uptrend. Needless to say, it was led by chinese bourses with SSE closed up 4.79%. My margin reached over 70% as many of my pending orders were filled up and showing a decent profit. I had to unwillingly cancel the remaining of my pending orders as my fund will only be credited into my account late next day, and I do not want any of my position to be closed prematurely due to margin call. The sucky thing is that I will be leaving for London tonight and I have no control till I arrived at the hotel for the afternoon trading session. My watchlist is showing several good potential candidates which will probably breakout tomorrow and this will prove once again the importance of protecting one's capital so that when the opportunity comes, there will enough to capitalize on it. Unfortunately, due to my folly few weeks ago (which I will explain in future), I am only half prepared for this resumption of uptrend. In fact, I should have known better when my mentor advises the use of DMA broker rather than a marketmaker. As such, I hope my funds will reach my DMA broker account by the time I reached London and hopefully in time to enter my positions.

Way of the turtle

Started on this book. Hope it will not disappoint me. But something mentioned in chapter 3 did caught my eyes. 4 core principles to successful trading :
Trade with an edge
Manage Risk
Be consistent
Keep it simple

Shanghai Index

Shanghai Index closes down 6.74% today. It was a long time since I last remember seeing the China market sunk such a magnitude. The academics or news writer or whatever they are called have deemed that the chinese market has entered bear market, which has by now dipped more than 20% from its recent peak. I reckon this is another huge reaction, and since it was so fast and aggressive, I also reckon the rebound will be just as furious, like a flying dragon. Fundamentally, I reckon the world economy is on its way to recovery and nothing has changed this fact yet. This would likely prove to be a enormous effort and shakeout by the big boys who had missed out the huge rally to accumulate their long term positions. Likewise, I believe those that has missed out the rally this year, would have to grab this once in a lifetime chance before it is gone soon. Mr Market, at most times, does give a second chance.

Reminiscences of a stock operator

Had just finished this book over the weekend. Really got me thinking for a while. Will probably take some time for me to digest and appreciate what Larry Livingston or Jesse Livermore is trying to impart to me. From his narration, it seems that he did not only rely on tape reading for his trading. It does occur to me that he dug through annual reports and research heavily on the fundamental side before plunging into any operation, be it as a manipulator or a stock operator. Looks like I probably have years to go before becoming "KING" for one day which he have spoken on.

Birth of a stock operation blog

Decided to create a blog and start jotting down my stock operations (in fact, this is the first time I am blogging.. call me "Antique" you may). As a stock operator, it will serve me well in future as important memories and reminder, something like what a journal does, which I have never had one before.