Will History Repeat Itself?

There is certainly fear running around global stock markets and the possibility of a second dip is getting higher and higher.

The ultimate fear index:

The DXY accurately predicted the previous stock market plunge in 2009. Will this time be the same? Undoubtedly, the fear is confirmed and the VIX index is also correlating with DXY. One thing is for sure, the fear factor is very high.

Everyone is rushing towards cash. The problem now is to predict the reversal of such trend in order to profit from it. Inability to make good judgement could result in financial loss or loss of opportunity.

It is now a strategy play and this time is against the possible recovery of finanical system problem in the Europe and also the side effect that may put big hurdle to the global economic recovery.

If the DXY is a good indicator, this fear may also be overdone as shown in the double peak above back in 2008-2009. The first peak doesn't lead to major plunge in stock market. It was due to the Lehman bankcrupcy which was very limited to the company itself only. The second peak of DXY was due to the potential collapse of US big banks like BAC and Citigroup. The US government bailouts saved the banks.

This time round is the entire Europe. Greece is the starting point like Lehman Brothers. The EU bailout is similar to the US "too big to fail" bailout. Historically speaking, bailout should work at least for a while. One should expect the market to calm down a bit after the bailout but and yes, there is a "but" here, EU consists of many countries unlike there are only two parties in the US congress.

This also led to Warren Buffet's "fear" of the current situation and unprecedented EU bailout itself is a risk as it is an unknown factor. Investors don't like uncertainties and this could shun any potential interest in stocks.

Back in March 2009, US earnings reports were really bad and this time round US earnings are actually very good. But that isn't adequate to boost investor's confidence. Dr, Doom (Roubini) is also giving stern warning like the one back in 2008, coupled with Richard Russell who is giving a warning that is worse than Dr, Doom (Sell Everthing Liquid!), the fear this round may surpass the one back in March 2009.

Back to Bursa Malaysia. During March of 2009, companies are reporting bad reports as those in the US. This time round, the reports are as good as the rest of the world. Eventually rally in stock market must jive with good earnings and that is what stock market is all about, business.

My conclusion, this fear could be overdone as it may not affect the earnings of companies that are not relying on Europe's economy. If US companies are getting a hit in their earnings, it is time to "sell everything liquid". If not, it is a good time to "slowly" buy the stocks of good companies. The next earnings season is in September. That's the time we should "sell everything liquid" and wait for further signal from earnings reports of US companies.

Time to buy or bye?

The market is actually expecting another global financial tsinami as indicated in the following DXY index chart:

DXY, or an index of USD, has a lots of European currencies as its component. By comparing with the possible default of Citi and BAC back in March 2009, the market is expecting another financial tsunami in the Europe that could possibly sweep through the entire world especially in global financial market.

The market may not be right or it is always right? The market is always right as it indicates the current situation, fear. The market may not be right as the fear may be overdone and the future is still unknown. This sharp rise of DXY is more severe than the one of the US. It's always good to keep cash in this situation. Whenever there is a sharp drop in the DXY, it is time to buy. Hope you folks like my analysis and make some gains from it. Good day!

Bulls and Bears of the coming weeks

Bulls
1) US earnings are good overall
2) European financial crisis is subsided due to 1 trillion euro bailout
3) Greece and Spain problems are under control
4) US economy is improving overall

Bears
1) Bank Negara Malaysia raised another 25 basis point of interest
2) BJCorp/BJTOTO can accept bets from Worldcup 2010 or other sports games (more money will go to gambling than stock market)
3) Malaysian school holiday and World Cup 2010 are approaching fast
4) European massive bailout was unprecedented and everyone is cautious

The raise of interest rate by Bank Negara Malaysia (BNM) may not send the stock market down a lot as it was already highly anticipated and factored in manifested in recent Bursa sessions. The downside is also limited by potential raise of BLR that could spur a buying spree of properties before the hike. If there is no surprise, there is no huge market reaction. This is the rule and psychology of a stock market.

The biggest problem is still the coming World Cup 2010 and school holiday with extra spice from Sports Toto that accepts legal bets from the entire nation.

Stocks to watch? Buy at your own risk. Buy stocks that you are willing to keep for at least 3 months or you are in a good position to anticipate for a possible market slowdown ahead.

 

Interesting Week

Last week was a dramatic week in stock market history with European problems start to spread and inspired a fear in the US that may have caused a unprecedented plunge of DJi 1000 points within 5 minutes.

Last night, the US DJi surged more than 400 points after the EU approved on a 1 trillion euro bailout plan.

The credit crisis obviously has spreaded out of US to Europe. If it is not well controlled, it could be another financial tsunami that may sweep through the globe again.

The bailout is able to calm the market so far for now. What is in store for the coming weeks? I think experienced investors may start to play a defensive game here. Young and amateur investors will still jump into the gambling table but they may not stay there for long either. It now all depends on whether there are more problem with the Europe and probably in the US. With US recent good looking scorecard in the earnings season, US may be starting to recover from the '08 financial crisis. The recovery may be runied by European problems if not well managed and controlled.

What am I doing? I just sold off my HUNZA property for RM1.27 and I will be keeping cash and rest on the sideline waiting for more safe opportunity. It is always better to keep cash when there are so many uncertainties around. I may be wrong but it is always not bad to play safe. Playing too safe may be a problem too as it indicates my weak personality who always want to run away from problems. I will stand safe and bold to react to crisis as a responsible human being.

Bear is on its way?

The contiunous sell off in the stock markets around the world may indicate a bear market returning to the reality. Honestly speaking, it is quite hard to find a catalyst to boost the stock market as all of the good news have already been priced in. The Europe problem may just be the tip of an iceberg.

To buy, sell, hold or stay away?

Strategy wise, it is always wise to keep stocks of good companies at low price. Any sugguestion? I think low PE and good dividend are of an attraction to investors for now. I recently bought 50 lots (5000 shares) HUNZA Property averaged at RM1.23. I also let go all my TITAN averaged at RM1.28 with total profit of around RM1k. So far I am breaking even for 2010 with a loss RM1.8k before CNY, 0.8K profit from Pelikan, and 1k profit from TITAN. I am back in business with a capital of RM30k as at the beginning of this blog.

I am back in break even point waiting for new opportunity. The current strategy is to play a defensive game against forthcoming bad news from Europe and China. Hope everyone is not hurt in this market condition. Strategy is the key now.

Should I be buying today?

Everyone now knows there is a correction throughout the world with first China declared its slow down in growth yesterday and also the recent oil spill problem in the Gulf area. With Greece problem still unsolved, the added burden to the stock market finally adjusts itself in terms of pricing.

The correction seen today throughout the world left the investors wondering whether it is a good time to buy.

I also feel tempted to dip my head into the water a bit after seeing the price of some of the stocks that I previously wanted to buy. Here are the stocks I was watching: DUFU, PELIKAN, ETITECH (earnings this quater not good), LEADER, KFIMA, etc. These are value stocks with low PEs. PELIKAN and ETITECH are of special case as someone seems manipulating the stocks.

It's good to pick some defensive stocks too like BJTOTO. The best strategy is to pick up some and let it run by its own course. As the amount bought is small, one can afford to hold the stocks for a while until there is a buying interest that reflects in good selling price.

Is the bear back? I don't think it is quite yet unless this trend continues for a few more days. Happy trading!

Sell in May and go away?

Welcome to May 2010. There is well-known slogan among investors in the world saying "Sell in May and go away". This applies more to US as US is having its summer holiday and many investors are on vacation. This caused a in dip in trading volume which may indirectly caused a drop in stock prices.

However, for the past two years, the trend seems reversed and the surge in stock even happened in May and the months onwards. My explanation for this phenomena is that when the economy is bad, there are less investors go for holiday and the stock market is still hot and the beach is less crowded. People refrain from travelling as the cost is high and personal budget cutting is good for the pocket during hard times. That is why we see the reversed trend in the past two years.

How about 2010? It depends on the number of investors that turns into traveller's headcount. By looking at the oil price and economic condition, I would say there could be a small correction in June. The reason is that there will be more investors turn travellers this year due to the improved economy. However, the recovery is still not strong enough with the US unemployment rate of 9.7% and interest rate of record low, stock market is still a better place compared to beaches. Some who made a fortune in 2009 record surge in stock market may sell in May and go for vacation. This may caused a small dip in trading volume and thus a small dip in stock prices. That is how I hypothesizes a small correction in June.

But all these assume that there will be no problem with the rest of the world. If Europe problems erupt one by one, there will be corrections but the correction could be small unless there is a systemic problem with the Europe economy.

Therefore I would say "sell in May and go away" but don't expect big correction as in March 2009.