Over 20% of the world populations are celebrating lunar new year of Horse 2014 but the “Wooden Horse” stumbled on the first trading day of global stock market, against the best wishes of traders to have a leading horse up the hill of bull market. This poor opening could be a disappointment to most stock traders and investors. However, for those who attended my earlier Global Market Outlook Workshops, they will understand that this is actually a blessing in disguise.
With the accelerated recovery of world economy, most regional stock markets have good performances in stock market in year 2013, except Singapore market (STI) continues to sleep, having virtually no change in position. The main mid-term risk of global investment market is US stock market which has climbed up the hill of bull market (reaching about 60% Optimism, a leading stock market) without a good rest of 10% or more correction, even after the announcement of the first QE3 tapering. US stock market requires a correction, so that the global stock market has the energy to go up further in phases of bull market. The recent second announcement of QE3 tapering (reducing QE from $75B to $65B) and slow recovery of emerging market (eg. China), giving a good excuse for some global stock traders to take the profit and wait for the next buying opportunity, leading to the overdue correction.
Even the stagnant Singapore stock market is affected, STI falls below 3000 points (ending 2990 points on 3 Feb 2014) for the first time since Nov 2012. This is also the 6th time in the last 4 years for STI to go above and then below the 3000 points of psychological barrier during a mid-term cycle (usually a few months of duration). On 20 May 2013, STI was at mid-term high of 3454 points, there were traders who hoped to buy high and sell higher, especially for property related stocks. Since then, STI has been corrected by about 13% and REITS sector index is down by about 20%. Many people prefer to wait and see during this period, staying sideline, not taking any new action.
Some workshop participants asked me in the past few months whether it is a good time to enter the stock market. The question I asked in return was: “Do you feel scared?”. In fact, most people don’t feel fearful nor greedy in the past 1 year, aligning well with the sideway trend of STI. If you are not scared, then it is not a reasonably good time to enter the stock market. If not only you are fearful but over 75% stock traders or investors are pessimistic, then it could be a golden opportunity to enter the market. Although STI and many regional stock markets are near to 50% Optimism, upside is about the same as downside, but there are still individual stocks, sectors and even regions which are trading near to or below 25% Optimism with 3 times upside more than downside.
NOL today (3 Feb 2014) is exactly at $1.00/share, meeting my earlier recommendation to buy, this is the second time it has reached $1 since the global financial crisis in 2009, last dip was Nov 2011. Although NOL has poor FA, its poorer price has compensated for the weakness. Similar recommendation was to buy China SSEC Index related ETF when the index is at or below 2000 points, which happened for the 3rd time about 2 weeks ago. There are also other fundamentally-strong stocks which are trading at low Optimism level. One who follows this simple strategy of buy-very-low sell-very-high, may not see these stocks to go uptrend immediately after buying at such low price. Instead, likely they have to endure a relatively short period of winter time before the spring time may come. STI or related blue chips, are considered reasonable good buy when STI is trading below the 50% average line (3000 points) of the index channel of 2700 – 3300 points, lower is better, depending on one’s patience and market opportunity.
Buy at very low will enable us to maximize the profit in longer term but one has to control the emotion of fearful market. Following the trend is a common trading method used by traders but one has to be the top 10% best traders or at least the lucky ones to enter during the initial phase of the uptrend, else the future upside will be limited when the uptrend is confirmed, eg. when STI is above 3300 points, susceptible to the next market correction. A stock trader or investor has to make the decision whether the ultimate goal is just to win (regardless of % gain) or to maximize the profit (may not immediate, having holding power of over 1 year), then aligning the trading or investing strategy accordingly.
