Over the last few weeks, some technology stocks in Singapore follow the footsteps of US technology stocks, having significant correction in share prices, triggered by various negative news or market fear. Is it the end of technology stocks bubble or just a temporary price correction?
Strong fundamental technology stocks such as Venture Corp (SGX: V03) and Valuetronics (SGX: BN2) have dropped more than 25% in short term stock prices, disappointing many traders who hope to buy high sell higher with support of strong company fundamental. Other popular technology stocks such as AEM (SGX: AWX), Micro-mechanics (SGX: 5DD), Sunningdale Tech (SGX: BHQ), UMS (SGX: 558) also suffer various degrees of share price corrections, worrying the traders.
Here are the general strategies of momentum stock trading, not limited to only technology stocks:
1) Momentum stocks required strong support from business fundamental at least for the last 3 years for short term trading, proven growing business records of 5-10 years for longer term investing.
2) Due to bullish global economy with strong consumer market over the past few years, some technology stocks have been at long term high optimism with short term uptrend prices, momentum supported by strong business fundamental. This is as if walking on a layer of thin ice, mainly suitable for short term momentum trading to buy high sell higher.
3) When momentum of short term share prices are lost (could be triggered by earning alert, negative market news, etc) is a potential danger signal. A momentum stock trader needs to follow the trend to exit (eg. when a critical price support is broken), not to enter as a trader (aiming for 10% return) but hold as a long term investor when the stock market moves in opposite direction (potential more than 20-50% loss).
A trader at long term high optimism market would not guess the stock prices of next day, following trend to take action with support of strong business fundamental. Global technology giant stocks such as Facebook (Nasdaq: FB), has started to recover after significant price correction, however, the past momentum may be transformed into cyclic or swing trading. For Singapore technology stocks, beware of the sharp falling knives in bearish share prices, not to buy low too early which may result in lower share price.
Understand support and resistance with share price trends in Technical Analysis (TA), monitoring the business performance through Fundamental Analysis (FA), integrating Optimism signals at Level 1 (individual stock), Level 2 (sector), Level 3 (country) and Level 4 (world).
Regardless Buy Low Sell High (cyclic stocks) or Buy Low Hold Long Term (growth stocks or dividend stocks) or Buy High Sell Higher (momentum stocks), a smart trader or investor has to be consistent in own strategies, eg. What stocks to buy, When to buy/sell, aligning with own unique personality.
Learn from Dr Tee through free stock investment courses on 10 strategies of stock trading & investing.
