24 January 2008

Bear - It is not so scary

First of all we have to accept that the trend have broken. I can't predict whether STI is going to surge to 4000 or correct to 2500 because you won't believe me even if I tell you so.

Today is the first time I pull out chart in STI Breadth blog. The topic is not where are we heading but to explain why Bear is not as scary as you imagine. It is obvious that we are not going to earn as good as Bull but it is not as bad as you think.

Chart 1

Look at 1999 scenario, it is not a true Bear but it is very irritating because of the volatility of the market. STI swung about 3-4 months before breaking out from the sideway trend. Every short swing will wipe of a lot of contra/margin players and this is good for investor because the purging out the leverage position means we can see the true value of the market in this way.

Surviving 3-4 months is not hard provided you do not over-leveraging and I consider this to be sideway market rather than Bear.

Chart 2

The recent Bear we are seeing is this period of time. It is from Mar 2002 to Mar 2003 when the market is melting slowing from 1800 to 1200 level before forming a double bottom to reverse the trend. As you see here, the trend has not been broken since this one year period. There are actually about 5 rebounds in this period and the rebound was short-lived.

The reversal only confirms upon trend breakout and it is not as bad as you think. Bear market cools down the over-leveraging therefore it is a healthy sign for investors. Either you are chartist or fundamentalist, you can benefit from Bear as well.

Chart 3

This chart is continue after Chart 2. Double bottom formed and STI breakout from trend to start the Bull run. From here is where leverage activity starts.

Few good years enough to multiply your returns. From the dividend you received during the Bear you will have a good start ahead.

One must remember that stock market is a long game and involving a lot of tactics such as attacking , defending, camping etc. Everyone starts with the hope to multiply their return 10 folds every year but how many people can do that? Most of the players ended up pilling a lot of loans and liabilities in Bull run. (Seriously, if you go negative in Bull you can almost say farewell to the stock market. You are not supposed to increase liabilities in Bull.)

If everyone thinks that they can be George Soros then who going to be the carrot head? To born a winner, you need 5 losers.

Chart 4

This is now what we are facing. The trend has not break out therefore no confirmation Bull still continues. The dip is irrational (but market never acts rationally) therefore rebound is for sure but what is the magnitude and time frame? Is it very similar to chart 1 and 2? How do you make sure a sideway or Bear market ends?

Buying for long term is good now. Trading in such volatile market is not easy.

Remember what I said, do not increase your liabilities in Bull. One who able to pick at bottom is the one who escapes the top. Sometimes we need to be patient and look for chances.

Sad to say some of us become carrot head and created a lot of liabilities that they 'earn' in Bull. It is not end but you might like to consider to change your strategy or else the stock market is not suitable for you.

Most likely you will continue to repay your loan/liabilities for next few years when the cycle turns and missed another round of Bear turns Bull. This is what is the consequences from the mistake you made or going to make now. The risk vs rewards are not so attractive for short term now.

House Number

01 AmFraser
08 CS
12 Lim&Tan
20 Philip
21 KimEng
25 Daiwa
26 BNP
31 DMG
35 SBI E2
36 Fortis Clearing
37 Lehman Brothers
39 Instinet Singapore
71 Nomura
72 Daiwa
73 Macquarie
77 ABN
78 Merrill Lynch
79 JPM
82 MS
83 Citigroup
84 UBS
86 DBSV Online
87 Westcomb
Thanks ccloh for providing my long lost house number list


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