Thank God it's Friday. It's time to wind down and regain perspective. Decoding market sentiment is just like playing jigsaw puzzle. The bits and pieces will be given to us one at a time, hopefully we can put it together to get the big picture right.
When it come to a point that it is just to difficult to decode it, I will just take some money off the table and take a break. When China Composite market dipped into bear market by definition, two days ago then bounced back so strongly yesterday. The world of course cheered and assigned that as the reason of the US rebound.
I normally will lose money quickly when I put in money in a hurry after taking profit when I see a number of indicators are pointing to a correction. Sometimes, the market will frustrate me by rallying another 5-10% or so before a correction sets in, this is described as point of maximum frustration.
Let me borrow a chart from dshort posted by S Dali of Malaysia Finance. It's a great chart actually being a chart lover myself. Let's try to translate this into risk-reward. If the path of recovery is tracking oil crisis, S&P 500 has another 25% potential gains but if it is tracking dot com bubble, there is a potential 0% gain after it has gone up by 48%. In index terms, 75% up from 666 bottom will be around 1,165 or stay around 1,000 points sideway for 1 - 2 years?
In an evironment like this [after a huge gain], buy and hold of an index fund will likely to get frustrated. In my opinion, investing strategy should not based on momentum as we are tracking this terrain. We got to go back to basic -- picking undervalued stock laggards or business that can grow faster than GDP.
1 comment:
most likely it will follow the grey line, based on elliot wave cycle and consumer retrenchment, financial deleveraging, commodities crisis (less production for developed countries), more government regulation, rising protectionism and slow economic growth in the next decade. Good luck.
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