Tuesday, November 23, 2010

The longer the corrections, the stronger the bounce

I was anticipating the corrections to last longer, 2 - 3 weeks will be better. The sentiments were very firm making you believe that the reverse direction is not possible. It has taken a number of bad news to water the markets down, even that I still feel it has not corrected enough.

The market was trying to look for clues whether the liquidity will be mopped out. Naturally they look for signs whether the Chinese government will raise interest rate or order banks to increase their reserves and etc. The implication was a slowing down Chinese economy is bad because eventually demand for commodities and etc will be softened. This in turn will eventually affect its trading partners.

Then came the Euro-zone bank bailouts. Bailout of Ireland banks will probably require a strict fiscal diet that normally will force them to clean up the system -- we will expect contraction for a while. If Spain is the next target then I think the situation will turn even more bearish.

Then Thailand was reported to be in a technical recession because of two consecutive quarters of contraction. A number of Asia countries like China, South Korea, Taiwan, Malaysia, Singapore, Indonesia and etc are pointing towards a slow down. I can assure you that Q4 will be even slower than Q3, let's see how the market will price this in at beginning of next year.

Then I received a SMS alerted me that there is a conflict between the North and South and Korea that may trigger instability in the regions. War ? come on-lah.

Despite of all these negative news, the big white wash out is still not here yet. When that moment arrives(another 3-5% drop), I shall not be gun shy -- buy on dip on liquid stocks will give a decent chance to make some money. Need some justifications? December typically has less news flow because the reporting season has ended and not many economic announcements as well. Given enough bad news, absent of bad news can be good news. It is also time for fund managers to do window dressing so that they can keep their jobs.

Let's change subject, if you ask me why I did not rush into buy RCE Capital. The logic is simple, my general observation over years of investing experience, rushing to buy a stock after a good news being announced is not a good idea, we tend to over-pay(buying panic). Two, if the big boys are not buying yet, retail investors don't have that kind of gun fire to create a strong breakout. So, let's other people to settle down with their emotions first.

Why am I still like to buy CIMBX25? Hang Seng Index itself has not done badly since it bottomed out in March 2009 but Chinese related stocks have not caught up and still cheap historically. It's also one of the worst performers in the world and I like to buy when they are out of favor. So I just put in some small amount of money at regular intervals.

I will be taking a few days off going holidays with my family. Ciao!

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