Tuesday, September 27, 2011
I mentioned in my commentary that we need to watch Dow 10,719. Why? It's because the market was hanging by a thread. Surprisingly the market made a big U turn after tested it twice and closed above that level. Can I explain? Nope. Do I need to explain? Nope. I've almost given up hope to explain why markets go up or down. I think we need to give Greece a break. It has been the beating boy whenever people are running out of reasons to explain things.
Some smart people have finally try to estimate how big will be the problem if Greece was to default. The IMF estimated the default cost about 400 billion. This does not look like a big number but the financial markets have become so complicated with derivatives, swap and etc... worst still if these instruments were chopped and diced and sold to investors all over the world. I doubt people can quantify it and the only historical reference was 2008/2009 CDS fiasco. That's why people were so freaking paranoid. Why haven't I figured this out? Damn, by the time people like me can explain this in English, I have reasonable reasons to believe we are almost at the end of this European fiasco............
I do monitor my own level of bearishness. I remember my mood was very bearish around March 2009 , I was expecting Public Bank to go down a lot. This time, I noticed that I was very bearish about Tenaga and expect it to go down to 4.5 level. Below 5 but not very close. I also noticed that almost 29/30 FBM KLCI stocks were down yesterday. That was a sign of people throwing towels.
When the market opened this morning, the spread between buy an sell was totally unrealistic. The buyers were expecting people to sell them at lower than yesterday closing price. That's extreme. When I saw stocks like Genting Malaysia got beaten down to less than $3, SP Setia down to less than $ 3. To be honest, even a bull like myself was also shaken. Dare not publish a word on my blog. That is a sign that blood is on the street. These are signs of capitulation.
Under environment like this, I devise a two-track-strategy. One track is for buy and hold strategy like Turtle portfolio with almost zero turnover and another track is market-timing strategy. After this U turn, my market-timing strategy is telling me to watch Dow 11,500 level. Dow went into free fall(twice) when it failed to crack above this level. That is why you see the split personalities in me, if you have not noticed it already.
The 6 million dollar question is did I buy stocks last two days? :-)