Sunday, October 9, 2011

Explain it again, one more time.

This blog was born around the beginning of 2008, after the market topped out. The market continued to slide down while I continued to stay bullish for a while but I turned bearish starting around Sept/Oct '08. At that point of time, the portfolio was young and I have not much to lose because the portfolio was small, only about $ 10,000 through October '08. The damage would not be great if I were to mis-read the market.

This time round, the portfolio stood at $ 44 k. If I were to get it wrong. If the markets were to drop another 15-20%, this portfolio can suffer losses of $ 8 - 9 k. It will make it more difficult for me to recover or improve my return.

The following chart show 2 obvious stages for bull run after bottomed out in March 2009. The first stage delivered almost 50% gain within 5-6 months before went sideways to make way for the second phase of bull run. The second stage delivered additional 30% gain but went sideways for most of the time. To win big, I must make sizable bets after the market has a huge decline. The window is quite small and that is why I am willing to forgo some technical rebounds and prefer cash instead.

There are a few developments concerned me. Hang Seng Index entered bear market around August 2011 and suffered about 30% decline when it topped out from 25,000 level. Usually the index can fall by another 20-30% after it entered bear market.

Our market usually lagged behind more risky markets about 2 - 3 months due to the perception of safe haven.

There are a lot of people argued that about the US market is just short of 1% to enter bear market and followed by key reversal day have caged the bears, for now. But I believe these bears will not give up easily. It's a matter of time they will revisit the previous low again.

Two. Huge breakdown in the copper market really concern me. It's a strong indication of China market is slowing down.

Three. The European sovereign debt issues have stolen the limelights. The worry of slowing down or possible of a recession was not discussed much by the media yet. Soon, instead of watching political theatrical plays in Opera London, people will buy a few tickets to watch Broadway shows in New York.

Four. I believe the authorities are running out of policies options to tackle anaemic growth problem. The emerging economies have to slow down so that it can reduce growth in exchange for friendlier commodities price. Falling commodities price will lend to slower inflation rate. Taming inflation will, then, only giving them some rooms to ease their interest rate.

Five. The big bears are not out there yet. When these big bears start to appear on TV regularly. When big bears running their bad news windmill at full speed. That will reinforce the downward spiral.

Six. Possible Malaysia GE may bring some cheers but it's a double edges sword. If they lose in next GE or deliver some nasty negative news post GE. The downside risk will be tremendous.

Seven. This is not a concern but I think the possibility of year end Santa rally will make people feel at ease, cheering the bull markets are here to stay. The bears are dead. The complacent market participants may get slaughtered later. Will Santa rally turns into a Trojan Horse troy?

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