Table: Main market indices as at May 24, 2010 (Source: Stockcharts for all indices, except FBM-KLCI where I rely on Tradesignum)
Tuesday, May 25, 2010
All main stock markets broke below the 200-day SMA
One of my client spoke to me about the market just now. He was not convinced about a potential rebound in the market (as discussed in my recent posting). Being a non-technical person, he asked what's the most reliable, yet simple technical indicator of a bull or a bear market. Traditionally, the 200-day SMA line is the most widely-used indicator of the state of the stock market. If the index is below the 200-day SMA line, the market would be deemed in a bearish market or vice versa. Based on this, I look through the main stock markets & tabulated the finding below. Except for DAX & our FBM-KLCI, all the major stock markets had broken below the 200-day SMA line as at yesterday. As at 3.30pm, both our FBM-KLCI & DAX have also broken below the 200-day SMA line, with FBM-KLCI trading at 1250 & DAX at 5671. With all the global markets trading below their 200-day SMA line, I agree with my client that we have entered into a bear market & we must avoid the temptation of nibbling in the falling market.
Table: Main market indices as at May 24, 2010 (Source: Stockcharts for all indices, except FBM-KLCI where I rely on Tradesignum)
Table: Main market indices as at May 24, 2010 (Source: Stockcharts for all indices, except FBM-KLCI where I rely on Tradesignum)
Hi Alex,
ReplyDeleteMean now should stop buying and let go all the share ,before the worst come .
Agree with you we must avoid the temptation to catch the low of a falling market.
ReplyDeleteCurrent market reminds me of the rapid falling market in Aug-Oct'08 where the cheap gets cheaper. Quoting from a friend, "Today is mega sale. Tomorrow is grand mega sale!"
Which indicator would you be looking forward to which could signal the end of this so-called mega sale? A hammer?
It depends on how you look at it, the entire world is in a mess. The VIX indicator would be your best indicator if the market were to turn bullish. However, it won't happen anytime soon. It is best to have 85% in cash.
ReplyDeleteGold only shoots up during a crisis or an inflation.
The recent increase in the price of gold shows that everyone is prepping themselves for the worst.
Greece is the least of our worries for now, North Korea and South Korea would be my main concerns for now, followed by Spain and Italy.
Alex:
What do you think of MTD stocks? It is quite a defensive stock amid this crisis. Nevertheless, i sold away 30 lots today since our market fell below the 200 day SMA line.
I did realize this stock held up pretty well during the Dubai crisis, the initial stage of the PIGGS crisis and it is holding up pretty well now amid the pre-Korean war.
Sold at RM3.97.
Dear Alex,
ReplyDeleteAs I mentioned earlier, do not yield to the urge to sell when the market is down in my earlier post/Comments.
To be a trader, we must keep our cool and at the same time to apply some very basic concepts and theory from the TA and Fundamentalist on the Trading market.
The DJ close , (the chart not attached), the recent Plunge in the index is only considered as a DIP,, even though it is already very much below the 200 D EMA. It is still no BEAR market on sight!
Looking ahead, we shall see a gradual calming down both the VIX index and Fear.Factor in the Market
Thanks
Dear Alex,
ReplyDeleteSomeone asked me how do use "Option" to Insure/Protect the STOCK/EQUITY" that we have invested, so I would like to share over here:-
For Example, We are very "Bullish" on a Particular Company ABC Stock which is listed in S & P 500 / FTSE/ DAX,
THE spot price of ABC Stock is USD 10, Then we look through various Trading House /Brokers OFFERS, we make the following selection:--
Company :ABC
Stock PRESENT PRICE :USD 10
STRIKE Price selected: USD 10
Call option price :USD 1 (For the selected Strike Price of USD 10 , AND THE DURATION OF Call Option Expiry 6 months) Note: Option price varies for Different strike prices with different contract expiry dates
Please note that 1 Call Option will be 100 shares.Since you are very bullish on ABC co Stock,So you get the following summary:
1)You buy 100 shares with Cash USD 1000, (Assuming 1:1 Leverage)
2)You pay (USD 1 X 100)= USD 100 for the Option contract (This is the same case when you have to pay PREMIUM for your Insurance(Life /Med/House..)Expiry of contract is 6 months.
3) Assuming THAT after hardly 3 months, this ABC Stock shoots up to USD 15, then you decide to take the profits,YOU CAN TERMINATE THE CONTRACT anytime, so you will gain USD 15- USD 1 = USD 4 PER SHARE, SO 100 Shares will bring a profit of USD 400
4)And assuming that there is another Sept 11 equivalent of NY Bombing, Dubai Crisis, Greek Meltdown, Goldman PROBLEMS, Lehman 2, then the ABC Stock being Crashed below USD 5, ...But THEN YOU ARE STILL SAFE, AND THIS TIME YOU WILL ONLY LOSE YOUR PREMIUM OF USD 100 (TOTAL OPTION COST OF 1 call), Instead of USD 600!!(this example)
5) YOU DO SEE THAT YOUR UPSIDE PROFIT IS UNLIMITED(WITHIN THE EXPIRY DATE), BUT YOUR RISK IS ONLY LIMITED TO A MAX OF USD 100 LOSS,
Does it seem interesting that there are Financial intruments available SUCH AS call OPTIONS for insuring your investments?? (Note: there are also PUT Option available for other application)
Hope that the above can benefit some of your visitors.
Thanks
Hi phkoay,
ReplyDeleteIf you are a cautious player, you are likely to stay on the sideline. If you are the aggressive type, you would not want to miss out on a possible rebound. Should you buy for the rebound? Should you want for the rebound to sell? These are not easy questions for a third party, like me to answer.
Hi John,
ReplyDeleteI like your quotable quote: "Today is mega sale. Tomorrow is grand mega sale!"
The end of any long-term trend is not easy to call. That's because they don't ring a bell when the market has made the top, or vice versa. Hammer or inverted hammer is a possible sign of a temporary bottom or a temporary top. For a reversal of a major rally or long-term trend, you need to look out for bigger reversal patterns, such as Head-&-Shoulders, etc.
Hi Jeremy Tan,
ReplyDeleteMTD has broken above the strong horizontal resistance at RM3.50-60 in early May. Its next resistance would be about RM4.30.
MTD is benefiting from steady, very aggressive share buyback. For example, MTD bought back 844.1k of shares on May 25- accounting for 99% of the volume done on that day (of 854.5k). On May 24, it bought back 485.9k shares, accounting for 89% of the volume done (of 548.2k). As at May 25, MTD owns 25.0 million Treasury shares, accounting for 8.8% of its paid-up share capital. It is approaching the maximum 10% limit very soon.
There is two ways to look at this development: the share price may slacken due to a drop in demand or a positive development may be announced shortly, which justifies the management's aggressive share buyback program over the past few months.
We will have to wait & see which of this scenario may pan out.