A super run-up for our market today on the back of strong regional markets, especially
After I sent out the market update some time after lunch about all the 3 regional indices breaking above their previous highs, HSI soared up by 1,000 points. Coupled with rapidly climbing US futures, a phase of panic buying was triggered. People were madly grabbing up stocks like they would never get the chance to buy again. The sentiment was really crazy – as though as we are in a bull market. Though I dare not confirm that we are entering a new bull market, I think it is very likely that we have left the darkest moment behind already.
Okay, let's try to be more rational now and analyze the whole situation properly. STI has a nice, strong-looking white candlestick in its chart today due to the 102-point run-up on strong volume. By tomorrow, the 20-day MA will most likely cut above the 50-day MA, confirming the renewed rally. But take note that moving averages (MAs) are lagging indicators, that's why they are unable to pre-empt the rally. They can only serve to confirm the rally is happening, just that another consideration on hand is: they are also slow to tell us if the rally is losing strength. So we cannot make the decision to chase the stocks solely on looking at the MAs.
Chart wise, STI is enjoying some support at 1,780 after breaking successfully above it. There is another support around 1,730. Basically for me, I feel that after the 3 regional indices (STI, SSEA and HSI) succeeded in breaking above their previous high points, we can be quite certain that things are certainly much better now. The performance today has created the possibility that STI can venture up to 1,880 to cover back a gap. But it would be irrational to think that the index can just run up all the way till there without any minor pullbacks along the way. For serious traders who want to play up this potential run-up, it would be more sensible to enter on pullbacks. Use 1,780 and 1,730 in the STI as strategic entry points. But if you are very fearful that you will miss the prices altogether should there be unfortunately, no pullbacks at all, and you are dying to buy some now, then you have to be mentally prepared to hold the stocks. And because our strong performance today has probably expected a fantastic
Another separate observation worth sharing: market. STI surged 101 points to close near day high at 1,803. Volume traded was extremely high at 1.82 billion shares worth $1.66 billion.
During the credit freeze last October, STI plunged till 1,475. Within a matter of 3 months (early January), STI recovered to as high as 1,960, when all the bad news were still coming out. Now that we had seen/heard all the bad news already, furthermore we are starting to seen slightly positive news already, is it fair enough for us to say that STI can potentially recover to at least 1,960 again?
On the strategy that I will recommend, other than waiting for the market to pull back slightly before we enter again, I will say that we can try consolidating on the lower beta stocks as explained last time. Investors are concentrating their efforts on the high beta stocks because these are the counters which will run up very quickly during market rallies. Therefore, we see the safe-haven stocks being neglected or even sold down recently. This is the time whereby we should do contrarian trading on them.
Though the potential gains will be modest, the investors will likely flock back to them once the high beta stocks pull back. And once we have sold the safe-haven stocks to them for some small profits, we can start collecting on the high beta stocks while they are consolidating. This way, we are not really chasing stocks while at the same time, we need not miss out too much of the fun that is going on.
Note: Kindly read my first post, About Myself, on my disclaimer. Thank you.
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