Here are the observations today:
It was another volatile day with huge volume done. STI traded within a fairly wide range between 1,827 - 1,868. The market retreated upon hitting resistance region at 1,860, but recovered quickly during the last trading hour as the
Because of how the market has turned so positive lately, I feel that I need to lay out a more wholesome strategy so that clients with different risk-return appetites, especially those with higher risk appetites can try dipping their toes in the market rather than get too restraint by my usual set of strategy. Originally, my strategy offers the most downside protection during the bear market. But as the market sentiment has seemed to change entirely, my current plan also resulted in some opportunities lost.
Now let us try to work out the likely scenarios in the near future, and then the possible strategy you might prefer. The pullback upon hitting the resistance region today was evident. But it is also as clear that the buyers are as serious looking at the way they jump into the market to support it. The prices never have a chance to retrace back to their stronger supports at all. Buyers seem to react to the slightest weakness.
Having reached an intraday high of 1,868, the gap in STI chart till 1,880 has been partially covered. Technically speaking, there should be significant resistance from 1,880 and 1,940 region. But as the 20-day MA has cut above the 50-day MA indicating a confirmed rally, the strength might be enough to push STI up further before a sizable consolidation sets in. From these events, 1,780 and 1,800 are starting to become stronger supports already, meaning that the chances of STI retracing beneath them are getting lower and lower. In exact to say, the prices are very likely not to return to the recent March lows, or even last October lows anymore.
If this analysis turns true, it will be very bad news for the long-term investors who have been waiting for cheaper prices. As discussed last Friday, I think investors have to look at a bigger picture of 3-5 years investment horizon because at current prices, most stocks are trading at SARs period levels. As the pullbacks are always so mild, by the time the major pullback sets in, the prices might end up to be the same, or even higher than now. Though ideally we should always buy on major pullbacks, if they don't come, I guess we can only take the minor pullbacks. Just buy in smaller quantities per batch. In the event that we are in a bull market, then we will buy more at every pullback even if it's a minor one. So for the more risk-adverse adverse and long-term investors, if you still think the current prices are becoming expensive, then I will suggest that you start collecting some defensive stocks minimally. At least they have not rally up yet as people are concentrating on the high beta stocks currently. I think it will be unwise to wait too long for the good counters to come back down, because by the time the next bottom comes by, it might be another 7-9 years down the road (assuming that this bear market has ended).
Another to note: because the rally is extending to the smaller cap stocks, many of them are on the verge of breaking up too. If you have such counters bought at much higher prices last time, I will suggest that you buy some to average down soon. We never know if they will or will not go back down again. This only applies to the better small caps. Otherwise, I will prefer to cut loss or just wait out instead.
While I had mentioned that the shorter-term traders need not be too bothered about what is going on right now, I shall start to differentiate the strategies to be used for traders here. Price trading is not really useful now anymore after this major run-up has allowed many counters to breakout of their previous trading channels. Other than SingTel which has a relatively stable trading range, I cannot find any other counters which are good for price trading.
Contrarian trading is more suited for the more risk-adverse traders and preferably with holding power. Basically, contrarian traders collect counters which they believe have been oversold and wait for the counter to rebound when other investors realize it and start buying too. For now, this strategy is applicable to most of the safe-haven stocks.
Trend trading - as the name suggests, traders will try to identify the counters which might enjoy some upside/downside according to the market sentiment and long/short them. This strategy is for the risk-takers and most of the time requires the traders to play hit-and-run due to the intense volatility involved normally. If not, traders should have deep pockets in order to pick up the shares. The market situation now is more suited for this strategy now, but not everyone is able to take the mental stress and possible losses should the trades go wrong. Therefore, I will advise the risk-adverse investors to keep their feet on the ground and not try this strategy. Nevertheless, I will try to identify possible counters suitable for trend trading and keep everyone informed through emails. Interested parties can then contact me directly for the entry and exit
strategies as I will not include them in the mails.
Note: Kindly read my first post, About Myself, on my disclaimer. Thank you.
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