Wednesday, October 14, 2009

Stock Market : Picking a Market Top Part 2.

Part 1 is here

I haven't posted any articles these few days because I'm watching the markets very closely. Most of my money is invested in the long term however there is part of it that has to be sold off and it is best done near a market peak due to an investment strategy I put in place end of last year. I'll explain why when it is all over.


"Finally everyone is on board this moving train....everyone now has a ticket"
- a trader NYSE trading flood in a CNBC interview 14 Oct 2009.

The DOW has crossed the psychological 10,000 level. I'm not that fixated with the 10,000 number however it does coincide with a number of other things I'm looking at.

The beginning is always the same. Value investors sieve through the rubble of an economic collapse to find value - discount to book, discount to cash, dividends yield - the measures they know cannot go wrong in the long run. As the market moves up, the trend followers hop on, the fund managers were afraid to miss the boat jump on, then the retail investors seeing the market momentum jumps on hoping to make a quick buck then the layman upon seeing the headlines that the economy is well on the way to recovery jumps on....all on board the moving train for diverse reasons. As the market moves up, it creates its own fuel as investors borrow against the appreciated value of their stocks to purchase more stocks. The fear at the beginning transforms to greed at the end. The participants feel vindicated as they make money from the markets ....although their reasons and strategies are all different, they think it wasn't luck but their own skills that made them all this money. Perhaps, someone in Temasek feels that the orginal strategy wasn't that bad as the market rebounded and that was used a justification to stay the course and leadership change was no longer necessary. In rising markets, you're rewarded regardless of strategy and luck is often mistaken for skill.

A few years ago, George Soros was asked how he able to get out days before the 1987 crash. He explained tha another investor Paul Tudor Jones showed him a chart of the DOW 1987 superimposed on the 1929 chart before the October 1987 crash. The resemblance was uncanny - worried that the market would crash like it did in 1929, Soros got out.

In June 2009, I found this website[Link] that shows the current market is very similar to 1938.

“History doesn’t repeat itself – at best it sometimes rhymes" - Mark Twain

Of course I don't expect history to repeat itself like Mark Twain says it sometimes rhyme ...so it is just a piece in puzzle.




The other bigger piece of the puzzle is what type of money is going into the market right now to push it higher each day - the liquidity generated by low interest rates, the US dollar carry trades, the retail contra trader, the feller who read yesterday's economic headlines and now want to buy. The type of money that flows in quickly and gets out quickly at the first sign of trouble. Is the good news from Intel's earnings, better retail sales, and stronger economy the reason for the market going up or are they simply excuses to push the market higher. If the right time to buy was when the stock market got hammered in March 2009 when the economic outlook was very bad and earnings were terribly disappointing...what does that say about the right time to sell.

12 comments:

Anonymous said...

"Most of my money is invested in the long term however there is part of it that has to be sold off and it is best done near a market peak due to an investment strategy I put in place end of last year."

Good Lord! long term = 9 months!

In any case once the Q3 earnings have all been called out it will go down.
So yes some one who bought in March/April should sell tomorrow.

Anonymous said...

I'm a scarper and T+3 is long term enough. If I have Temasek's clout, I'll short Citi, AIG, FRE and FNM.

Anonymous said...

World War 2 (1939-1945)

World War 3 ?? (2010- ??)

Haha

LuckySingaporean said...

anon 10:47,

I think you misread. I said a small part of my money is invested for a shorter term and is best taken out regardless of of whether the STI is going to 4000 in 4 years.

The long term part I don't even look at it. Everything is a blip even this crisis is just a blip.

Anonymous said...

George Soros is going green and investing $1 billion in such ventures. Perhaps this is an indication of where to put your money in?

Anonymous said...

"The long term part I don't even look at it. Everything is a blip even this crisis is just a blip."

err......it depends on which market you invested. IF you invested in Nikkei 20 years back, your long term has to be very l------o------n----g term

Anonymous said...

in 1938-39, IBs and hedge funds(if they existed) could not leverage 300x.

and Timmy probably spends more time with Mr Blankfien (and frens) than his wife.

but give us a shout when its time to alight ok?

Anonymous said...

I dun see a major top as far as sentiment and volume is concerned.
As long as there are bears out there and less bad news mean good news, it could never be a top.

It could go into correction but at this moment, I think there are a lot of pple calling for top due to Oct effect, so it could be trying to test the next resistance or going sideway for next few days.
If a lot of pple short, get ready for a bear trap again.

Anonymous said...

Actually, even if the index were to decline by 10-15% over the next few days, how can you be sure that we had reached a peak and are now on a declining trend?

It could very well be just a short retracement for the market to consolidate before rallying another 50% upwards.

It is only months after the fact that one can conclusively argue that it was a market peak.

Anonymous said...

unless u r confident that u can outsmart the market ... if most people talks about "correction", then there could be no correction in the near term.

skeptic said...

Lucky Singaporean said-"I think you misread. I said a small part of my money is invested for a shorter term and is best taken out regardless of of whether the STI is going to 4000 in 4 years.

The long term part I don't even look at it. Everything is a blip even this crisis is just a blip."

Actually that is a good psychological trick. Divide your money into long term investments and 'play' money. So no matter what happens to your short term trade, your nest egg is safe.. well more or less..

Anonymous said...

easy. buy goldman

http://www.msnbc.msn.com/id/21134540/vp/33346455#33346455

apparently their star intern is now the new chief enforcer for SEC :-)