Thursday, October 29, 2009

Stock Market : Picking a Top Part 3

Part 2 is here.

Part 1 is here.

This is proving to be more difficult than I expected.


I set aside a small sum of my money to manage proactively towards the end of last year. The strategy which I'll explain in another post proved successful (due to luck?!). To decide when to sell the stocks and maximise my return, I have to figure how long the current rally will last. So how to do that? Can it be done accurately? Isn't the market random? I knew from past experience that in the Asian Crisis, SARS recession, etc that rallies such as the one huge one we have seen in recent months will top out and end with a sharp selloff or a huge correction.

How do you go out finding a market top? Go around and look for someone who has done it with relatively good accuracy in the past and see what he says about this rally. I actually found such a person on the Internet -a MIT graduate who forecasts how long stock market rallies will last based on how much cash was built up prior to the rally. He has a website that explains his theory and how it is applied[Link]. This forecaster predicts the rally will end roughly mid to end Oct 2009 based on his theory. Based on his forecast, we may have already seen the peak for the current rally. However, I didn't see what I usually see at a market peak - euphoria, general optimism and a huge final surge that sucks in the remaining liquidity at the sidelines. I was considering selling my stocks in batches if such an identifiable peak does not materialise and the market goes into a slow grinding slump. My getting out of the market has been made harder by the recent US$ carry trade disruption - in the past few months, hedge funds borrowed billions in the falling US$ because interest rates are low and used this money to invest all over the world and in all sorts of riskier assets. A few days ago, the US$ moved up and this forced the hedge funds to sell their holdings cause a sharp drop in the markets - gold, equities, commodities all fell in tandem. Such disruptions also reverse abruptly and you will see some of this today as the market spikes up because the US$ weakened sharply yesterday and hedge funds resume their buying.

Bloomberg : U.S. Stocks, Oil Rally as GDP Signals ’Waterloo of the Bears’ . Remember if there are no bears and everyone is bullish, it usually marks the end of a market rally....so the sudden upside reversal of the market, which may trigger a final 'euphoric' spike will be the Waterloo of the bulls and not the bears! Just to put things in perspective, the rally of the past 6 months is the largest and sharpest in decades. Here a chart from someone by the name of momoeagle in the Channelnewsasia forum.



21 comments:

Musicwhiz said...

Hi Lucky,

What I have learnt during my short time in the stock market is that it is impossible to time it correctly consistently.

Just ensure you buy good companies with a margin of safety. My blog at http://sgmusicwhiz.blogspot.com explains more on value investing and illustrates my learning journey as well.

Regards,
Musicwhiz

Anonymous said...

Dear Lucky

Well done and good luck!

The truth is the Obama (LKY is Legend!!!) administration allows the likes of GS and JP Morgan to borrow virtually unlimited amount of $$$ @ almost 0% interest and leveraged 30-300 times.

Any1 betting against them are dead.

Except maybe China. funny?
The last hope for capitalism is the sole remaining major commie country.

God has a funny sense of humour?

Anonymous said...

Thanks for sharing your views - most investors are still sidelined waiting for the big correction. Looks like the Sg property market - segmental but still low volumes. This is a false market created by a few brave souls. The Baltic DI and the amount of ships and airplanes laid up does not support a recovering economy - where is the Christmas order and the "trade"

puzzled waiter.....

Anonymous said...

In the US the news is that there is a recovery already.

But it is a "jobless" recovery.

In Singapore next year there will be economic growth.

Wonder whose lives will be changed for the better even if there is economic growth?

Maybe cash or even gold, not property or stocks, is king for the future.

LuckySingaporean said...

MusicWhiz,

I invest most of my money for the long term and basically don't bother with what the market does day to day.

However, towards the end of last year when the market collapsed like in the Asian Crisis, I recalled the sharp rised in 1998 following Asian crisis and asked myself if there was an equivalent sharp run up how can I exploit it. I cobbled togather a strategy, make sure if anything goes wrong my losses will be limited and went on to execute it. I haven't tallied the returns to date but I estimate it is about 1000-1200% of my original capital. As part of the strategy I need to close out all the investments and get out near the peak to preserve a large part of the gains. That is why I'm looking for the peak or trying to cash out near the peak.

I'll find sometime to explain this strategy, how I build in the safety mechanism and tested it to make sure it is somewhat safe and how this 1000% was generated.

Right now I'm focussed on getting out because the strategy is close to the 'tail end'....and the end-game has to be played well.

Musicwhiz said...

Hi Lucky,

You've managed to grow your capital by 10-12x just by investing? That's really impressive!

Hope you can share your strategy and how you timed the market cycles to enable yourself to enjoy and lock in this gain. For myself, it's been a roller-coaster ride and I can't even say I've got 20% per annum. But then, I am still a novice and have much to learn.

Thanks for sharing!

Cheers,
Musicwhiz

Anonymous said...

We should get Lucky to head Temasek instead of that Ho Jinx nimcompop...:P

Anonymous said...

Lucky Tan for GIC and Temasek!

Anonymous said...

Greed.
People like you trying to make more money without providing a service or creating/selling a product is pure greed.

This world is in a bad shape , no thanks to greedy people like you who sits on an armchair and try to make more money(masqueranding under the 'Investment' word) without really 'working' and at the expense of innocent people.

Anonymous said...

Hi above Anon,

Don't blame Lucky! It's just the way we peasants have to think of a way to beat the system or be forever at the mercy of CBF and FT and non-Singaporean preferred policies.

Anonymous said...

are you leveraged or have you bought derivatives, Lucky? Given that if you bought the lowest bottom of any market you probably would have made 100% so far, for you to have 1000% you must have a 10x leverage.

Anonymous said...

Hi Lucky,

Like you I follow Terry Laundry and I must say the overall direction of his T theory is quite accurate but it is a different ball game when calling the top. I think he called the top of Oct 07 too early so it goes to show that it is difficut to call the top as it is only with lower high then we know it is top.

However, if you have accumulated shares since the Oct bottom last year, it is definitely time to cash in since market has recovered more than 50% so it is a good time to sell, market top or not.

Anonymous said...

Hi Lucky

http://singaporeanskeptic.blogspot.com/2009/10/another-accurate-prediction-by-lucky.html

... I guess this means market will be up monday? :-p

...just kidding...

Anonymous said...

Hi Lucky,

Your fav fortune teller:

Soros: China to emerge as big winner
http://www.chinadaily.com.cn/bizchina/2009-10/31/content_8876424.htm

;)

LuckySingaporean said...

Anon 21:17,

I think the saying "better be early than late" and "sell and don't look back". Because many investors get suck right back into the market when they see it spiking up - that is why many market peaks are 'double tops'.

I try to solve this selling problem by going into a 'sell only' phase during which I sell in batches.

Terry Laundry may be right or wrong but he is generally more accurate than others. His approach agree with my general observations over the years that the market peak of due to a lack of liquidity and not fundamentals - buyers simply max out their risk apetite & funds. Look at the fundamentals in terms of company results & economy - things have been far better than expected. Yet the market is falling.

Anonymous said...

market already going into correction mode. i don't think it's gonna revisit march 2009 lows so the question now is how big this correction will be.

Anonymous said...

after reading the link provided by lucky, there are two predictions from Terry Laundry

1) short term market top on 27 Oct 2009, mild correction is expected.
2) middle term market top in Aug 2010. severe correction is expected.

Hi Lucky,

Terry Laundry uses On balance volume oscillator in his analysis. Do you have any idea on how to look for it on internet ?

LuckySingaporean said...

anon 17:54,

No..Terry put 15 Oct as the peak date +/- a few days. But does really matter because the market looks like it has peaked. For those who got in early, it doesn't really matter anyway because most of the easiest fastest returns is probably over.

Terry uses something related to ARMS, you can find a book on this in the National Library. It is not easy to analyse it like how Terry does. I watch a few other things like the dollar carry trade and a certain move sequence....i.e. what stocks are going up tells you which part of the rally we are in.

Anonymous said...

Hi Lucky

Interesting article from Andy Xie.

http://english.caijing.com.cn/2009-10-28/110296451.html

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