Tuesday, November 03, 2009

Stocks fall sharply around the world....

UPDATE: I posted that value investors with cash might be drawn to buy in the market. Coincidentally, it turned out the greatest value investor, Warren Buffett, chose to make one of his biggest investments yesterday in a railway company. His purchase halted the slide in the futures market and reversed the losses in commodities, oil and gold. I invest most of my money passively for the long term but late last year pro-actively invested a small sum of money. I ended up with quite a few stocks to sell and I had to do it a bit more optimally so I look at more data than I usually do these days. A few things I noticed in recent weeks:



1. In the past 2 months, the market would rise until the middle of the previous month steadily with many consecutive up days until the middle of the month. Then it comes down stringing together down days until the first week of the next month. In the first week of the month, the market comes under heavy selling pressure until about the middle of the week, it then reverses and move up.



2. The KLCI (Malaysia) is considerably less volatile compared with Hang Seng Index and STI. Doing a delta of the returns between STI and KLCI, you can estimate the activity of hot money moving in and out of the market ...the KL stock market attract fewer hedge funds and short term money than ours. Yesterday the KLCI rose and the STI fell probably due to hedge funds forced to sell when the US$ carry trade was disrupted. The HSI fell a lot more.



I can't jump into conclusions with just a few observations but can make a few interesting guesses. I think there is a lot of mechanical trading or algorithmic trading going on the markets these days many short term traders use fixed rules to execute their trades. Perhaps these systems and rules come together and result in a some kind of pattern. Markets are supposed to be random - you shouldn't see so many consecutive down days or up days but I notice in this 7 monthrally such short runs are common. The talking heads on CNBC will attribute it to some change in economic fundamentals but I think they are the result of short term strategies and trading systems. Collectively, they will sell after the market moves up for 1.5-2 weeks, then buy after the market move down for 1.5-2 weeks.

I can really say for sure....but will we see the market start moving up for 1.5-2 weeks from today? In any case, I've been selling my stock in batches after mid October. ...even if the market moves up, it will probably turn down near the October peak.

Just my 2 cents worth. I'm not a professional. Take what I say with a pinch of salt.


-------------Original Post------------------------------
Right this minute stock markets that are still open are seeing a sharp sell off.

Very interesting trading pattern has occurred for the DOW- it surged up 200 points last Thursday, fell 250 points on Friday then rose 76 points yesterday in the most volatile 3 day since last year's crisis. US stocks have fallen steadily for 2 weeks before this 3 day period. The VIX index which measures "fear in the market" is at a high for the year. The Dow futures which anticipates how the Dow trade tonight is sharply lower at -100points.

It is almost certain the DOW will open sharply lower and will be under tremendous selling pressure. This will put to the test the hypothesis that there are billions in cash waiting at the side to enter the market because stocks rose too quickly and many funds were 'left behind' missing out on the rally. The high level of fear will definitely attract long term value oriented funds which like Buffett invest when they smell fear. One sign that a market has bottomed in an intermediate move down is for the market to open sharply lower and move up from there and perhaps close positive. The selling pressure when the DOW opens tonight is tremendous given the US$ carry trade is disrupted again as all currencies have moved down vs the US$.



It is equally likely for the market to sell off, rollover and stay down.



Jim Jubak pointed out in his column a week ago that such a pivotal day will come and put the market to a test.

11 comments:

skeptic said...

Hi Lucky,

As always. We are awaiting your next predictions on the market.

Don't know how you do it. ;)

Anonymous said...

blah blah blah from a wannabe.

Anonymous said...

A wannabe is better than a cannot make it. Ask Ms Ho for her prediction and she'll probably tell you the opposite. So the trick is to do the opposite of what ms Ho says. Haha!

Anonymous said...

News just came out!

Buffett to buy Burlington Northern in $34 billion deal.

http://news.yahoo.com/s/nm/20091103/bs_nm/us_burlingtonnorthern_berkshire_5

DanielXX said...

Does Buffett read technicals too? Is he a chartist? Otherwise why he time his entry in a bid to save the market? ;-)

Anonymous said...

Anon 21:38. That's really mature.

Anonymous said...

The title is misleading. Stocks are just more volatile and not falling sharply .. Just more baseless fear-mongering.

Anonymous said...

To DanielXX

i read his book that says he only times the market only after having selected a value stock.

in other words, he first examines companies (criteria include sound management etc), targets a company and lays in wait for a good time to buy (e.g. when the price comes down significantly lower his value)...

Anonymous said...

"I can really say for sure....but will we see the market start moving up for 1.5-2 weeks from today"

Lucky,

The market is moving up this morning just like you wrote. Good call. You said value investors will buy - Buffett bought. Although the DOW did not close positive most stocks in US were up and S&P, Nasdaq closed up.

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Anonymous said...

Stocks and property can make multiple times returns and of course losses too.

Anybody can advise what is less risky than above but better than miserable FDs?