Thursday, May 25, 2006

Stock Market Meltdown ? Think again..........



Those who have followed the STI for the last 2 weeks would have experienced a feeling of impending doom, to say the least. To recap, the index has lost 85 points last Monday, 66 points this Monday and 32 points today. Recovery and rebound was a very weak 7 points yesterday, taking the total fall in the STI to about 260 points or 10% since 2 weeks ago (if someone can provide exact numbers I would be very grateful !). This extreme bearishness has not been seen by myself since I started dabbling in the market in Dec 2004.

As one can see from the Shareinvestor chart, the day started off pretty OK but the index started diving from then on. From the 2,433 level it fell to a low of 2,376 before rebounding to close at 2,404. This easy breaching of the psychological support level shows that the key support at 2,400 is fragile and will probably not hold in the short-term. The market now points towards a downtrend and many people on share forums have termed this entire phenomenon as a "meltdown" in the stock markets.

It was even reported that people had lost their entire profits from the four months to April 2006 in just 2 weeks ! Although my portfolio is also in the red, I would like to espouse Warren Buffett's teachings about value investing and hold on to my stocks. Fundamentally, there is nothing wrong. Technically, however, sentiment is turning from bad to worse and the steep falls in Nikkei and Hang Seng Index have not helped the situation. This, coupled with a weak FTSE market and fears of US inflation (and not to mention Ben Bernanke's off-the-cuff remarks which have spooked the market) have created a climate of fear, uncertainty and apprehension.

The BEAR emerges from hiding ! Lo and Behold !

There are only 2 dominating emotions when playing the stock market: Fear and Greed. Greed rules in a bull market, while fear rules in a bear market. Today, I can safely say that the bear has emerged from hiding and totally MAULED the bull....ouch ! Biosensors is an example of a fallen star...it lost 20% in one day alone to close at 81.5 cents, after news of huge losses was picked up by the market after lunch.

My personal take on the situation is as such: this is just a CORRECTION and not a MELTDOWN. Don't be alarme by doomsday soothsayers saying this is the start of a stock market crash. Remember that short sellers and contra players are out in force to push the market down. This factor, coupled with weak sentiments, creates a sellers market.

Let's hold on to good stocks and ride through the storm ! Some prudent advice:-

  • Don't hold on to stock whose fundamentals have changed
  • Don't lock up your essential cash in stocks, use only spare cash
  • Do NOT panic sell, use a rational mind to think through the events.
  • Do NOT attempt to SHORT the market unless you have a high risk tolerance level, the bottom may not have arrived yet for stocks like China Fish, Biosensors and Celestial.
  • If you want to play contra, I would also advise against it as the risks are very high

Good luck to all tomorrow !

3 comments:

DanielXX said...

Hey musicwhiz,
Nice blog. Update it more often and you can get more regular visitors. Think you should less topics and focus on them, though.

Rgds,
DanielXX

musicwhiz said...

Thanks for the feedback, DanielXX.

I intend to focus more on stocks and shares and have the occasional movie or music review :)

Anonymous said...

Hi Musicwhiz!
Informative blog you've got there. I've got some queries and would be grateful if you can provide your email so i can send you a message. Thanks!