Tuesday, 25 June 2013

Psychology of how market works! China Trauma send stocks down again

Dear Friends,

China is on its own. Instead of showing strength with Asia mostly up, it plummeted another 70 points bringing all Asia index down. The positive 30 plus points in STI got wiped out. The Nikkei plus 300 points now becomes a deficit of 200 points.

China being the world 2nd largest economy sure is an influence.

It is quoted "The Shanghai benchmark plunged 5.3% on Monday for its worst finish in nearly four years, as concerns that reluctance by China’s central bank to ease tight liquidity conditions in the interbank money markets would hurt small and medium-sized banks and borrowers"

http://www.marketwatch.com/story/asia-stocks-mostly-gain-but-shanghai-down-further-2013-06-24?link=MW_home_latest_news

What a bloody June. In fact from my point of view, the "Sell in May and go Away" effect is here this year. If you look at past historical years, it either comes in may or sometimes in early june. This year it started end of may, but the fall is felt more in early june. Dow reaches the highest peak on 22nd may.

In fact a couple of weeks back, when STI plunged hard to 3100, a lot of us are still talking about buying what kind of stocks. This to me is never a sign of bottom. Psychologically, the retailers are still bullish. 

Always know that the bottom will only come when not many people discusses much about buying stocks anymore! Not when everybody wants to rush in to catch the bottom. Even if there is a rebound like STI recently, from 3100 to 3250 points, it is temporary.

This is the psychology of how market works. In fact i am looking at STI breaking the 3000 barrier. That may be the point that will send the market into despair.

A very good gauge is to ask your remisier. Is he still getting orders to buy? If the answer is yes, the market probably has not bottomed. When the answer is no, that normally should be the bottom.

Rgds
Daniel
www.danielloh.com

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