Dear Investors
Last night was an exciting night for some and a nightmare for others. After rallying for a record 8 months, AT LAST!!!!!! The market has gone into the start of what I think is a major correction. Why? The S&P and Dow breached their short-term support levels as you can see from the 3 month chart below. (captured from optionsxpress.com)
3-4 months ago, I said that the markets (i.e. Dow and S&P) were due for a correction as they were already at the top of the 4-year resistance line. Many experts (in moneycentral.com) also made that prediction. However the markets just kept going up and up like nobody’s business.
This is why for the last 4 months, I have been keeping most of my funds in cash and only took very few small positions.
Last night, was the US market’s largest one day decline IN 6 YEARS. Dow dropped 400 pts and S&P down 50 points.
The catalyst for the crash was a meltdown in China stocks, The Shanghai index dropped more than 8% because of talks that the new government may be taking steps to curb the country’s surging economy. London, Taiwan, Hong Kong and Singapore (down 160 points) also down in heavy trade.
The main reason I BELIEVE is because the US is going to go into a recession by end of the year. This is also the view of Alan Greenspan (former Federal Reserve Chairman) when he gave a speech 2 days ago. And since stock market always ANTICIPATE and PRECEDE the economy, nows about the time for a stock market downturn.
However, as far as TECHNICAL ANALYSIS is concerned, it is TOO EARLY to tell if it is a start of a new downtrend. We need to look at the next 4 days to see if the downtrend is confirmed OR whether the market will recover back up.
If IT IS a confirmed downtrend, then I believe that S&P 500 could go down to 1332+ (that’s another 60 point decline). Look at the chart I attached! You can see that 1325-2332 is near the longer-term support line. Look at the 1-year chart.
So, why am I so happy and what are the steps I am taking?
1) Conrad and I sold ALL OUR options and stock positions last night before the worst hit! Heng Ahhh!
2) Once downtrend is confirmed, I am going to be using CFDs to short sell the S&P 500 and combine with buying Puts on index and momentum stocks that will take the biggest hit
3) Once the market reaches the bottom and starts a new reversal, buy back all the value stocks in US and SG for a cheap cheap discount. Ha Ha Ha
Let’s see what happens in the next few days
Adam
Adam, Adam…
What can I say, you’re just the man when it comes
to these things. Seems like the world goes your way
eh from time to time…;-)
Heng heng kari heng lo I think….
By the way, Adam… Who will be checking the email
for the mentor-ship in your last post?
A bit pai seh to admit this online, but I applied..hehe
Heck, who cares! Now I’ve confessed I feel much
better. (grin)
Till next time,
SaM
Hi Adam, how do normal investors acquire such skill to predict the market movement??? Beside the normal FA & TA, do your new book elaborate more on this aspect? I am sure to get a copy (like I have been doing…)
In Jun 06, you mentioned u hold Osim and HTL bcos u believe these were strong companies with lots of growth potential and at then the prices, were worth it. Following which, the prices went downstream & today, they are worth lesser by as much as 50% of the price then for Osim. In your view, do you think these companies still worth betting on (discount), do they still have the fundamental potential? I’m using these 2 counters as an example to discuss how a fundamentally strong & potential company can go wrong & price diving at such a short time … In such cases, how do we rate company based on fundamental/potential? Will your new book be covering things like that? Or we can only assess companies to be fundamentally strong which belongs to the boys on the big league (GLC, banks, MNC, etc), local SME really cannot really be rated based on their fundamental bcos the tide may change too quickly.
Your advice. Thanks
Raay