The easiest way to make money in the stock market is definitely by riding the strongest trend. By buying the strongest stock in the strongest sector of the year, one could make enormous gain with minimal risk. Hence, the biggest task for every investor/trader at the start of the year is to identify which sector(s) would outperform the market for the year. My best guess for year 2016 would be the FINANCE and PLANTATION sector. Here’s why.
“The market fell by 4 straight days. In total, the index loss about a hundred points without any sign of rebounding. More than 80% of the share prices were below yesterday closing. Of the small amount of gainers, most are up by merely a bid and closed with huge ask queue. Investors and traders were mostly panic. Then a savior appeared. He boasted in the social media on his 1-day-5-digits trading gain despite the bad market. With the public scrambling in search for a solution which this trader seems to have, he immediately got everyone’s attention. Drowned by an overnight popularity, he proudly shared his “profound” analysis. Amateurs who are eager to make some quick bucks in the dampening market were quick to apply the new methods learned – only to lose more money.”
What went wrong?
On January 7, I posted in my Facebook group telling to buy. On January 9, my Sentiment Analysis shows a clear uptrend. Today, on January 15, gainers still outnumbered losers. This good sentiment streak had last for 7 days, the longest since August 2013. If you bought something for mid-term, HOLD them. If you are trading, you could switch your portfolio to shares that require longer holding period to realize bigger gains. If you are not in the market yet, don’t be afraid because this Bull is going to last for some time. Do more homework today, look for continuation pattern like flags (my favourite, which I see a lot today), retracement with low vol etc.
My view for the market? Super Bull. From my conversation with the people around me, I realize that they are several views on 2015 outlook: Rise a little, drop a little, or drop a lot. No one actually dare to say RISE A LOT. Because of that I would bet that the market will rise a lot this year. Of course, I don’t base my analysis on just that. Here are some of the reason why I think the market is going all the way UP.
The volatility spike that occured at the second half of 2014 is one that is not seen since 2011. This causes a lot of confusion among the public on whether 2015 will be a good year. Regardless of what the general consensus are, if you are discipline and have the right investment/ trading strategies, 2015 should not be a big problem for you. So here you are, 7 key takeaways that one could learn from the happenings in 2014 which will help you in becoming a better trader/ investor, not just in 2015, but in all your trading/ investment years.
Today is the first time in 2014 we see more than 500 losers in our local bourse as the sentiment took a dive after a few days of rally among a number of small caps and pennies. Looking at the Sentiment Analysis Trend Indicator, it is clear that the sentiment is expected to worsen in the coming days. The Sentiment Trend shifted from bearish to bullish (meaning the overall environment is condusive for trading and the probability of winning is much higher) on the 31st of December 2013 as it created a higher high and today it shifted back to bearish (lower low detected). At this period of time, it is highly advisable to stay out of the market or at the very least, reduce your position in the market. Regardless of how good your analysis is, share price could hardly rise when the sentiment is bad.
[What is Sentiment Analysis?] Technical analysts trade based on probability. When we say a method under Technical Analysis (TA) has a success rate of 80%, it implies that there are time when such method perform better than its average (probably as high as 90% or more) and there are also time when using it doesn’t give you a distinct advantage (probability of winning could be 60% or even 50-50). Wouldn’t it be good if we can identify the time period when TA works at its best so that we could choose to trade during this period only, or take larger position during this time? Sentiment analysis does just that. It helps in identifying good or bad time to trade in our local market.
I notice that a lot of people are still confused with the way the Theoretical Opening Price (TOP) and Theoretical Closing Price (TCP) are determined under the new Bursa Trade Securities 2 (BTS2) platform, so here’s an article explaining in detail how the new system works.
The way TOP/ TCP is determined remains the same, actually; what has changed is the way the orders submitted by every market participants are displayed on the screen. Overseas trading platform has been using the new display format for years and our local exchange is merely catching up with the developed markets. Let’s look at a hypothetical scenario so that you could better understand the quotes displayed under the new BTS2 platform.
I’m bearish at the moment. Why? Because most people are bullish after their big gains on penny stocks in the last 2 weeks. The higher the stock price escalate, the more optimistic they are. The ordinary folks are getting more confidence about their stock picking ability (without realizing that their returns were actually beta return and not alpha return) and are giving “tips” around. Bets are getting larger and a lot of them are increasing their exposure to leverage, hoping to extract higher returns from the seemingly good market. And if you notice, the top 20-30 most active volume list of shares is dominated by penny stocks (Keep in mind that pennies are always the last to move). These are obviously signs of a coming downturn.
Now, here are 2 simple ways of telling whether the uptrend of the stocks that you are currently holding are expected to reverse or consolidate soon: (1) If volume does not pick up as the share price moves higher (In other words, there’s a divergence in price and volume) AND (2) If you are making money WAY faster than the professionals and you are started thinking that making money from trading/ investment is easy when just a few months ago you were worried that your investment could turn sour, the uptrend IS EXPECTED TO END SOON. I would normally be extra cautious when I could earn about 50% (as measured from low to high/ from the point when the volume is at its peak to high) on one single counter in less than 3 months. Let’s look at a few examples below.
First and foremost, I apologize for being absent for so long as I was busy with the preparation of a trading software that is expected to launch in November. Let’s discuss briefly 3 shares that I think will make a move in this coming week.
Instaco , a technology company that got beaten down after its bonus issue of warrant, is expected to move higher in the near term. Lows are getting higher and higher, indicating that the break above the ascending triangle should be around the corner. The average accumulation price by the smart money is at RM0.29, estimated using my proprietary Relative Volume Density (RVD). RHB Investment Bank gives this company a target price of RM0.46 per share.
Last week was an exciting week as it was the first week after weeks of net selling by the foreign funds our local institutions and retailers turned from net buyers to net sellers. Index managed to move higher but volume wasn’t encouraging. There are several shares that are worth keeping an eye on as the sentiment shifted in favor of the bulls. We shall start with Airasia .