Thursday, April 16, 2009

Bulls climb a wall of worry

Have you got this feeling that you've missed out on the stock market? If you've been watching the markets, it seems that no bad news can derail STI from marching upwards these days. Forget about the general economy and the languishing GDP forecast by our government - the stock market has a mind of its own and will move up regardless of the fundamental economic situation.

A few signs are worrying:

1. I've noticed that the top volume of SGX are occupied by the likes of small caps, specifically the ultra pennies as I call them. Once again, ultra cheap counters like the 0.005 digiland reaches the top position in volume transaction. Hey, did I have a deja vu that such things had happened before? I remembered fondly the good old days of the 2006/2007 period where such small caps are punted.

2. Some of the counters are climbing up with lesser volume, perhaps reflecting the same way that STI index is climbing up too. Look at ocbc's chart:

Did you see the rise in price without the corresponding rise in volume? Volume divergence is the name of the game.

The signs are even clearer when you look at UOB's chart. Several volume indicators are diverging from the upward trend in price.

So, if you think you've missed the boat, think again. If you're a keen reader of history, you'll learn that humans never learn from their past mistakes. What had happened in the past will happen again, perhaps in another form. Don't feel missed out...look out for opportunities again and know what to do when it happens again.

If all else fails, you can always feel 'motivated' by this:


Musicwhiz said...

Hi LP,

My philosophy is simple regarding such "trends" - if I see value, I buy.

Otherwise, I hold and wait. All the time, I am monitoring the business conditions of my companies. I focus on the company, not the market. The market is simply a place to transact.

Many others may not agree with my views, though.


Anonymous said...


if you think xyz is worth $2 and had fallen to $0.50, is it good ? yes of course. and it has risen to $0.75, is it good ? of course !

concentrate on your own cashflow and not on market timing

dream said... have force index on chartnexus? that's unfair.

la papillion said...

Hi mw,

Thks for visiting even when abroad :) haha

I'm just blogging about what I've seen and heard from people around me. They seem to lament that they had missed the big opportunity to ride up this market. Even on mrt, I heard pple talking about it. A friend also heard his colleague talking about it in the pantry.

The main emotion here is regret due to omission :)

Take care!

la papillion said...


Hello :) Eh, why concentrate on cashflow? You mean cashflow of the company or my personal cashflow?

la papillion said...


Ya lah, they have force index and Dr. A.E's template for screening too. But must pay lah.

Musicwhiz said...

Hi LP,

No problem, if I have something to say I will definitely share, and hope to see more good articles written by you (and I know you can do it, just that you are probably too busy).

Why do people regret "missing the boat" ? I don't get it. They were the ones who were too "afraid" to put money in the first place because of perceived high "risk". But risk is contextual and decreases as prices get lower, so I am not sure why they view lower prices as risky.

Prices being higher now are definitely "riskier" than 5 weeks back, but on a valuation basis they are still at bear market levels.


la papillion said...

Hi mw,

Thks for the vote of confidence :)

I do agree that though we're up, it's still bear market valuation. It's exactly what anonymous mentioned earlier in the comments.

Have a safe trip back!

Createwealth8888 said...

Everyone wants to buy in at the lowest price, but in practice, it is emotionally difficult. For instance, when the STI index was at 1,600 last October, or 1,450 one month ago, many investors were staying on the sidelines

Go and read BT Weekends. Published April 18, 2009. Wealth Insight

Waiting for the bottom that never comes

Musicwhiz said...

I've pasted the article here. LP, I hope you do not mind.

Business Times - 18 Apr 2009

Waiting for the bottom that never comes

For investors who are able to bear a certain amount of risk, it is still not too late to get back into the market. When measured against the anticipated broader recovery, current market levels are still cheap

General manager

MANY investors are uncertain these days, and that includes lots of analysts too. We are not exactly seeing a lot of positive indicators that the economy has bottomed out, but stock markets all over the world have been rising as if the recovery was already here. In just one month, Asian stock markets have gone from extreme doom and gloom to a sense of realisation that we seem in be the middle of a bull market!

The Straits Times Index stood at 1,456 points just one month ago on March 9, 2007. As at April 13, it had risen to 1,876 points, a rise of some 28.8 per cent. Other Asian markets have been similarly strong. The MSCI Asia ex-Japan index has also risen by 29.7 per cent during the same time, so on the whole all, Asian markets have been particularly strong over the last one month. Globally, financial stocks have been some of the best performers over this period. At, the best performing funds over the last one month (as at April 8, 2009, on a bid-to-bid basis) has an average performance of 46.7 per cent and were all funds invested in either regional or financial equities.

But what has changed? If you ask the economists, nothing has changed and things are still as bleak as one month ago. Most of the economists are busy coming up with dire predictions of how much the world's economies are all going to plunge this year. In Singapore, the Ministry of Trade and Finance has just lowered Singapore's GDP forecast (which was previously already at an abysmal -2 to -5 per cent this year) to -6 per cent to -9 per cent. The US economy is forecast to decline by up to -5 per cent in the 1st quarter of 2009. For the US market, based on consensus forecasts, earnings are estimated to fall 13 per cent in 2009. Earnings of nine Asian markets covered by us are forecast to fall 18.2 per cent for 2009.

Given this back drop, investors are very nervous and understandably confused. They are still reading mostly about doom and gloom in the media, with few positives coming from economists and companies. Yet, the market, seemingly with a mind of its own, has gone into a bull run (technically, a rise of over 20 per cent is considered a bull run market). Many investors are waiting in the sidelines for a fall back down to the levels reached one month ago so that they can buy back in again. They want a third leg of market collapse to follow this 'bear market rally'. That way, they get the chance to buy back in again.

My view is that it will not happen. Certainly, stock markets do not go up only in one straight line, and there will be corrections even within the strong uptrend we are seeing right now. However, in spite of that, I don't think we are going to see a so-called third collapse back to the STI level of 1,456 points that we saw one month ago due to three main reasons.

Firstly, the combined efforts of all the governments around the world are going to have some effect. These things take time, but eventually, all the billions of dollars in stimulus packages that have been declared will start to filter down to the broader economy. This is a massive amount of money. US put through a US$787 billion stimulus package in February, China announced its US$585 billion in November last year, and Japan announced a US$154 billion package recently. Together, these three countries alone are going to pour over US$1 trillion into the system. In the past, such major stimulus packages have created asset bubbles because of the influx of so much cash, and never in history has so much money been poured into the system by so many governments within such a short period of time. It is a matter of time before these stimulus packages trickle down to banks and financial companies (which was the sector that is in the epicentre of the crisis).

During a cyclical upturn, equities are traditionally one of the asset classes that will benefit greatly from this. This will be true this time round as well, because currently, interest rates are being kept low by most central banks around the world. The returns from staying in government bonds and in cash are simply too low. Hence, there is a huge amount of money waiting to re-enter stock markets.

Secondly, time is on our side. We are already in the month of April. The recession in the US would be close to one and a half years by now. Admittedly, the economic numbers for the first and even second quarter this year will likely remain very bleak. However, markets are forward looking, not backward looking. As we enter the months of June and July, markets will be looking at third quarter and fourth quarter 2009 earnings and economic forecasts. While the US economy continues to fall, there are small signs that the decline is slowing. If the fall in some of these economic indicators decelerate and there are clearer signs of an economic recovery in the second half of the year - in particular by the third or fourth quarter. Before the actual economic recovery happens, it would be very possible that stock markets, being traditionally a leading indicator, recover before then.

Thirdly, the financial sector, which is at the epicentre of the entire financial crisis and which has now morphed into a full-blown recession, is finally showing signs of recovery. CEOs of large US financial companies have come out to announce that they have been profitable in the first quarter. Once banks start to make money, they will start to lend again. The recovery of the financial sector is an important indicator, and one of the key ingredients to a sustainable recovery. As long as the banks are mired in sub-prime losses and continue to report massive losses each quarter, there cannot be any sustainable recovery. Now, we are finally seeing indications that the worst is over for the US financial sector. Any earnings surprises from US banks this current earnings season will only serve to reinforce this.

So, what now for investors? My view is that we should not wait for a next 'bottom' that may not materialise. Time is on the side of people who are in long positions, not short. As more signs of the US economy bottoming appear, Asian markets will rise. It is a matter of time. Whether it is over the next six months or over the next one year, it will certainly arrive. And when it does, Asian markets, due to their strong fundamentals and their low valuations, will see a stronger upside by far compared to other regions. Asian markets are currently trading at a forward 2009 PE of 10.8 times and a 2010 forward PE of just 8.1 times (as at April 10, 2009).

So, while investors may be worried about jumping into a market that has already risen over 20 per cent, the question is where do you want to be when the economic recovery truly arrives? Would you want to still be in cash fully and bemoan that you did not have a chance to enter the market? Or would you already be fully invested by now, and just sitting back to see the recovery as it plays out? Everyone wants to buy in at the lowest price, but in practice, it is emotionally difficult. For instance, when the STI index was at 1,600 last October, or 1,450 one month ago, many investors were staying on the sidelines. A correction in stock markets is normal and indeed would be healthy at this point, but for investors, it should be seen as an opportunity to get back into the market. Whether the economic recovery comes within the next three months, or one year, it is just a matter of time. And in the meantime, markets will not wait for the all-clear signal to be given and would have risen much higher by then.

So, for investors who are able to bear a certain amount of risk, it is still not too late to get back into the market. When measured against the anticipated broader recovery, current market levels are still cheap (the ST Index is still 51 per cent lower from its all- time high of 3,831 points). Most importantly, maintain a well-diversified portfolio as you invest, and keep a clear head. For investors who are not comfortable with putting in all of their money at one go, splitting it up into several amounts, and committing it gradually over the next six months is a good strategy. This way, you would not be locked into just one entry price, and most importantly, will be able to use time to your advantage. In six months time, we would be even further down the path towards global economic recovery, and by then, even the current market levels would seem cheap.