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| Tuesday, October 02, 2007 |
| "China Funds" is a good catalyst |
The injection of funds from China to China stocks in Singapore is good news. In fact judging from yesterday's price movement, everything surged upwards, even for non-related stocks. The market will find its level once the dust settles and yesterday should be considered a "price shock". While I have no system to manage positive price shocks, we should try to understand that price shocks are just price shocks.
How do you determine a price shock? In my opinion, it is when most of the stocks in the market move dramatically in one direction. So according to this definition, yesterday was a price shock. Price shocks more often than not act as a catalyst to push the better stocks.
Assuming that price shock is negative, fear will set in to those who don't know to sell. This action will cause a big drop in prices.
IF the stock is in the hands of fundamentalists, the drop would be less drastic, while if the stock is in the hands of speculators only, we would see crazy movement in prices. For a trend follower, we should try to filter out the "speculator's shares" from the "fundamentalist's shares". I'm not intelligent enough to scrutinize a stock's fundamentals carefully so my only bet is to find out whether is it in good hands through such patterns. Not really TA in my opinion but more of looking at human behavior. And looking back at my recent buys, all of them are stocks which recovered quickly. The "speculator's shares" on the other hand will most probably spiral down.
Lets take a look at the positive price shock. Everything goes up nice and pretty. But sooner or later, market will balance it out. One possible method (untested though) is to scan the percentage of retracement from yesterday's close. If a stock is good, fundamentalists will still come in and fundamentalists in the counter might not sell (or at least not sell everything). Retracement, as a result, wont be drastic because not many are willing to sell. However, if a stock has lots of traders inside (very speculative counter), what we will see is profit taking, and from human nature, most would be satisfied with a gain rather than a chance of having a loss. To summarize, people would just sell 3-5 bids (assuming most are small traders and thus significant transaction fees) above yesterday's close. Those are the stocks that should be avoided (for now, at least).
A look at my CFD account has PacAndes, AsiaEnv, AdvSCT.
For PacAndes, in SI forum, i stated that consolidation is nearly at an end.
For AdvSCT, I just bought because of a change in trend.
For AsiaEnv, I got faked into the first surge (bought at high of 0.71), but in the end still believed in it as price range is getting narrower by the day.
I have hongfok in my watchlist but I dont have funds, but all three have similar behaviors. They are 1) narrowing trading prices and 2) people losing interest in it, explained by lower volume. Ultra short term traders are flushed out, reducing 1-2 bids fluctuation and those left are those genuine in investing. With the situation like this, prices will first be well supported. Afterwhich, you just need a reason(catalyst) to cause a surge. Analyst reports will do more often than not do the trick.
I feel I might just be lucky on this occasion. Although I can justify my actions/rationale, it does not mean that I'm right. 3 out of 3 is nothing fantastic. Maybe after another year of trade, I will be able to tell if my thinking is correct. |
posted by Nenix @ 1:24 PM   |
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| NenixDreams Fund |
| Fund launchprice on 1st August 2006= $1
Target for 2007 = Beat STI index
Current price of NDF as of 1st Oct 2007 = $1.58
Current price of STI as of 1st Oct 2007 = $1.54
Difference with STI index is 0.04
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