A correction? An opportunity!

With the significant selldown of the US markets last friday, what will happen to the STI? There are proponents of the decoupling theory and that the STI now takes its lead from the HSI and the SSE instead of the Dow.  So, maybe, the STI will be spared? Let's take a look at the STI's chart.

The STI closed at 2974.61 last, forming a spinning top. This indicates indecision. Indecision as the index is trying to move higher?  No good.  To be sure, the STI is in a down channel and has been so since mid April. The MACD has been declining and is pulling away from the signal line. The MFI has been forming lower highs. All looking very bearish.

The 20dMA which served as support until three sessions ago is now at 2,980. To resume the uptrend, the STI has to re-capture this support.  However, seeing how it failed in its attempt in the last session, this is looking less likely. Instead, a continuing move downwards is more probable.  The Bollinger bands are squeezing and this suggests an impending increase in volatility of the index.

One bright spot, the OBV turned up sharply in the last session. This suggests that there is strong accumulation activity even as the buying momentum declined.  In other words, there is some underlying support.  So, any decline in the STI should meet with some support as people who have missed out on the rally earlier buy on weakness.

In the event of a continuing move downwards, the rising 50dMA provides support at 2,900 while the rising 100dMA provides support at 2,860. I see a strong support at the 2,790 level (previously a strong resistance).  Yes, there is a chance that the STI might go that low.  Never say never, right?

I would refrain from purchasing any stocks for now, especially index linked stocks. Wait and see.

Related post:
Markets are going higher in time.

Looking for value.

After learning TA, I tried applying it and I have made and lost money. I think I am not very good as a trader since I must have lost more than I made. My roots are in FA but it was only during this recent crisis that I beefed it up. I believe that my current style of combining FA and TA is most suitable for me.

The thing about FA is that we are looking for value. We want to buy something valued at $1 for 50c, for example, but that, to anyone who has been practising FA for sometime, is too simplistic. Let us not dwell on that for now in order to push this post forward.

When we buy something based on FA, the chances of us being disciplined and to hold on, riding through rough patches, are higher. This is because our knowledge of the fundamentals of the stock anchors us down.  We are less likely to be flighty. Personally, I need that kind of anchor. That was how I had the mental strength to hold on to Healthway Medical when some gave up.  The story is here.

I am not a good trader because I don't like to cut loss and if I do cut loss, I hurt.  I am not without emotions and I don't like feeling hurt.

I am not a good trader because I feel half clothed not knowing the fundamentals of a company.  I feel like I am looking through lens with cataracts.

A clear picture of a company's fundamentals is important for me.  I would buy into a company that is undervalued or even fairly valued as long as I see potential given the circumstances in the present and what is foreseeable in the future.

For anyone who wants to look for value in companies, start by reading up on financial statements. As good a place to start as any is here. Economics and the industry the company is found in are important considerations too. Not everyone enjoys FA just like how not everyone is a good trader.  We have to find our own niche. Whatever our choice, remember that there is no free lunch in this world.

Related posts:
Portfolio strategy: Undervalued high yield counters.
High yields: Successes, failures and the in betweens.
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The "Woodstock of Capitalism": An Insiders' View
Posted Apr 30, 2010 07:30am EDT by Heesun Wee



A 'powerful' sermon. Matthews says the Q&A session is a highlight for him -- watching both Buffett and Munger apply their guiding principles to each, individual question...."Do the right thing. Look for value. And buy and hold" is their message, Matthews says. But, "it's the difference between reading a sermon on paper and actually hearing it in person. It's very powerful....