What is KLCI?

Hello,

When we talk about the market, generally, we refer to the KLCI... however, do we really know what is KLCI, how is it calculated, what determine its movements and how the movements affect other counters? well, this may be very basic to most people, but i do think it is important to know the basics first so that we can understand the complicated.... :)

1) KLCI is calculated with this formula:

Current aggregate Market Capitalisation x 100 ­base­

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Aggregate Market Capitalisation

2) wat are the counters tat is used to calculate? the answer is in http://%20www.bursamalaysia.co%20m/website/bm/%20market_information/%20index_components.htm%20l

so, this also means tat, the KLCI does not represent the whole market, because not all counters are used to calculate it... some would prefer to use market breath... but then again, for TA readers, so far, i have not seen a chart tat uses market breadth.... wat to say use the beloved indicators on it? hehe.... tat is why, the closest you can get might still be the CI when you want to use TA... hehe... :P

and the CI is determined by the price and not the other way around... (questionable) that statement is theorically correct, but practical wise, it depends... i will explain more on this in the next article.... or else this one will be very long... hehe... :P

Regards

Fundamental Vs Technical

Actually there have been quite a lot of arguements on which is better... but if you ask me, i think both are good methods. it just depends on the user's ­style­ and preference... :)

Anyway, what is the difference between the two? Well, FA looks at balance sheets and annual reports to make their picks. TA looks at the charts to make their picks.

actually, both have some very different perspective on "expensive" and "cheap"... hence time to buy and when not to buy...

if you were to imagine stock is a product, you might be able to understand these methods better. FA uses annual reports to determine the current and future potential of a company and sets a value for it... for example, by using annual reports, FA defines a value or the price the stocks is worth.... either now or in future (investments). so when the current price is higher than wat they value now or the future potential, they consider it as expensive... but if the current price is below their value, they call it cheap or discounted... so it will mean time to buy... that is why you find investors using FA averaging down...
TA on the other hand do not really focus on the price itself or the potential of the company, but rather on the balance between supply and demand. no matter how good or how bad a company is, there will be a time to buy and time to avoid... TA buys when there is demand for the stocks... or when the demand is starting to exceed the supply... which also means tat the price is going up... so, wat is expensive and what is cheap for TA users? hehe...
Basically, expensive is the price when the demand is getting lower, which is when the price will start to drop... and cheap when the demand starts to pick up... so, TA actually averages up and dont average down (normally). because as i said, it is about supply and demand, when price go down, it means the demand is less, so TA will avoid such stocks...

to sum up, FA values a point or a range of a price tat they think the stock is worth, anything more is expensive and less is cheap...
TA tracks a movement of price, so you can say there is no cheap or expensive, only demand vs supply... buy when there is demand...So, this is why investors using FA averages down but traders using TA dont...

Regards...

Overbought and oversold

Hello, Recently these terms becomes very frequently heard... haha... this is expected as these indicators will be showed very actively on most charts due to the price movements...

So, maybe it is good to discuss a little about the functions and the limittations...

first of all, wat affects the price of stocks? i believe it would be the balance between supply and demand... ­

base­d on this, wat is oversold? meaning something is aggressively being sold... so the supply will be more while the demand for it is low... wat does this mean? there is too much products circulating and people are not willing or will not have to bid for the products with a higher price... so, the price will drop... and the opposite stands for overbought...

this is also why people depending highly on this indicator will buy when the stock is being oversold and sell when the stock is being overbought.

however, how dependable are these indicators? well, let us look at the pros and cons... the dependability will also depend a lot on which phase or trend the stock is in... wether it is on an uptrend, downtrend or range bound... why do i say so? there are some interesting points worth looking into...

if you believe tat overbought means time to sell and oversold means time to buy, let me ask you, how can a stock go into or continue on an uptrend if it is no high demand over supply? how can the price continue or start to go up if it is not being overbought? :)

how can a downtrend start or being kept if it is not being oversold?

this is also why the phase or trend of the stock is so crucial in determining how dependable this indicator is... hehe...

i do not use indicators, but if you insist on depending on this indicator, be aware of the phase, it is a lot more dependable when the stock is in range movements and highly dangerous if used solely on trending phase...

most indicators are not suitable to be used alone... and this happens to be high on the list... so, maybe it is safer to use this indicator to find stocks to be put into your radar while using other more fine tuned method or indicator to time the entry and exit point... :)

Correction or Crash?

Hmm... a lot of panic is starting with our market these days... and with today's superb drop... how many of us can sit still? a lot of topics like "wat to buy? is it the time to buy? it is bargain time! everything is cheap!". now i think it is important to revise the posting.. http:// www.talkandshare.com /index.php/ Technical-Analysis/ 378-Volatility-Vs- Severe-acute- distribution- Crash......-P.html

why do i say it is good to revise? it is because, correction has its opportunities like volatile market...

now, how about correction? i'm unsure of the world market sentiment, as i am not good at fundamentals... but if we take out our market and analyze it technically, i think it is more likely under correction rather than a crash... why do i say it is a correction? because it is an expected move form the charts from a few days back... if the supports do not hold, then it may not be a mere correction anymore... if it is a mere correction, support will hold and rebound will come... if it is not... i also got no eye see liaw...

so, the crucial thing now if you were to trade with a heavy weightage on CI, you will need to decide if this is a correction or a crash before making your next move... both starts with C, but the meaning and outcome is very different...

Regards and good luck!

Blue chips? Potato chips? or... ?

Also my article posted in www.talkandshare.com


Erm, this may be a little late cos was a little busy last few days, but still can use this for future reference... :)

Before i proceed, it is better if you have read this posting first...
http://www.talkandshare.com/index.php/ Technical-Analysis/378-Volatility-Vs- Severe-acute-distribution-Crash......- P.html
i think it is important to know wat kind of market movement it was before you proceed further.... Lets say, you have identitified it to be a volatile market... now wat?

Many of you will be asking wat counters should we buy next when the KLCI moves back up... One of the best method would be to use TA... if tat happens to be not at your finger tips yet.... well, you could still buy with the risk reward ratio method.... or also called, calculated risk... hehe....

why i say it is important to identitify the market sentiment first? well, this is so tat you can make sure you have the rewards favouring you... in the posting on volatile market, i mentioned tat the market movement will be down then back up.... so when it makes a dip down, you will expect it to move back up in a volatile market... so, here is the part tat u can use to pick your stocks....
when we say the market dips, we generally means the KLCI dips... a point to take note about the KLCI is tat, it does not represent the whole market, it does not represent every single counter out there... KLCI is calculated ­base­d on some calculations of the index ­link­ed counters.... so, wat is the significant here?

Well, when the KLCI dips, wat we can say is tat it shows most of the index ­link­ed counters would have diped... so, if the KLCI is moving back up or is showing recovery... it also literally means those index counters are also following... and since they have made a dip and is moving back up (correction), you can also say tat they are on a bargain price, so your risk will be reduced and the rewards will be increased... so, this is when the risk reward ratio will be favoring you...

Btw, since a lot of these index ­link­ed counters also happens to be blue chips, tat is why after the market dips in the volatile market, the blue chips will be the ones tat is climbing first... :)
but of course there are other reasons such as FA, investors will also pick them up at bargain prices... :P

So, to use this risk reward ratio properly, you should make sure of a few things:
1) make sure it is a volatile market and NOT a crashing market or recession...
2) the market is moving back up or recovering...
3) try to identitify index ­link­ed counters tat was battered due to the panic selldown and not due to its internal fundamental problems...
4) if money is on your side, you may look into blue chips tat are index ­link­ed and was hit by panic sell.... :)

So, Blue Chips anyone? :)

Regards & good luck!

Volatility Vs Severe acute distribution (Crash)

Haha.... another one of my article previously posted at the site: www.talkandshare.com


Since recently, the US DJI seems to be freaking a lot of people, i would like to take this opportunity to discuss a little bit about this topic...

First of all, whether the US is going into a recession, honestly... i dont know.... is it going to crash? again, i dont know.... so, wat do i know? nothing much... :P hehe.... but if i were to look at DJI charts, i can only say:
1) it is really very technically bound.... so if you want to know the DJI movement, study Technical analysis and apply on the chart....
2) it has not breached the trend at the time being... so if you think it is now a crash, i dont think so... :)

now, back to our topic... why do i put such emphasis on differentiating between volatile market and a crashing market? well, the biggest difference is tat, in a volatile market, you will see big waves of DOWN and UP... but a crashing market, there will be big DOWN and small ups, followed by more DOWNS... by looking at this, we can see a great difference in the method of play isnt it? since in Malaysia, we can only earn when stock price goes up... so, in volatile market, you can get stocks in "bargain" price because it will go back up in the waves...
But, in crashing market, it is a falling knife... so you get hurt when you try to catch it in between... because, price are going down... so the "bargain" today may be "expensive" tommorrow, and the day after next, and the week after next... tat is why the concept of "never try to catch a falling knife" exists....
and tat is why it is important to know wat kind of market it really is... as these two seems quite alike but the outcome (prognosis) is by far different....

So, how bout our KLCI... i believe the sudden drop is due to US... and since US is only volatile and never broke the trend, i would say it would and is moving back up... so our KLCI, with the fear removed, will correct itself back to its prior trend... which is range trading until it finds his new direction.... (for furter explainations on correction, read my post "market correction" in Market talk column)

Hope this helps in your trading plans....


Regards & good luck!

Market Correction?

Posted this article in a great site: www.talkandshare.com
so i decided to paste a copy here as well... :P


Market correction coming? Or it has been here for some time?

But wat is market correction? Does it always have to mean a bull market droping?

how about a bear market moving up?

hmm... to me, market correction means the market moving back to how it should be moving, or a sudden abnormal market movement moving back to the previous trend (correction).

if you look at the KLCI chart, many say tat the movement from 20th august - 28th september is a bull run...

First of all, i'm not saying it is right or wrong, i'm just giving my opinion... to me, it is just a correction rather than a bull run... a correction from the sudden drop 31st July to 16th august back to the trend our CI is supposed to be moving before tat... meaning its intrinsic trend...

But, is correction normal? well, i think everything has its intrinsic value... when things go beyond tat, a healthy correction will bring things back to its intrinsic value... this is supposed to be healthy...

so, wat does this mean? it means tat, my take will be, the market (KLCI) will be moving back to its range trading (correction), and the next movement will determine if the bull or the bear will lead...

Regards & good luck...