Correction Coming??

Hello, I personally think there should be a correction on tuesday.... to understand market correction, good to read this article again before proceeding.... hehe... :P

http://survivingstockmarket.blogspot.com/2007/10/volatility-vs-severe-acute-distribution.html

Now, why do i say there might be a correction? why would i think there will be one in the first place...
well, on Friday, actually on my side, i think our CI is moving on a healthy ­style­... so am really expecting a good day, at least at the early session on Monday.... but.... walau eh... on the friday night itself, the DJI made almost a 400 point drop.... this itself is severe enough to make any healing wound to burst.... so i personally think Monday's drop is not due to our intrinsic factor.... it is more of a intermarket effect... so this made me to believe tat a correction should have happened on tuesday...
unfortunately, the whole regional market decides to bleed some more.... when i look at our intraday CI movement, and compared it with our neighbours, i notice tat we are actually performing quite well. which leads me to believe that recovery is indeed in place, only might be stalled or masked.... so i am actually putting quite high expectations on wednesday... :)
and i do hope tat it will not let me down...

but let me emphasis again, i am not saying that there will be a major change in the trend, when i say recovery, it just means tat there should be an upmove or an up swing.... wether or not it is enough to make a trend change, will still depends....


Regards & Good luck!

How to use Volume

How to use volumes…. This itself is long enough to write a few articles… :P first of all, how to use volumes depends on what method you are adapting to…. to start from basic, volume is formed when transaction is done… every transaction or every volume means an agreement of price between buyers and sellers…. Volume is like and indicator for the sustainability of trend…. To make it simple, it is like fuel for the flame… the flame represents the trend, no matter up or down… so, if you see volume dying down, it shows signs of dying flame too…. and vice versa… simple? :P

Now, homework….
1) Are the statements correct?
a. Low volume equals illiquid.
b. Low volume equals price is about to drop.
2) What is true low volume and what is relative low volume? What is the significance?

Ok, lets go a bit deeper, if we are using trends or phases… how do we incorporate volume into them? Basically, we can generally divide the trend into three types or phases:
3) Uptrend
4) Downtrend / Distribution
5) Range bound

How does volume come in? Well, as stated above, when we see price moving uptrend, a healthy one will be accompanied with increasing volume because this means more people agree and supports the increasing price… so we can say it is sustainable…. and vice versa…

How about range bound? during range bound, volume is also normally in range… why? Because less transactions involved… now, towards the end of range, volume will pick up… because there will be more and more people involved and more transactions are being done… this is called public participation…

Homework:
1) Does public participation or volume picking means that uptrend is next?
2) Revise a bit on supply Vs demand.

Ok, stop here first, leave the deeper stuff for later… :P do post your answers and questions if you don’t understand or require further information…


Regards and happy learning

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...

Market efficiency

What is market efficiency? We can measure market efficiency in a few ways… Market efficiency can be measured by how well the market react to news and information as well as ‘fairness’ between buyers and sellers. Hmm… what does this mean?

For example, when a positive news about a company is announced, the price will go up immediately. How fast the price responds to the news will tell you how efficient the market is… Take note: not only the response time is measured, the price should also move in proper direction. That means, when a positive news is out, price should go up, not down..

In an efficient market, ‘fairness’ is also an important measurement… What do I mean? First of all, all companies have their very own intrinsic value… Or how much the company is worth… And this price will be reflected in their market price… That means there is a balance between the supply and demand (how does this affect the price? You can refer to my previous post), there will be no overbought or oversold situations… Which means the companies are selling at their fair value…

Does this sound good to you? Hmm… If you ask me, this might not be such a good news to me…. Why? Let us analyze this: First, which method do you use when buying stocks? Do you use fundamental analysis or technical analysis? An efficient market is a very bad news for those that uses technical analysis (TA)… Because like it or not, TA earns from overbought or oversold conditions… From other’s panic selling or ignorance… So, in an efficient or fair market, how are they gonna earn?

How about those that uses fundamental analysis (FA)? This may sound like good news because an efficient market also puts price of stocks according to their intrinsic value… Which means, those that are masters of analyzing fundamental values of a company will pick up great stocks to invest in… They will be able to earn when the company expands fundamentally which will bring up the price or from their dividends… Sounds like a good news? Maybe not.. In most investments, the earnings can be divided into realized and unrealized gains… Realized gains is the money you get from dividends, unrealized gains is from the price increase which is enhanced many folds from overbought or oversold conditions… However, majority of the earning is from the unrealized gains component, and this can be seriously hampered in an efficient market…

So, the question now is, do you think Malaysia is having an efficient market? It’s a definite no for me… The next question is, do you want an efficient market? That is a definite NO from me too… But how do we survive this inefficient market? The answer is SKILLS… Be it fundamental or technical analysis… Skills is the thing that will decide whether you can make it or not in this inefficient market… So, let us enjoy this inefficient market to the most by improving our SKILLS!!!

Why bother about the basics?

As I have mentioned earlier, this is a learing blog. So the first on the agenda will obviously be about the basics.. I think it is very important that we have a strong foundation first before we do anything..

How high a building can be built will always depend on how strong the foundation are...

So, before we move into Fundamental or Technical analysis, let us look at some basic knowledge about stocks....