Understanding Portfolio

The KLCI fell roughly 50% from its high of 1524.69 points to 801.27 points, which is a reaction of chart pattern Head and Shoulder Top, where price broke below its neck line. (refer to Chart 1). Technically speaking, a 50% retacement level is a level for a technical rebound, which is an opportunity for experienced chart readers. In fact, the KLCI rebounded nearly 100 points from its 801.27 support, and this might have created a golden opportunity once every 10 years.



Chart 1: KLCI breaking Head and Shoulders Top, started the 2008 bear run.


There were some investors taking positions at the 800 points rebound, for short to medium term trend, however, there are still some investors who believe that this is not the bottom yet.
Nevertheless, no body really know the exact answer for predicting the market is almost impossible, even the newly elected US President Mr. Obama does not have any answer. But one thing for sure, that is many countries' central banks are aggressively providing funding to aid the worsen situation. These activities are believed to help the market positively, but the effect would not be immediate.
Generally, economic data is 3 to 6 months behind of the stock market. For example, the KLCI started its bear run on the 29/02/2008 (refer to chart 2), as the KLCI broke below the 200-Moving Average, but not every one has noticed the signal. Most people only felt the aftermath after the petrol price hike, which was around August to October last year. By that time, the KLCI has already fallen 570 points. This has once again shown that the stock market is always faster to reflect the economy.



Chart 2: As indicated by A, the KLCI fell below 200-Moving Average, suggesting an end to the bull run. This exact chart has been published in the Business Section of Sin Chew Jit Po.



The current market is filled with negative news such as high unemployment rate, weaker company earnings, but if we were to look at this from a positive point of view, when the market is at its weaker point, it also imply that the recovery is due to happen. If the theory of which the stock market is always ahead of the economic data, then, by the time we see better economic data, the bull market has already begun.

This lead us to a next question. If the stock market were to rebound, how does one pick stock? There are many ways which people believe in when it comes to stock picking, but not every way is suitable for every person. There are about 1000 listed companies trading in Bursa Malaysia, and to really pick the suitable ones and the suitable time is really not an easy task. Generally, investors pick stock by:

1. Recommendation from friends or remisiers.
2. Insider news.
3. Feeling that the price is very low and attractive.
4. Seeing other making money from a particular stock, he or she also wants to get involved with that particular stock.
5. Based on own analysis.
We must understand that a successful and profitable method in selecting stocks varies, and one does not form his or her investing 'style' overnight, it is rather a long, boring, and often requires lots of hard work before anyone could develop their own method. Please take a look at the following table for some different types of investment styles.

Styles or Types:	Characteristic:	Importance:
Conservative	Priority is heavy blue chip counters.	Company results, fundamental issues, and macro economy.
High Yield	Choosing high dividend yield stocks that yield 5% or more.	High dividend yield.
Short-term	Short-term trading, (T3), trading on most active counters.	High liquidity, company announcement and related news.
High Risk	Chasing stocks that rally due to special news, derivatives products, and even penny stocks (stock trading at or below 10 cents)	News, rumors.
Long-term	Strong confidence in particular company's long term prospect, and despite the price fluctuation, they generally will hold on to the shares.	Long term company prospects, consistence good earning.
Bottom Fishing	After bear run and after a period of consolidation, these investors will begin to accumulate their choice of stocks.	Macro economy, stocks with low PER, or stocks below the net assets value.
Comprehensive	Apply Technical analysis with Fundamental analysis, trading for medium to long term if the uptrend persist, or short term trading if trend should end.	Fundamental analysis, and Technical analysis, and follow the major trend.

The above investment styles varies, and emphasize in difference importance of skills, but definitely not every style suits every personality. Therefore, investors must first understand their own temperament, and know which type of investors they are before finding a comfortable investment style for themselves. Even professional fund managers need to lay out their fund objective before they can start selecting stocks for their portfolio. For example, an Index fund focus on index link counters, while a growth fund focus on company that has be higher growth potential with the given economic situation, and Dividend fund focus on high-yield stocks, etc.
To sum up, there is no 'get rich quick' method or easy money formulas. Hard work and extensive studies are inevitable if one wish to succeed in the game of investing.

Source : WinChart, Straits Index (M) Sdn Bhd http://www.straitsindex.com/

Searching for PERFECT formula in stock trading

For many years, I have come across many people successfully mastered the art of Technical Analysis. However I have also met many people who fell into the trap of “Searching For the PERFECT Formula”. This is a common problem of beginners, especially those beginners who had experienced some wining shortly after starting learning about technical analysis. Once they had learned some basic, they began to find and explore some complicated techniques or formulas. They think that they can earn profit by learning the basic, if they were to learn the most complex technique, the profit would be much higher.

However, the truth is absolutely the opposite. They should stick to the basic and master the very same technique, for being success in the stock market does not come over-night. The end-result of searching a “Get Rich Fast Track” will eventually fail. In fact, if practiced correctly and patiently, a simple indicator like Bollinger Bands or Moving Averages can be extremely effective.

We have to know that, even Warren Buffet is creating his wealth by a conservative 20% yearly compounding return.

In Technical Analysis, we apply the simplest element, which is price and volume. Because all indicators are derived from price and volume. In other words, price is the only leading indicator.

After a period of time, fluctuation of price movement shall form chart patterns, which is the most important form of Technical Analysis. The next important indicator would be Moving Average, which reflects the price movement over time, and of course, Bollinger Bands, which his a derivative from Moving Average. After many years of applying Technical Analysis in the Malaysian market, it has became an important Primary Indicator.

To identify any Chart Patterns, users have to draw out trend lines, supports and resistance lines. And we usually have a joke like “If you could draw any trend lines, support and resistance, you had already understood Technical Analysis.” In fact, this is absolutely true. I found out that these successful users are all using the above mentioned Chart Patterns, volume, Moving Average, and Bollinger Bands, and MACD, perhaps Stochastic and others, which is wrongfully regarded as “too common” by amateurs.

This is the original idea of WinChart, we recommend investors to understand the true meaning and interpretation of technical analysis. This not only help investors to learn technical analysis correctly, it also help investors to avoid the trap of “co-linear” effect of indicators.

I remember, long ago, when I was teaching the uses of MACD in one of my seminars, there was a gentleman, who claimed to be an expert in Analysis, saying that he had stopped using MACD 7 years ago, and he stated that his own way is better than MACD. He even claimed to be the teachers of local and neighboring countries' fund managers. Nevertheless, we shall not ignore this simple yet effect indicator. The MACD is derived from by 3 moving averages, and for those who are familiar with our way of analysis, you can actually use MACD to find counters that is moving against the down trend of the broad market. There were no method in searching for such stocks, but surprisingly with the simplicity of MACD, it works.

Fortunately, after searching for the “Perfect formulas” for some time, most users eventually turned to the basic to Chat Patterns, volume and Primary Indicators and MACD.

杨程築
海峡指数首席分析师
CC Yong
Chief Analyst
www.straitsindex.com