Anticipated and yet Unpredicted

Overview of the KLCI? The sudden drop in KLCI, with roughly 15 points, is a sudden signal that caught many investors’ and speculators’ attentions. The correction is in fact anticipated, but the large drop in the value is indeed unpredicted. From one of the technical perspective, however, the huge drop in KLCI should be viewed as healthy correction activity, as its drop is only accompanied by relatively low volume. It could be argued that the low volume indicates profit taking by the small players when the momentum buying from the foreign fund ceased. From another perspective, however, could argue that this drop in price itself is indeed dangerous. Regardless of the magnitude of volume, drop is a drop, a reality that could be sufficient to invoke a negative feedback loop among the small fishes. If the large institutional funds have no intention to support the drop, the correction would be severe and devastating. The big blue chips will become chocolate chips while the penny will of course, remain penny if not forced to be delisted.

Description of the MESDAQ market. Many MESDAQ and rubbish and penny stocks that rise little only (as the KLCI make spectacular move) drop by hell today. Some had been observed being drop surpass the newly formed support line for the pass two weeks. To some degree, this is quite disappointing as my profit taking haven’t completed yet. Some how, this teach me again and again, do not bargain for penny, where I should sell off immediately but not hanging the price up there for victims to come and buy it. When the uncertainty seems to come, push the trap to the victim, but not waiting for the victims to come. Else, you gonna trap yourself in the trap itself.

Description of the environment. It is observed that unrelated people are now talking about stock. Many people are again; gather at the stock broking house again. The culture of drinking coffee and making money seems to come alive again. Grandfather, who cease to buy stock for such a long time (may be since 1997 or 2001), now buying Public Bank. Auntie and Uncle, who half year ago, come to ask for investment tips, are now giving my mother tips. Seems like they are so happy with their AMMB.

Action required. It has been argued among professionals and experience players that the rise could be continued until the CNY 2007. The sudden drop in price, however, is dangerous, but should never disturb our emotion. Market is simply unpredictable, and when it seems predictable, disasters are following behind. Decisions to sell or not, is hard to make. After all, all the stock I am holding is seems forming accumulation pattern, and is still at very low price level, and volatility has not set in to these stocks. None of the stock I am holding are experiencing highly spike in the near term. Gambling is always never easy when you trying to add intelligence into the process. After serious thought, I decided to hold on to these stocks despite the highly drop (which perceived as healthy correction by mass media) in KLCI. Today 12 December 2006, 11.45pm, I recorded down my reasons for holding as follow:

1. This is still the third wave of the game, considering it from a medium cycle of investing. Warrant play is just going to end but MESDAQ and penny stocks’ spiking for distribution has not yet done. Don’t those directors of these companies want to fried those pennies and sell to the uninformed?

2. I perceive the institutional will not stop the pushing so soon. They will return before CNY (Well, stupidity set in here as I trying to predict again). In short, I don’t believe that foreign investors are so good to pour money into Malaysia and let the value drop like hell. Analysis from the volume for distribution perspective, I doubt that they able to recover their cost of capital despite the RM3 billion turnover that day.

3. Once the trend started, it is highly possible that the trend will persist. The worst scenario for now is the invested capital trapped for a year due to the severe correction. Do I play on margin? Ah hahaha, never!

4. Asian currency is still undervalued and leaded by China, RMB repeg is highly probable and if that is true, RM repeg will soon follow.

5. Everybody want a rest, publicity of stock market is already set up, and correction is more likely than a disaster as the expectation of others’ expectation on CNY effect will serve as strong barrier for the stock market to move downwards.