The Disaster

What goes up will come down; nothing can be more truth than this. 27 February 2007 was a day in history that teaches the investors a lesson on this.

Before that happen, rumors and tips were everyday, everywhere and everybody. The stock market seems to have a bright future and had become a big casino for almost everyone.

I am to record down the reasons and the ways that help me anticipated the turn of the market at 2:30pm on 27 February 2007. The market will repeat itself in the future. This is a record and an essay written to communicate to myself in the future.

Signals that catch my attention to a big correction:

1. A parabolic rise of the KLSE and other index (particularly on China and Hong Kong). New high on the stock index is already a common term in the newspaper. As stated in the art of war, in the time of war, think peace; in the time of peace, prepare for war. The bull is too strong for almost half year. The relentless rise without healthy correction is a clear divergence signal to traders.

2. Volume is rising beyond history high. The high volume, often, if not always indicate the turn of the market. The highest volume achieve during the first trading day of CNY 2007 is a warning signal that demand every traders attention.

3. After the warrant play, the MESDAQ wave comes into the game. MESDAQ is often a curse of the stock. When these rubbishes are also rising, the end is not too far. While not predicting an exact period of the end, at least, the focus of our mind is sharply on the turn of the market.

4. More and more retailers (specifically, non-professionals) are joining the game. Remisiers start to become so busy that do not have time chatting with us. In a loser games, if retailers are also winning, nobody is losing. This condition will never last long. Those players that are supposed to be the suckers of the game had become big time winners, what the heck of the world is this.

5. Irrational exuberance. The high volume and crazy rising of all stocks (yes! Almost all) is indeed irrational. I had been tracking with pen and pencil on the volume and for so long and just in recent days, I had to use a “k” as a basic thousand unit in recording the prices and volume actions.

6. The leaders are losing momentum. Many leaders that lead the wave are started to lose momentum even before the CNY. While this is never a clear signal to issue a “sell”, it is indeed something that demands us to become cautious with the market environment. If the leaders never regain their momentum, it is often the time to say bye bye.

7. On 27 February 2007 itself, the extreme signal that trigger me to dump all stocks at whatever price, was the extreme advance/decline counter. 50 green while 1110 red which occur in an anticipated correction. To double confirm, top volume ended with 10-15% loss. The reason for the huge adverse condition is never known yet, but this is too clear a signal to lock in profit. The previous huge bear was started in this way as well. Compounded with the factors which I stated above, a “sell” is almost 95% a correct choice.

No bear started in the same way exactly, the next bear could have started in a different way, and we will have other signals to capture the next bear and lock in profit.

Only after some days, the analysts so called reveal the reasons of the bear. While obviously, they are bull-shiting after the crash, I strongly appreciate their effort for trying to relief the pain among retail investors. The suspected reasons are:

1. Market crash in China after prolonged Bull Run. This trigger so called negative feedback loop. The reason for China stock market crash is possible capital control and deviation of stock prices from fundamental.

2. After Japan increase the interest rate, the foreign investor that are dealing with carry trade reduce their equity exposure in expectation of further hike in the interest rate.

3. US expectation of economy slowdown, ermm, Alan Greenspan again with “possible but not probable”.

4. The market wants a correction. This is a healthy correction!

5. Well, damn a lot of reasons… anyway, the rest are just to attract the suckers to go into the market.