Waiting for the Crack

Waiting for the Crack.jpg

At the start of the New Year 2018, we saw US stocks shooting to the sky, moving vertically up defiling any human logic. There was no spectacular news propelling the upward movement except for the process of Trump’s corporate tax deduction laws getting through the approval debate.

Then come the first week of February, the upward tension broke without pre-warning.  A sharp reversal shocked the entire world markets with paralyzing selling pressure.  China market is among the worst hit. Initial analysis as I wrote last week said the cause of the fall was the good report of US job hiring just released on the day of the greatest fall on Friday, February 2nd 2018 for the fear of speedy rate hike more than expected.

S&P 500 Fall
Sharpe rose of S&P 500 index market defiled human logic

Later on, other analyses for the cause of the fall were also reported. These were such as the fear of rising yield or healthy correction etc.  And of course other gloom and doom prophets have also started jumping out from the bush telling all kind of predictions and warning.

Fundamental Still Solid?

From all of these Sayers, the most outstanding view was that the fundamental of the US and World economy is still strong and healthy. Therefore investors are advised not to be too alarmed by it. But nevertheless, because the fall was so unusual and strong, that very few dare to encourage buying at the dip or do bottom fishing especially after a few days of high volatility and unpredictability.  There wasn’t any strong rebound like it used to be.  But the pattern of lower heights has been observed over the last few trading days.  It seems like analysts are also at a loss of certainty.

We can take whatever analysis available from those experts, and build our investment views and philosophies out of them, but none of us including those experts would actually know what really lies ahead, whether it is a long overdue healthy 10% correction, or just the beginning of a bear market.

One thing for sure, market action always moves ahead of the underlying real economy condition.  Even though it looks healthy and strong on the surface from most recent data of the world economy, especially from the US, but the underlying gigantic debts from all over the world seem to tell a different story.

No one really knows what would be the possible flaw in the world economy when no one is pin pointing or no one is really listening if there is any.  This is nothing new. It happened during the last recession.  What we need to observe from now on is probably a crack in the balloon. This massive sell off could be a test of the economic fundamental.  This test would be like the shaking of an earth quake. Only the passing of this shake can prove which building is really fundamentally strong and healthily built.  If there is no crack found after this shaking, market would have no doubt recovered in its own time.

For Unit Trust Holders

For unit trust investors, what we need to do from now on is, first, observe closely  the movement of the market index.  Market Price tells everything, but neither from the news nor analytical reports. Market news are always interpretation after match or legging behind time and most of the time their reliabilities can also be questionable. Analytical reports are also in conflict with each other most of the time. These analyses are only good for references. We also need not wait for the official announcement for entering bear market which normally comes very late after market retrieved below 20%.  We can decide to stay or exit based on the trend pattern of market indexes, especially among the US market indexes.  If lower low’s appear before our eye, then it would probably time to exit market.  If not, we can still stay when market indexes make higher heights.

Secondly, we should not react to market frightening fall and leave immediately. No market would fall in a straight line even in a bear market. Market travels in zigzag pattern either up or down trend.  If anyone wants to leave the market, he may exit at the rebound, instead of the lowest dip.

Thirdly, if anyone has any doubt or uncertainty but do not want to miss the current bull market, can choose to withdraw partially and gradually. You may switch your equity funds into bonds or money markets directly instead of using selling mode if you are using Fundsupermart investment platform. So that you can switch back free of charge into equity funds any time if needed.

One more last observation, please pay attention to Gold price movement. It is very interesting that recent gold pricing did not react to recent global market rout, neither did it concern the recent fall of bitcoin as well.

Gold Price
Gold Price did not react to recent equity market rout nor to bitcoin fall

Could it be that gold is still waiting for the “final” confirmation of the real recession to kick in? If gold prices shoot up, then we should also pay serious attention to the global equity markets already.

Let’s keep watch and stay alert for next week market movement.


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