Time to buy battered stocks: JPMorgan

By Rupa Damodaran

Published: 2008/12/11

Now is the time for investors to buy battered stocks as the global financial crisis is expected to retreat by the second half of next year, an equity strategist says.

"We have seen the peak of selling (of the stock market) in October," said JPMorgan Asian and emerging markets equity strategist Adrian Mowat at a briefing in Kuala Lumpur yesterday.

The stock market, which took a beating in October, following panic-selling in global markets, led the local benchmark Kuala Lumpur Composite Index to a four-year low.

Valuations are cheaper compared with previous crisis, he added, but investors are staying on the sidelines.

"Malaysia is unlikely to be a leader in recovery because international markets tend to go for markets with more liquidity and China will lead the story," Mowat said.

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My comments: I don't know how he can come to the conclusion that the crisis is over. For me, it is still too early to tell whether the bottom has been reached. The monthly S&P 500 chart shows that it may have found support in the 750-800 region. If this is the true support, then the market should test this in the next 3-6 months time. Even thought the chart shows that it is really oversold, but we need to remember that this is a strong downtrend. Thus, indicators can stay oversold a long time. Based on my interpretation on the S&P500 chart, I cannot come to the conclusion that the crisis is over.

If Middle Earth Has A Stock Exchange

Oh....look at IOICorp, it may be giving a buy signal base on daily chart!

No no no...cannot touch this....the long term trend is still down!

But the potential move may be high! The weekly chart is ain't that bad too.

It is a downtrend stock. It can stop at any levels and reverse back.

I think that it can go up to 4.00...IOICorp-CJ looks yummy!

The risk is not worth it. I cannot break my trading rules. That is to stay out of downtrend stock.

But it is Christmas time, then it is Chinese New Year....sure will rally and the risk is not that great.

Remember the last time I broke my rule, I suffer huge losses!

Ang pow lai liao, ang pow lai liao.....he he he

Arrrggghhh.......I'm starting to become greedy again. Greedy is the cause of my last downfall.

I can squeeze 50% profit in it. I should take the risk.

Follow the rules. Be discipline. Will not become a good trader if I am not discipline.

(Ah, a little bit of Gollum inside of me)

Sepandai-pandai tupai melompat...

Creation and construction takes time and effort, but destruction can be swift and violent.

That is why I do not have a long term view of the market. You will never know how severe the bear market will turn out to be. This story concerning Bill Miller shows that it is better to be save than sorry. When you smell a bear, start liquidating some. When you hear the bear, liquidate some more. When you see the bear, liquidate all!

The story also shows that we are all vulnerable. Don't be arrogant. Don't take excessive risk. Always look out for signs of trouble. The most important of all, take responsibility for your failure. Do not blame it on the market. By taking responsibility, you learned about your mistakes, about your foolishness and about yourself. This is the only way we can survive.

Greedy Dream Gone

Oh, my dream was to leave my current job and to go into the hedge fund industry. I want to be those greedy fund managers, playing with other peoples money and earning 6 obscene figures. Fast car, good wine, good food, big house and branded items.

Well, that is all gone now. Hedge funds are closing down. The chances of getting a job is very low now. Maybe I'm not destined for those. So, I have to be content with playing my own money. That means to be more careful with my money and not take excessive risk. That means a small national car, cheap wine, mixed-rice, low cost house and fake branded items.

But all is not loss yet. Human will have a short memory. It will always be different the next time. The next bubble will come. It will be something different. We have already gone through the bubbles for tulips, trading rights (South Sea Co.), dotcom, property, commodities and energy. Rest assure the next bubble will be waiting to grow. Then maybe, I can achieve my dream. I just hope that I will still be around to see it grow.

Bubble here, bubble there
Bubble burst, becomes big brown bear
Last one in, first one suffer
Big ugly frown, no more laughter

The slow one gets slaughtered
The hopeful becomes bottom pickers
Every rally becomes a new hope
But it was only a short of dope

When the euphoria ends
The bottom pickers are squashed like ants
Everyone is humbled
Assets continue to tumble

But do not despair
A new bubble lay hidden somewhere
With new money and no memories
Ingredients for the next bubble recipe

And so we are back again
Seeking that elusive gain

The 5 Stages

This is my 500th post! Enjoy.

Conflit of Interest

This is my 499th post. So, I'll say something more serious. The topic is conflict of interest in the mutual fund industry.

What type of conflict of interest am I talking of? Well, during this bearish market, you still hear of dollar cost averaging.

The reasons given for dollar cost averaging are:

1. You cannot be influence by the fluctuation in the stock prices.
2. It is hard to determine to top and bottom in a market.
   
3. A way to force you to safe.
   

Point 1 is partly true. Prices fluctuate within a certain range if you view them using daily time frame. No point to react to every movement because of the high charges in commission. But if you step back a little bit further and use the weekly time frame, then you can see that certain stock have strong uptrend and downtrend. To make money, you need to be able to catch the strong uptrend and to avoid the strong downtrend.

Now, this comes to point 2. It is of course impossible to catch the top and bottom, but it is still profitable if one can determine the bottom after 10-20% raise or the top after 10-20% drop. This is because, in a strong uptrend, the price can increase over 100%, sometimes 200-300%. If one can catch 60% of this move, you will already have a very good return. In a strong downtrend, the price can drop 50 to 80%. Thus, it is best to avoid them. Therefore, being able to draw a simple uptrend or downtrend line using a chart is really beneficial in maximizing ones profit.

For point 3, I think that saving should be part of your natural habit.

So, that 3 points are used to promote dollar cost averaging. But the real reason, based on the point of view of an asset management company is different.

It all comes down to profit. You see, the asset management company sucks a minimum of 1% of your asset every year. In a good or bad year, they are still able to reduce your asset. If they promote chart reading, imagine what will happen in a bear market? If everyone pull out they money, less asset under management means less profit! That is why, you always hear from fund managers "advicing" you to keep on investing in the market. They don't really put your priority as they priority. Their priority is to take your money first. Making profit means that they can attract more money for management.

Well, you can't blame the mutual fund industry for this behavior. They are business minded. The blame is really on you. If you choose to remain ignorant in this investment game, then you are a sucker and unless you change your attitude, you remain a sucker for life.

If you want to invest, you need to know the basics of fundamental analysis and technical analysis. This is a must. With this knowledge, you can put in tough question for your financial planner, your broker or the a representative of the mutual fund industry. If you don't ask, they will not tell you and the loser will be you.

So, go to MPH and increase your knowledge. We are experiencing a bear market now, so it is a good time to educate yourself to prepare for the next bull market.

Weekly Analysis

Ok, still no rebound for KLSE. My charts a little bit contradicting each other. That is why I don't think that the downtrend will be strong. But it looks like we are still slowly drifting down. Since everything except gold has collapse, we should look forward to the next bubble. Currently, it is still too early to tell. Maybe China play? SSECI seems to have been stabilized.

My interpretation for KLSE are:

Malaysia	Longterm	Midterm	Shorterm
KLCI	Down	Down	Down
Finance	Down	Down	Down
Construction	Down	Down	Neutral (+)
Plantation	Down	Down	Down (-)
Property	Down	Down	Down
Mesdaq	Down	Down	Down
2nd Board	Down	Down	Down

For the rest of the world, the reading is mixed. :

World	Longterm	Midterm	Shorterm
S&P500	Down	Down	Neutral
DJI	Down	Down	Neutral
NasdaqComp	Down	Down	Neutral
Nikkei 225	Down	Down	Down (-)
Kospi	Down	Down	Down (-)
SSECI	Down	Neutral (+)	Neutral
HSI	Down	Down	Neutral
TWII	Down	Down	Down (-)
STI	Down	Down	Down (-)
SENSEX	Down	Down	Neutral (+)
FTSE	Down	Down	Down (-)
DAX	Down	Down	Down (-)

Nothing much to say but to wait for the right signal.

Where is Santa?

KLSE is not reacting to US stock movement. I'm still expecting a rebound. December is the month where stocks usually move up. In addition to that, the fund manager must do some window dressing to cover their miserable performance. But.......most of sector charts are still pointing down:

Malaysia	Longterm	Midterm	Shorterm
KLCI	Down	Down	Down
Finance	Down	Down	Down
Construction	Down	Down	Down
Plantation	Down	Down	Neutral (+)
Property	Down	Down	Down
Mesdaq	Down	Down	Down
2nd Board	Down	Down	Down

The rest of the world looks like stabilizing:

World	Longterm	Midterm	Shorterm
S&P500	Down	Down	Neutral (+)
DJI	Down	Down	Neutral (+)
NasdaqComp	Down	Down	Neutral (+)
Nikkei 225	Down	Down	Neutral (+)
Kospi	Down	Down	Neutral (+)
SSECI	Down	Down	Neutral
HSI	Down	Down	Neutral (+)
TWII	Down	Down	Neutral (+)
STI	Down	Down	Neutral (+)
SENSEX	Down	Down	Down
FTSE	Down	Down	Neutral (+)
DAX	Down	Down	Neutral (+)

But please note that US stock market has gone up with decreasing volume. So when everyone is back after Thanksgiving, do expect the real action to continue.

Also, the talk of the town is that China is in panic mode. Their GDP may contract more. Now, if we can lend money to the Americans to continue their spending binge, maybe we can save the world from going into a severe recession.

If you are interested in US and world economy, then please do read the blog Calculated Risk.

To Test The Downtrend Line?

All sectors are still pointing downwards:

Malaysia	Longterm	Midterm	Shorterm
KLCI	Down	Down	Down
Finance	Down	Down	Down
Construction	Down	Down	Down (-)
Plantation	Down	Down	Down (-)
Property	Down	Down	Down
Mesdaq	Down	Down	Down (-)
2nd Board	Down	Down	Down (-)

However, the downward pressure doesn't look strong. This observation is obtained base on the daily MACD reading that shows some contradiction with the price movement. A good chance that the rebound may continue towards the downtrend line that is currently at around 950. Maybe the rebound can just stuck at 920 again. The important point is that the probability is still not favorable for going long.

KLCI Daily Chart

For the rest of the world, the reading is still gloomy:

World	Longterm	Midterm	Shorterm
S&P500	Down	Down	Down
DJI	Down	Down	Down
NasdaqComp	Down	Down	Down
Nikkei 225	Down	Down	Down
Kospi	Down	Down	Down
SSECI	Down	Down	Neutral
HSI	Down	Down	Down
TWII	Down	Down	Down
STI	Down	Down	Down
SENSEX	Down	Down	Down
FTSE	Down	Down	Down
DAX	Down	Down	Down

After China unveiled its stimulus package, SSECI seems to have stabilize. Well, President elect Obama has unveiled his stimulus package that will create 2.5 million jobs. My questions are:
1. Where is he going to get the money?
2. Can the banks be saved before the effect is seen?
3. Are investment bankers and auto plant workers going to the work of shovelling sands, welding metals and laying bricks?

Anyway, base on the Chinese announcement and the effect on the Shanghai stock market, I guess that NYSE and Nasdaq will also stabilize (unless Citi crashes on this coming Monday).

Nassim Taleb Says Portfolio Theory is `Hogwash'

Listen to this podcast.

Continuing Down?

KLCI rebound may be over. If 800 breaks, then the next possible support is around 640.

Malaysia	Longterm	Midterm	Shorterm
KLCI	Down	Down	Down (-)
Finance	Down	Down	Down (-)
Construction	Down	Down	Neutral
Plantation	Down	Down	Neutral
Property	Down	Down	Down (-)
Mesdaq	Down	Down	Neutral
2nd Board	Down	Down	Neutral

US roller coaster ride may reach another cliff that will clearly break the Oct 10 lows (I'm talking about DJI).

World	Longterm	Midterm	Shorterm
S&P500	Down	Down	Down
DJI	Down	Down	Down
NasdaqComp	Down	Down	Down
Nikkei 225	Down	Down	Down (-)
Kospi	Down	Down	Down (-)
SSECI	Down	Down	Neutral (+)
HSI	Down	Down	Down (-)
TWII	Down	Down	Down
STI	Down	Down	Down (-)
SENSEX	Down	Down	Down (-)
FTSE	Down	Down	Down (-)
DAX	Down	Down	Down (-)

By the way, have you seen the news concerning China's Oct industrial production growth? 8% increase. But wait a minute, the electricity consumption contracted by 4%! Huh?!

The Global Bailout Map

I want more sir! 20 billion --> 85 billion --> 700 billion --> gazillion ???

The global bailout map. 

The more you bailout the sick companies, the more I'm scared.

The End

A great article from Michael Lewis. It is about the people that saw and profited from this subprime crisis.

Rebounding

KLCI Daily Chart

KLCI had a big bounce from 800 to 900. Downtrend line resistance is at 950-970. So, will it go higher? What are the fundamentals for it to go higher? A new US president does not mean that the problem will go away overnight. The next fear factor may be China contracting GDP.

My interpretations for the various sectors in KLSE are:

Malaysia	Longterm	Midterm	Shorterm
KLCI	Down	Down	Neutral (+)
Finance	Down	Down	Neutral (+)
Construction	Down	Down	Neutral (+)
Plantation	Down	Down	Neutral (+)
Property	Down	Down	Neutral (+)
Mesdaq	Down	Down	Neutral (+)
2nd Board	Down	Down	Neutral (+)

For the rest of the world:

World	Longterm	Midterm	Shorterm
S&P500	Down	Down	Down (-)
DJI	Down	Down	Down (-)
NasdaqComp	Down	Down	Down (-)
Nikkei 225	Down	Down	Neutral (+)
Kospi	Down	Down	Neutral (+)
SSECI	Down	Down	Down
HSI	Down	Down	Neutral (+)
TWII	Down	Down	Down
STI	Down	Down	Neutral (+)
SENSEX	Down	Down	Neutral (+)
FTSE	Down	Down	Neutral
DAX	Down	Down	Neutral

World Market (20081031)

Asian markets are still pointing down. The US seems to have stabilized but it was the end of month, so some funds may have done some window dressing. The selling pressure seems to have subsided but this may be the calm before the next storm.

World	Longterm	Midterm	Shorterm
S&P500	Down	Down	Neutral (+)
DJI	Down	Down	Neutral (+)
NasdaqComp	Down	Down	Neutral (+)
Nikkei 225	Down	Down	Down
Kospi	Down	Down	Down
SSECI	Down	Down	Down
HSI	Down	Down	Down
TWII	Down	Down	Down
STI	Down	Down	Down
SENSEX	Down	Down	Down
FTSE	Down	Down	Neutral (+)
DAX	Down	Down	Neutral (+)

KLCI (31 Oct 2008)

KLCI Monthly Chart

The support at around 800 has been tested and is still holding. It may rebound to the 930-980 region. If the 800 level is broken, then the next support is at 550 to 650.

Major KLSE sectors are still bearish:

Malaysia	Longterm	Midterm	Shorterm
KLCI	Down	Down	Down
Finance	Down	Down	Down
Construction	Down	Down	Down
Plantation	Down	Down	Down
Property	Down	Down	Down
Mesdaq	Down	Down	Down
2nd Board	Down	Down	Down

Cheap Sales (10): Property

Property Sector Index

16 years of bear market! The index value is currently at support level. If this fails, the next one will be at 400.

KLCCP Monthly Index

This one still looks strong. Technically, it has broken its uptrend line support and the next possible support is at 2.30.

Mahsing Monthly Chart

This one also looks strong. I thought of playing the rebound game but back off due to bad market sentiment. Next possible support is at 1.00.

SPSetia Monthly Chart

The next possible support is at 2.50.

Suncity Monthly Chart

The next possible support is at 1.30.

Sunrise Monthly Chart

Tested the final uptrend line support and still holding. If this fails, then the next possible support is at 0.70.

Cheap Sales (9): Oil & Gas

I really don't understand how this people think or analyze. Aseambankers has downgraded the oil and gas sector to underweight on Friday (Oct 31, 2008). They did it after the sector has loss 50 to 80 % of value from the peak! Errr...should you give us a much earlier warning?

Dialog Monthly Chart

Tested the uptrend line at 0.50.

Kencana Weekly Chart

Moving within a downtrend channel.

KNM Monthly Chart

What happened to this industry's darling? Tested its uptrend line at 0.40.

Muhibah Monthly Chart

Broken its uptrend line. Tested the support at around 0.65. If this fails, then the next possible support is at 0.25.

Penergy Weekly Chart

Still in downtrend. No idea where is the support.

Petra Monthly Chart

Broken its uptrend line. Next possible support is 1.00.

Sapcres Monthly Chart

Uptrend line at 0.60 seems to be holding after some panic selling. If this breaks, the next possible uptrend line support is at 0.30.

Waseong Monthly Chart

Broken its uptrend line. Next possible support is at 0.85.

Summary: All O&G counters are still in bear mode. No base building or reversal signal seen. Rebound should happen as they have been very oversold.

Cheap Sales (8): Airline

AirAsia Monthly Chart

Still in downtrend. Should challenge the previous low of 0.76.

MAS Monthly Chart

Resting at its uptrend line. If this breaks, the next possible support is at 2.40.

Cheap Sales (7): Shipping

Maybulk Monthly Chart

Looks like going back to square one. Supports: 1.90 (an uptrend line that is not shown in the chart above because I forgot to draw it and I'm lazy to upload the file for the 2nd time) and 1.60.

MISC Weekly Chart

This is a boring counter. Volume is very low. Next possible supports: 7.20 and 6.00.

Cheap Sales (6): Power

Tenaga Monthly Chart

Uptrend broken. Next possible supports: 4.50 and 1.60. If USD continues to rise, this stock is going to get toasted.

YTLPowr Monthly Chart

Uptrend broken. Next possible supports: 1.45 and 1.00.