A BUY SIGNAL
September 3rd 2008 00:00
The past few days some, technical analysts, traders, brokers and investors at the PSE (Philippine Stock Exchange) were discussing about a possible medium term buy signal. The PSE have seen its lowest in two years in the first week of June 2008 when it fell to 2289, the two year high was somewhere in the 3800 range.
The PSE has since gone past the 2600 level but in the last few days of August, the signs were so bad analysts were saying that if the market breaks the 2500-2600 level it will go all the way down to 2000. But nothing like that happened and on August 27 the PSEi managed to go as high as 2650. At this point, they were saying that if the market shows a long white Japanese candle towards the end of the month, they will consider it a buy signal, that is, if it was supported by a respectable volume.
I don’t have motion sickness, but all these up and down movements of the market are making me rather dizzy. I decided to give my eyes a rest. I stopped following the lines and jagged edges and concentrated on comparing the prices from a year ago to the present level.
Needless to say, there was quite a drop!
I suppose, the same can be said about almost all markets nowadays. But does it automatically follow that because the prices have gone down, the stock prices have actually become cheap? Some doesn’t seem to think so, considering the way the world economic conditions have impacted on existing businesses. But then again, if that is the case, when do a newbie buy?
They say that you buy when there’s blood on the streets. But if the price is not cheap even if there’s blood on the streets, why should you buy? Believe me, if you depend on written materials on investing in making your investment decisions, you’ll go nuts!
I’m not saying that this newbie is disregarding everything he reads (and he keeps on reading), but given the conflicting claims on how to invest, this newbie decided that the moment he is able to accumulate some loose change that he can spare, he’ll just go out there and buy.
Of course he is not just going to go out there and buy – he is going to do his darnedest to buy the right stocks – but he is not going to wait any longer for that rather elusive buy signal.
Reasons? 1. It will be a bit harder to buy the stocks he has his eyes on (at present prices) the moment those prices started to go up. 2. A number of companies are buying back their stocks because they believe the prices do not reflect the real value of their stocks. 3. The PSE has been defying the world market trends. 4. He doesn’t have that much money and, while he may lose a good portion of the loose change that he might be able to accumulate if he buys at the wrong time, he might just lose all of them in some unnecessary expense (like some whimsical, luxury or spur of the moment purchases) if he doesn’t use them to buy those stocks.
I do believe that the chance of recovering money spent in whimsical purchases is practically nil. I suppose the newbie will have a better chance of getting back that money (hopefully with some profits) if he uses them in acquiring stocks of a company that has a good track record and pay dividends.
I mean, sure, if the price of stocks continued to drop then the newbie will have a longer waiting time for his investments to recover and show some gains. But then, if he ended up using that money in some spur of the moment purchases (other than investments), he can wait all his life and still see no gains or recovery of the money spent.
And lastly, talk is cheap. There are a lot of people out there (on TV, radio, newspapers, magazines, websites, etc.) who make their own individual predictions. Some speak their heads off based on what they actually see and honestly believe in. Others make pronouncements on what they want others to see and believe in.
Many of them are right and many of them are wrong. Hurricane Gustav was a nice example. It was a real threat. It could have driven up the price of oil. In my previous post I mentioned that I was placing my bet on the belief that the price of oil will go down. At that time, Gustav was not yet even in Jamaica.
It became a level 3 hurricane when it hit Cuba on its way to the Gulf of Mexico, where many of the offshore oil rigs are, if it reached level 5 as a hurricane before it battered Louisiana and New Orleans, the story would be different. But it didn’t.
If the newbie becomes too careless, he is going to lose his money. But if he becomes too careful he is going to lose money too. So, which way should the newbie go?
I suppose taking some amounts of calculated risk cannot be avoided.
But the newbie would probably be more careful if he has tons of money.
The PSE has since gone past the 2600 level but in the last few days of August, the signs were so bad analysts were saying that if the market breaks the 2500-2600 level it will go all the way down to 2000. But nothing like that happened and on August 27 the PSEi managed to go as high as 2650. At this point, they were saying that if the market shows a long white Japanese candle towards the end of the month, they will consider it a buy signal, that is, if it was supported by a respectable volume.
I don’t have motion sickness, but all these up and down movements of the market are making me rather dizzy. I decided to give my eyes a rest. I stopped following the lines and jagged edges and concentrated on comparing the prices from a year ago to the present level.
Needless to say, there was quite a drop!
I suppose, the same can be said about almost all markets nowadays. But does it automatically follow that because the prices have gone down, the stock prices have actually become cheap? Some doesn’t seem to think so, considering the way the world economic conditions have impacted on existing businesses. But then again, if that is the case, when do a newbie buy?
They say that you buy when there’s blood on the streets. But if the price is not cheap even if there’s blood on the streets, why should you buy? Believe me, if you depend on written materials on investing in making your investment decisions, you’ll go nuts!
I’m not saying that this newbie is disregarding everything he reads (and he keeps on reading), but given the conflicting claims on how to invest, this newbie decided that the moment he is able to accumulate some loose change that he can spare, he’ll just go out there and buy.
Of course he is not just going to go out there and buy – he is going to do his darnedest to buy the right stocks – but he is not going to wait any longer for that rather elusive buy signal.
Reasons? 1. It will be a bit harder to buy the stocks he has his eyes on (at present prices) the moment those prices started to go up. 2. A number of companies are buying back their stocks because they believe the prices do not reflect the real value of their stocks. 3. The PSE has been defying the world market trends. 4. He doesn’t have that much money and, while he may lose a good portion of the loose change that he might be able to accumulate if he buys at the wrong time, he might just lose all of them in some unnecessary expense (like some whimsical, luxury or spur of the moment purchases) if he doesn’t use them to buy those stocks.
I do believe that the chance of recovering money spent in whimsical purchases is practically nil. I suppose the newbie will have a better chance of getting back that money (hopefully with some profits) if he uses them in acquiring stocks of a company that has a good track record and pay dividends.
I mean, sure, if the price of stocks continued to drop then the newbie will have a longer waiting time for his investments to recover and show some gains. But then, if he ended up using that money in some spur of the moment purchases (other than investments), he can wait all his life and still see no gains or recovery of the money spent.
And lastly, talk is cheap. There are a lot of people out there (on TV, radio, newspapers, magazines, websites, etc.) who make their own individual predictions. Some speak their heads off based on what they actually see and honestly believe in. Others make pronouncements on what they want others to see and believe in.
Many of them are right and many of them are wrong. Hurricane Gustav was a nice example. It was a real threat. It could have driven up the price of oil. In my previous post I mentioned that I was placing my bet on the belief that the price of oil will go down. At that time, Gustav was not yet even in Jamaica.
It became a level 3 hurricane when it hit Cuba on its way to the Gulf of Mexico, where many of the offshore oil rigs are, if it reached level 5 as a hurricane before it battered Louisiana and New Orleans, the story would be different. But it didn’t.
If the newbie becomes too careless, he is going to lose his money. But if he becomes too careful he is going to lose money too. So, which way should the newbie go?
I suppose taking some amounts of calculated risk cannot be avoided.
But the newbie would probably be more careful if he has tons of money.
| 24 |
| Vote |
Shared on
Comments (4)
Add Comments
Read More
Comment by Market Newbie
on A BUY SIGNAL
Stock Market Punk
As always you have a very good take on the local market. But don't worry too much about me. I value your opinions, but I also like the fact that I entered the market at a time when I still had a chance to make money - followed by this great volatility that you mentioned - because then, I wouldn't have to wait long to have a feel of both the Bull and the Bear markets.
I do form my own opinions (of the market) and take my own risks. I like hearing what others have to say as well on how they think the market will do both short term and long term.
I'm rather careful too. I am a bit choosy with my picks. I did buy JFC and a few more that I thought have good value and would do well on the long term but I refuse to mention them all here as that might be construed as an endorsement of those stocks.
I leave the choices to our potential readers who might be in the same market as we are, as I would rather that this blog be neutral as far as stock picking is concerned.
You wondered in one of your comments about the number of people who read this blog. Well, we DON'T have as much as any sane blogger would want to have (as a minimum number of visitors) but we do have a few who regularly visit us (around 300 hits on a good day).
That's nothing compared to other blogs, but then again, I believe we have a responsibility to those who come and visit us here.
A good day to you!