Thursday, May 29, 2008

market trend: market cycle explained..

Since my last update on 14th May, our CI did attacked the overhead resistant of 1297 and trend slightly higher. That momentary attack was however short-lived with overseas markets being attacked by records setting crude prices and recessionary pressure on US economy. And our domestic market was further pushed into the realms of uncertainties with the sudden twist of events in the political scene.

Let me spare you from all those bullshit explanations on what had had happened... The true fact was that we were still at the vicious consolidation cycle. Now that we have come towards the end of the cycle, we would want to know what is in store for us in the coming cycle. Is this going to be a 'calm before a storm' scenario? CI have in fact retraced lower with daily volume getting thinner by the day.

What the next cycle is going to bring us remains everyone guesses. And with so many negative factors affecting the current world economies, the near future looks bleak to the eyes of those who monitor the situation. Further drastic write-downs from sub-prime mortgages is expected at least till the first half of 2009. What about crude price? Is the price being speculated beyond the actual demand and supply theory? The sudden volatility in crude prices this week- was that a sign of further inflation of the oil bubble? What would be the effect of an oil bubble burst?

When one have so many questions hanging over the head, it actually tells us of the uncertainties that lurks around dangerously. However, i am going to ignore all these as i believe markets around the world have reacted enough to those sub-prime woes. In other words, it has already been discounted and reflected in the current market prices.

Please sit back and allow me to take you through the journey of cycles in a stock market. Each cycle is like the waves of the sea. As we know, a wave always starts from the centre of the ocean and moves towards the shore and splash! And it all ends there which is exactly where our cycle is heading now. Shoreline is already visible ahead. In other words, a complete cycle is the formation of the first wave from the centre of the sea to it crashes into the shore.

The intensity of each wave is determine by the forces of the surrounding pressure and an experience seaman will know in advance when there is a big wave ahead just by looking at the telltale signs from the surroundings.

The same principle is applicable to observers of share market. We are standing at the shore looking at the waves crashing into the shore. How do we know when there is a big high intensified wave already forming at the centre of the ocean? Simple, isn't it? Just identify those telltale signs from where we are standing. After all, the sea will retreat miles before a tsunami strikes.

Now that i have given you an insight of market cycle and that our market is reaching the conclusion of a cycle, our job now is to lookout for signs that will determine the start of the next cycle and its intensity. Those telltale signs will be visible in the form of volume traded, behaviour of the movement of index etc. etc.

At the moment, the behaviour of our market is consistent to the behaviour of the wave reaching the shoreline.. fading as it comes nearer to the shore. Consistent in the sense that our market was going through a whole cycle of consolidation for the past few months. Identical trend will takes us way back to May 2006 during the World Cup period.

I must end my journey here and i hope you have learn something to guide you in managing your money by applying the rule of 'investing through cycles'.

Be on alert for the next 10 trading days for telltale sign.

Comments and further queries are most welcome through this blog.

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