Tuesday, May 25, 2010

Ranting On Is The Stock Market Heading For Better Times

Yesterday evening I got the following comment on the posting Is The Stock Market Heading For Better Times Or .... Not???

  • JP said...
    Fair play to them, these market strategists should always revise their predictions based on the latest economic developments or market tone as frequent as possible. Sometimes they get it right, sometimes they get it wrong, but most of the time, even the best get it wrong. An intelligent trader or investor need not pay too much attention to these strategic reports. In the long run, no strategists can be right all the time > 70%. Some investment houses that publish reports like these have their very own agenda. Maybe they are long the futures or something else. Who knows.

I know I gave JP an answer.

  • Of course, I do understand your message and I do agree that market strategist should be flexible at times.

    However... there is one issue here... from a target of 1465 to a target of between 1250 and 1400 is two massively different target.

    Won't you say so?

    In stock market terms, such changes would equate to a downgrade.


    Now in the last link I included, titled 'OSK Research still hopeful of a stronger year-end' or
    http://www.theedgemalaysia.com/in-the-financial-daily/166646-osk-research-still-hopeful-of-a-stronger-year-end.html , I did not see this head of research maket telling the reporter he had made such a huge change in his rating.

I gave it more thought this morning.... because I felt my comments made were lacking. LOL! Yeah, somehow, it just was not complete. ;)

Was I being fair to OSK Head of Research?

I then decide to re-read that Edge article again . Let me paste here...

  • KUALA LUMPUR: Although the current market weakness gives rise to fears over the outlook for 2H10, OSK Investment Research is still hopeful of a stronger year-end performance for the FBM KLCI, once the sovereign debt crisis in Europe subsides.

    The research house said the FBM KLCI could be volatile and trade between the 1,250- and 1,400-point level for the next four to five months.

    “For now, we continue to advise investing in defensive blue chips within the gaming and utility sectors and trading small-cap counters when buying on weakness opportunities arise.

    “Our view of a better year-end is unchanged although our 2H10 outlook strategy report, to be released in June, will highlight sectors that are different from those we preferred in 1H10,” it said in a note last Friday.....

Current market weakness gives rise to fear...

Some side thoughts (Out of topic - hehe) : LOL! I chuckled to myself. Why is it when the markets get sold down, people define the seldown as market weakness and why blame it on fear???

Gee... it's like can the market commentators give all those that sold a break?

Yes give them a break. Sometimes people do sell for a reason and is not fear. Sometimes market are sold down because of pure fundamental reasoning. Yes, the justification is there. What has fear got to do with it?

Meaning to say, why can't the market use common sense reasoning to justify their market actions. Surely the market can think yes? Or perhaps the market is really dumb and only use fear and greed when they buy or sell. Is the market really dumb? I dunno but all I do know is that some really do some serious common sense thinking before they buy or sell anything.

Aha.. unless of course, they want to twist Uncle Buffy's famous words 'Buy when others are fearful' to seduce others to buy.Well.. I just dunno.

LOL! just having a rant here. Do excuse me. :P

Anyway back to the issue. So I was wondering about the chain of events leading to the rather bullish call made on our index. How was the general market conditions leading to his call?

Why would such a question be important? Well, it's to gauge if the forecast was a 'wild' forecast made despite the prevailing market conditions. That is if say the market is soaring, and suddenly we hear a market 'sifu' calls a market crash would happen. Surely one could say that perhaps the call was made rather irrationally. Would this be agreeable?

Call of 1465 was made public on 7th May 2010.

Here are some collection of market wrap from CNN Money.

April 27th: Dow plunges 213 points, breaks 11K ( Dow closed at 10,991.99 and SP closed at 1,183.71)

  • NEW YORK (CNNMoney.com) -- Stocks fell Tuesday after Standard & Poors cut Greece's debt rating to junk and lowered Portugal's debt rating, raising fears that a euro zone debt crisis could slow the global economic recovery. The Dow Jones industrial average (INDU) tumbled 213 points, or 1.9%, closing below 11,000, a key psychological level. The Dow ended the previous session at its highest point in 19 months. The slide was the Dow's biggest one-day point drop since July 15, 2009, when it lost 257 points. The S&P 500 index (SPX) fell 28 points, or 2.3%, closing below 1,200, a psychological level traders look at. The Nasdaq composite (COMP) slid 51 points, or 2%.

Greece problem is highlighted. Now simple question, is Greece's problem real or was it just fears?

April 30th: Dow breaks 8-week winning streak

  • NEW YORK (CNNMoney.com) -- Stocks tumbled Friday after reports that Goldman Sachs is facing a criminal probe sparked analyst downgrades and a selloff in the financial sector. Worries about Greece's lingering debt problems also weighed. The Dow Jones industrial average (INDU) lost 159 points, or 1.4%. The S&P 500 index (SPX) lost 20 points, or 1.7%. The Nasdaq composite (COMP) lost 51 points or 2%

Another triple digit loss for the Dow. Goldman Sach issues and Greece again.

May 4th: Stocks pummeled on debt worries

  • NEW YORK (CNNMoney.com) -- Stocks tumbled Tuesday on worries that the global recovery could suffer if Europe's efforts to contain Greece's debt problems don't succeed, and if China's efforts to slow its booming economy go too far. Bond prices rallied, lowering the corresponding yields, as investors sought the comparative safety of government debt. The euro fell to a new yearly low versus the dollar, pummeling dollar-traded energy prices and stocks. The Dow Jones industrial average (INDU) slumped 225 points, after having fallen as much as 282 points earlier. The decline, equivalent to 2%, was the average's biggest one-day point drop since February 4. The S&P 500 index (SPX) lost 29 points, or 2.4%. The Nasdaq composite (COMP) fell 74 points, or 3%. "We're realizing that Greece's problems are not going to go away and that China has to slow growth down," said Drew Kanaly, CEO and chairman at Kanaly Trust. "These issues are giving us a view into our own future if we keep piling up debt."

Well we now added China's tightening of its fiscal policy to the list of issues. Are the issues real or is it fear? How is SSE doing? Doing great or is the SSE doing really lousy so far?

Yeah, Greece problem is their debt problem. Hello America! How is your debts issue?

May 5: Stocks mired in sell-off

  • NEW YORK (CNNMoney.com) -- Stocks extended losses to end sharply lower Wednesday, amid more signs of a deepening crisis in Europe. Moody's said it was considering a downgrade of Portugal's debt, while three people were reported dead due to riots in Greece. The Dow Jones industrial average (INDU) lost 60 points, or 0.6%, to end at 10,866.83. The blue-chip index had fallen more than 100 points earlier in the trading day. The S&P 500 index (SPX) fell 8 points, or 0.7%, to close at 1,165.87. The Nasdaq composite (COMP) was down 22 points, or 0.9%, to settle at 2,402.29.

Portugal, deepening crisis and a plunging Dow and SP. Dow closed at 10,866.83. Dow has lost 338.16 pts since April 27. The SP closed at 1165.87. SP has lost some 47 points since the April 27.

May 6: Glitches send Dow on wild ride ( Yeah the now famous FLASH CRASH or More On The Day The Markets Went Nuts?)

  • NEW YORK (CNNMoney.com) -- In one of the most gut-wrenching hours in Wall Street history, the Dow plunged almost 1,000 points Thursday before recovering to close down 348, as erroneous trading in Procter & Gamble and several other stocks sparked a massive selloff. Fears about the spread of the European debt crisis dragged on stocks through the early afternoon. But the selling picked up in intensity and the Dow reached its nadir at around 2:40 p.m.....At the closing bell, the Dow was down 348 points, or 3.2%, to end at 10,520.32. The Dow's biggest one-day point decline on a closing basis was Sept. 29, 2008, when it fell 777.68, which had also been the previous intraday mark..... The S&P 500 index (SPX) slipped 38 points, or 3.2%. The Nasdaq composite (COMP) dropped 83 points, or 3.4%.

Dow lost another 348 points. SP plunged 38 points!

And the next day, OSK was featured in the newspaper saying The Stock Market Is Heading For Better Times.


What did I think about OSK forecasts made on May 7th 2010, that is during the launch of OSK’s Top Malaysian Small Cap Book: 50 Jewels?

  • Eng has a year-end FBMKLCI target of 1,465 for 2010, and a fair value target of 1,580 for 2011....

Did it sounded like a rash forecast made for the KLCI despite the crisis worldwide? China had tightening issues, their markets were falling, the debt crisis in the EU and how was the US doing? Did OSK Head of research considered all these issues before making that rather bold prediction?

Was it even remotely justifiable then to give a year end target of 1465 for KLCI?

Ok, I would agree with JP, since the issue has gotten worst since then, it was only fair that OSK amend their bullish statements made earlier.

But look at the news article yesterday again: OSK Research still hopeful of a stronger year-end

Did it sound like a correction to the rash forecast of 1465 made earlier this month?

Remember as mentioned before, 'a target of 1465' to 'a target of between 1250 and 1400' is two massively different target. It's a massive change and some would call it as a downgrade!

Now if I had not mention the 1465 target made on 7th May 2010, would anyone realise that it was changed and how drastically it had changed?

Yeah, like JP, perhaps they have their own agenda. :/

Less I forget, his extremely bullish target of 1465 on May 7th was made during the launch of OSK's Top Malaysian Small Cap Book: 50 Jewels.

Hmm.. sorry like how they would say... go figure. :D


JP said...

Yeah, I do agree with you that both calls have a wide target gap. No doubt that the first call is wild, especially when something fundamentally-driven had happened at the other end of the globe. The second call is obviously a downgrade. BUT, in my opinion, the OSK researchers try to compile the article in a way such that it is a downgrade but it doesnt sound like a downgrade so that they dont sound like an [anything you want]. As you can see, they are still bullish on the market but just not as bullish as the day when the book was published and I am sure they are going to revise the target again once the "fearsssss" spread across the country. The media, market commentators, and investment houses are always looking for reasons why the market is up and why the market is down. There is also a reason why OSK is not the best investment bank around the region. I believe many of us would not make investment decisions based on some reports. What say you, Moolah?

Joehari Matt said...

Fundamental anaysis is normally called as true valuation of the market or stocks compared to technical "reading-the-tea-leaves" analysis. Normally for long term outlook.

So I find it to revise predictions based on the latest economic developments or market tone as frequent as possible defeat the purpose of fundamental analysis.

Changing target is one thing. But There is a 150 range between 1250 and 1400, saying the target is bewteen 1250 to 1400 is awkward.

Maybe "fear" also has financial data that can be analyze. that's why they use that in fundamental analysis :-P

Moolah said...

Aree: Well said. :D

The very much sticky issue for me is still the fact the comments were made during the launch of their so-called Jewels. How could I not have suspicious minds? :P

JP said...

Aree, there is a difference between conviction and prediction. In this case, a market report, too much conviction can be a bad thing to a researcher. They need to predict the ups and downs of the market for the best interest of their clients, and thus revising their targets. I dont think these reports are targeted for long term investors but instead they are targeted for short term investors with an intermediate outlook. The investment world needs more market strategists who could predict a target like Derren Brown who predicted a six-digit lottery number!

Mr. Ongmali said...

People who have a stake in the market or their salary depend on the market will always be very bullish. Hello, 1250 was breeched today.