Market Signals from Bull to Bear

Posted on February 8, 2018 Written by

Market Signals from Bull to Bear

Global Bond Market has been at historical high prices over the past few years. It is possible that the crash of bond market could be the next black swan. Currently the funds from bond market is transferred gradually to stocks, properties or safe cash in banks. The changes are still not an alarm yet but if both stock and bond prices drop significantly over a period of time, an investor would have to be very careful on potential market signals from bull to bear.

This is the characteristic of last phase of bull run with high prices, any drastic movement will shake the confidence of investors who have high profits in stocks. The solution? Sell some as well to take partial profits. The initiation of market signals from bull to bear is not confirmed yet.

VIX (Volatility Index) is shooting up to more than 17 but the uptrend fear may not be sustainable.

During 911 time, a drop of 600 points overnight is about 5% to Dow Jones, considered a disaster. After Dow Jones is doubled since then till now, the impact of the same drop of 600 points is only 2.5%.

We need to compare the stock market in both relative and absolute ways. A stock market cannot be bullish every week, needs to take a rest, allowing some people to take profit and some people to enter the market again.

Since the global stock market is over 80% Optimism, US more than 90% Optimism, it could be a smart move to adopt a shorter term position.

High Optimism = bonus price, we want to sell high to others. Low Optimism = discounted price, we want to buy low from others. Stock market has returned the last 2 months of bonuses (gains) after the correction so far. Each of our unique personality will determine the unique low and high optimism, forming a personalized trading plan or investing strategy.

A stock trader would not capture the falling knife, waiting patiently for the uptrend to come back again after breaking the resistance to form higher lows. Global stock market is “tired” after the bull is running for so many months, need time to rest. A trader would not guess the direction of market or future prices but self-discipline is important (entry, take profit, cut loss, position sizing, etc). An investor would use the market greed and fear as additional weapon to fundamental analysis. Ability to take actions aligning to own personality is key to success.

Eventually the train will reach the terminal of “Bull Line”, changing the direction to “Bear Line”, these are market signals from bull to bear. Knowing the risk tolerance of oneself is critical, knowing when to alight. Before changing the lines from Bull to Bear, we will see some road signs, now a few are shown, more will be seen in future.

Learn from Dr Tee through Market Signals from Bull to Bear to take actions in the current stock market.

Dr Tee Investment Course (Stock, Property, Commodity, Forex, Bond)

 

Filed Under: Stock Market Tagged: , , ,

New Ein55 Investment Style 2017: Frog Cooking Theory

Posted on January 26, 2017 Written by

Ein55 Newsletter No 048 - image - Frog Cooking Theory

 

Although both were/are at historical peak stock prices with high optimism, there is a key difference between bullish stock markets of China SSEC (Year 2015) and US S&P and DJI (Jan 2017).  The chart below shows that the rate of index growth is much faster for China SSEC, therefore the high optimism was not sustainable, going up and coming down within months. US stock market is a gradual warming process, although feverish, it is more sustainable.

We may have heard the story of a frog swims comfortably in warm water, could be killed unknowingly when the water is heated up gradually. A frog could adjust the body resistance to temperature change, but there is a limit for the tolerance, eventually it will get killed if the water temperature is too high because it is so used to the environment, does not know how to jump out of the danger.

Sounds familiar to those in the stock market? If a stock trader or investor behaves like a frog, adjusting to the cooling water (i.e. stock market correction) and warm water (i.e. stock market rally), mild bearish or mild bullish market, but eventually when stock market hits extreme high optimism, one may not know how to escape when the market melts down, not able to react fast enough as they may not feel the risks when stock market prices grow up gradually.

The US stock market has been bullish recently, leading the global stock markets in the same direction, ideal for short term traders to buy high sell higher.  Dow Jones Index is above the critical 20,000 points, which could be the next future support over the time, while S&P 500 is near to the next milestone of 2300 points.  As long as the water temperature of stock market is heated gradually, best with some cooling in between, the “frogs” could still be safe for a prolonged period of time until a Black Swan swims in one day, then the unprepared traders or even investors, could be caught by surprise, may not know this will be a real crisis.

Ein55 Newsletter No 048 - image - Indices Growth Rates

You could call this as a new Ein55 style but since Dr Tee already has established 55 Investment Styles, I won’t give a new number, eg. #56. You may know the reason if you have attended my free courses to the public before.  This investing concept was already integrated into Optimism Strategies, it is just I did not label with a style in the past. We need to monitor the rate of change in Optimism which is different from Technical Analysis which focuses only on stock prices.  Ein55 Investment styles are usually generalized concepts with interesting stories, helping learners to apply the methods easily in daily life experience of investment markets.

Filed Under: Macroeconomy, Market Optimism, Personal Analysis, Stock Market Tagged: , ,