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Bull on red bull?


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It’s been so long since I have posted.  Work has been crazy the past few months.  I am just in the process of making some serious decisions right now.  

Let’s get on with the market.  The bull has been running the market for the last two months,  but is the bull market really back? I have noticed that the bull is pulling the market higher on ligher volume.  This is similar to what we saw the end of last year.   All technical indicators are showing that the market is so overbought here.  A correction is well needed to bring in some fresh money.   Do keep in mind though the market can be in an overbought territory a lot longer than it would in a correction territory.      I think the risk/reward favors taking a little bit off the table.  It’s too risky here to keep chasing. 

One thing to keep in mind is the action on the USD.  As I have pointed out in my last post, the PIIGS are creating opportunities for strong support in USD.   We clearly saw that yesterday.  USD made an impressive move yesterday on the news of Portugal being downgraded.  Hence, the market dropped.   As a foreign investor in the US market, you really have to keep this inverse relationship in mind because a lot of the action on the US stock market has been driven by the dollar.   At the end of the day, if you factor in the exchange rate, it could be a zero sum game. 

Happy Trading.

A Top? Or a Correction?


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Did you see that? The market is falling off the cliff today. Honestly, we have been in rally mode since November without a meaningful pulback. The market is clearly in a overbought territory. A correction is healthy and welcomed. However, I do see some support in USD which means there can be more pain coming in the stock market. Greece is in the blink of defaulting its debt. The Eurozone is going to have a hardtime trying to figure out what to do. Currently, outlook on Greece is negative and any further downgrade can cause a ripple effect to the entire Eurozone. With traders worrying about the credibility of the Eurozone, the Euro is going to have a hard time finding support. This is where the USD may gain some strength.

Whether or not this is just a correction or a market top is way too early to say. Market top tends to take a few months to unfold. I expect this year to be a trader’s market and hence, the market is going to be quite volatile unlike last year where you can buy anything and it would go up. Proper risk management is the key. Good Luck my friends.

Stock Market Psycho


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January marks another quarter in the banking sector. In my line of work, it means preparing for another quarter-end. So far, here are what other analysts are saying.

  1. US Commercial real estate market is expected to continue performing poorly.
  2. Canadian manufacturing, forestry are still going through some major pain.
  3. Real Estate market will continue strong until after HST is introduced in the summer.

How do these economic observations relate to the stock market in the short term, you might ask? My answer is nothing or it has very little effect. Now before you start flaming me and try to argue with me about fundamental analysis, Corporate earnings, P/E growth, etc. I believe they all have their places but I think investor psychology is a bigger driving force which over-rules the market in the short-term. When people are optimistic about a stock, they bid the price up. The same people will bid the price down when they are pessimistic. Some people say that external events are the main driver for psychology, but it’s really the interpretation of events that is the main driver. Time after time, we have seen the same event being interpreted differently depending on social mood. To totally understand investment psychology, one must also understand that human beings are driven by greed and fear. Greed takes over when a person sees a missed opportunity and will cause the person to chase after a stock. The mass effect will lead to an overshoot on the upside. Likewise, when the market falls quickly, fear will create panic selling causing an overshoot on the downside.

So where exactly are we in the stock market? It seems like people are pretty optimistic. However, that’s when one needs to be cautious. The market tends to reverse its course when there is a huge imbalance on one side, for example, the great bull run started in April when almost everyone you know were bearish. Am I calling a top here? Not at all. I think one needs to watch closely the USD movement. It will dictate how the stock market will move. Good Luck.

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