Market Correction Opportunity Again?
Dear Investors
The last three market days saw the US Market (Dow Jones) lose 600 points, its largest decline since July last year. What is more significant is that the index broke the psychologically important 10,500 level and is now sitting at 10,172 points. The Dow and S&P daily candles have also breached their 20 and 50 day moving average.
However, a reversal to a downtrend is not confirmed UNTIL the indexes weekly candles break below their 50 day moving averages (see below). As of now, they are sitting RIGHT ON the moving average line.
Dow Jones Index (daily candles)
Dow Jones Index (weekly candles)
The catalyst that sparked the decline was Obama’s proposal to increase bank regulations and uncertainty over whether Bernanke will be reappointed as FED chairman. As you should know, earnings season has kicked off and results have bee pretty mixed. Banks like Bank of America and Citigroup habve posted greater losses than expected while Goldman Sachs and Wells Fargo had profits that beat expectations.
The Singapore STI got spooked by Wall Street’s decline and fell 100 points to 2,819 points (See below). Technical analyst see a healthy correction with support at 2814 points and further downside support at 2774 points before the STI continues its bull run
Straits Times Index (daily candles)
As usual, experts are divided over whether this is a healthy correction or a possible reversal to a downtrend. So far, more analyst believe that the former is more probable.
As long as weekly candles stay above their moving averages, The market will continue to be on a healthy uptrend. However, the moment the MAs are broken, we could see another reversal downwards. That’s when you may want to take some money off the table for ETF index positions and if you are holding stocks that are overvalued.
What I Am Doing
As usual, the contrarian-value investor part of me is getting excited and greedy again. No, I am not selling anything I have as I am taking a 5-10 year view with my stock portfolio. In fact, I am waiting to start buying more of my favourite US and Singapore stocks once their prices get really undervalued again. Those of you who are Wealth Academy graduates will soon get my email on exactly which stocks I am adding to my portfolio and why. Stay tuned.
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Hi Adam,
Do you think Healthway is a undervalued stock to buy, especially in this correction?
Thank you
I have not done any research on Healthway as it is a newly listed stock that does not have at least a 5 year public track record. In order to calculate an accurate intrinsic value, you need to have a historical cash flow growth rate that you can use to project future cash flows. As an estimate, the PE ratio of Healthway is 24. IF the growth rate of the company is more than 24%, then it is undervalued. If it is less than 24%, it is probably overvalued. My guess is that it is not really that undervalued.
Hi Adam, do you have any views on gold and silver investing? Thanks!
I am not an expert on trading commodities. However, I do know that Gold’s long term (50 year) compounding rate of return is about 4.3%. The last 4 years saw gold post double digit returns because of uncertainty in the economy and the dollar. I doubt that gold can continue that run and may instead revert to its long term mean growth rate