Investing

Why Investors do not react according to the chart?

The following chart was published by CIMB on 11th Aug for investors to buy VS more aggressively yesterday and you expected VS price to go up. But instead it dropped 13 sen.

VS chart

Technical charting has its merits but they can also be unreliable sometimes. This paradoxical statement needs further explanation.

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Under normal circumstances, the charts give us a good indication about which direction the market is heading but this can all change or be nullified through market maker’s intervention or by some external news event. Yet, we have to constantly refer to them, like a pilot needs to refer to his instruments during flight.

I try to combine a number of indicators to strengthen my read on the charts. Just like a court case, a smart lawyer getting a number of independent witnesses in collaboration is always good for the defense.

As you know, our political situation is in a mess and our ringgit is 17 year low and investors are afraid that it can be worse. Economic sentiments continue to plague the markets and irrational emotion overrules logical thinking. This does not augur well for the stock market.

In all likelihood, it will provide excellent buying opportunities for those shares that are fundamentally sound. As I said many a time, buy when people are panic selling and sell when the market is euphoric and people are crazily buying.

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However, I will not rush into any serious buying until some semblance of market stability returns. I am buying only fundamentally good shares with tremendous profit growth prospect. Since our ringgit is 17 year low, all companies that export their products in US$ will have increasing profit. You must bear in mind that EPS growth is the most powerful catalyst for moving share prices.

As I write, the KLCI is up by 11 points and the prices of all my favorite stocks VS, Latitude and Lii Hen are all going up.

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