Sunday, 28 June 2015

News by media, view by myself (part 2)

Example 2: Foreign Exchange

If you keep an eye on the global financial market, you will observe that 20 countries have eased their economy policies by cutting interest rates in the first 2 months of 2015. This does not include Australia which cut its interest rate twice (Feb 2015 and May 2015) and New Zealand which cut its interest rate this month.

A currency should fall when a rate cut devalues it, as the rate cut makes it cheaper for banks to lend, and for borrowers to borrow. The following shows the movement of NZD:USD right after the rate cut was announced:

NZD:USD after surprise rate cut

In this case, nobody knows that the rate cut was coming. Because it came as a surprise, the currency movement fell sharply, as it should. You will have no time to sell if you were longing NZD:USD.

Now, for the case of AUD when the second rate cut came in May 2015. Research analysts have forecast a rate cut on May 2015. It was almost a certainty that a rate cut would be announced after the board meeting. The movement of AUD:USD right after the announcement went like this:

AUD:USD after rate cut

This rate cut has not come as a surprise. Everybody knows it. Because of this AUD rises despite of RBA's rate cut. The reason was that the effects have already been "adsorbed" and "digested" by the market sentiment. If you read the news before the rate cut announcement and went to short AUD:USD, then you will become "water fish". When it is something that everybody knows, it just wouldn't go the way it was expected to be going.

Both cases have the same rate cut decisions, yet completely different reactions. Why? The difference lies in whether the news has been made known to the public in advanced. In NZ, it came as a surprise. In AU, it was expected. If you tried to make money based on news that everybody knows, you aren't going to get it.

[to be continued]

Friday, 19 June 2015

News by media, view by myself (part 1)

It is interesting to see how media influences the market sentiment, by "releasing" a particular news "just at the right time". The original purpose of media is to disseminate news to the public. While this may still be true at some time, financial news are highly manipulated. Here are some examples:

Example 1: Stock -- IFCAMSC
(this stock is too hot to ignore, and yea... everything written here and now is in hindsight..again)

This stock was crowned "The world's top software stock"(Bloomberg!) by having a 1321% return in just 12 months. The date of the news was 13 April 2015, trading at RM 1.35. The stock topped at RM 1.87 on 21 May 2015, just over 1 month after the news was released. Now it was trading at RM 1.13.

Something worth noting is that 21 May 2015 is the day just after the release of quarterly report, that the profit jumped 22x YoY. Because of the implementation of GST in April 2015, everybody knows that it is going to be a promising quarter. Yes, it is. And everybody just hoping that it will either gap up, or at least increase a lot after the quarter report. The opposite has happened. In the stock market, things just wouldn't go the way you think it would when everybody else thinks the same. 

Retrospectively, the message given by the media is obvious: the world best performing stock, luring investors to buy the stock. "They" want you to buy the stock, as if there is still a huge return waiting ahead.

My own view: sell on news. Think about this: can the "best performing tech stock" not listed in NASDAQ, London, Hong Kong or Tokyo but listed in KLSE? Why did the news released in April, not any other time? The stock has been climbing for sometime since last year, this is not a coincidence.

[to be continued]