Sunday, 13 December 2015

US: The possibility of a rate hike

At this moment, the financial world couldn't have paid more attention to the next FOMC meeting on 15-16 Dec than any other thing.

Having kept the interest rate at 0.25% since Dec 2008, you always read news reporting the possibility of a rate hike in the US interest rate. This type of news is even more frequent this year, but there was no rate hike then.

In theory, a rate hike would be detrimental to the stock market. Therefore, whenever the stock market drops "considerably" in one day, the possibility of a rate hike will be the culprit. This is the case for last Friday when the US market once again bore the brunt and dropped sharply. Dow Jones and NASDAQ plunged 1.76% and 2.21% respectively while the Brent and WTI crude oil prices have slumped 4.53% and 3.10% respectively to a new low.

This causes a great pessimism in the market sentiment. People say that the market is going to crash after the rate hike. Yes, it does sound scary. But really? I mean, since when does a stock market crash become predictable? Let alone that the possibility of a rate hike has been rumouring in the market for months if not years such that the news would have been absorbed by investors and the effect would have been reflected in the current market.

Thinking from a different direction: would it be that there is no rate hike in the coming meeting, or that the rate hike is smaller than expected, such that the market is going the opposite direction as to what the public expects? Isn't this the way how the stock market works?

Tuesday, 8 December 2015

KL: The consequence of betting on quarterly report

This article was written entirely based on experience.

I like to bet on quarterly financial reports. The idea is simple. At the end of every month (esp. Feb, May, Aug and Nov) is the due date for companies to announce their quarterly reports. I like to buy in few weeks before the report was announced, such that if the report is good, the share will jump, snapping potential profit in short time.

However, this method of "playing" stocks seems to be tumbling this year. For whatever company that I bet on a good report, the opposite happened: share plunged after the reported was announced, causing losses.

PRIVA is the first example. I accumulated this counter in the beginning of May.  That is very naive of me. The result was announced on 28-5-2015 and it was a normal one, with a profit slightly less than the year-to-year quarter. On the next trading day, the share dropped 8%+. I cut loss not long after that. This has cost me 27% in less than 1 month.

The second experience is SIGN. This was mentioned before in a mistake on SIGN.  Because SIGN is an export counter, I was hoping that with the depreciation of MYR, I could profit from a good financial report.

SIGN is much more extreme. The very same thing happened twice! In Aug, the share plunged nearly 15% on the next day after the announcement. I lost the bet which cost me 25% in 2 weeks.

Not long after that, the share went up to the level before the announcement of Aug report. This gives an impression that the company is doing good in the coming quarter. However, the report which was announced at the end of Nov wasn't good as all. On the next day, SIGN plunged 15% for the second time.



SIGN drop after financial report


The third is GOB.

Prior to the announcement, the share has a big white candle, which of course I am very happy. I entranced in my own aspirations, as I always do. Then the company reported a loss. The next day GOB dropped 8.8%. This cost me to vomit out all profit.


GOB dropped after financial report


These examples may just be the tip on the iceberg. From these examples, it seemed that buying just before the quarterly report is no longer working, at least for small-cap companies. Looking at this trend, somewhere, someone seems to have the seer-like ability to predict in advanced.

Maybe there isn't any conspiracy theory, the company really wasn't performing.

Maybe there is a conspiracy theory, that the company manipulated the fiscal report such that a bad result was portrayed to wash out retail investors. If this is true, does it imply that holding a share for more than 3 months is not a good idea?

A very interesting trend is unfolding in KLSE.