I remember talking to a friend 2 weeks ago when the US market started to show some signs of weaknesses.  On 24th July, Dow Jones Industrial Average (DJIA) fell >200 points in one day, the single largest point drop in 5 months and I saw the first dot of negative parabolic SAR signal (a technical analysis trending indicator) for DJIA.

I have been a "kiasi" trader all along so whenever I sense near term danger I would try to reduce my open positions. One of my friend said I should not worry too much, that Singapore listed companies are expected to report strong earnings and Asian economies are not as dependent on the US economy as 10 or 20 years ago.

Since I had built some trading positions for singapore stocks ahead of the earnings reporting season, I decided to keep one position where I expect the corporate earnings to be strong.  When the market sell down came in the subsequent days, I was still caught with the only one open position which made a dent to my overall portfolio.  The company did deliver better than expected results but as we have seen, when the bear is charging, even my grandma also run away, so good results also no use.  Of course those who believe in fundamentals will say that market has over-reacted and this is an excellent opportunity to buy value stocks.  

If you are really tempted to buy stocks now, stick to fundamentally strong stocks (my grandma told me fundamentals can also change overtime so remember to keep track of the company closely). You must also have holding power and a strong heart since the stock price may continue to drift lower before it comes back.

I have the money but not the strong heart, so I decided to close my position.

$6000 lessons learnt :

1. When market is extremely bearish, people forget fundamentals and their wife’s name

2. Asian markets are still closely connected to movements in the US market.  Although Asian economies are less dependent on US economy or consumer spending now, the flow of funds in our stock markets are still closely tied to the US financial market.  So when US market sneezes, we may still catch the flu la.

Article by Rooney

(I am the fan of Man Utd not the player so don’t email me for autograph)