Psychological Index - Cash Index

Cash index is how many percent of cash vs equities in the hand of most of the investors.

What is so meaningful about this? Basically as more investors with high cash are waiting at the sideline, the likelihood that the market will go down without support is lesser.

Cash index ▲ Correction Damage▼

The strategy when encountering cash index high is to buy quickly when a support level is being found. Next, take profit whenever you feel the market is going down again. Watch for the fundamental stock that suffers most punishment, buy at dip when the sentimental is allowing.

Cash index is also related to the liquidity of cash in the market. High cash index means high liquidity of cash.

Explanation of Strategy

Sideline investors with cash are waiting to buy bargain stock. Be sure to buy with them and move with the flow. Whenever the sentimental turn bear again be fast at locking profit or cutting loss.

Since the sentimental is unstable, it is not advisable to hold too long because bargain buyers are not for long term. They tends to lock profit, therefore if you can't win them, be with them.

Advanced Strategy

1. Cash index is high but sentimental is terrible.
   The support might not be strong, therefore execute buy and immediately queue for sell. Always close position within the day. If you are looking for long term investment, high cash index can be volatile sometimes, you can look for counter that you feel the current pricing is cheap against to your long term risk.
   
   
2. Cash index is low. Contra index is high.
   Risk is higher. Consider to close position on high speculative counters and lock profit gradually if possible. Liquidate as much cash as you can, sharp correction might easily triggers by bad news.
   
   
3. Cash index is high. Reaction index is high.
   Expects a volatile market. Reduce overnight position. Avoid trading outside your limits. Monitor regional markets, currency rate, oil price, gold price.
   

"Market Has Life" - Nervous Strike

Sometimes I wish to know what is the investors reaction index, investors contra index, investors cash index even it is just some terms I come out myself. These are related to the contents of the article today.

First of all to STI, Reaction index is how much does a trader react to the market either deep green or red. This is mostly correlated to Dow Jones results the morning before, Nikkei opening and Hang Seng opening. As all of us know, market is affected by regional market's life performance. Moreover STI is a better follower than the rest.

More Info

Contra index is more related to how many percent of the investors in the market are playing contra, leverage, margin etc. The higher is the percentage, the more dangerous is the market due to the so-called zero capital game of stock market.

Cash index is how many percent of cash vs stocks in the hand of most of the investors. Basically the more cash and the more investors are waiting at the sideline, the less likelihood that the market will go down without support.

Lately if you notice, the contra index come down because margin call going around and a lot of investors reduced their leverage rate due to unstable market. Therefore we can say that it is becoming less likelihood market to crash and also less likelihood to surge like before.

Cash index goes up because a lot of investors cashed out due to their nature of fear the market will go down more and affected by the negative news going around.

So, as a conclusion, greater crash/surge might not easily occurs (without sudden incident like 911, war) for time being. That's why you can notice that the 'up and down' is not so significantly seen even if bad news keep coming out.

Coming back to the title nervous strike, there is a way a lot of people use to earn smart money. It happens when the Reaction Index gone wrong. Often like Dow Jones corrected 1-2% and STI gap down by a lot, the first thing within 5 min after market open a lot these so-called 'kan-cheong spider' (nervous herd) will jumps out of the wagon.

It is easy to grab some cheap stocks within this 5 min and immediately start to queue higher. Without any worse news going, there will be a short technical rebound likely to occurs due to buy up from these nervous herd. That's why avoid to buy for the first 15 min after market opens not for this reason above.

Do take note of the current situation before execute the 'buy at dip for starting 5 min' strategy. Sometimes if the market sentimental is not good, or the risk vs gain is not good, it is not recommended to execute this strategy.

"Market Has Life" - Just Across The Causeway

Just across the causeway, the flavor is different from here. If you trade regularly in STI, you will find yourself alien to the Malaysia's market - KLSE. In the previous article of Market Has Life, I wrote that STI has an attitude of its own - Kiasu and Kiasi. Today let's talk about KLSE.

When you look at the charts in KLSE often you found that the cycle is much longer. It probably can be explained that because Malaysian is not that afraid to die (not that Kiasi) or Malaysian is much greedier.

You may argue that KLSE has different funds or even Singaporeans invested too. What makes you think that KLSE is different from STI? The truth maybe because they are also shaped themselves to approach differently in a different market. This is what I meant that Market is always different based on geographical, knowledge of investors, cultural and much more.

Not only the cycle is much longer than STI but the fluctuation too hence it makes more profitable if you know how to play swing with their tempo.

In STI, if you catch a breakout, normally it is about 5%-15% (for pennies) from the previous price. The breakout often comes with profit taking style (T+3, T+5 unless it is obivously cornered). However, KLSE's breakout can be up to 20%-30% non stop until the next profit taking session. It may sounds crazy but you can look at KLSE's counter yourself.

One undeniable fact is human nature is similar. They can be afraid too, even if the cultural and environment they grew up is different. So, T+3, T+5 scene can also be observed in KLSE, however the KLSE's force selling is not that obvious as STI.

When we talked about how profitable KLSE's breakout can be, I also mentioned that the fluctuation is much greater there thus when the price swings down you will definitely be shocked how low it can goes. So, avoid catching falling knives if you don't know what you are doing in KLSE.

As a conclusion, this is what KLSE's nature compared to STI:

1. Longer swing cycle
2. Greater price fluctuation
3. Force selling can be seen with longer T+n

"Market Has Life" - Singaporean Style of Market

Stock market if you notice is different from one country to another country. Therefore some indicator is suitable for STI used only.

From what I have seen, market changes and market does evolve as well. Hereby I will write some views of mine on the market and I decided to name it as "Market Has Life".

First of all before I start with today's topic, please take note the key points:

1) Market changes - yesterday's market is not today's market and today's market is not tomorrow's market.

2) Market does evolve - from the level of knowledge of their 'players' and their cultural, their risk appetite, their experiences, market's characteristic is being formed and it does evolve time to time. Just compare STI to SSEC and KLSE and you shall know the difference.

Therefore "Market Has Life".

To win in the game you must know your enemy, to win stock you must know your market. STI is very similar to Singaporean's nature due to large amount of its 'players' are local. Think of two words that can describe STI - Kiasu and Kiasi.

From my observation, most of the STI's stock like to have 1-2 days UP continue with 2-3 days PROFIT TAKING and the cycle continues. From here you should know how to play the game. Some like to buy during the profit taking period and force-selling period - which is T+3 to T+5 and sell on next rise. As a result, you shall see the chart most probably go up like a "stair-step".

Remember the characteristic, Kiasu and Kiasi. Therefore contra trading is heavily utilized. So, to conclude, each "swing" is much shorter and can define by T+3, T+5 and T+7. Most of the market swing players take about 2-3 weeks to complete a swing whereas STI takes about 1 week. Be smart to take this as your advantage - kill those who buy high at the 1st and 2nd day.

Market Grief

Please refer to the Market Grief Indicator just next to the article. Often people relates Technical Analysis to human behavior in the market. Previously I like to relate lots of thing happens in the market to human psychology especially how investors/traders react to the market and derive my own view and own formula to analyse the market.

Talking about Market Grief Indicator, what so useful about this indicator? Just imagine correction is an illness to the Bull Market and it is unavoidable for all of the traders to feel such way. Anyone can 'jump' out from this loop shall know the market reaction and could judge when to enter the market.

I often relate this indicator to the market volatility because volatility of market is same as human mood in acceptance to his/her illness. For example, how does a cancer patient first reacts when he/she knew that he/she suffers this fatal illness? The cycle (volatility of the market due to correction) will ends when the indicator cycle ends. You have to enlighten yourself when looking at the indicator and correlates them to your peers beside you in order to fully understand the meaning behind this indicator.

I have quoted the information on this indicator from cancersurvivors and shall not take credit myself for coming out with the wordings in the indicator.

Flag

A lot of TA practitioners only know about flag flag flag and how to draw flag in the chart. About more than half of them totally blur why flag come about. TA is based on human psychological behaviour therefore people always say that "Market never changes because human never changes".

Knowing TA and correlate to human psychology is important as a TA practitioner. Everyone knows how to draw trendlines, resistance & support lines, get moving average (MA) from charting software with simple training. When you say about I am a practitioner of TA, do you really mean so?

I started with TA then come along studied FA for medium term counter analysis. I can't say I am very good but when I was looking at TA at those days I read from the basic, the very basic (even the history, how it comes about... blah blah... can be very useless).

Formation of flag is based on human nature when balancing their greed and fear. It says when a flag is form, eventually it will follows the previous main trend, meaning if a upwards flag is formed eventually it will goes up after "shakes" a little.

Let's talk about Uptrend Flag. Imagine you are part of the market, the first time the price raises to $0.50 you took profit. Then because of a lot of traders have the mentality same as yours the price dips a little but won't break through the first time price you bought because when it retrace a little you will start to buy in as a bargain buy.

You begin to grow greedy, bought again at $0.475 and raises to $0.50 is not enough because every single counter in the mainboard is rising non-stop. Then people like you will push the price slightly higher to $0.55 before taking profit. The cycle continues until eventually it breaks the previous old resistance and traders like you will think sky is limit which will causes a "Breakout".

So, turn the other way round for downwards flag. Just substitute rise with drop, greed with fear, resistance with support.