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
- 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. - 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. - 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.
