If you’re an “old bird” in the stocks market, a statement to means you’ve been long enough in this sector to see the ups and downs and probably seen at least one recession before in your life (not that I’m that old), you would think the current stocks plunge is a norm. But on the other side, if you’re a “new bird” who just traded a couple of trades and probably made a couple of hundreds here and there (if you’re lucky) based on the hear-say of friends or friends’ friend, then this morning’s plunge of over 35 points in Kuala Lumpur Stock Exchange (KLSE) would probably take your appetite away from the lunch and maybe dinner tonight. Worst still, you might have sleepless night.

While the new-birds are cursing his or her friend’s recommendation or tips, the old-birds are potentially blaming the stupid U.S. stock market and cursing the housing market which is jittery over signs that sub-prime mortgage troubles are making their way into prime mortgages and corporate lending markets.

While the majority of new-birds are still holding their losing trades and most probably are busy making calls now to pull enough funds to pick-up or purchase their positions before the lapse of T+3, the old-birds are joking among themselves (in the gallery) on where to have lunch after their cursing on the U.S. equity market. A couple of the old-birds could be seen rushing to make calls or into the broker’s room screaming “Sell”.

Nevertheless, both the new-birds and old-birds will see a similiarity – the Malaysian stock market is as volatile as ever, taking the cue from the world’s biggest stock market – Wall Street. Have I mentioned how KLSE used to be very different from the rest of the regional stocks’ reaction to the direction of Wall Street? Only old-birds will know what I’m talking about, and I mean really “old-birds”. KLSE used to proudly defy the gravity and gave the rest of the stock market a spin in the head; coincidentally it was also the period where the former premier Mahathir rules the land of Malaysia.

You see, once upon a time when the Wall Street crashed, KLSE could still stand high on top of the mountain and announced – Kuala Lumpur Composite Index (KLCI) closed up 10 points today. But sometimes you’ll hear the following – KLCI closed down 10 points today for the third consecutive days due to profit-taking and lacks of market direction, when in fact the Wall Street was on bull-run and the regional markets were making the same uptrend. Remember those day old-birds?

Is it any better now that the KLSE is back to normal following the majority markets’ direction? To future traders, this is indeed the best trend ever in their trading life since the “Futures Trading” started in Malaysia more than 10 years ago even though the market is still very in-efficient due to the fact that only one market maker exists, not to mention the low volume. To the stock traders or investors, you should be glad that such healthy new trend emerged. Why should you? Well, at least you can predict the movement of the KLSE and hence your portfolio. So if you read and know that the Wall Street is having such an illness, you could:

• Stop from buying stocks
• Start selling your stocks

Does this works? You see, Malaysian stock market is still dominated largely by ignorant investors (or punters) who follow in large crowds from behind the index. The moment the index turns green, the swarm of punters will scream “Buy” but when the index turns red you seldom hear punters scream “Sell”. It will take some days before these punters realize the index will still going down – for days to come (when in fact the market might be poise for a correction). So you’ll suddenly see a huge sell-offs due to panic selling.

But by then you would have liquidate your positions and you’re ready to pounce on the shares (buy low sell high), provided you can see it coming (read, research and analyze Wall Street dude) beforehand. Again, don’t you wish for an easier share-shorts system in Malaysian market? Just imagine how much you can potentially make from the current market’s plunge if you are allowed to sell-shorts (sell shares instead of buy it) as easily as buying shares?

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August 6th, 2007 by financetwitter

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