Sunday, 15 March 2020

Should We Buy Stocks (STI) Now? Or Wait Another Few More Months? (Part 2)

From previous post.

Let’s look at STI chart below. The highest peak is Apr 2018 with STI >3.5K. Bottom out in Oct 2018. The sell-off is led by US-China Trade war.

Covid-19 Crisis

Now let’s look at this virus triggered crisis. 12 Jan 2020, STI is still >3.2K. In fact up to 12 Feb 2020, STI is still >3.2K. Therefore the Peak is Mid Jan 2020.  


Source: Yahoo finance

NOW, let’s look at EU debt crisis and Great Financial Crisis.

Debt Crisis

2015 Apr Peak (>3500). End of QE, Fall in oil price and finally Greek debt default in June 2015. China stock turbulence leading the plunge and in Aug when Yuan devalue. Sep plunge below 2800, Oct rise above 3000 short term confidence, oil price drops and so is stock market. Feb below 2600.  


Source: Yahoo finance

1) Free Fall -  Peak Apr to 1st Trough Sep. 2016 (5 months) – Freefall above 3.5K to  below 2.8K i.e. >20% drop
2) ST confidence or good news - Sep to Oct (0.5-1 month) – Rise  below 2.8K to above 3K i.e. >6% rise.
3) 2nd Free-fall – Oct to Feb (3-4 months). Fall from above 3K to below 2.6K i.e. >13% drop

Debt Crisis STI Chart Conclusion
1st peak to 1st trough 5 months period. (>20% drop)
Dead cat bounce last for 0.5-1 month. (>6% rise)
Further drop for 3-4 months before hit bottom. (>13% drop)
Peak to final bottom, 10 months period. (>25% drop)

Great Financial Crisis
 


Source: Yahoo finance

1) Free Fall -  Peak Oct 07 to 1st Trough Mar 2008 (5 months) – Freefall above 3.8K to  below 2.85K (>25% drop)
2) ST confidence buy. Mar to May 08 (1-2 month) – STI rise below 2.85K to  above 3.2K (>10% rise)
3) 2nd Free-fall – May to Oct 08 (4-5 months) – STI drop above 3.2K to approx 1.6K (>50% drop)
4) Bounce up – Oct to Nov 08 (1 month) – STI rise 1.6K to above 1.8K (>10% rise)
5) Bottom – Nov 08 to Mar 09 (4 months) – STI drop from 1.8K to  below 1.6K (>10% drop).

GFC STI Chart Conclusion
1st peak to 1st trough 5 months period. (>25% drop)
1st Dead cat bounce last for 1-2 month period. (>10% rise)
2nd peak to 2nd trough 4-5 months period. (>50% drop)
2nd Dead cat bounce last for 1 month period (>10% rise)
Further drop for 4 months before hit bottom. (>10% drop)
Peak to final bottom, 18 months period. (>55% drop)

Conclusion

If Covid-19 and Oil plunge will induce a Major stock market crisis over a period of time, then below conclusion from this analysis:

In a major crisis, market normally takes 10 to 18 months from Peak to Bottom. For the Covid-19 crisis, peak is at Jan 2020, hence we expect that Market will only bottom out end of the year to mid next year. Do not rush to buy all stocks now. Nibble and be patient. Or you can use my previous post's buy chart as a guide. 

The first sell-off typically wipe out >20-25% of stock price taking 4-5 months.
This means that it is better to enter with a larger position progressively Apr-May-June 2020 period. And expect STI to be below 2500 points.

But do not finish firing all bullets in the Warchest. Market will then have temporary good news and/or short sellers covering their position, hence leading to a temporary rise of market (+/- 10%). This will be short term which only last for +/- 1 month. To be conservative >50% of cash for the 2nd wave of crash.

Then market will crash further depending on the severity of the crisis. In GFC, it further plunged in the next 4-5 months for more than 50% of stocks wiped off. STI ~ 1500 to 1600 points.

This means that the impending bigger crash is expected to take place during the 2nd half of the year!

3 comments:

  1. Especially when the impacted earning reports come out subsequently, that's when gloom gets more gloom.

    ReplyDelete
  2. Yes yes yes. You are right. Or normally analyst / bigger institutional already priced forward earnings into current price.

    ReplyDelete
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