LSL Market Review 9th Apr 2013

Profit taking was quite evident today as retail investors cashed in before the weekend. Activity on blue-chips remained relatively low which was reflected by a lower turnover. Weligama Properties, a subsidiary of East West Properties announced a private placement today with the latter rising by almost 10%.

ASI dipped 9.78 points (-0.17%) to close at 5,767.60 and the S&P SL20 index dipped 5.06 points (0.15%) to close at 3,316.75. the turnover was Rs. 399.2Mn.

Top contributors to turnover were John Keells Holdings 79.3Mn, Hatton National Bank with Rs. 32.7Mn and Carson Cumberbatch with Rs. 32.2Mn. Most active counters for the day were Union Bank, Vallibel One and Colombo Land & Development.

Notable gainers for the day were Convenience Foods up by 11.5% to close at Rs. 220.00, East West up by 9.9% to close at Rs. 14.50 and Huejay up by 5.7% to close at Rs. 72.00. Notable losers for the day were Union Bank down by 8.0% to close at Rs. 20.80, Kotagala Plantations down by 5.2% to close at Rs. 55.00 and Taj Lanka down by 4.2% to close at Rs. 25.00.

Cash map for today was 40.11%. Foreign participation was 26% of total market turnover whilst net foreign buying was Rs. 112.2Mn.

Concept of Bulls and Bear in Stock Market

What are Bear?

Bear : An operator who expects the share price to fall

Bear Market : A weak and falling market where buyers are absent

What are Bulls?

Bull : An operator who expects the share price to rise and takes position in the market to sell at a later date.

Bull Market : A rising market where buyers far outnumber the sellers

A bull market is one where prices are rising, whereas a bear market is one where prices are falling. The two terms are also used to describe types of investors.

A stock market bull is someone who has a very optimistic view of the market; they may be stock-holders or maybe investors who aggressively buy and sell stocks quickly. A bear investor, on the other hand, is pessimistic about the market and may make more conservative stock choices. Sometimes, the terms are used to refer to specific funds or stocks. Bear market funds, for example, are those that are falling and faring poorly. Investors sometimes refer to bull stocks to describe securities that are aggressively rising and making their investors money.

Knowing what is meant by the bear and bull market can help you understand whether the market is currently rising or falling. There is no need to get frightened by a bear market indicator; however, as experts agree that the market is cyclical. When prices start falling, they will eventually rise too.

What Drives Bear and Bull Markets?

The stock market is affected by many economic factors. High employment levels, strong economy, and stable social and economic conditions generally build investor confidence and encourage investors to put their money in the stock market. Often, this can bolster bull markets. Also, new technologies and companies that encourage investors to put their money in stocks can create bull markets. For example, in the 1990s, the dot com craze encouraged many investors to put their money in stocks that they felt would keep increasing. In some cases, a bullish market is simply self-perpetuating. Since the market is doing well, it only encourages investors to invest more money or to start investing.

On the other hand, discouraging economic or social political changes in a society can push the market down. Sudden instability or unemployment -- or even fears of unemployment caused by wars and other problems -- can start to make investors more conservative and therefore lead to bear markets. Of course, again this becomes a self-perpetuating trend. As the economy slows down, companies begin downsizing. Increased unemployment makes people far less willing to gamble on the stock market. Sometimes, a panic caused by dire predictions about the market can also create bearish conditions.

How To Predict Bear and Bull Markets?

The easiest way to predict both types of markets is to realize that what goes up must come down. That is, if the market is rising, then you know that at some point it will start to fall again. Similarly, if the market is currently falling, you can be certain that eventually it will pick up again. There are no precise ways to predict either bull or bear markets, although general social economic situations can help you to determine what will happen. A country which wages a war will experience bullish market conditions as government contracts create more jobs and boost investor confidence if their expectation is to win. Sudden international crises push the market downward and create bearish conditions. News is very often a good indicator of where investors are headed. The reports will inform about loss of investor confidence as well as sudden economic downturns that may affect the market. If you notice from stock market research that several indexes have changed by 15% to 20%, you can be sure that market direction is changing. When you notice such changes, it is time to sit up and take notice. You may be headed for a bullish or bearish market.

Market Conditions In Both Cases

While referring to markets is either bull or bear is very general, there are certain types of specific markets conditions that exist in both markets. For example, a bullish market is often accompanied by a sudden increase demand for securities and smaller supplies of the same securities. This is because more investors are willing to buy securities while fewer wish to sell. This, of course, only pushes prices higher. The very opposite is true in a bearish market.

The investor's behavior is another condition prevalent in both markets. In bullish markets, there's a sudden increase interest in the stock market. More people are hopeful about possible profits on the stock market and most people are optimistic about economic conditions. In a bearish market, investors are not very confident and therefore invest less.

Investing During Bear and Bull Markets

New investors often assume that they need to avoid investing during bear markets, and invest heavily during bull markets. This is not the case. Experienced investors know that you need to be able to invest in any sort of market condition, provided that you do so wisely. Each investor has a different strategy for dealing with a bull market or bearish markets. Many investors try to take advantage of bull markets by buying stocks as soon as the market gets bullish, and then starting to sell when prices seem to have reached their peak. The difficulty, of course, is that it is almost impossible to tell when the trend is beginning and when it will peak. In general, investors can take more chances with the market during a bullish phase. Since overall prices will rise, the chances of making a profit are good.

In bearish market conditions, prices are falling and the possibility of loss is pretty good. What is worse, it is not always possible to tell when bearish conditions will end. Therefore, if you invest during such market conditions, you may have to suffer some losses before bullish times return and you're able to realize a profit. For this reason, many investors decide on short selling or fixed income securities and other more conservative types of investment. Defensive stocks are another good option that remain stable during bearish conditions. On the other hand, some investors see bearish market conditions as an ideal time to invest in more stocks. Since many people are selling off their stocks -- including valuable blue-chip stocks -- at low prices, it is possible to set up long-term investments that will prove valuable during bullish times.

While every investor loves to see the upswing in prices during a bull market, the wise investor will be able to handle a bear market as well. Whether you are just beginning to invest or are an experienced investor, learning to deal with various market conditions you neen not panic but decide patiently on investment.

“You make most of your money in a bear market, you just don’t realize it at the time”- By Shelby Davis

Source:Sharetipsinfo

Quote for the day

"Men are anxious to improve their circumstances, but are unwilling to improve themselves; they therefore remain bound. The man who does not shrink from self-crucifixion can never fail to accomplish the object upon which his heart is set. This is true of earthly as of heavenly things. Even the man whose object is to acquire wealth must be prepared to make great personal sacrifices before he can accomplish his object; and how much more so he who would realize a strong and well-poised life."  - James Allen

LSL Market Review – 8th Apr 2013

Union Bank gathered further steam led retail investors. The bullish trend on Union Bank seemed to have rubbed off on other mid-capped counters such as Colombo Land and Vallibel One. Meanwhile Kegalle Plantations saw a private deal taking place on the normal board. Normally, a sluggish period is seen with minimal activity in the past during the upcoming festivities. But there seems to be a clear reversal this year.

ASI gained 11.44 points (0.2%) to close at 5,777.38 and the S&P SL20 index gained 9.28 points (0.28%) to close at 3,321.81. Turnover was Rs. 398.0Mn.

Top contributors to turnover were Union Bank with Rs. 63.6Mn, Kegalle Plantations with Rs. 44.2Mn and Carson Cumberbatch with Rs. 35.6Mn. Most active counters for the day were Union Bank, Vallibel One and Colombo Land & Development.

Notable gainers for the day were Colombo Land & Development up by 13.6% to close at Rs. 35.90, Citrus Hikkaduwa up by 13.0% to close at Rs. 6.10 and Browns Beach Hotel up by 11.1% to close at Rs. 19.00. Notable

losers for the day were Merchant Bank of Sri Lanka down by 5.1% to close at Rs. 18.70, Pegasus Reef Hotel down by 5.0% to close at Rs. 38.00 and Kelani Valley Plantations down by 4.6% to close at Rs. 80.10.

Cash map for today was 41.43%. Foreign participation was 8.5% of total market turnover with net foreign inflow of Rs. 34.87Mn.

Stages of Stock Market Bubble explained

Stealth Phase
Those who understand the new fundamentals realize an emerging opportunity for substantial future appreciation, but at a substantial risk since their assumptions are so far unproven. So the “smart money” gets in, often quietly and cautiously. This category of investor tends to have better access to information and a higher capacity to understand it. Prices gradually increase, but often completely unnoticed by the general population. Larger and larger positions are established as the smart money start to better understand that the fundamentals are well grounded and that this asset is likely to experience significant future valuations.

Awareness Phase
Many investors start to realize the momentum, bringing additional money in and pushing prices higher. There can be a short-lived sell off phase taking place as a few investors cash in their first profits (there could also be several sell off phases, each beginning at an higher level than the previous one). The smart money takes this opportunity to reinforce its existing positions. In the later stages of this phase the media starts to notice and those getting in are increasingly “unsophisticated”.

Mania Phase
Everyone is noticing that prices are going up and the public jumps in for this “investment opportunity of a lifetime”. The expectation of future appreciation becomes a “no brainer” and a linear inference mentality sets in; future prices are a “guaranteed” extrapolation of past price appreciation, which of course goes against any conventional wisdom. This phase is however not about logic. Floods of money come in creating even greater expectations and pushing prices to stratospheric levels. The higher the price, the more investments pour in. Fairly unnoticed from the general public caught in this new frenzy, the smart money as well as many institutional investors are quietly pulling out and selling their assets to eager future bag holders. Unbiased opinion about the fundamentals becomes increasingly difficult to find as many players are heavily invested and have every interest to keep the appreciation – “the game” – going. The market gradually becomes more exuberant as “paper fortunes” are made and greed sets in. Everyone tries to jump in and new investors have absolutely no understanding of the market, its dynamic and fundamentals. Prices are simply bid up with all financial means possible, particularly leverage and debt. If the bubble is linked with lax sources of credit, then it will endure far longer than many observers would expect. At some point statements are made about entirely new fundamentals implying that a “permanent high plateau” has been reached to justify future price increases; the bubble is about to collapse.

Blow off Phase
A moment of epiphany (a trigger) arrives and everyone roughly at the same time realize that the situation has changed (like the Roadrunner Coyote realizing he is about to fall after walking on thin air for a few seconds). Confidence and expectations encounter a paradigm shift, call it a reality check, not without a phase of denial where many try to reassure the public that this is just a temporary setback and that anyone saying otherwise does not know what he is talking about. Some are fooled, but not for long. Like a directionless herd many try to unload their assets to a greater fool, but takers are few; everyone is expecting further price declines. The house of cards collapses under its own weight and late comers (commonly the general public) are left to hold the bag while the smart money has pulled out a long time ago. Prices plummet at a rate much faster than the one that inflated the bubble. Many over-leveraged bag holders go bankrupt, triggering additional waves of sales. There is even the possibility that the valuation undershoots the long term mean, implying a significant buying opportunity. However, the general public at this point considers this sector as “the worst possible investment one can make in his life”. This is the time when the smart money starts acquiring assets at bargain bottom prices.

Courtesy: Dr. Jean-Paul Rodrigue, from the Department of Economics & Geography at Hofstra University

Quote for the day

"Achievement must be made against the possibility of failure, against the risk of defeat." - Ray Kroc

13 Signs of a Bull Market

1. The market reacts positively to bad news. Negative headlines and terrible earnings reports are ignored. As the saying goes, reaction to news is more important than the news itself. Good reaction to bad news is the ultimate indicator of positive sentiment. Never underestimate the power of optimism in the market – it feeds on itself and creates positive feedback loop.

2. Plethora of high-volume breakouts to major new highs, representing different industry groups. The so called “market of stocks” environment.

3. Low correlation market, which produces both winners and losers. There are good ideas for both bulls and bears.

4. Defensive sectors underperform. Capital leaves perceived safety and rotates into more economically sensitive sectors.

5. High beta names outperform as the fear of missing out becomes higher than the fear of losing. Small caps, emerging markets, low priced stocks outperform.

6. The financial blogosphere will be filled with skepticism. Six months of trend-less , volatile market that was dominated by mean-reversion could certainly condition even the most experienced market participants to be extremely cautious with new breakouts. The rule of thumb is that during pronounced uptrends, there will always be people who will complain that the market is overbought and warn for an impending correction. As Schopenhauer stated long time ago: “Every truth passes through three stages before it is recognized: In the first it is ridiculed; in the second it is opposed; in the third it is regarded as self-evident.”

7. There are so many breakouts that you are confused which ones to take. You feel like a kid in a candy store or like an adult in front of a cheese stand with 200 options to choose from. This is normal – the human brain is meant to operate in an environment of scarcity. To cope with a situation like this, we have invented shortcuts that mean different things for different people. Technical analysis is one form of a short cut.

8. Breakouts stick and have a follow through.

9. Most of the dips you buy, turn out profitable.

10. Major market indexes are trading above their rising 50dma. The moving averages are typically lagging indicators, but they often play the role of a good point of reference.

11. Market indexes are rising on increasing volume. The pullbacks are on lower volume

12. People ask why such and such stock is up 15% today on now news. Sometimes the only news you need is the lack of bad news. Positive sentiment and money flow are powerful catalysts that could continue longer than most expect and have bigger impact than most are willing to comprehend.

13. Your confidence increases substantially and you honestly believe that you are the best trader in the world. Don’t confuse brains with market uptrend. Overconfidence is the single biggest reason for investors’ demise. The second biggest reason is ignorance, but this is a topic of another conversation.

No matter the market environment you trade in, paying attention to risk management is of utmost importance. You don’t have to be right, you don’t have to be original, you don’t have to be first, but you have to take favorable risk to reward trades. If you don’t have a plan, you will become part of someone else’s plan.

I know 13 is an odd number, but this is all I could come up with at this point. Add yours in the comment section, if you will.

Posted by Ivanhoff
Source:http://ivanhoff.com