The nervous and panic situation has got into investors heavily as shown by the very volatile markets lately. Global stock markets after most of them entering bear market region are very news sensitive driven. News from Europe regarding the debt issue and also US state of economy. As the issues still unresolved, chance of double-dip recession has increased along the way.
STI though spared the 20% drop from recent peak, it is however hovering near that level. Selling point has missed since 2 months ago and based on current situation, bargain hunting might come too early as if full-blown recession does occur, there will be more downside to come in the stock markets.
Many in particular chartists are predicting to which level STI could possible fall into and that is a very unwise strategy to do so at the moment. Investors should not maintain a bias view for the stock market now but rather keep open to all possible scenarios and apply strategies accordingly. There are 2 very possible scenarios at the moment.
1. EU debt and US unemployment rate could be slowly resolved as lately we have seen policy makers are working on plans to tackle those issues. A quick one-fix-all solution is not possible but rather progressive solution should be the way. From the EU side, talks of Euro bonds, increase in bailout funds and various Government putting in austerity measures to curb their debts are definitely moving in the correct direction to resolve the issue. In the US, US Fed has recently announced "operation twist" easing to lower long term borrowing rate and President Obama's proposal of jobs plan is also on the table for the law makers to pass as a bill to help bring down the high unemployment rate. We have seen how stock markets reacted to these news in a very highly sensitive manner. Any news that could bring hope will rally the markets but after that if investors found still have no confidence in that piece of news, markets will pull back sharply also. The option of finding "that" correction solution will one day emerges and bring confidence back to investors, should such a case occur, investors will flow back to stock markets and creating a sharp rebound just like the case in March 2009. Investors should keep this option open and get ready to buy into the market. A sharp rebound even if didn't manage to get at the bottom price could still achieve at least 10% return as what we have seen before in 2009.
2. The second option probably is the most down beat view. That is no solution could be found to give the investors confidence and soon global economy will enter recession. A full-blown recession typically takes 18 months to bottom out. Normally upon confirmation of recession by economic data means recession has already kicked in about 6 months later. In a way investors still have about another 12 months to slowly bargain hunt as stock markets will be slowly sliding lower and lower until a point where pessimism will be at its maximum. Investors should also keep this option opens at the moment, avoid buying into now, waiting for confirmation of recession then slowly buying into the markets.
Listing out all the possible scenarios, give a thought of possible strategy to adopt to each of the scenario and then follow strictly to the plan if such scenario occurs will be the most wise thing any investors should do now.
Have one own strategy, stick to it and ignore the market noises ( from analysts, from chartists, from friends, etc ).
