Thursday, 25 August 2011

Beware of Bull Trap in Equity Market

If any of you were following the recent financial news, some of the analysts are making bullish call again on buying stocks and shares which had dropped off their highs for the past few weeks since July. Beware! It maybe a bull trap to trick retail investors into buying off stocks and shares which big time players are looking to offload once more.

If you pull out the chart on Dow and S&P 500 during the 2001 tech bubble burst and also the during the 2008 financial crisis, you will realised that there was an initial sell off and slight recovery before a full blown market crash that came well coordinated between different assets and instruments. Most of the time history had shown us that it is at the point where many were thinking this time maybe still a good chance to make more money, they ended up losing more, or losing everything. My friends use to crack a joke about the"superman syndrome", often happened whenever people lost their money or total wealth from a market crash, they will commit suicide by jumping off the building. Many of you were not born during the great stock market crash in 1929, where people lost their wealth overnight and committed suicide.

As we had explained on the bubble theory before, herd behaviour and the insanity often blinded us in making reasonable and rational investment decisions. These few weeks of sell off in the equity markets may still recover from the extreme price actions, be it will there be QE 3 or any optimism shown by market forces. It maybe a bull trap. Do not think simply think that the price will still recover to another high. It maybe a relief rally to it's designated mean variation before a major change in the trend to the downside.

Remember, fundamental still plays a major part in investment. When there is a lot of uncertainty in the market, it may signal a major change of trend soon. Do not make the same mistake as everybody does.

Be different, invest with brain.


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