Wednesday, 14 January 2009

Interesting Market Statistics - Market Crash and Power Shift

Hi my readers, it has really been a super long time since I last blogged. All this while, I have been thinking what I should be blogging? For the past few months, I have been learning about option trading and practicing on the virtual account on the Think or Swim (TOS) platform. The more I learnt about option trading, the more I find it more flexible than warrants and stocks trading in term of risk management, cost efficiency and how quickly I can morph my losing trade to a winning trade or at least minimize my loss. I have thought of sharing about option trading on my blog here but I realized there have been a lot of other blogs blogging about option trading. In fact, I find the option university blog one of the best blogs I read so far. It is really a good place to start learning about option fundamental and its application in the market.

The market has been going down since last October 2008 except for the period during Christmas where we see the Christmas rally. However, since the beginning of this year, the market is about 6.5% down from the close of January 01, 2009. If the January barometer is anything to go by, it looks like 2009 is going to be worse than 2008.

On top of that, there is something which I would like to share with my readers. This is something that Conrad had shared with us. 40 years ago in 1969, a year after the 1968 election year that saw a power shift, the market crashed. Yet another 40 years before that, back in 1929, a year after the 1928 election year, we also have a power shift and the market also crashed, it is likely that history will repeat itself in 2009, a year after a power shifting election year and 40 years after. Isn’t it interesting to see how numbers and statistics play out in the market?

The global recession and meltdown in world markets has more than halved the STI from 3,800 (its high) to 1,880 over 2008. The 50% decline in the STI was the largest annual fall in its 42-year history. From October 2007 through November 2008, the S&P 500 declined 52%, making it the third- worst bear market since the 1929crash. What is most amazing is the speed at which the markets declined. In history, it generally takes 2 years for the market to decline by 40%-50%. This time, it took only ONE YEAR. Reasons being the de-leveraging of hedge funds that were super highly geared and also because computerized trading and the speed at which information travels.

It is the general consensus that continued problems in the credit markets and the ongoing recession, means that 2009 will likely be even a worse year for the economy than 2008 as effects of the financial crisis spreads to the rest of the economy. The economy is expected to continue to contract, residential construction and prices should continue to decline, and the unemployment rate is continued to rise.The good news is that there will be a huge stimulus package which could total as much as $500 billion or even more. This in addition to the slashing of interest rates should turn the economy around by end 2009 to early 2010 (cross my finger). However, seeing that the stock market precedes the economy, stocks should start to recover before then (cross my finger again).


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