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29 Jan 18 high, where volatility begins

Updated: May 6, 2021

An interview transcript with Money FM 89.3 on 23 Apr 18:

Ryan asked about the trade war and Trump's flip flop policies:

Trade war started on the 14th Mar this year. Remember the very iconic picture taken between Donald Trump and the workers in their coveralls, where Trump imposed a 25% tariffs on steel?

Let me draw our attention away from the trade war for the time being. From our observation, the US market reached it’s all-time high on the 29 Jan 2018, and the rest of the indices also reached their high at around that period.

The title of our analysis today is “29 Jan 18 high where volatility begins”.

Let’s first discussed about the US equity markets. The highest level achieved to date was on the 29th Jan this year, it was a Monday and 6 business day later, on the following Tuesday, taking reference to the Dow Jones Index, it was down a total of 3,596 or -13.5%. In my opinion, a 13.5% drop within a 7 trading day period, it was significant.

Since then, comparing to the whole of last year where it was a gradual uptrend, we saw an increase in the market volatility. Market volatility started on and after 29th Jan 18, and the trade war started more than a month later on the 14th Mar 18.

Ryan asked what can we see from here?

In behavioural science, we believe that for every significant market movement in a liquid market, there must be a reason behind it, there must be a story behind it, it do not just happen by chance. Always find out on the why's and the causes behind it.

After the first week of February, we did some cross markets reference and realised that the treasury yield was also very much volatile during that same period. Therefore, we find that the volatility that we have been experiencing has very much to do with the treasury yield.

Ryan asked what investors should be focusing on?

Investors should not be too distracted on any intermittent new news or crisis, but continue to know what to focus on, on the "what is it?", which we have just discussed, that is to monitor the direction of the treasury yield. Now many market watchers are now showing their concerns about the flattening yield curve. I have uploaded the past four years of the yield curve on our website, you could see how much it has been shaped from a normal yield curve 4 years ago to a much flattening yield curve today. If the yield curve flatten too much and became inverted, it is not too much of a good news.

Ryan asked how about Asia?

Yes, Hang Seng Index, being one of the most influential indices in Asia also reached it’s historical high on the same day, 29th Jan 18 and within a few short trading days, it was also down by 13.5%.

STI is a little more resilient, it reached a 10 years high on 23 Jan this year at 3611 and today is still hovering around this region. However, not forgetting to note, in our last sharing, STI is still ranging within the 1,000 point range since 2011.

Ryan asked an stocks to look at?

We are optimistic about our economy, but, our economy is still very much dependent on our bigger partners. With the headwinds on the rising interest rate and the flattening of the yield curve, I still prefer to adopt a more defensive and cautious strategy, looking out for the laggards.

On behavioural studies, not just any significant sell-down speaks to us, a sudden significant buy-up will fall into our radar as well. For spot Gold between 2015 and 2016, it has appreciated 29% and today is still staying firm, therefore base on this studies, Gold ETF should be in your basket.

Next, SPH. Again, the behavioural movements of this stock speaks to us. SPH reached it’s recent all-time low at $2.41 on 23 Mar 18, from there, very quickly, within 18 business days, it climbed and reached a high of $2.78, that is a 15.35% appreciation, and that is significant, and there were good participation of volume, representing renewed interest in them. Based on this studies, SPH has now fall under our radar to keep watch.

This is a transcript of an interview with FM89.3 Money FM on 23 Apr 18. Following the podcast:

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