Thur 3 Jan 2019
The market performance is in for 2018 and it was a sorry state for most markets in 2018 after a strong 2017.
The world’s biggest markets, the Dow Jones Industrial Average and S&P500 were down 6.2 percent and 5.6 percent, respectively, for 2018. Both indices posted their biggest annual losses since 2008, when they plunged 38.5 percent and 33.8 percent, respectively. The Nasdaq Composite lost 3.9 percent in 2018, its worst year in a decade, when it dropped 40 percent.
Locally, Bursa KLCI was down 5.9% for the year, outperforming albeit on the downside compared to a number of other major Asian markets, which was not surprising given that Malaysia has typically been a defensive market for the blue chips. However, this masked the severe drop in the second and third liners where the small cap and ACE indices dropped by 33.7% and 34.6% respectively. The broadest indicator, the Bursa Emas index was down by 10.9%.
Performance of the Malaysian stock market in 2018
After the strong rise in 2017 and a long bull market in the US and most Asian stock markets including the KLCI, the drop in 2018 was a nasty reminder to investors and traders that were not prepared for a market correction/bear market.
Against this backdrop, the power of big data, algorithm and systematic trading have enabled the mPower and mTrading programs to avoid the rout and heavy losses that had befallen most common traders and investment funds in 2018 and our overall calls continued to post absolute gains instead for the year.
Those who have followed our strategy and calls have not only avoided the steep losses of 2018 but are also flushed with cash instead now to take advantage of the current cheap prices in 2019.
Our algorithm program uses sophisticated, complex and specialised mathematical and statistical algorithm and large-scale data analytics of price, volume and volatility movements in the whole market and individual stocks to not only identify trading opportunities but to also limit risks when trades do go wrong.
The algorithm presents a comprehensive and Integrated strategy for elite traders where all trading strategies in multi-time frames are covered such as sideways, breakout, trend, counter-trend, etc. and are suited for all market conditions.
But here is the real news. We now know that 2019 is likely to bring some devasting effects to the markets especially if a bear market scenario come into play. However, for us, it may be those one of-a-decade opportunities to make supernormal profit as thriving in volatility is after all one of the strongest advantages of quantitative strategies.
A steep corrective market/a bear market is likely to see persistent selling and extremely bargain entry levels to buy to the long side but will be extremely painful for buy-and-hold investors and traders who jump in and out at the wrong time.
Bear market rallies are sharp and swift and a bear market could also end much more quicker than a bull market due to the factor of fear and panic.
Pessimism may tend to prevail in a bear market. When good news isn’t enough to hold off sellers and despite solid economic conditions, markets continue to tank — that’s a bear market.
The glass-half-full scenario is often overlooked, and any positive news seems to be forgotten by the close of trading.
It is also a hard time for value investors and fundamental analysts in justifying their consistent high fair value for stocks whose share prices are being sold down every day way below their “fair value”.
Falling prices attract more selling like margin calls and forced selling and it could be a vicious cycle.
What if it turns out to be a real bear market? Will it get worse in 2019 and should you despair?
At first glance, it may seem ironic and even preposterous.
Can bulls prosper in a full-blown bear market?
The answer is a definite yes. It’s a fallacy that smart bulls cannot prosper in a bear market, far from it actually. We have written about this previously but it would be pertinent to recap the points below given the state of the market one may encounter in 2019.
Change your strategy and the way you look at the market in a bear market and you will find that the market always favours the niche elite traders holding the trading edge regardless of the market conditions.
In fact, there are plenty of opportunities for both sides (the bulls and the bears) to make money in a bear market.
The bulls can exit at high prices and buy back at much cheaper prices, initiate protection for their portfolio through short instruments and derivatives (where the regulations permit), average ONLY at key critical levels (if they chose to hold on to their portfolio), trade and rebalance regularly while holding long depreciating positions as the market falls, and much, much more.
Hence, it’s a myth that long (buy) traders are stuck with losses in a bear market. In fact, there are so much more opportunities to make above-average and supernormal profits in a bear market as volatility rises due to fear and share prices become very cheap.
Hence, common traders should not despair in a bear market as the opportunities are abound.
What is of paramount importance is to ACT at the exact critical price level and time ONLY and let the selldown takes its course at other times.
As for the bears, it’s obviously a good time to avoid or short stocks (where the regulations permit) as prices tend to move very fast and violently in a bear environment as investors (human) fears and panic take over and decisions may not be rational over the short term.
Using the Master Algorithm that tracks millions of market data daily, we get a gauge of the daily market trading outlook through our proprietary algorithm-calculated buying and selling power in the market.
Even understanding and armed only with this broadest outlook of the market would have save a lot of traders anguish under the current market selldown since last year.
That said, as highlighted above, a bear market can actually be a wonderful opportunity for smart traders and investors.
We look forward in 2019 to navigate and prosper in the current turbulent and weak market and thrive where and when others fear to move.
Shift your strategies and mindset as the market environment changes.
No matter how the market behaves in 2019, always be prepared as an elite trader and be confident in your trading method and system.
Whether you are a retail investor or a large institutional fund, you will find our works to be very useful to your analysis of the market at the very least. At the very most, we say you should definitely use the power of big data and algorithm to navigate and prosper in the market.
We wish you the best of trading in 2019.
Quantitative Trading and Analytics Division