The Power of Market Sentiment

The Power of

Market Sentiment

The current global market turmoil has been volatility in recent days. Such is the volatility that countless investors throughout the world must be enduring extreme stressful days and nights as investors experienced dramatic paper-loss or paper-profit being reduced over times.

Who could have imagine the plunge of more than 1,000 points of Dow Jones in the opening few minutes on Aug 24? And within a period of time, the index was narrowed down to just over minus 100 plus points before settling down at a loss of more than 500 points.

It is as seem as suddenly, stocks are no longer in vogue anymore in the world. The carnage is actually broad-based this time as far as I can imagine.

On Bursa Malaysia, we are experiencing one day sunshine and several days of thunder storm. You know what I mean? One day the KCLI is up and then down again for the next several days.

How low will the KLCI go is anybody's guess. But are all the stocks as bad and so unloved and so unwanted right now? Poor market sentiment is so extremely weak and poor that some good stocks were also punished despite showing improvements in its quarterly report.

To see how strong market sentiment is, I have compiled three companies that recently announced its quarterly results. They are YSP Sah, Signature International and Focus Lumber.

YSP Sah's second Qtr 2015 results of 2.75 sen was 60% lower than its preceding 1st Qtr of 7.02 sen. Such declining earnings would have seen investors dumping its shares the next very day yet YSP Sah closed 19 sen higher the next day at RM2.52 (previous day RM2.33).

Why? Because market sentiment was good on that day (Aug 19) as the market was experiencing a broad-based rally although the KLCI was up only by 2.53 points.

Focus Lumber's second Qtr 2015 results of 7.8 sen was 142% higher than its preceding 1st Qtr of 3.22 sen. Such highly improved earnings would have seen investors scrambling for its shares the next very day yet Focus Lumber actually closed 5 sen lower the next day at RM1.46 (previous day RM1.55).

Why? Because market sentiment was at its worst extreme times (exacerbated by the massive plunge of Dow Jones of 530 points on Aug 21) So powerful was market sentiment on that day (Aug 24) that investors cashed shares out/sold out/dumped/abandoned (whatever words else?) Focus Lumber despite such solid improving results!

Your truly could not imagine how badly it would be if Focus Lumber had reported a poorer set of second Qtr set of results!

Signature International's fourth Qtr 2015 results of 3.2 sen was 71% lower than its preceding third Qtr of 11.20 sen. Such vastly declining earnings saw investors selling out  its shares the next very day. Signature closed at RM2.01 which was a massive plunge of 35 sen.

Despite the KLCI inching up by a whalloping 31.80 points, market sentiment still remain very weak and investors wasted no times in cashing out Signature.

What can we learn from here

regarding market sentiment?

For one, when market sentiment is extreme poor, most stocks see a decline in share price. But fortunately or unfortunately, there are some good stocks which were also pushed down. This is irrationally selling by weak investors. Such irrationally selling allows long-term investors with holding power to buy these good stocks at great bargain!

Over a longer period of time when market starts to rebound, when market sentiment improves, when oil and commodities price start to rise and a flow of good news of economies start to trickle in, then the stock market will rise quickly before you can even have time to catch it.

If you don't believe me, then let us wait and see. The stock market is like an animal with many senses. It always runs ahead when the good news are just beginning to come in. Similarly, it will also start to plunge lower ahead before you read any of the bad news.