Formerly heavily traded penny stocks seem to have faded completely from the market
By R SIVANITHY 23 November 2009
Last week’s column advised readers not to stray too far away from the large caps because of all the ‘haves’ in the market that include a handful of speculative second liners as well as large caps. The latter were the ones most likely to continue to enjoy liquidity and interest.
As volume dwindles amid rising scepticism emanating from Wall Street and concern over how long the US dollar ‘carry trade’ can continue to produce results, it’s difficult to see any large-scale deviation from this view in the days ahead, especially with the possibility that the Straits Times Index might enjoy a spot of early year-end window-dressing.
So in a nutshell, traders, investors and speculators alike should continue buying the dips and selling into strength, but only for the main STI stocks, such as the banks, property counters and SingTel. Support for these counters appears strong and at least in SingTel’s case, the stock has been a serious underperformer in recent weeks.
As far as penny stocks are concerned, we pointed out last week that much depends on what the major players/manipulators behind each counter decide to do, as much as what each company decides to release in terms of fresh news flows.
The imposition of trading curbs by some houses on a host of pennies has severely restricted the ability of these manipulators to successfully carry out their strategies, which has been a major reason why dozens of low-priced issues which were once heavily traded and were seemingly in high demand have now faded completely from the market.
As for the dollar carry trade, its joys and dangers of borrowing cheaply in US currency to punt all other risky assets have been the subject of many columns in recent weeks, so suffice to say that it would be prudent for traders to keep an eye firmly cocked in the direction of currency markets for clues when to buy and sell.
The good news is that the deceptively simple formula of buying stocks when the greenback weakens and selling when it strengthens appears to be still valid because there isn’t likely to be a threat from the US interest rate front. This is because the authorities there appear determined to keep rates at zero to reflate a dead but twitching economy, an approach which has drawn praise from several quarters since it appears to be working.
However, as Yale University professor Robert Shiller correctly pointed out last week, governments and central banks have not really engineered a recovery - instead, all they’ve done is gotten lucky (‘Myths of modern economic management theory’, Australian Financial Review, Nov 19).
‘The G-20 as well as the governments that instituted stimulus packages are in a honeymoon period of apparent success,’ said Prof Shiller, who confesses that a solid understanding of what has led the apparent turnaround is likely to prove elusive. He also points to stories of banks paying large bonuses as probably contributing to the psychology of a recovery because such actions suggest things are not as bad as previously thought.
‘We can only wish that formulating economic policy were as clear-cut as say, mechanical engineering. It is not: a host of poorly understood natural cyclical factors play a role, and so do the vagaries of human psychology,’ said Prof Shiller.
Our guess is that talking things up can only help up to a point and that the psychology of recovery is now being subtly influenced by a gradual realisation that the relentless pumping in of money may not necessarily engineer a viable and lasting recovery. An added factor is the heavy reliance on the dollar carry trade to keep things afloat, which may prove to be an expensive mistake in the months ahead.
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Sticking to large caps may be a safer bet
Formerly heavily traded penny stocks seem to have faded completely from the market
By R SIVANITHY
23 November 2009
Last week’s column advised readers not to stray too far away from the large caps because of all the ‘haves’ in the market that include a handful of speculative second liners as well as large caps. The latter were the ones most likely to continue to enjoy liquidity and interest.
As volume dwindles amid rising scepticism emanating from Wall Street and concern over how long the US dollar ‘carry trade’ can continue to produce results, it’s difficult to see any large-scale deviation from this view in the days ahead, especially with the possibility that the Straits Times Index might enjoy a spot of early year-end window-dressing.
So in a nutshell, traders, investors and speculators alike should continue buying the dips and selling into strength, but only for the main STI stocks, such as the banks, property counters and SingTel. Support for these counters appears strong and at least in SingTel’s case, the stock has been a serious underperformer in recent weeks.
As far as penny stocks are concerned, we pointed out last week that much depends on what the major players/manipulators behind each counter decide to do, as much as what each company decides to release in terms of fresh news flows.
The imposition of trading curbs by some houses on a host of pennies has severely restricted the ability of these manipulators to successfully carry out their strategies, which has been a major reason why dozens of low-priced issues which were once heavily traded and were seemingly in high demand have now faded completely from the market.
As for the dollar carry trade, its joys and dangers of borrowing cheaply in US currency to punt all other risky assets have been the subject of many columns in recent weeks, so suffice to say that it would be prudent for traders to keep an eye firmly cocked in the direction of currency markets for clues when to buy and sell.
The good news is that the deceptively simple formula of buying stocks when the greenback weakens and selling when it strengthens appears to be still valid because there isn’t likely to be a threat from the US interest rate front. This is because the authorities there appear determined to keep rates at zero to reflate a dead but twitching economy, an approach which has drawn praise from several quarters since it appears to be working.
However, as Yale University professor Robert Shiller correctly pointed out last week, governments and central banks have not really engineered a recovery - instead, all they’ve done is gotten lucky (‘Myths of modern economic management theory’, Australian Financial Review, Nov 19).
‘The G-20 as well as the governments that instituted stimulus packages are in a honeymoon period of apparent success,’ said Prof Shiller, who confesses that a solid understanding of what has led the apparent turnaround is likely to prove elusive. He also points to stories of banks paying large bonuses as probably contributing to the psychology of a recovery because such actions suggest things are not as bad as previously thought.
‘We can only wish that formulating economic policy were as clear-cut as say, mechanical engineering. It is not: a host of poorly understood natural cyclical factors play a role, and so do the vagaries of human psychology,’ said Prof Shiller.
Our guess is that talking things up can only help up to a point and that the psychology of recovery is now being subtly influenced by a gradual realisation that the relentless pumping in of money may not necessarily engineer a viable and lasting recovery. An added factor is the heavy reliance on the dollar carry trade to keep things afloat, which may prove to be an expensive mistake in the months ahead.
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