Market Sentiment Cycle - Where are we?

Okay the key point where are we at now?

Will be interesting topic.

According to the below article Stock Market Euphoria ended in July 2011
http://www.dailynews.lk/2011/07/27/bus01.asp

Market euphoria receding - Frontier Capital CEO
Ravi LADDUWAHETTY
After the phenomenal rise of the All Share Index (ASI) by 284 percent to a high of 7,797.96 on February 28 the stock investment euphoria is now gradually coming to an end with the index falling below its lowest ever during the last two years.

Investors are beginning to realize the inherent risk involved in investing in illiquid markets, a top market analyst said.

“The market had already enjoyed peace dividends and time has come for investors to adopt a more prudent approach towards the stock selection instead of chasing behind rallies and leveraging their portfolios in anticipation of higher returns, Frontier Capital Partners Ltd CEO Nishan Sumanadeera told Daily News Business yesterday.

Investors need to identify value stocks, based on fundamental analysis and Value For Money (VFM) approach involving analysis of strength and weaknesses, future growth potentials, opportunities and threats applicable to respective businesses.

Although the current market sentiments are depressed, Sri Lanka has enormous potential in terms of future growth.

Sri Lanka’s sovereign rating outlook was recently raised to positive from stable by Moody’s Investors Service and Sri Lanka received a record $236 million of Foreign Direct Investment (FDI) in the first quarter of 2011, with the tourism industry attracting most of the inflows.

Sri Lanka successfully raised $1 billion from the sale of dollar-denominated bonds in its fourth international offering at a time of world debt crisis reflecting investor confidence.

High fiscal deficit and over-dependency of external borrowings still remain a concern with Sri Lanka’s high debt to GDP ratio of over 30 percent and FDI to GDP ratio of less than 2 percent.

“Sri Lanka’s capital market represent only fraction of its national assets. The total market capitalization of the Colombo Stock Exchange (CSE) is about US $ 23 billion representing less than 50 percent of country’s GDP which is about US $ 48 billion. The private sector is likely to contribute with more than 20 percent growth in earnings and Gross Domestic Product (GDP) growth expected to be in the range of 8 percent, reflecting the future potential he said adding that Sri Lanka’s land bank of 65,000 square kilometers which can easily be valued over US$500 billion requires more than average return on assets (ROA) to spark the economy into the next level”.

Sri Lanka also has “high growth, attractive labour costs and a unique strategic geographical location that could be the opportunity for the future, especially in port activities.”

Sumanadeera pointed out that the Stock Market is in the stage of consolidation and Colombo’s investor sentiments will be no longer be influenced by IPO’s, illiquid trading or irrational market behaviours which had been a hallmark during last two years.

In future, investors are likely to be more prudent and likely to make their investment decisions based on corporate earnings and asset values. We are likely to a witness an uptrend of growth in stocks and blue chip shares during the next stage. He stressed that valuations of the stocks were likely to get attractive in the backdrop of higher quarterly earnings and market correction which had resulted in nearly 20 percent decline from its peak.

Foreign investors are also likely to re enter the market soon subject to early resolution to much worried debt crisis in US.

He said the current sentiments in the Colombo Stock Market was clearly reflected by the recently concluded IPOs such as Expolanka, Softlogic and Textured Jersey which resulted in subscriptions less than expected and initial trading prices below its initial public offer prices.

Thanks a lot for sharing this topic at this precise moment.
For our forum readers to get more info, please read the following link.
http://www.ritholtz.com/blog/2010/04/lagging-psychology-at-turning-points/
Hope it will help a lot.
Have a good trade.

slstock wrote:Okay the key point where are we at now?

Will be interesting topic.

I think we are at a range of capitulation,despondancy,depression and of course some are at hope.

We are at "Panic" Level I think

We are somewhere at the bottom part of the downward cycle in my opinion. Exactly what level is still debatable. Panic we have seen. Despondency we have seen , Depression we have seen. But it over?


As a long term investor ( who also does some percentage trading I admit) , I can say one thing.
I see opportunities for huge future capital gains if we invest wisely and hold patiently without looking at short term price fluctuations.

But the operative word is you need to buy and forget about it for several years without fretting about short term. If not then this is not a time to buy.

How many of you are prepared to invest for the long term future? ( several years).


I saw in another forum a person talking about decade ;-)

amilaela wrote:kkkkkkk

Appreciate if you would comment properly ( if any) without "kkkkkk" to bump.

sriranga wrote:
http://www.ritholtz.com/blog/2010/04/lagging-psychology-at-turning-points/
.

Thanks a lot for the link.

Fxstreet.com explains Capitulation phase,

At this point the majority becomes exceedingly bearish and throws in the towel, fearful of further declines and the potential disappearance of their assets. This is the capitulation phase, when stocks are sold on fear and emotion rather than on rational analysis. It is at that point that the market is finally ready to make an important bottom.

,which I think is fear and desperation according to the Qubis Cycle!
Some stocks were sold purely on emotion on last few days!

Yet it is still hard to say where are we at,confused! So we better give sometime and see!

Also i found another graph from srirangas' link, and I thought it is same as the ASI at the moment! (This is not a technical analysis, just sharing what I observed, and it can't be 100% accurate!)



And Yes, many have started to hate the market! They will say it is disgusting! xD

GMNet wrote:

Efficient markets are based on the assumption that rational people enter transactions with the intent to maximize gains and minimize losses. While this theory is sound, most investors are not the purely rational robots that efficient markets rely upon. Instead, emotions often cloud our decision-making and prevent us from acting in a rational manner.

Knowing we can never conquer our inherent emotional biases, we should seek to understand the range of emotions we may experience as investors and how it affects our interactions with the market. A common market psychology cycle exists that shines light on how emotions evolve and the effect they have on our decisions. By understanding the stages of this cycle, we can tame the emotional roller coaster. The fourteen stages are:

Optimism – A positive outlook encourages us about the future, leading us to buy stocks.

Excitement – Having seen some of our initial ideas work, we begin considering what our market success could allow us to accomplish.

Thrill – At this point we investors cannot believe our success and begin to comment on how smart we are.

Euphoria – This marks the point of maximum financial risk. Having seen every decision result in quick, easy profits, we begin to ignore risk and expect every trade to become profitable.

Anxiety – For the first time the market moves against us. Having never stared at unrealized losses, we tell ourselves we are long-term investors and that all our ideas will eventually work.

Denial – When markets have not rebounded, yet we do not know how to respond, we begin denying either that we made poor choices or that things will not improve shortly.

Fear – The market realities become confusing. We believe the stocks we own will never move in our favour.

Desperation – Not knowing how to act, we grasp at any idea that will allow us to get back to break even.

Panic – Having exhausted all ideas, we are at a loss for what to do next.

Capitulation – Deciding our portfolio will never increase again, we sell all our stocks to avoid any future losses.

Despondency – After exiting the markets we do not want to buy stocks ever again. This often marks the moment of greatest financial opportunity.

Depression – Not knowing how we could be so foolish, we are left trying to understand our actions.

Hope – Eventually we return to the realization that markets move in cycles, and we begin looking for our next opportunity.

Relief – Having bought a stock that turned profitable, we renew our faith that there is a future in investing.

Individuals clearly follow this cycle in their decision making process.
By Sean Hannon, CFA, CFP is a professional fund manager.
Edited article from http://www.stocktradingtogo.com

sriranga wrote:

GMNet wrote:

Efficient markets are based on the assumption that rational people enter transactions with the intent to maximize gains and minimize losses. While this theory is sound, most investors are not the purely rational robots that efficient markets rely upon. Instead, emotions often cloud our decision-making and prevent us from acting in a rational manner.

Knowing we can never conquer our inherent emotional biases, we should seek to understand the range of emotions we may experience as investors and how it affects our interactions with the market. A common market psychology cycle exists that shines light on how emotions evolve and the effect they have on our decisions. By understanding the stages of this cycle, we can tame the emotional roller coaster. The fourteen stages are:

Optimism – A positive outlook encourages us about the future, leading us to buy stocks.

Excitement – Having seen some of our initial ideas work, we begin considering what our market success could allow us to accomplish.

Thrill – At this point we investors cannot believe our success and begin to comment on how smart we are.

Euphoria – This marks the point of maximum financial risk. Having seen every decision result in quick, easy profits, we begin to ignore risk and expect every trade to become profitable.

Anxiety – For the first time the market moves against us. Having never stared at unrealized losses, we tell ourselves we are long-term investors and that all our ideas will eventually work.

Denial – When markets have not rebounded, yet we do not know how to respond, we begin denying either that we made poor choices or that things will not improve shortly.

Fear – The market realities become confusing. We believe the stocks we own will never move in our favour.

Desperation – Not knowing how to act, we grasp at any idea that will allow us to get back to break even.

Panic – Having exhausted all ideas, we are at a loss for what to do next.

Capitulation – Deciding our portfolio will never increase again, we sell all our stocks to avoid any future losses.

Despondency – After exiting the markets we do not want to buy stocks ever again. This often marks the moment of greatest financial opportunity.

Depression – Not knowing how we could be so foolish, we are left trying to understand our actions.

Hope – Eventually we return to the realization that markets move in cycles, and we begin looking for our next opportunity.

Relief – Having bought a stock that turned profitable, we renew our faith that there is a future in investing.

Individuals clearly follow this cycle in their decision making process.
By Sean Hannon, CFA, CFP is a professional fund manager.
Edited article from http://www.stocktradingtogo.com

Thanks for sharing.

Thanks Red. This sums up the ordial we underwent since 2009.

Just curious if this cycle thing works for CSE? Any guys with above 10 yr experience?

We are goin into Relief Stage .......imo

Lets look at it this way. There will be a market bottom and market top and cycles.

So it applies/applied to CSE.

BTW, we have seen utter depression and utter euphoria haven't we within the last few years.

gamaya wrote:Just curious if this cycle thing works for CSE? Any guys with above 10 yr experience?