Has extreme Fear retreated?

Yesterday was a day of extremes. Within a day, you see volatility between two opposing ends. Take a look at the roller coaster ride of Dow Jones Industrial Average (Dow), Hang Seng Index (Hang Seng) and Straits Times Index (STI).

 

                        Intra-day  Intra-day  Final    Change over

                        low          high       close   previous close(%)

Dow                8,174        9,082       9,065   +10.88

Hang Seng    11,133       12,596      12,596  +14.35

STI                    1,473       1,666        1,666   +4.14

 

The indices suffered a precipitous dip in early trades and suddenly rebounded towards the later part of trading sessions. STI dropped 7.9% first in the morning before rallying 4.14% in the afternoon. This was 12% volatility in a single day! You see a major dip breaking the 1,500 floor level before recovering pass 1,600 level. Hang Seng Index was even spectacular.

 

Let’s see how some of the large Singapore-branded companies performed in the same day.

 

                        Intra-day        Intra-day        Final

low                  high             close

UOB                $10.40             $12.74             $12.74

SIA                  $9.05               $10.80             $10.80

DBS                 $8.87               $10.46             $10.20

SGX                 $4.15               $5.13              $4.99

Keppel Corp$3.35               $4.18               $4.15

OCBC             $4.41               $5.11              $5.11

 

Take UOB as an example. If some investors sold out in the morning at $10.40 per share will realise that they could have waited to fetch $2.34 higher at the end of the day. That is a difference of $2,340 for one lot of UOB (1000 shares).

 

This showed that there are investors waiting in the wing for the first sign of recovery from their lows to jump into the stock markets. They are guessing when the bottom of these stock markets is and feel that they could not miss out on the rally. This is herd mentality at work.

 

Will this rally be sustained? I do not think that we will see the end of volatility and investors must be willing to take a long-term view in investing in stocks in order to remain sane in this uncertain climate.

 

 Written on 10/29/2008 9:53 AM

 

Copyright © 2008, the author known as LKT in Singapore.

 

The material presented is intended to be general and written in layman’s language as much as it is possible. The author shall not be liable for any direct or consequential loss arising from any use of material written. Please seek professional advice from your financial advisor or financial institutions on material written covering financial matters.

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