Over the last six to seven weeks, a recommendation, “buy the dips but sell into strength” has been the principal theme of the Singapore Market.
With the Straits Times Index (STI) having dropped sharply on several occasions, like the bouncing measures of the government every time they would announce its anti-speculation property measures, punters who employed the recommended theme to the blue chips would undoubtedly be ahead now.
However, the same can’t be said to the massive bubble present in penny stocks, which speculative punting, syndicate ramping and rumour-mongering had aided. This leads to a fascinating observation – recently, a lot of second and third liners have been driven by rumours of mega-deals to new highs, but when the news was released, small minority companies that have actually created more important announcements have fallen back, while other companies have held the chance to undertake placements or rights issue. Based on what was happening, “buy on rumour, sell on news” seems to be what’s playing.
The regulators in US, Australia and the UK have listed proposals that seek to warrant that rumours be handled responsibly. By establishing formal in-house procedures and policies to decide which rumours can externally and internally be passed on, the tabled proposals of the three countries basically necessitate brokers to serve as filter for “bad” and “good” rumours.
To aid regulators to trace the source of the rumours, staff brokers need to keep a “rumour log” and attend formal training on the established in-house policies.
This grand scheme aims to improve and try market efficiency through removal of information barriers. This scheme is established on the supposition that Market players would like to work in a competent market, where all known information is reflected on market prices.
The embarrassing reality is that even though such efforts will be applauded by a lot of market players, still many are in favour of inept market as it offers unfair opportunities for money-making like market manipulation and insider trading.
Another fascinating observation is that in the recent “buy in anticipation, sell on news” session, Wall Street seems to have implemented a variant of “buy on rumour”.
However, in spite of the constant release of ‘less bad’ economic data, which suggested that its punters are selling on news, its main indices have dropped for three consecutive sessions.
The decline happened after the reports were released, which showed last month’s 2.4 percent decrease in durable goods, well under the 0.4 percent increase that the market has expected.
According to IdeaGlobal, a research house,” Further improvement needs to be seen before a turning point can more clearly be defined. Taken in the broader context, underlying weakness is likely to be seen in coming months, but occasional improvements are clearly a welcome sign”.
In the upcoming weeks, much of market direction will rely on how programme traders will predict the performance of Wall Street in the near future. In turn, this will depend on the tone of future data of the economy.