Warnings that you ignored - ASI Crashes Below 200 Day Average

quibit wrote:
Today, 23rd June 2011 was a significant day for the Colombo Stock Exchange, when the All Share Price Index crashed below the key 200 Day Moving Average for the first time since rising above it on 18th May 2009 - the day before the war ended in Sri Lanka.

On 18th May 2009, the All Share Price Index surged by 123.23 points to 2,030.9, rising strongly above the 200 Day Moving Average which stood at 1,916.96 the previous day. Since this cross-over, the All Share Price Index has never looked backed, rising by a phenomenal 284% to a high of 7,797.96 on 28th February 2011.

Equity prices generally overshoot on the way up (and also down) exceeding fundamental valuations and it is likely that Colombo's share prices have been stretched in recent months. Further, with significant risks looming for the global economy in the form of the brewing debt crisis of the PIIGS in the Euro Zone, more pain may be in sight.

http://forum.srilankaequity.com/t5578-sri-lanka-all-share-index-asi-crashes-below-key-200-day-moving-average

A broad market index falling below the 200 day moving average is not an early warning sign. It is merely confirmation that the bear is in control.

Note that this post was originally published by the site admin in June 2011. The MPI fell below the 200 Day average much earlier.

Note the comment about prices overshooting way up and way down. In a bear market a stock trading at PE 8 may not be a bargain because it has still not overshot downwards.

Equity markets swing about their fair valuations - one time it shoots upwards till stocks are atrociously over priced. Then they reverse direction and fall until they are at give away prices (but we are not there yet).

csehistorian wrote:

quibit wrote:
Today, 23rd June 2011 was a significant day for the Colombo Stock Exchange, when the All Share Price Index crashed below the key 200 Day Moving Average for the first time since rising above it on 18th May 2009 - the day before the war ended in Sri Lanka.

On 18th May 2009, the All Share Price Index surged by 123.23 points to 2,030.9, rising strongly above the 200 Day Moving Average which stood at 1,916.96 the previous day. Since this cross-over, the All Share Price Index has never looked backed, rising by a phenomenal 284% to a high of 7,797.96 on 28th February 2011.

Equity prices generally overshoot on the way up (and also down) exceeding fundamental valuations and it is likely that Colombo's share prices have been stretched in recent months. Further, with significant risks looming for the global economy in the form of the brewing debt crisis of the PIIGS in the Euro Zone, more pain may be in sight.

http://forum.srilankaequity.com/t5578-sri-lanka-all-share-index-asi-crashes-below-key-200-day-moving-average

A broad market index falling below the 200 day moving average is not an early warning sign. It is merely confirmation that the bear is in control.

Note that this post was originally published by the site admin in June 2011. The MPI fell below the 200 Day average much earlier.

Note the comment about prices overshooting way up and way down. In a bear market a stock trading at PE 8 may not be a bargain because it has still not overshot downwards.

Equity markets swing about their fair valuations - one time it shoots upwards till stocks are atrociously over priced. Then they reverse direction and fall until they are at give away prices (but we are not there yet).

"Then they reverse direction and fall until they are at give away prices (but we are not there yet)."
When will it come ? what is the based on your comment.

Have a look at the latest position of the 200 day moving average. It is still in the bear phase and very unlikely that it will be broken.

In retrospect, timely warnings of experts have been ignored. In fact, they were lablled traiters. Now all of us are in trouble. Time to wakeup from patriotic slumber & start learning.

Quibit, thank you for your valuable contributions.
K.Haputhanthri, good to see that there are members in this forum who are open minded.

the comments that some members posted in reply to quibit's original post at : http://forum.srilankaequity.com/t5578-sri-lanka-all-share-index-asi-crashes-below-key-200-day-moving-average provide a wealth of insight into the expertise of of these experts.

We need to understand different point of views of different people. Some have long term goals while others can have medium and short term goals. Some want quick money some want returns after a certain period. It seems many are here at CSE for short term and medium term investments. So the best for them is to indeed exit their portfolio completely at times of uncertainty and become traders if they want to still stay in market at all. Holding for many will be s stress that cannot be beared to see the prices fall day by day during bad period like this.

On the same line , yes there were a few people here who warned about a down trend during the peak period when ASI was at an unsustainable 7800 with Pe of 28-29. So I again raise my hat off to them. The short to medium people here who worries so much should have listened to them to completely sell out. But for long term investors the strategies and worries will be different.

Let me give an Example : Say after you analyse , you buy X share now at RS 80. According to you calculations the share can be worth Rs 200 within say your investment time period of 3 years.
a) If a bull market or a sudden trend on its own comes maybe it can hit Rs 150 even this year. ( need examples? that what happened to GRAN when it went from Rs 60 to RS 250. What about REG from RS 160 to Rs 500. These sudden uprises can come sometimes in bear markets and then the runs can even over value them with present financials)
b) now look at the other end. If the share you bought at Rs 80 now drops to Rs 60 in bear market is it a problem for your 3 year investment period? If the share goes to Rs 200 within 3rd year will you be worried then you paid RS 80 or Rs 60? Compared to Rs 200 the differece is not so significant. But for short term people the RS 20 will be a big deal.


On any account we need to be fair to understand couple of things.

Even in a down trend nobody can exactly predict how much it will fall as it depends on external factors, internal factors, earnings, growth , investor sentiments etc etc which are sometimes unknown at that time ( as they are in the future). We can only do educated estimates . Some did. When ASI was 7800 could we predict for sure the drop would be to 4892. We still do not know the depth of this fall. Now for the first time I see people say number like 3000s. To be reasonable last Feb to June I saw people stating figures like ASI 5000-5500 which has come true. But anyone still bold enough to say that ASi will fall to 2500 ? We do not know yet. It is very unlikely though. It depends on day to day and month to month developments which can change. Also authorities will not want to see the stock market massacred as it is some portal to development of the country. Who knows, all of a sudden if 2 big foriegn investment funds start buying left and right what will happen to the market. But right now it is fair to things still are heading south due to latest developments. Question is if market drop more are you ready for it? If not it not too late act even now for those worried to death.

Anyway, whether there is bull or bear there will always be opportunities in the market . Maybe there can be short term runs of certain shares in bear. Maybe your Long term share might have a sooner than expected run even during the bear. No one can predict exactly. But there will be always green patches in the pool of red ( especially for short term trading). It appears that sometime this week there should be a few green days due to market cycles. It could be monday or tuesday even. I could be wrong.


So here , the correct analysis on what you buy , then holding power and investment plan come to play.

Best to understand you goals and act accordingly without doing blind investments. If you do then your suffering will be more. I cannot honestly say I am not worried. But we have seen worse times haven;t we?

Thanks slstock.
Most of us are not ready to learn the stock market.
Still relying on gossips and tips.
Because we were brought up specially in the political arena like that.
If we cannot change our attitude if the market go to 10000 or 2500, most of us will be losers. Gainers are going to be fewer-most of them foreign fund or managed companies.
Wait and see our stupidity, lack of knowledge and impatient will shatter our hard earn money near future.

Very true Slstock. ?How many of us can understand the reality. Many wants quick money. In the process, messenger (who brings the bad news)is killed after being lablled as a traitor. We should be prepared to accept the reality, if we are stuck with scraps have to plan for safty when bad news comes rather than blaming the messenger.

Thank you Slstock, I also agree with your view.