Understanding the Index - Support & Resistance
Its no secret that the our exchange here in Singapore is a market follower. We are extremely exposed to the world and volatility in foreign markets do affect the STI to a large extent.
However before we analyse the index, we need to have a basic understanding of support and resistance levels.
Support Levels are where prices have bounced back up in the past and it is a level where investors find value in entering.
Resistance Levels are where prices have been rejected and where investors have come to take profit when prices reach a certain point.
In essence, we want to buy at support levels and sell at resistance levels. Depending on your risk appetite, one may even consider buying at resistance if an ascending triangle is spotted or other bullish catalyst indicators (news, earnings call etc.)
Credits to good old Tiger Brokers
The current market correction which are now in was indeed foreseeable. How bad it would get remains to be seen. Based on this chart, I've identified the previous resistance (now turn support) of the S&P 500 Index (Blue Arrow).
How any logical investor should interpret this that as the market approaches this key level, one should start conserving more cash in anticipation of a correction.
However, I'm not a logical investor. I'm emotional and I'm greedy therefore when prices broke resistance, I took it as a bullish signal and continued buying (Red Arrow).
Surprise surprise here I am now with the entire portfolio (both SGX & NYSE) in the red.
How I feel about this? I think it great.
I think its fantastic that I'm learning from my mistakes because the best form of learning is really to just face reality and accept it. Hard truth is that we won't always be right. For those in the same position as me, if you're on leverage or margins, then I'ld wish you the best of luck. But for whoever can hold, do hold on to it.
In the words of Warren himself,
The stock market is a device for transferring money from the impatient to the patient.