Bottom Fishing: 5 days on..

Following my previous post here, I said that bottom fishing based on that 3-day pattern would be very risky and was not recommended. Those who went long the FKLI at the close on the 21st and held it until yesterday would incur a loss of almost 50 points.

Bear, Bear, Bear

A close below the 1277 level would confirm that we are in bear market territory (calculated as 20% below year's high).

Bottom Fishing

Those who practice bottom fishing might be attracted to the last 3-day pattern. I'm not a believer though, too much risk involved.This might be a bottom but I'd rather see some form of consolidation before jumping in.

Market Sentiment

Market sentiment is certainly pessimistic at the moment. You don't need complicated technical indicators to tell you that. Top concerns for investors include the US recession and the Euro debt crisis.

It's almost 10am and our FBM KLCI is down about 1%.

As far as I'm concerned - I have two possible option with regards to my investment strategy, depending on prevailing market conditions:

1) Bear market - If we are heading towards/are in a full-blown bear market, then the strategy would be to sit on the sidelines and keep stock exposure to the absolute minimum.Wait for signs of potential stabilisation before purchasing blue chip stocks.

2) A correction to a secular bull market - If we are in a correction to a bull market, however unlikely that may be, I might take small long positions if the FBM KLCI makes a huge rebound off lows. Exposure will be very small - ideally 20-30% of total equity.

1425-ish level is a key support. Besides the low on made on the 9th of August, it is also the 78.6% Fibo. Will be very interested to know what goes on when we test this level again.

I don't predict anything. I wait for things to move before I jump in. That might reduce my potential profits. But in terms of probability of success, this strategy generates higher %.