I usually pay little attention to the stock market but in the past week two things changed that: I saw the movie The Big Short and the Chinese circuit breakers flipped.
First, a note of clarification: I don’t dabble or even invest in the stock market. Not directly. But after watching the scurrilous characters in the movie, I realized I should be paying a little more attention to this world of finagling finances. You see, my pension and my RIFs are earning and losing money in the stock market and if that movie is anywhere near the truth, that scares me.
The movie deals with the financial meltdown in the US that spread around the world in 2008. The sub-prime mortgages were the weak links in the chain of stocks, bonds, and derivates that the mandarins of Wall Street use to make money, mostly for themselves. See the movie before you put any more money in the banks that are too big to fail.
Then the other day the internet and news media were all abuzz about the Chinese circuit breakers. I know what a circuit breaker is - it’s that toggle switch that turns off the electricity to my pond pumps when I plug the electric lawnmower into the garage circuit. All you do is flip the switch and things run again. Surely, I thought, the Chinese stock market does not operate the same way.
I thought to educate myself a little on how the stock market works with these circuit breakers. My understanding of the Bull and Bear markets was close but I was surprised to learn that stockbrokers - those are the people who take your money and lose it on a Bear market and keep the proceeds on a Bull market - don’t just throw darts at the stock listing or even rely on rumors to play with your investment - they use charts.
Being an accountant in my former working life, I have a fairly good idea about charts. At City Hall we used Line charts to track the cost of snow removal every year, Pie charts showed the trends in budget amounts derived from taxes, grants and service fees. We used Bar charts to monitor the amount of water pumped at Trout Lake. But never once did we use a Candle chart.
From the Stock Market primer for brokers I learned that a stock chart is a visual representation of data, in which the data is represented by symbols such as lines in a line chart, bars in a bar chart or candles in a candlestick chart. You get the picture, right? A line of candles tells you whether you should buy or sell a stock. If your candle chart image looks like a candlestick hammer that is a bullish market and you should buy.
“Candlestick Patterns are formed by variations and combinations of candle lines. They not only depict the price movements, but also graphically represent the psychology of the traders.” Now that scares me. Does somebody come to the office every morning and do a Rorschach test asking the traders what those candles look like - a butterfly? a profile of your mother? a puppy dog? two kites in the sky? A candle with a wick? If you answer the later, Candle Wicks along with the body, are the graphs which represent the mind of the market traders.
Beware of the Doji Candlestick Chart. It is a candlestick pattern without a real body. They represent the areas of uncertainty. Imagine that!
If candles aren’t enough to warn you off the market, try the ‘Abandoned Baby’ -“a reversal chart pattern, formed by price action in a single time period, which is separated from rest of the price action by gaps. It is very reliable with 80% probability.” It may also mean that you are a Contrarian. That’s a person who invests in a falling market and the tries to sell stock in a bullish market. Contrarian investor is one who takes a stock position against the opinion of majority and profits from it. An ordinary contrarian is someone who does not listen to the advice of their spouse or partner.
In the era of circuit breakers on the stock market my advice is to have your broker make a Dawn Raid, buying of a huge amount of shares in the morning at the opening of stock market in the manner of a Bed and Breakfast Deal. This refers to the sale of share and repurchase on another day. It’s done to set up profit or loss for the purpose of tax avoidance or some other reason. If that doesn’t work you can rely on Quantitative Easing, whatever that is.
If things are not looking good in your portfolio chart you can always rely on a correction: “A correction is the temporary reversal of trend in share prices. This could be a reaction, that is a fall in an uptrend or a rally, that is a rise in a down trend.”
You can see why I don’t invest in the stock market.
