Correction vs. Collapse

Date: 2006-11-11
Ticker: %S
Event:: Tons of alerts
Title: Correction vs. Collapse
Content:

Look at ORCL chart, you would see a God-blessed stock. There are fluctuations but just normal corrections instead of collapses.

However, this is just too abnormal a model. For most stocks, the fluctuations, often measured by volatility, appear in the form of rally and collapse.

If we adopt a simple fractal point of view, on a longer time basis, the indices are the same as well.

Especially now.

This year's May collapse reproves the Almanac. However, after that, we have a straight rally which helps put DJI to its all time high and NASDAQ to a 5-year high. It's not hard to find numerous reasons to support the rally. However, at current level, skeptics begin to ring the alarm.

An interesting result is when some researchers look into the volatility smile, they find it's partly due to investors are taken crisis into consideration. Human is fast learning. A fall into the pit, a gain in your wit. Most skeptics look back and cite history.

Psychology matters much but not all. As a report has said, macro-economy understanding is lacked in investment companies. It's not surprising for investment banks or media to be so cautious. But only psychological or history considerations are far from convincing.

The market may stay bullish until year end since the indicators are not disappointing now. However, after the holiday, trend would be clear whether the bubble sectors would correct themselves.

Explosion of the hedge fund, private equity, M&A can be viewed as an alert from the capital market. Its increase is abnormal and can't be consistent. The return won't be satisfactory since all future cash flow are conjectures only right now. If this node deteriorates, the circulation will have problem and the collapse is on the way even other sectors are on right tracks.

Anyway, hopefully nobody is going to break the holiday mood before Eve Ball finishs its descent.

A time to gain, a time to lose
A time to rend, a time to sew
A time to love, a time to hate
A time for peace, I swear its not too late

-Peter Seeger, "Turn!Turn!Turn!"