Somebody made a lot of money today. And it wasn’t the man on the street. It was the smart money. To be precise, it was the institutional day traders who shorted or closed out at the open to cause the open gap down and then bought back throughout the day to bring the KLCI up an impressive 60 points to close at 1200. I got some confused emails asking what’s going on, some research articles saying it was caused by “xyz” and I even had a few phonecalls from some folks giving me their 2 cents on what’s going on. Also this blog got hit pretty hard. So a lot of questions are being asked right now.

First up - here’s my advice in case you’re one of those unfortunate enough to be in a position which you don’t know what to do with. Do not reach out for analyst reports, do not listen to the news and do NOT listen to your broker! Listen only to what the market is telling you. Look at volumes, indices, correlations between companies in the same sector. Utilise your trading tools. The market will tell you more about itself than any analyst or broker can. This is because for every 1 reason an economist tells you why the market goes up I can think of 2 for why the market will go down. So trust me, I have been there and done that. Everytime a selloff occurs based on a particular event, it is because people’s perceptions have changed, not because the event itself was particularly value destroying. Over the next few days you read or hear about the impending slowdown in China, the inflation problem, the credit bubble, and you will also hear projections about economic growth, exports, imports, government spending, fiscal and treasury balances etc. etc. They are all vain attempts by economists using macro economics to explain what is going in the stock market over the short term, and some will be wrong, some will be right, as was the case many years before I was born and will continue to be the case many years after I die. Do you want to risk putting your money on the stock market based on a particular economic view and then only find out in the long run whether you are right or not? I’m sorry, as Milton Friedman once said, “in the long run we are all dead!”. No thank you. I’d rather put my money on what the market is telling me…

So what is the market telling me?