History loves to repeat itself in almost every aspect of our lives. We can attribute it to human nature, as we never learn our lessons. How many wars have we experienced in the last century? While the reasons for each and every war were different, the fundamental reasons for World War I, World War II, Vietnam War and the Korean War were essentially the extension of national interest and ideology.

History seems to be fondest of repeating itself in the stock market. We never buy low and sell high; we always seem to buy high and sell low. We love following where the euphoria is, and avoiding the stock market when sentiment is poor and quiet. We have always loved to create stock market bubbles and get caught when the bubbles burst. We could all be laughing at ourselves at our past mistakes, but we cannot be making the same mistakes over and over again.

In February and July, we were all brought to our knees by the crashes so much so that we lost confidence in the stock market. But funnily, the stock market tends to rebound when everyone is fearful of more bad things to come. And, from last October till now, which has seen the Straits Times Index (STI) correcting by more than 29.7% - technically a bear market signal - all confidence has evaporated.

TECHNICAL PICTURES LOOK SIMILAR

In the previous issue of Shares Investment, I said that, “this recent-most low resembles the previous lows we witnessed in February and August last year. In all three corrections, the STI reversed a huge intra-day loss to close much higher followed by strong consecutive gains for the next few days.”

We have seen the STI reversing a huge intra-day loss, but we have yet to experience the kind of strong rebound that we experienced in August last year, which lasted all the way to October before the market corrected again.

Despite not experiencing what had happened in August to October, this current correction looks more like the one in February. After displaying a key reversal signal, the STI rallied slightly in March last year before retreating, which is exactly what we are experiencing now.

The STI hit a low on 22 January, rallied some 400 points within a matter of four days and drifted lower again. If this current correction is an “exact replica” of last February’s market action, then the STI should start rallying strongly to 3,150 before consolidating at around 3,150 to 3,200 and heading higher. oping a low-end electric shaver for PHILIPS Zhuhai. We believe that this could pave the way for future collaborations in jointproduct developments between the 2 companies. This will in turn drive the Group’s ODM business in the future. We understand from the management that some of their customers have turned cautious going forward due to the deteriorating economic conditions in the United States. However, this is unlikely to have any major impact on 4Q08. We have factored in an expected slowdown in orders in FY09 and reduced our growth assumptions slightly.

There is a huge difference between last February’s correction and the current correction: We were on an uptrend last year while we are now in a downtrend.

REMEMBER JADE TECHNOLOGIES?

Jade Technologies almost single- handedly led the penny stock Bull Run in April when it rallied from a mere $0.035 to $0.565 in a matter of three months.

We have seen some strong price movement in Jade Technologies recently. The share price rose from $0.08 to $0.22 within seven trading days. However, the share prices of the other penny stocks have yet to move, partly due to poor trading sentiment and fear.

If the share price of Jade Technologies does mirror the performance of the STI, we should soon see the STI testing 3,150 and the share price of Jade Technologies stabilizing at or around $0.20.

This seems like a total mismatch in comparison, but there is always a correlation between certain stocks and the overall stock market direction.

A LOT HAS BEEN DONE TO RESCUE THE MARKET

I have been a speaker on various television programmes i.e. Channelnewsasia, Channel 8, Channel U and 95.8FM, for a number of years.

In October 2002, when I was the Research Editor of this publication, I wrote that we would enter a Bull Run in 2003. I have been bullish ever since and, despite the difficulties we have been facing since October, I have maintained that this correction is structural in nature and would take slightly longer to overcome.

On a couple of occasions, the support levels that I gave have been broken, with the recent-most 2,930 for the STI giving way only to be reclaimed. This has given me the much-needed confidence to maintain a year-end target of 3,800 for the index.

Firstly, my optimism stems from the fact that the US Federal Reserve has cut rates sufficiently to rescue the market. Whether they are bullied into cutting rates or not, the end-result is the most important. I believe that we should feel the effects of the rate cut starting from March and the full effects should be felt in the second-half of the year.

The US$150b economic stimulus package, the billions of dollars pumped into the financial system, and Berkshire Hathaway’s offer to reinsure US$800b worth of municipal bonds currently insured by troubled insurers, have all injected a lot of confidence into the market.

What about the various sovereign funds’ purchase of stakes in troubled financial giants? These are signs that all are not lost in the market, aren’t they?

As I’ve said before, there is still ample liquidity in the financial system to hunt for bargains every time the stock market crashes.

BARGAIN HUNTING TIME?

While all seems quite bleak at the moment, there are stocks worth bargain-hunting - especially blue chip stocks and quality China issues - for the longer-term horizon.

We are into the reporting season and results are expected to be poorer than the corresponding period last year. Although weaknesses are expected, we should not be jumping into stocks before the companies announce their results.

The banks should look attractive after announcing their results, in particular their exposure to US collateral debt obligations (CDO). Some of the government-linked companies like ComfortDelgro are paying dividend yields of around 4%, and this represents a good investment especially when the government is planning more railway routes.

We should get a much clearer picture soon, especially in March. Let’s all see if the STI can successfully reclaim 3,150.

I will be giving a talk on the future direction of the stock market on 2 March 2008 (Sunday) at the Queenstown CC from 2pm to 6pm. The talk will be conducted in Mandarin and interested parties are encouraged to sign up by calling 96811392/96389467. A fee of $20 is payable and refreshments/light snacks will be served.