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Friday, June 14, 2024

What are the signs investors can expect of the bear market?

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As evidenced by the development over the past fortnight, Vietnam’s stock market is facing decisive trading sessions which may come at any time.

Witnessing a 10% fall after only seven sessions from July 7 to 14, the VN-Index became one of the indices suffering the deepest plunges in the world these days, totally wiping out the results achieved during nearly two months. There have appeared sessions that saw huge fluctuations with sudden rises and falls occurring alternatively which came more often and exposed investors to extremely high risks.

While some fear that the situation has already begun a long time of bear market, many others are still confident that it is only an inevitable correction in the context of a bull market because prices on Vietnam’s stock market have rocketed for more than one year. In fact, during the course of development, the market has recovered following strong corrections.

In the latest adjustment, the market had two recovery sessions on the weekend on July 15 and 16. However, the small volumes of transactions indicate that investors were still prudent with their wait-and-see attitude. In other words, efforts to boost prices may be short-lived, especially when taking into account the lack of positive information.

Notably, that foreign investors came back making successive net-buys of great value over the past sessions has to a certain extent helped lift the overall sentiment. On the contrary, first-time investors continuously withdrew their money in the past three weeks in response to the wide-spreading Covid-19 pandemic.

Meanwhile, the previous stiffness of margin loans which aggravated the release of mortgage during the bearish sessions may have yet to bottom out. An unfavorable market may therefore adversely affect current capital-increasing plans of stock brokerage firms, which likely delays an early lift of the margin ceiling so that the withdrawal can be decelerated.

Despite this, investors who pin hope on a rapid recovery should carefully scrutinize liquidity to see whether the market may have strong positive corrections in the coming time. Simultaneously, they should wait for possible bullish sessions with soaring points and trading volumes, which can be seen as a confirmation for a return to the market.

Normally, a boom time would appear from the fourth day to the seventh day following the first day of recovery, which should be from the 21st to the 26th day of this month if that first day is on July 15. Such a day would see the index gain more than 1% and the volume be bigger than on the previous day and bigger than the average volume of the latest sessions. However, investors should exercise patience to receive clear signals to avoid a “Dead Cat Bounce” situation.

How deep the plunge would be?

Reversely, it is more likely that the fall on the market would continue, especially after the VN-Index broke the 50-Day Moving Average (MA50), equivalent to the 1,330-point zone, on July 12. Some recent forecasts even said the market might fall to the support zone of 1,200 points, which was near another technical indicator, Fibo Retracement level of 50%, which rose from the bottom of 998 points on January 20 to the recent peak of 1,424 points.

If this zone cannot be sustained, the next zone of support would be 1,155 points, equivalent to Fibo Retracement of 61.8% and near the 200-Day Moving Average (MA200), which is currently considered the strongest support of the VN-Index. If the support zone is lost, it is very likely that the market would enter a long time of slump.

According to technical analyses, a stock index in general or a stock in particular often ends a rising trend and confirms a reversal only when it falls at least 20% off its peak. Given the highest peak of the VN-Index being 1,424 points on July 2, the 20%-plunge of the VN-Index will be equivalent to the zone of around 1,140 points. Subsequently, the zone between 1,140 and 1,155-points really matters to the VN-Index in case the correction time extends.

If the market really retreats to the above zone, there will be at least one session of strong rise when the money flow for bottom fishing may rush in for a short wave. All considered, if Vietnam’s economic prospects in general and her stock market in particular are taken into account, a long-term bull market is expected.

Yet what is worrisome to investors is that it may take the market a much longer time in this correction, which is different from that in January. After corrections, liquidity has fallen substantially although big money has yet to come in. If viewed from the positive aspect, the selling force may be exhausted. However, if this situation continues for a long time, it will discourage investors.

Enterprises are revealing their Q2 business results, which means differentiation would follow. Predictably, the groups of banks and securities firms may post high growth. However, the situation has been forecast and reflected in the latest strong waves. Many have opined that Q2 business results of banks may be their peaks of profit considering that during the second half they will be under the heavy pressure of provisions and lower loan interests, meaning their profit margins will be narrowed.

That may be the reason why bank stocks have made a nosedive during the latest sessions and caused the entire market to plunge. As they account for the highest ratio of capitalization in the general index, the group of bank stocks will dramatically affect the market. Consequently, when high pressure is still piled upon banks, the stock market may find it hard to rise again.

By Trieu Duong

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