What is causing the market to stay down and illiquid?

Clients, brokers and the entire investment community are looking for answers to understand the market. However, experienced market participants are very aware of the situation. The rest of us should follow the tape (the market) which will never lie to you. Understanding the tape is one of the best gauges of sentiment a market player should evaluate on a constant basis. The trend is, your friend and the market never lie, so listen to what it is trying to tell you. It is not about being bearish or bulling as famous trader Jessie Livermore used to say, but it is about understanding general conditions and as a broker providing honest advice to all clients big or small.

The market is currently stuck in a downward sloping illiquid range. In order for us to move out of this range, it seems like we will need a catalyst. What that catalyst will be is questionable.

The negative financial sector report done by Fitch to state that the Sri Lankan financial sector is amongst the ninth riskiest in the world and the downgrading of Hayleys by RAM from AA + to AA – with a negative outlook have added some fuel to the fire but it has not sparked a nationwide dumping of stocks. Whereas in a developed market we would have seen drastic short selling of the respective counters.

Then defending that outlook, the Central Bank’s road map for the economy was extremely positive. However, this had no effect on the equity market.

Are the bigger players waiting

The market is currently stuck in a downward sloping illiquid range. In order for us to move out of this range, it seems like we will need a catalyst

for more downside before they come into the market?

Are foreign funds trying to liquidate more stock and unable to find a buyer?

Are investors so stuck that there is no cash to do anything? The LKR 47 billion raised in equity markets in 2011 by IPO has sucked some of the liquidity out of the system. These, along with the accumulated losses are not helping the lonely bullish investor. Is there no other money out there?

Maybe it is everything that is causing these market conditions. As investors, we need to be very mindful and continue to monitor our risk levels. I continue to say this as you can’t predict markets. For a trader, you can only gauge the probabilities and make sure they are on your side. For a value investor, pick fundamentally strong stocks and be mindful of long-term economic prospects. Whichever way you play the market, understand your personal risk psychology.