Market crash or correction?

DJIA drops more than 300 points

The dow jones index drop 323 points yesterday closing below 15000. This confirms the market reaction to the Federal reserve statement to slowdown bond buying and end the QE by mid 2014. The worst hit are the banks with goldman sachs dropping more than 3.5% in a single session.

Asian markets

Asian markets followed suit with most asian indices declining sharply. Singapore's STI is down -55 points which is a 1.8% decline. Yesterday STI closed down -80 points, one of the worst session after the europe crisis. The worst drop I remembered during the European crisis was STI declining more than -100 points in a single day. There may be worst drops during the 2008/09 crisis but during that time I have not started investing yet.

The next step

So what will I be doing now? I would wait for the decline to bottom out first before I start to buy in. Using technical analysis, we can analyze and choose a better entry point. After years of research, I have developed my own plan of choosing an entry point and also an exit point. Having a plan is important as it helps me to know what I am doing and not be so affected by emotions during the ups and downs of the market. Using a combination of moving avarages (MA) and exponential moving averages (EMA), I can draw out my short term and long term plan. Typically I use the 20 and 40EMA for short term trend and the 50 and 150. When the shorter(20) EMA crosses the longer(40) EMA, it signifies a trend change. Same for the 50 and 150MA.

Technical analysis is not perfect. I choose to make it simple by just using the MAs. There are far more complicated indicators like stochastic,  MACD etc that traders use. I do not use these indicators most of the time.

I find that finding a strong company to invest in is more important.  Reading company's financial statements, analysing its business model, knowing economics and reading news is part and parcel for investors. If you can find a good company and buy at undervalued prices,  the chances of it going up is very high.

Market crash or correction? You decide for yourself.

*PS: Read on my previous post on Quantitative Easing (QE) to find out the opportunities that I discuss on.

*Feel free to leave your comments on what you think about this market situation currently.*