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Yesterday Indonesian stock market tanked for more than 5%, accounting to more than 90 points drop. The only reason why I wrote this post today is because yesterday my hand are too shaken to write about anything. 90 points download made Composite Index looked like a war torn fields with many dead bodies everywhere.

Several factors are accounted for this event, from logical one to superstitious one. My own simple analysis concludes the following factors:

• Profit Taking, the whole market has experienced bullish trend for quite sometime now. It must also be noted that the majority of the trend is caused by market sentiment, not the intrinsic (fundamental) value of the company so when the market said enough is enough, the price plunge due to profit taking action.
• Peer Pressure, the regional index such as NIKKEI and Hang Seng also plummeted last week for around 5% of its original value. And since Indonesian market is very closely correlated with those market, it’s possible that foreign investor that invest their money in Indonesia financial market abruptly pulling their investment to buy a better and cheaper investment in Hong Kong or Japan
• Index Engineering, as I’ve stated earlier, Indonesian market’s bullish trend is only supported mostly by market sentiment. It’s possible that “biggie” player played the market by engineering it for a short but deep bearish trends to buy the stock at a bargain price. This is only my theory though.
• Rupiah Depreciation, it is still unsure for me whether Rupiah affected the stock market or vice versa or they have a looping effect which we need a double regression analysis to identify it. But the bungee jumping of Indonesian stock market is also followed by Rupiah’s.
• Elliot Wave, according to Elliot Wave theory, Indonesian stock market is already in its fifth wave double extension last week. So it’s just natural that the market will start its bearish trend. However, my knowledge on Elliot Wave is very limited and I’m still learning it. I might be wrong.
• Dow Theory supports so, again, my knowledge on this theory is pretty thin. According to this theory, IHSG already finished its third round (Dow Theory only knows 3 round) because of the big correction. So some might say that IHSG will continue its downward rally starting over from round 1 of Dow Theory.

It’s worth noting that the market depreciation of almost 100 points yesterday is only supported by Rp 4 Trillion transaction. While the market appreciation of 30 points (2 weeks ago) is supported with Rp 3 Trillion transaction. If we do the calculation, the current market plunge should take at least 8-9 Trillion in transaction. This strongly adds the argument on index/market engineering.

So my conclusion is, the index might rebound on Wednesday but will continue its downward bearish pattern. If you are an avid follower of fundamental analysis like me, don’t worry, your investment value will be just as they used to be, but not on the short-term. I’m hoping that the value will return to normal late this month but even I doubted my self on that.

But for those of you who have cash at hand. I think this week is a good time to buy. You might have to averaging down your stock collecting, but it will rebound anyway.

PS: today at this time of writing (10 AM), the index is depreciated -9 points.