Market Outlook: Where is the Bear?Hibernating?

Dow Jones index has touched the 10000 mark for the first time last 2 weeks ago since the meltdown of worldwide financial system. The market has never been so bullish and the sentiment is at all time high. We have seen the US housing market rebound from the lowest point in March as the stimulus effect starts to kick in at 2Q2009. We also witness the remarkable rebound of stock market since March 2009, especially at the bank sector where the top US bank earning result constantly beating the expectations (imagine that 1 year ago, all of this too large to fail bank need government bailout to survive!).

How does this miracle happen considering the magnitude of the crisis last year? Warren Buffett has described it as the economic Pearl Harbour – “A perfect suicide”. The government from around the world have pulled out an unprecedented effort of pumping in trillions of stimulus dollar into the system. By doing that, I am afraid we have just actually planted the seed for next financial crisis. The main problem of the banking system is that too many toxic assets in the “crestfallen” bank’s balance sheet. The Fed is trying to make a market for all these toxic assets where theoretically there is virtually none exist! Consequently, the banks will not have to mark down their balance sheet; hence, they don’t need to scramble for liquidity to shore up their capital ratio. Meantime, Fed is pumping in billions of dollar into the system to encourage banks to continue lending, in order to thaw the credit freeze.

With so much cheap liquidity in the system, the stock market has found its perfect catalyst to power ahead non-stop since early March this year. However, the question that lingering in everyone mind now is when is the correction coming?

It is very interesting to look at Euro-Dollar currency vs Dow Jones chart. We saw the depreciation of Euro to the lowest level in 2008 at around 1.25 when the Lehman Brothers collapsed at September 2008. Subsequently, the rebound at the end of 2008, follow by another dropped to 1.25 level at March 2009. Since then, the Euro has strengthened against the US dollar to around 1.50. This gives you some hints on the market direction.

We can’t predict the market movement and my prediction so far has proved to be way off the mark. However, we can focus on re-balancing our portfolio instead of trying to time the market.

There are still some bargain stocks in the market where the share price has lost the correlation with the market, due to unfavourable outlook. Nonetheless, there is still some value left in the stock, as it offers quite a decent dividend yield. At this moment, the best strategy is to play it safe by investing into business which is resilient so far.

Week 29: Market Outlook

The market has reached a tipping point since I was away for the past 2 weeks. No more fuel for the market to throttle ahead. Furthermore, there are strings of heavyweight 2Q financial result coming out this week; for instance, Goldman Sachs & Intel at Tuesday, JP Morgan at Thursday, Citi Group, Bank of America & General Electric. In this case, most of the investors would like to sit at the sideline now and chewing on the upcoming result to find out how far the recovering has progress on.

Actually, there are some clues on the market downside trend. If you watch closely at US 10 years Treasury yield, it has dropped significantly over 60bp (Basis Point) for the past month, since it reach the highest point of 3.936% at June this year. Bond price are reverse with the yield. If the bond price is up, the yield is dropping. In this case, 10 yr US treasury yield is dropping meanings that investor are scoping up the bond; the theoretical safe heaven for investor.

JP Morgan CEO, Jamie Dimon is voicing out his concern on the credit card losses and the continue delinquency of mortgage. Therefore, I suspect the financial company won’t be doing well for the past 3 months. Obviously, the credit market is back to normal and the liquidity is back as well, but the main concern is the confidence of all.

In this 14th of July, we shall see how the June Retail sales fare. My opinion is the sales will be either down or comparison with previous quarter. As I say previously, confidence play a huge role in determine the recovery process. The unemployment rate of June has hit 9.5%. There will be no surprise if the unemployment rate keeps going up. Overall, the so-called Green Shot has not exist, as far as I concerned.

WK 24: Market Outlook

The STI index has gone up by another 5% to 6% since I took 2 weeks off. It is amazing that STI has gone up over 50% since March!

There are a lot of talks about Green shots and Bear rally at the moment. What I have seen right now is simply the cheap liquidity that we have now driving the market up. There is certainly sign of credit system back to normal and dry bulk activity has been buzzing lately. Crude oil price shot up to $68/barrel and steel prices also recovering to above $360/tonne. It is a complete sentiment shift from fears to euphoria!

Back to 1951, where Ben Graham interestingly describe on how the market behave each day in his book – Security Analysis (One of the greatest investment book ever wrote). There is this Mr. Market where he will come to offer you a price everyday. Someday, he is in very optimistic mood and he will come to offer you a very optimistic price. The other day, he suddenly becomes very pessimist and as if the world is collapsing. He offers you a fire sales price!

The most important lesson here is you never get influenced by the market sentiment. The only reason to buy stock is you are buying into a great business when Mr. Market offering you a fire sales price.



1. Save 20%-50% of you monthly salary from now for investment


2. Ensure that you have adequate saving for urgent need and not required from the investment money. (Depend on personal circumstances and needs. For young people without commitment, a saving for 3 months expenses is good enough)


3. Buy into Great Business during huge market correction (-3% to -5%) from now on


4. Avoid the hottest stock at the moment!

Warren Buffett: Things Gonna Be Tough a While

Market Outlook: Fantasy vs Reality

TABLE 1A. ESTIMATED MONTHLY SALES FOR RETAIL AND FOOD SERVICES, BY KIND OF BUSINESS--April 2009

*Estimates adjusted for seasonal variations and holiday and trading-day differences, but not for price changes.
(Total sales estimates are shown in millions of dollars and are based on data from the Advance Monthly Retail Trade Survey, Monthly Retail Trade Survey, and administrative records.)

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for April, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $337.7 billion, a decrease of 0.4 percent (±0.5%)* from the previous month and 10.1 percent (±0.7%) below April 2008. Total sales for the February through April 2009 period were down 9.2 percent (±0.5%) from the same period a year ago. The February to March 2009 percent change was revised from -1.2 percent (±0.5%) to -1.3 percent (±0.3%).

Retail trade sales were down 0.4 percent (±0.7%)* from March 2009 and 11.4 percent (±0.7%) below last year. Gasoline stations sales were down 36.4 percent (±1.5%) from April 2008 and motor vehicle and parts dealers sales were down 20.7 percent (±2.3%) from last year.

I had stated previously that market had running too fast and too furious, with the expectation of economy recovering by end of the year. US April Retail Sales report serves as good reminder that US economy still in the contraction! As long as the unemployment rate is not reducing, together with bleak outlook expectation, I am afraid that consumer is not going to spend more.

There is always a retracement after the market reach new heights. It is interesting to see whether the market break the support line today.

STI support line = 2133

KLSE support line = 993

Market Outlook

Dow Jones has successfully broken through 8100. It is very likely Dow going to test 8600 soon. 8600 will be a critical resistance point. The first break through is most likely to be retraced back. It is interesting to see how it settles down, either above or below 8600.

As i had stated previously, KLCI is going to test 1000 and indeed, it not only test it and break through successfully. Now, we shall see how KLCI settle down. A rally has started. Along the way, there will be some profit taking. Let’s see how it settles down and we can conclude which direction it heading to by end of the week.

For STI, the top-notch resistance has been broken through! Too fast and too furies! This is what I can say. STI has up >5% in one day. It is absolutely absurd and amazing in the same time. The high buying volume only means one thing to me, the traders is pushing up the price, to trap speculators and those who can’t resistance the temptation of GREED! Yes, indeed this is a significant breakthrough. STI has back to positive area this year. In this case, same as I had explained previously, it is important to see how it settles down and finding a foothold.

Amazing week started with some amazing thrust from all over the World stock market!

Dow testing 8100 again but fail to make a cut !!

DJI

It is very interesting to use Fibonacci tool to analyze the movement of stock index. Dow, again, unable to hold on early gain to successfully making a foot mark at above 8100.

The longer head tail of the candlestick suggests that profit taking and more sellers at upper end. Dow has trying several times to break through this 61.8% level (8100). However, it was not successful.

Next week, It goings to get more exciting, as any significant breakthrough will be signal another round of rally. Let us sit down relax and watch how the market unfold next week.

Looking Ahead: Bull or Bear??

KLSE

STI

Market has continuously defied the odd to hanging on, despite consecutive 2 weeks of over buy. This is what I called Sucker Rally! A very typical bear rally, which up more than 20% from the bottom we see at last month.

The traders are pumping up the price and supplying all the juices. Adrenalins are flowing, making the brain getting excited and ecstasy. Everyone is trying to jump into the market, as they fear that they may miss out the train. Let us use Fibonacci tool to make some analysis on Asia regional index to determine the market direction:

STI index has up more 25% for the past month. if we take 1950 as the peak and using Fibonacci Retracement analysis, STI is well supported at 1830 now. The last 2 candlestick pattern have showing consolidation has taking place. If STI drop below 1830, it will find support at 1760. May is the reporting month for many blue chips in STI. Any result which is not "WORST" than expected will send STI testing 1950 again!

Let us look at KLSE index. Absolutely amazing. The good news from M'sia government to abolish 30% Bumiputra Equity limit has helped lifting the market, despite we see Evening Star appear at Wednesday. It is more and more likely that KLSE going to test 1000 points now. However, 1000 points will prove to be a very strong resistance!