Dow & FTSE is Extremely Bearish

Both European and American markets are extremely bearish! Chart wise, both charts have broken below the lower flag line. If European policy makers remained directionless and it can send the market tank and the down trend shall continue.

What if MYR weaken further?

The title of this posting fits perfectly with my last question in the last posting. Currency direction provide a good indication of emerging market equity direction in time of economonic turbulence. HLIB did a good study on the correlation between MYR/USD and KLCI movement. As most of the 30-index stock are heavily owned by foreign hedge funds. Of course, we know that not all foreign funds are parked at equity market. For detailed analysis, please see attached.

As i cannot attached a pdf file here, please find it over the net.

Market Topping - Update

Malaysia being one of the free and open capital market in the world is susceptible to market volatility due to flow of foreign fund. As you can see, as the market started to moving up in Q3 2006, Ringgit started to strengthen against USD. Ringgit continue strengthening until end of Q3 2007 albeit KLCI peak in Jan 2008. The time lag was obviously due to the BNM intervening the currency market. KLCI down trend and strengthening of USD accelerated in Q2 2007 and peak in early 2008 coincide with KLCI bottom out.

KLCI uptrend rally begun in early 2008 and peak in July 2011, a good and fabulous 2 1/2 years bull run. This bull run has led to USD depreciated 20% against Ringgit. Well, i think the correct way to describe the scenario should be, foreign funds that aggressively bought up Ringgit to participate in local equity market has continuously pushed up KLCI to a new height adding about > 60% appreciation.

Now the USD appreciation has accelerated with a quick spike. So the next question is whether this spike is temporary or permanent. I will discuss this in the next posting.

Asian Market Topping Out

Have a look at the long term channel form over selected Asian Markets. There are data for 15 years and 25 years. These charts look extremely bearish. The down trend reversal has started and should continue for many months to come. Save our bullet now, revisi the market in 6 months time. Let see how low shall the market go.

Happy Mid Autumn Festival

BEAR Market

Pick up the The Edge Financial Daily today:
Front page: QE3 only a short term response
3rd page : Investor advised to wait and see
page 13th: Global slowdown silences Asia inflations hawks
page 16th : Uncertainty in global economy
page 17th : HK faces dilemma over peg to US dollar
page 17th : Europe's banks face funding problems
last page: Bursa likely to be bearish this week

Just reading the title, i guess it put you off already. If you are like me scanning through financial papers everyday, it is not difficult to sense the overall market sentiment in the coming weeks. Simple rule of thumb, more negative articles about the economy, more likely the sentiment turn soft. Back in 2008, you see negative news looming every morning you pick the news. Also please observe the movement of bad news in which page of the papers. From the above examples, bad news is dominated at the back of the papers probably, tell tale that so unacceptable bad news or next round of crisis in the making. Lets see from today, whether negative topic will start moving to the front pages.

Follow-up from last Thursday Dow, as predicted, Dow drift low resting just on above the lower trend line, so it is critical to see tonight whether this level could be sustained. If Dow break below the flag, it is significant that market down trend will continue. As the saying that market reaction is two quarters ahead real economy, we should expect some good real value-deal to emerge in 2012. USD negative growth could kick in as early as Q12012 assuming market first kicked in downturn happened in Q32011.

Observe the chart above. A down trend followed by a flag formation happened axactly one year ago. Down trend started in May 2010 and the flag was formed in the next two to three months. Market suprised everyone, moved higher instead of lower. Thanks to the the 2 QEs initiated by the FED. But this time round, will market be lucky for the second time? I guess you have asked whether the QEs has done any fundamental changes to world trade balance ie the West has to spend less while the East need to spend more. If the equation has remained the same, no matters what measures are taken are merely short term boost. So watch out for the higher the market climbed, the more painful of the next fall.

Trap

Dow is moving within the flag formation, expect the market to be quite until the next major news to be announced. So sit back and relax. The Chinese community will be celebrating the Mid Autumn Festival - also known as Lantern Festival. Enjoy this beautiful song from Faye Wong - Dan Yuan Ren Chang Jiu

Who is in control after the Truce?

The truce happend on 18 Aug 2011, where the dishonest Bear has taken the stage to attack by breaking the amicable arrangement. The Bull has fought back feriously gaining positive momentum until 2 Sep 2011 last Friday. The probably, the Bull feel betrayed and fought with strong spirit on loss shamefully or die of fighting. The results has shown that the Bull has been fought to his death...over exhausted and fought blind without applying and important strategy.

Now, the Bull has give up its defend. It has retreated almost half way in single day for the advancement made in the last two weeks. Significant sign of tireness and fatigue.

From techmical point of view, the Dow is making a flag. the flag appearence strengthen of the view of down trend continuation. This is a very potent signal. All needed is a day of two to break below 11,000 support level. the next level of new low will be in the making. MACD and RSI has pointed down. All factors is converging in the benefits of the Bear. It really worth betraying once in a while!!!

Lets take a look at local scene. Posted above is a weekly KLCI Chart. Market has been fell > 10% from the height achieved in July 2011. Typically, market observers will advice that any fall > 10% continuosly will lead to further falling in prices. The propencity to offload shall be still high. Malaysia has been reported lower GDP growth in Q2 2011 vs Q1 2011. Most of experts has indicated lower full year GDP growth despite BNM remain firm on its stand. The expectation of overall expert will continue to be priced in the market until Q1 2012 outlook is deemed positive.

So the next question is what will make Malaysia Q1 2012 outlook turn positive? Export? Obviouly is hopeless and Malaysia export is diminishing as a result of US and Europe imports are shrinking due their debts problem. Government spending? Also difficult as the Malaysia budget has been in deficit for the last ten years. If possible, the G will choose this route. Private spending? Yes this has been supporting the local economy since Global Economic Crisis in 2008 due to national high saving. Investment? Forget it, who is in the sound to put more investment in anticipation of slow down in economy couple with general election is just around the corner?

Is it really that bad, you may ask? i think yes if nothing changed. To me the only saving measure is the roll out succesful rolled out ETP. But who going to finance these project? Government? Obviously no with current high budget deficit. But no sure where you know the general public is rich? why do i say so? Look at the response on the high properties lauches. It was overwhelming? The demand is still strong with the anticipation of economic is slow down in the near future. Isn't it strange. Too me, there is only onc situation lead to this phenomenon, people too much money but do not know where to put them. Stock? big no from the 1997 and 2008 experiences. Another indication of general public is cash rich is the overwhelming responses when the PNB launched the Amanah Wawasan and other equallavent funds. People was queing up to subscribed. Its really out of mind.

Too me the projects under ETP has been identified, but mechanism is attracting the funds from general public is crucial. the implementaion and executive is important. It simpy means if projects under ETP are not carried out as planned, i m not sure where will the growth comes from and outlook for Q1 2012 will turn positive.