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.

The Truce Broken!

Well, in merely a single day after peace was achieved, the Truce was broken! The Bear has violated the agreement by attacking furiously. Another down of 3.7% with a low of 4%. Asian market will follow suit. Further more, today is Friday, over-night holders will be languishing all thier holdings. So expect a blood shed market day. Those who has enter market should just leave and not looking at the market today, otherwise your blood pressure will go higher high! Hence, stock market is like roller coaster, it goes high and low in just second. So stay away, if your heart cant take it.

A Truce!

A Truce is defined as temporary stoppage of a war in which each side agrees with the other to suspend aggressive actions. Ceasefires may be declared as part of a formal treaty, but they have also been called as part of an informal understanding between opposing forces. An armistice is a formal agreement to end fighting.

Hah! based on the definition above, it is best describe the market situation yesterday. but bear in mind it is a TRUCE not ARMISTICE ie the bull and bear has not signed any treaty to stop fighting. Both side is merely take a rest to restocking preparing for the next warfare. You agree with me?

So who is the winner in round 1? Pretty obvious, the bulls! The fear in the bears would have been subdue a little, as speed of them throwing bullet wastefully out of fear came down. The bulls neither were able to march further as the they could sense that the bears have wake up and giving good fight, and hence the fear is retreating! with the balance of force now, how do you predict the what will happend in round 2!

As the propensity model suggest, equity market is where the highest % of wealth is kept in the world, should continue to move up, so long as the negative news flow is controlled properly. The study of macro economic factors are not meaningful anymore at the current century as we all already know that the most of the Developed Nation is in different forms of trouble. Hence in the world economic growth equation, so long as as the Developed Nations remain constant it will be big plus already. What i can see is, the market refuse to fully factor in economic bad shape of the US and Europe till blood is seen in streets. In short, investors are already aware of all the negative economic parameters, some how choose to ignore so long as they have not seen them with own pair of eyes and hear them with ears. Hence, so long as you controlled what investor see and hear, market is deem ok. After all, do you think the rich has a choice! Prices of commodity, gold, property (in Asia), agriculutural products or even antique have gone up so much in these couple of years, where else to put thier money.

Profit Taking

DJI shown some profit taking last night from the last three days on strong rebound. Obama administration should be working hard to contain the current short term positive rebound on sentiment in the market. I dont think there is any negative news to be released in the next two to three weeks. NO news means Good news generally thats how the market perceives. Plus points will be tell tale that QE3 is forth coming, then the 3rd dose of market steroid will be lift the market next level.

Cheers.

All Stars are Alligned?

As highlighted before last week, the market shack-up due to US credit rating downgrade give us a excellent trading opportunity. Posted above are 4 recent charts. DJI and and oil price has rebounded for the last three trading days. Sign of sentiment improvement. Gold price is in the verge of retreating, sign of money flowing back to equity in short term. VIX is also retreating confirms the change of trends. So geared up and get into the market so you wish at your own risk.

But bear in mind, this is just a short term opportunity. The overall global economy is gloomy. I cannot comprehend how could the rising the debt ceiling will solve the US's economic situation. Hence, the root cause is still not up-rooted instead getting deeper. Lets observe and get out of market before the market tank again. It can be weeks or months.

Happy Trading.

Local Scene - Update

Wow, KLCI has gone lower of last Friday low! So no action yet. Stay put and watch.

Local Scene

KLCI has presented a trading opportunity despite all criticism going around. KLCI show an divergence outlook during the Apr - July period. KLCI scored a new high in July but not RSI. Market tanked for three weeks already. Extreme Fear condition also give rise to oversold of equity in short term. The gap down hammer last Friday is interesting. A classical example of bull and bear is in a fight within a single day. As usual, the programmed sale is executed fast in the early trade, but the greedy side of market emerged so furious to load up from the low of market. As smart investors, you should buy only after the gap is closed. you should trade only when edge is on your side.

Global Recession 2012

Negative news has been going around the world for the last two weeks. Take a look at the US market. For the last two trading weeks, Dow has corrected more than 10% for its peak with extreme high volume only seen during the global recession 3 years ago. US economic problem is getting into cronic situation. well what is taking stage in the US is "EGO". If you screwed-up, confess and take the paint and move on. Instead of taking the boring and conventional move (ie to deleverage its debts be it public or private) the US had choosen to inject the half dead body with another dose of deadly steriod to extend it economic life without taking a back seat to rebuild its immunisation.

QE1 & QE2, possibly QE3....these are all short term measures to the economic health. But what choice does the US has? Do you are damn, dont you are damn. Just google the google the gobal recession 2012, i m sure thousand of listing. The follow through is mounting. Fear among investors is building up typically a 10% correction in major market. As market situation is always exaggerated by news spread sporadically. with the advent of internet technology, news spreads, whether rightly or wrongly even faster than light speed. the interesting is, during bad time, investor will only focus on the negative points, positive points are ignore. Hence, market could collapse faster than you think.

Besides VIX, another best measure of fear factor in the market is Gold price.

The Gold price has doubled since 3 years ago. Probably you are aware, investemnt communities do not believe in investing in gold as it does not produce income, worst is you need to incur cost to safe keep gold. Seriouly, i believe a lot of activities has been going around to promote gold and instead of the everlasting believe that US will continue to grow. Hence, gold price always has inverse relationship equity market. why would for the last three years both have direct relationship. Interesting. for me is simple, really money has gone in the gold, where as the excess money (ie money not earned from productive acitivities has gone in the world equity market). Equity market has been pushed up artificially. Investors are not worry after all, those money are free. Hence, printing more money is theoritically boost the economy in short term but you cant control where will the money goes to. As there was no real fundamental supporting the upsurge of equity market for the last three years, the equity market has an artificial market height. It will be disasterous fall when the equity buble is prick.

Hence put your money in where real money reside. A lot of people think that Asia is going through Real Estate bubble. It is a yes to a certain extend as the demand for property has suddenly surge while supply side take times. But atleast these are real money. How do i know those are real money? Well quick money will not be put in property as the turnaround time is long. So long as the US economy does not recover in real manner, the property bubble will continue to hold. The major pressumption is the young demographic population in emerging asia. Should there is correction in property market, it would be temporary in nature. Eventually, with the growing population with concentration of urbanisation, it is a pillar to the price surge in property market. Just compare the population in Tokyo, New York, London to Jakarta, Kuala Lumpur, Bangkok. There is tremendous opportunity.