Tug of war - Bull vs. Bear Part 1

If you’re wondering why most of my posts concentrate mostly in US markets, the obvious answer is that the US is still the largest economy on Earth. And the reserve currency is the US dollar.

When they energise, high yield assets go north. When they fall sick, high yield assets go south. It is simple as that. That does not mean we should ignore China or Japan.

The DOW had been ranging between 12800 and 13000 for the past 2-3 weeks. The bulls will test the 13000 resistance. If they fail, you might see 12400 supports being tested. If they succeed, 13800 will be the next resistance before the ALL time high.

The Greek event is over. Where is the positive news coming from? As I see it, none at the moment.

However, It is evident that carry trades had been the support for this current ongoing bull trend. The VIX is reasonably low, the US dollar is fair below 80-81, Global interest rates are low, the Japanese Yen had been weaker and QE3 hopes are still very much alive from the price of Gold. US Operation Twist and Europe's LTRO are taking effect.

Don’t ignore carry trades. With global interest rates so low, the CB are making you invest otherwise your purchasing power will be eroded by inflation!

On the other hand, global PMI is seen weaker, GDP growth are weaker with some revising downwards, credit rating agencies on going credit watch and downgrades.

My reading is that markets would generally trend sideways until the next event. So don’t get too excited about it.

What’s coming in the near horizon? Check your economic calendar for PMI data and

·         US GDP data,

·         Europe’s LTRO,

·         Chinese PMI,

·         US NFP

·         UK and ECB MPM.

I could be wrong but one of this may trigger the next direction for high yield assets.

However, if you have a LONG term horizon, you could ignore the above because the major trend is still north. I do not foresee markets going lower than Mar 2009.

Updated Feb 24th. Great minds think alike. I am glad the following article took of where i ended. It's nice that they can elaborate on my above article. Strange enough that i chose the title - tug-of-war!!! http://www.cnbc.com/id/46483737

Is a market correction coming?

The Dow is being attack by household lizards at the 13000  level. But, that is as far as it can go - similar to household lizards which loiter just around the ceiling.

On the other side of the Atlantic, the Greek deal is done. It is history. There is no default (yet!). The can is just kicked further down the road.

I repeat, "The Greek deal is done". What’s next? What is the GDP and Baltic Dry Index (BDI) and Retail Sales telling me?

Sometime back in my earlier posts, I mentioned that global GDP is getting weaker in most countries. The number is still rising at an alarming rate (and I am concerned, are you?).  The latest update; 21 countries registered a negative QoQ growth namely,

·         The Euro area, UK, Germany, Spain, Italy; and

·         Taiwan, Indonesia, Singapore and Thailand (which registered the largest negative growth of -10.7% QoQ and -9% YoY).

While the BDI projected better PMI data back in Q4 2011, the latest BDI trend is projecting weak PMI or factory orders. Coincidentally, this week – the HSBC Flash PMI for China, the PMI readings for part of Europe had been weaker than consensus. Am I correct?

I will not go into details of how many indicators assist me to make decisions, but I would like to share the above with you. Hmmm, something is amiss! There seems to be one more data that is not within my radar. Can someone share/hint what could be 'the' trigger?

At end of Q2 2011, my indicators help me speculate global bear markets; at end of Q3 my indicators helped me to speculate bear market reversals.

My reading is that while the long term trend is very bullish, the short term trend would be met by a mild correction in the next 3-6 weeks. The above is just a speculation. I have done my sharing.

If you’re still invested, you should ride the waves as long as possible. However, you need to position yourself close to exits.

As of current, I had made three speculations on Market trends so far. The Market has proven me right TWO times. Will I get it right for the third time? Again, TIME will be the judge. What’s your opinion?

I really would like to hear from the audience, that is, if the above indicators mean anything to YOU.

On a separate matter, I had been receiving an awesome number of pageviews this month - probably a record exceeding 5000 before the month is up. Thank You.

Dow is being attack at 13000 after Greek package

(Posted Tuesday in Singapore, 1120 AM, UPDATED 0625PM )

The Dow and S&P is seen testing the resistance level of 13,000 (broken) and 1370 respectively - 3 points short! The US markets open higher, fell below the flatline and is seen testing the resistance level before lunch. Traders should follow the Dow theory before making a decision. Earlier in the day...

 

The much awaiting had been annouced (from CNBC first) after an extended meeting (The annoucement/meeting was delayed 6 1/2 hours!). The most important point is that there's NO default. Whether there is a rally is NOT that important.

Click CNBC for details.
Click Marketwatch for details.
Click Bloomberg for details.

The (release of the) news does NOT guarantee a market rally! Let's see how Asia, Europe and the US would react with this news in Equities, Forex and other high yield assets.

Asia/Pacific equity markets are mostly in the red with the exception of Oz, New Zealand, Thailand and Indonesia. Click here. One possible reason why the market may not be rallying, click here. Mumbai opens with a 0.3% gain. Asia Pacific markets closed mixed with S. Korea, Taiwan and Japan in the red.

Europe open mixed and traded in the red with an average of 0.5-1% losses for most of the day before closing.

The market reaction that follows depends on

• how markets HAD been building up prior to the European meeting,
• hopes and speculation of a 'done deal' and
• investors mindset following the release of the news.

The Euro is volatile! It touched and broke the day low upon the release of the news and subsequently tested and broke the high at 1.3290 resistance. At point of writing, the Euro and commodtiy currencies are in the red, also.

It looks like prior to the meeting, the markets were rallying on hopes which explains the rally last week. How long will this rally last? Once the deal (news) is done, the market is finding new source of information to look for the next trend.

It looks like, we'll just have to wait and see how the US reacts to the Greek package and show us the way for the next trend. Note: The US had not reacted to the Chinese RRR rate cut as they were close for President's Day. Last week's data on Retail Sales was very disappointing!

That'll be all for the day until the next event - Europe's 2nd LTRO scheduled Feb 29th 2012.

How long will this rally last?

(Posted on Monday 1am)

The US equity market or in any stock market, as usual, is ahead of the (US) economy. When US stock/indices start to rise in October 2011, the US data started to improve, right? Most of the US data had been pretty good so far, with the latest being, the Non Farm Payroll and Unemployment data.

With the exception for the Euro Zone; the US, BRIC, emerging markets, Asia reported

·         Better data namely PMI,

·         Monetary stimulus,

·         Corporate earnings beating expectations,

·         Lowering interest rates (in support for growth vs. Inflation).

And some of you probably know that the volatility index is at current at 20 thereabouts from readings as high as 45!

And what does the last two points encourage? That is, in an environment where interest rates are low and volatility is not high. It encourages carry trades.

If you’re not too familiar with the carry trade concept (please Google it, this point is VERY important). And the king of safe haven currencies is the Japanese Yen.

Did you notice what happen to the Japanese Yen and the US dollar lately? While most economists, fund houses are bewildered with the fact that the Japanese Yen is weakening against most major currencies (apart from the recent monetary stimulus), the obvious reason is; in a low volatility environment coupled with very low interest rates (for an extended period of time like the US until end of 2014) this encourages carry trade. That is borrowing from low yield assets and investing in higher yield assets like the Aussie, Kiwi, Loonie, commodities.  Similarly, high yield assets like stocks rise. Does this explain why the high yield assets (like commodity currencies) have strengthen? The Euro is NOT!

Hence, let’s get back to the subject matter of this post.

If you follow most, if not all of the above, you should follow closely to the volatility index, VIX! For e.g. One of the possible events that may cause the volatility index to rise/spike could be the events that are brewing in Europe; Greece and/or Portugal, etc. And when that happens, it is known as unwinding of carry trades. What happens thereafter is your imagination!

Finance ministers from all 17 euro-area countries meet in Brussels (Monday) as governments close in on a deal to unlock a 130 billion-euro aid package for Greece. Hence, my speculation is that volatility will be highly in suspense before the news!

News over the weekend - China cuts RRR by 50 basis point, effective Feb 24th, 2012 afterwhich a newsflash from Bloomberg on China. Japan to assist Europe solve the debt crisis thorugh the IMF. (Specifics are not out yet.)

And if some of you still don’t follow, please feel free to comment or ask questions. While the rest may understand the above, why not drop me a comment on the above analysis! And if you like the post,

·         (This had to be deleted) - apologies for the grave mistake on adverts.
·         forward the post to your friends 

·         Add (like) me, if you have not done so.

For the record, my posting since Jan 2012 had been very receptive with my last post, Investment planning, huh hitting ALL time record high page views. Thank you for visiting my blog for quality and timely posting.

Investment planning? Huh?

The above is all about planning with you.

Consideration for having an investment plan – In Singapore the Savings rate is currently 0.125% while inflation is at 5.5%. The problem will then be: erosion of purchasing power taking your wealth (if any) lower. If you agree, please read on.

Most people are afraid to lose money. The common reason is that they are so busy with their work/profession; they do not have time to monitor or understand markets. This would lead to losses during down market corrections or bear markets.

If you do not have time to monitor / understand markets, you have two choices;

• keep the money wherever it comes from and earn the (pathetic) interest/yield; is is definitely safe this way or
• seek referral for a trusted wealth planner (at a small professional fee); please read on.

Depending on your risk profile, time horizon and investment objectives, etc a strategy is drawn up for your approval (applying the Art of War principle).

Depending on my reading of financial markets coupled with on-going intermarket analysis, an on-going strategy is drawn up to accomplish your (realistic) investment objectives (goal) and a stretch goal.

A well defined client-planner relationship is established with well defined responsibilities of the client and the planner. While the client’s responsibility is to provide changes in personal profile and objectives, the planner’s duty is constant monitoring, updates (as in posting of my blogs) and pro-active ( & reactive) management of the client’s portfolio.

If all is fine, the strategy is drawn up with diversification and asset allocation specifications within the client’s risk profile and depending on the economy cycle. Communications are through emails and SMSs!

For the record, during the global financial crisis in 2008-2009, the Asset under Management does not exceed more than 6% of loss while some may even enjoy a 2% gain. As for Year 2011 the results are posted here.

As of current, the Asset Under Management had recuperated losses in year 2011 and depending on respective risk profiling; some are enjoying 2-10% of gain. (wow, isn't this fantastic; the secret (or no secret/no brainer) is discipline and startegies are defined to cut losses while preventing further erosion of your pricipal, hence a small lost is recuperated easily) It has been an extremely difficult fourteen (14) months. Fighting fire for 12 months and delivering some goals YTD.

I am exhausted! As the market will always be there the next business day, I will be taking a well defined break. Hence, whichever, the market will trend the following week, I will be taking a rest and be taking ALL the profit of the table. If you’re happy with your performance too, you may decide to move into bonds that provide regular income (dividends).

If you miss my post, don’t worry as I will still monitor the financial markets and continue blogging. Of course the major difference is that my responsibilities will be much lighter while enjoying a well defined break!

Happy Investing! By the way, the Greek situation may finally come to a close this weekend or probably (it is so common that datelines are postponed and postponed with the exception; planned riots do not get postponed) the can would be kick further again and again.

Retail Sales fail to deliver

(Posted in Singapore 730pm Tuesday)
(Updated in S'pore 0040am Wednesday)

Retail Sales data from the US failed to impress. It rose (0.4%) less than (0.7%) expected in January. Getting deep into the data, prior months (retail sales and ex auto data) were revised downwards!

On the other side of the Atlantic, Europe’s bond auction, results in strong auction demand with a good take up, coupled with improved yields. (The Euro is holding steady around 1.32 and the major indices are much above the flat line.) The auctions come from the Dutch, Spanish, Greece, Italy and Belgium.

In addition the German sentiment index, ZEW was up sharply at 5.4 from -21.6 in January vs. the median forecast of -12.0. Other European data was within range.

Should Retail Sales comes in stronger, the US major indices would spike through the psychological resistances at the open. Whatever happens (after) depend on further noises from Europe/Greece and reaction to Moody’s rating moves. Unfortunately, Retail Sales data for current and prior month  were NOT favorable.

Hence, the data tonight will be focus on Retail Sales. My speculation is based on the flow over of the Santa rally, January sales and very strong US NFP data and the Unemployment rate! While my speculation was also based on January data which was revised downwards, the US major indices were down 0.2% on average - the data was disappointing.

The clock is tiking, tick tick tick...had stopped!

Greece passes austerity package, so what?

(Posted Singapore Monday, 825 a.m.)

Avoid Greece if you’re travelling to Europe. That’s the not so good news. The other is that the Japan Q4 real GDP is -0.6 (-2.3% YOY), that is not much better off than consensus -0.4%. There’s another Asian country on a negative QoQ GDP growth!

So far, the good news is that the Greek Parliament had approved the new austerity bill.

At point of writing, the commodity currencies and the Euro is much higher than New York close pointing back to Risk ON! The All Ordinaries, Nikkei and Seoul composite is higher than last week closing on Friday.

Meanwhile, President Obama put forward his budget request to Congress tonight with Retail Sales, CPI and Industrial Production to look forward for the week. Whether the rally continues depends on the outcome of the data released and investors’ mindset on interpretation of the data.