Tug of war - Bull vs. Bear Ends. Financial market plunges. What's next

The above article commenced mid February with Part 2 in March and Part 3 in April. My benchmark for the tug of war list of events is the DJI ranging from 12800 to 13000. I had picked the above title, then, is because my speculation was that market would trend sideways until the next key events.

The DJI did not reach 13800 which is my technical resistance. The technical support was 12,400 which were breached last week. This demonstrates the risk-reward that was not favourable where market prices IS too high.

In Part 3, I speculated that the market would undergo a correction which you all probably know the answer by now.

Last week, DJI closed below 12,400 together with S&P500 and Nasdaq closing down for the week back to back. Hence, the tug of war or range trading had ended. Leading to the correction were the following list of events:

·         GDP were weak then

·         Currencies were lower (not USD) signalling higher inflation

·         Trade figures were generally weak

·         PMI were generally weak

·         China data continues to be of concern

·         Europe is a primary concern – Greece, Spain, etc

·         US GDP and nonfarm payrolls were weak (not an exhaust list)

·         Adding more insult to the market correction.

The above signals weak growth, higher inflation. This leads to my concern. Aren’t Central Bank and governments in a dilemma again? Monetary policies? Pardon my language – Screwed and f!@#$d??

However, having provided all the bad news.... here comes my technical reading.

Technically, RSI and various indicators signal ‘oversold’ levels. The big boys, fund houses may have program buying at key technical support levels. Hence, there’s a strong possibility the market would take a short breather from these oversold positions.

Following which markets may rally depend on the rebound or if short covering is triggered. We’ll cross this bridge at the appropriate time.

Carry trades

The global sentiment is risk-off. Volatility is high. This leads to unwinding of carry trades in currencies. Hence, safe haven currencies are sought after. The Yen and US dollar rises. Other currencies including commodity currencies weaken. This leads to a fall in commodities – mining, agriculture, etc.

Fundamentally, economic data are weak. There are global growth concerns. And without any geopolitical situation in the Middle East, Oil prices fall. That’s the good news!

Gold. The previous posts ended with Gold testing US 1790. The demand and supply would be determined by QE3 and the US dollar instead of safe heaven. With NO QE3 in sight then. I mentioned fat hope. As expected Gold plummeted to my mentioned support of US$ 1530 thereabouts, did anyone catch the price there? With NO QE3 in sight and if Gold would extend the rally, then I suggest you review your bargain hunting strategy in your investment portfolio.

At the moment, do NOT go all out and buy whatever your reasons is cheap PER, low RSI, etc but simply follow your simple strategy on entry points coupled with a determined discipline to cut losses. Dollar cost averaging will be strongly recommended for a 6-12 months time horizon.

On a separate matter...

Properties. This is probably your biggest and longest investment. Most, if not all would take the longest tenure. Here’s the problem most of you do not see. You’ll be paying the biggest loan and let the bank earn your money. Your principal gets lowered very very slowly. But, while interest rates are low, it is favoured to take the shortest term and lowest loan.  Your interest gets paid more and your principal gets reduced faster. If you chose the former, most of you will be in a BIG financial problem when housing loan rates accelerate to 2-3% and higher. More cash would be paid, affecting your cash flow and liquidity. Review your refinancing loan to avoid this very probable disaster you ever make.

The main point here is future afforability. Do not be blinded by low interest rates. Do NOT stretch your loan. It's ONLY a short term benefit. On the flip side of the coin you should take the opportunity of paying less interest at a shorter tenure with the lowest loan! Anyone disagrees with this point?

Tug of war - Bull vs. Bear Part 3

Here comes the correction! If you had followed my post, I seriously hope you didn’t buy HIGH and (later) SELL low with fear being the current sentiment.

Since my last post in early March, the title post remains the same, ‘Tug of war’, meaning I called for markets to trend sideways. My speculation then was that the equity market would not have any more energy or the catalysts to proceed further north.

The title post is the same, with the exception it is part 3! It is still finding direction and definitely not the finale!

Let’s look back with hindsight. If you had tried to chase the market after mid Feb, the risk reward, by calculation would not be attractive at all. By buying ‘very’ high (which I WARNED) there will be more worries and no excitement at all.

Since mid Feb, markets eked higher but corrected when the Fed Chairman made no mention of QE3. And when the sentiment was bearish enough ‘helicopter’ Ben hinted that QE3 is not off the table. Markets reached out higher where it gave the sentiment that the rally had resumed.

Enough act from America I think. Here comes the next scene but from across the Atlantic. It’s no longer Greece but Spain. Spain bond auctions were not well received. Risk off was the then sentiment. China PMI releases and weak data made the puzzle more interesting.

The story goes on and on, up and down, weak and good, etc with the last straw – weak data release where US nonfarm payroll – released on a ‘Good’ Friday where most markets were closed. ‘No horse run’ is my best bet where most investors could not exit.

If that doesn’t hurt sentiment US Equities saw further heavy selling as, across the Atlantic, European sovereign debt worries moved back into the forefront. Selling of peripheral debt caused the Italian and Spanish 10-yr yields to spike.

Markets had been playing investors like a yo-yo. (I am the spectator.) Fortunately, if you followed my post you would not have been a victim. The yo-yo is still-in-play and calculated events would determine the ‘buy’ entry.

US markets had closed badly with an average lost of 1.7% bringing the Dow and S&P 500 back to 12,715 and 1358 respectively. The market made a turn and came back where it was where I last posted! My speculation is that the US markets will pass the baton to Asia then to Europe. Earnings season should dictate henceforth.

Alcoa, a Dow component triggers earning season by beating estimates after the bell.

The BLOG post that precedes the headlines
ONE step Ahead

Buy HIGH sell LOW, Huh?

A sea of red from Asia, UK, Europe and to the US....

It was just only a week ago where most, if not everyone were so excited with the global market rally.

The US major indexes were testing the resistance;

·         Dow Jones Industrial was at 13000

·         S&P 500 was at 1370 and

·         Nasdaq was at 3000.

(Did you read my post on Feb 7^th – Did you know? The BDI theory and four weeks henceforth....)

Similarly, emerging markets, BRIC, Europe, and Asia Pac were extending their weekly gains.

Newspapers, financial magazines, online financial providers were teasing the audience (especially those who missed the January rally – Tug of War – Part 1).

As you all probably know, I exited in mid February – safe and sound with a handsome profit.

The big boys, fund managers, big fund houses were also keen to take profit. However, to take profit they need to sell. That’s a very good point.

(Tug of war – Part 2, the direction the market was heading was unfolded. I was being polite by telling the audience, not to be a ‘sucker’!)

They want to sell but who is going to buy? The fund managers, fund houses, big boys bought low in Oct/Nov and they want to sell high at around late February. Yes, you guess right. Those who missed the boat, etc might just be the buyers; the big fund managers, fund houses want to sell.

The news acted as the middle-man (putting a carrot for the greedy and the ignorant).

Imo, once the ‘quota’ is achieved, Murphy’s Law will step in. You may just watch how the US markets will open tonight in the next 30 minutes.

My important point for the above post is that Be very careful on news that you read – you may just be the substitute the market is looking for.


Updated 11pm, Singapore time. Note that the current low is 12,800. If DJI closes below 12,800, the next support level would be 12,300-12400 level.

My next strategy:

While investors may start to fear, I would be watching very closely when this correction would end and planning my next few entry points.

The BLOG post that precedes the headlines
ONE step Ahead

Tug of war - Bull vs. Bear Part 2

A similar post was published last week on Feb 23^rd. Since then, there were a lot of happening in Asia and on both sides of the Atlantic.

As you probably know, Europe was overwhelmed with their 2^nd LTRO, US had a better revised GDP estimate, expansion in Manufacturing data from Asia to US and Bernanke’s testimonial. There were lots of volatility with the commodity currencies strengthening; the Euro weakening, Gold and Silver plunged! The price of Crude Oil rose from an Iranian report of an Oil pipeline explosion in Saudi Arabia.

How exciting? Let’s see where the Dow Jones, S&P and NASDAQ closed off for the month of February?

Hmmm! It seems like all the 3 major indexes had tested the resistance. Well, today is Friday and it would be interesting to note how the major indexes would close for the week. But on the whole, the activities is still displaying that there’s still a tug of war between the bulls and the bears. The indexes are still range bound. Huh? How boring? Tempted to go in?

I had received many emails and queries. Should we chase the market? Can we buy now? Now we all know;

BUY low and SELL high.

Isn’t this a very simple logic? What’s my point?

The levels we are seeing today for the Dow and S&P was last experienced in 2008, the Nasdaq is at 2002. We also know that the bottom was somewhere in March 2009. Hence, we’ve reached back to the levels of 2002 and 2008. What does the level of US index tells you???

Are the current levels at the high or the lows (of this trading range)?

Are you going to take profit or wait for more profit? Risk-reward?

Are you taking on more buys or adding new position?

We all know that we should buy LOW and sell HIGH. If you were to buy know, are you buying at the low or high?

What is the risk reward for accumulating new buys here or if you were to take profit here?

I hope I made myself CLEAR. You are the decision maker!

If you find this post informative, please do not hesitate to forward this to someone who might agree with this line of reasoning. Thanks in advance!

Focus for Feb 29th 2012

In my previous post, US Consumer confidence is high, what’s next? The focus was on US confidence data and oil prices. However, the focus for Feb 29^th was different.

Amidst the news released for Europe’s 2^nd LTRO, US GDP 2^nd estimate of 3%, better Chicago PMI data, am I correct to say you would expect that the US indexes would have surge north? Not so fast!

At point of writing and after Fed Reserve Chairman’s testimony to Congress, my opinion is that the speculation for another round of quantitative easing to stimulate growth was seen easing. This is the focus. And the US dollar strengthens.

As previously mentioned, the obvious primary beneficiary to additional QE is gold. And I was not surprised that Gold plummeted by 4.29% or US$ 76 to US$ 1711.70 at point of writing.

Unless the yellow metal changes its characteristics, and as long as QE is not on the table, I doubt there will be a rally in Gold amidst the speculation of most Gold Gurus; US$ 2000 and above. I would say FAT hope for the time being. I would stay away for the time being.

Black Gold as they were to call oil in the good old days also lost about 1% to US$ 104.90 thereabouts as a result of a stronger US dollar.

For the benefit of new audience, Gold had rallied back from US$ 1500 thereabouts to a current high of US$ 1790 as a result of hopes and expectation that the US Fed would provide additional monetary stimulus. While QE was on the table, the US economy got stronger and stronger. Gold got stronger as hopes for QE was still very high! But when the Fed Chairman did not hint any QE in his testimony tonight, the obvious had to occur.

I am not sure how the US indexes would end tonight but at least there’s some growth recorded for the month of February.

Tomorrow is a new day and the highlights for Asia would focus on China’s PMI and Fed Ben Bernanke (2^nd day) testimony to the Senate Banking Committee.

US Consumer confidence is high, what’s next?

As you probably know, the US indexes closed ABOVE psychological resistance last night.

The Dow closed at 13005.10; S&P500 closes 1372.18 while the NASDAQ closed 2986.76.

There were 3 economic data released last night;

·         Durable orders at -4.0% vs. -1.4% expected; Durable Orders ex Transportation at -3.2% vs. 0.2% expected. This is very negative

·         Case Shiller 20 city index at -4.0% vs. -3.6% expected. Another weak data.

·         Consumer confidence at 70.8 vs. 62.5.

And the market (preferably) focused on the Consumer confidence data, overshadowing (ignoring) the weak housing and durable orders data!

Huh?? With a strong showing of consumer confidence that leads to global growth and hence global demand for crude oil, oil prices experienced a sharp drop. Huh?? Imo, the oil traders (having a different mindset/analysis) were focusing on durable orders rather than consumer confidence??? It is their analysis, not ours.

In conclusion, the US markets closed on a very positive note as a result of favourable US confidence data and a drop in oil prices (while ignoring the weak data???). What if the US data were strong and the US consumer confidence were weak? Would the US market rise or fall?

Penny for your thoughts; The above shows that the market is exceptionally bullish. The market is ignoring ALL kinds of noises and focuses on favourable data. (Hence explains why I include global investors’ mindset to technical and fundamental analysis.) This could also mean that while today being Feb 29^th, the GDP data, Europe’s 2^nd LTRO, etc the market’s mindset could either head further north or trigger a sell to book profits

What would I do? The very fact is the market is very bullish. There is a lot of uncertainty this week with data coming from US, Europe, China and Japan. Uncertainty is we do NOT know what data is to be announced and how investor’s mindset will react as a result of the data. I would prefer NOT to gamble with uncertainty this time and stay on the sidelines.


Latest update: Wall Street will be listening closely to Federal Reserve Chairman Ben Bernanke over the next two days for any signs of distancing himself from the central bank’s pledge to keep rates at ultra-low levels for up to three years. Bernanke is testifying Wednesday in front of the House Financial Services Committee and Thursday in front of the Senate Banking Committee as part of his semi-annual report to Congress on monetary policy.

Another WTF happening, Feb 29th 2012

If you’re invested, you should take note of Feb 29^th. It’s a Wednesday. It’s also the end of month, lots of volatility due to month end closing. Thursday is the beginning of a new month where real money tends to come in. And Friday is the end of week.

In addition to the above, Feb 29^th has important US data namely US GDP 2^nd estimate, Chicago PMI, and the Fed Beige Book. All of which may lead to where March will trend. Across the Atlantic, the 2^nd tranche of LTRO is seen to be in the range of 500B-750B Euro (The first LTRO saved the EZ in Dec 2011).

With activities crowded on or after Feb 29^th, I would assume that markets will tend to be cautious prior WTF. Till then, household lizards will continue to test the DOW 13000 and S&P 1370 resistance. Whether they continue to attack the resistance levels depends on data and news of Feb 29^th.

HSBC had announced the flash PMI estimates of China earlier this week. China will announce their PMI data on March 1^st. Asia and Europe markets should take the cue from then onwards.

Though I have not posted any activities from Iran, I believe it’s time that our radar focuses on the activities there, too. As you probably know-hear/say of their Uranium program, energy prices had increased with a US$ 10-15 premium. Indirectly, this adds on to costs and had affected global growth.

The price of crude oil has risen from US$ 95 (to US$ 100) to the current US$ 105 (to US$ 108). This rise HAD dampened growth concerns in emerging markets like India and Indonesia. The hardest hit EM is Indonesia where the fall in the JKSE this week had wiped out the entire rally since Jan 2012. India had fallen 600 points from this year’s intraday high of 18,500.

On a separate matter, Insights had breached the 5000 pageview (this month) – a personal best and is nearing the 6000 pageview level. Again I would like to thank the audience for frequenting my posts. Please do not hesitate to forward/share my posts on reaching a larger audience. I sincerely hope that my timely posts and information assist you in making your investing decisions. THANK YOU.