Friday, May 28, 2004
Just as expected, the market got oversold, consolidated into a narrow trading range, and then just as everyone was getting tired and despondent, the market crept back up slowly and gingerly before taking off in a major way on Tuesday.
Bulls are afraid the rally might not last despite a correcting oil price. But it is not over yet. It is likely that we will close the week higher, move back a little to conslidate recent gains, and then stage another rally attempt. All in all, one should not short the market at this stage. The trend is clearly up. Should the S&P clear 1123, the first major resistance will be at 1133, followed by 1140.
We still have two more weeks until mid June, and the rally should last at least till then. In mid to end June, major indicators such as the 30-day moving average of the advance-decline line will start to turn down. End June also holds important events like the Fed meeting to decide short term interest rates, as well as the Iraq handover. I can forsee these volatile economic and political events shaking the market's confidence yet again, just when technical indicators reach maximum overbought readings.
So enjoy the rally for the next two weeks while it lasts. Because after that, we might see fireworks to the downside yet again.
Bulls are afraid the rally might not last despite a correcting oil price. But it is not over yet. It is likely that we will close the week higher, move back a little to conslidate recent gains, and then stage another rally attempt. All in all, one should not short the market at this stage. The trend is clearly up. Should the S&P clear 1123, the first major resistance will be at 1133, followed by 1140.
We still have two more weeks until mid June, and the rally should last at least till then. In mid to end June, major indicators such as the 30-day moving average of the advance-decline line will start to turn down. End June also holds important events like the Fed meeting to decide short term interest rates, as well as the Iraq handover. I can forsee these volatile economic and political events shaking the market's confidence yet again, just when technical indicators reach maximum overbought readings.
So enjoy the rally for the next two weeks while it lasts. Because after that, we might see fireworks to the downside yet again.
Monday, May 24, 2004
General View:
As the last of the tax refunds work their way through the US system, we should see the effects of stimulus wane. So far, this recovery has been generated by the US consumer who has refinanced his mortgages on multi-decade low interest rates. Asia still has yet to generate autonomous domestic demand, and lacking this source of consumption, Asia would be particularly vulnerable if and when the US consumer slows down his excessive credit binge. With interest rates set to rise in the US, an expected cooling down of China, continued geopolitical tensions in the middle East as well as a rising oil price possibility hurting Asian economies, the precariousness of a US-centric growth dynamic would call the sustainability of the global rebound into question. A lopsided global economy is in serious need to rebalancing, and until that happens possibly years later, I remain cautious long term.
Equities:
I am of the view that we could see a short-term rally in global equities lasting for a couple of weeks to a month. Longer term is bearish, and I firmly believe that the late January tops will not be breached. A "nowhere-to-run-nowhere-to-hide" investment would include Europe, Asia and overweight Malaysia, India, UK.
Bonds / Fixed-income:
It is undoubtedly a rising interest rate environment in the US, and that would imply all kinds of US bonds are to be avoided. Based on an anticipated continued decline in the US dollar, I would prefer investment grade European and Asian bonds, and continue to avoid speculative grade bonds because of the uncertainty of the global economic rebound which has so far been US-centric. Long term, I would prefer bonds denominated in strong currencies of countries that have shown they follow a course of economic prudence --- this would include UK, Australia, and ... you guessed it, Singapore.
Precious Metals:
I am increasingly convinced that gold and silver have reached an interim bottom and are expected to rebound. Technically, indicators such as the MACD are cutting up, with the histogram already in positive territory and rising. The stochastic oscillator is showing a positive divergence, with the price making a lower low in May but the oscillator instead making a higher low. For gold, there is still a chance that a decline in the future may take it down to the "double-top" target of US$350 per ounce (which is also the 50% retracement from its interim high of $430 and its all-time low of $270). although right now I would take the upside. Be careful.
As the last of the tax refunds work their way through the US system, we should see the effects of stimulus wane. So far, this recovery has been generated by the US consumer who has refinanced his mortgages on multi-decade low interest rates. Asia still has yet to generate autonomous domestic demand, and lacking this source of consumption, Asia would be particularly vulnerable if and when the US consumer slows down his excessive credit binge. With interest rates set to rise in the US, an expected cooling down of China, continued geopolitical tensions in the middle East as well as a rising oil price possibility hurting Asian economies, the precariousness of a US-centric growth dynamic would call the sustainability of the global rebound into question. A lopsided global economy is in serious need to rebalancing, and until that happens possibly years later, I remain cautious long term.
Equities:
I am of the view that we could see a short-term rally in global equities lasting for a couple of weeks to a month. Longer term is bearish, and I firmly believe that the late January tops will not be breached. A "nowhere-to-run-nowhere-to-hide" investment would include Europe, Asia and overweight Malaysia, India, UK.
Bonds / Fixed-income:
It is undoubtedly a rising interest rate environment in the US, and that would imply all kinds of US bonds are to be avoided. Based on an anticipated continued decline in the US dollar, I would prefer investment grade European and Asian bonds, and continue to avoid speculative grade bonds because of the uncertainty of the global economic rebound which has so far been US-centric. Long term, I would prefer bonds denominated in strong currencies of countries that have shown they follow a course of economic prudence --- this would include UK, Australia, and ... you guessed it, Singapore.
Precious Metals:
I am increasingly convinced that gold and silver have reached an interim bottom and are expected to rebound. Technically, indicators such as the MACD are cutting up, with the histogram already in positive territory and rising. The stochastic oscillator is showing a positive divergence, with the price making a lower low in May but the oscillator instead making a higher low. For gold, there is still a chance that a decline in the future may take it down to the "double-top" target of US$350 per ounce (which is also the 50% retracement from its interim high of $430 and its all-time low of $270). although right now I would take the upside. Be careful.
