From Chart 1 below, we can see that the 50-day SMA line has crossed below the 200-day SMA line for both DJIA & S&P500 in June. This negative signal, which is called the death cross, did not lead to a bear market for US stocks but instead was followed by a sharp rally in June & July. Now, the 100-day SMA line looks set to take a stab at the 200-day SMA line. How would another negative crossover impact the market?
Chart 1: DJIA & S&P500 daily chart up to August 23, 2010 (source: Stockcharts.com)
To answer the above question, let's look at Chart 2 below. We can see that DJIA & S&P500 made a top in 2007 & the confirmation of that top is attained when both the 50 & 100-day SMA lines had crossed below the 200-day SMA line in December 2007 & January 2008.
Chart 2: DJIA & S&P500 daily chart up to June 30, 2008 (source: Stockcharts.com)
Whether you buy the bearish implication of a confirmed Hindenburg Omen or not, you must take cognizance of the danger presented by the twin crossing of the 200-day SAM line by the 50 & 100-day SMA lines. If the 100-day SMA line were to cross below the 200-day line, then the US stock markets may have a confirmed top. What follows after a top is usually a bear market.
12 comments:
Hello Alex,
I have following your write up for sometimes. It have been very informative, thank you very much.
I was thinking if US market did went down sharply according to the Omen theory, how severe would this affect out market?
Hi Alex
I also note that FBM KLCI is moving a same pattern like KLCI index back to 2007. During 2007 to early of 2008 KLCI index dip two time before hits top on 1,500 level. After that US sub prime crisis come in KLCI dip below 900 level in about 10 months.
Now FBM KLCI also dip two time and after the second dip the index is rally up strongly same like what happen at early of 2008.
Yap FBM KLCI is only base on 30 share and KLCI index during 2007 is base on 100 share but I think is any bad news flow out from US or Euro, FBM KLCI will dip again like what happen 2 years ago.
hi alex,
notice that recent results from property counters were really great. however, TAGB didn't move a lot. what do you think about this counter?
thanks
maxwealth88
why the mkt index always up in the closing period , any indication or motive of the fund manager ?
Our second and third liners have already making low several months ago. Our market uptrend is supported by a few heavy weights. The active players are EPF and local GLC linked funds. Look unsustainable after crossing 1400.
Hi jimmy
Good to hear from you. I believe global risk assets are very closely correlated, especially if they are in the same asset class, such as equity. As such, a 10%-drop in US market would likely be followed by a 10%-drop here. The second matter to consider is whether the US markets have peaked. If so, has our market peaked as well?
Too many people are getting into the market now & talk about long-term investment. The present market should be rightfully treated as a trading market. Much of the meat has been consumed, leaving only sinew & bone for the latecomers. This makes for a highly unfavorable reward-to-risk proposition for investors but yet we see people rushing in where angels dare not dread.
Hi Durian Edge
Your take on FBM-KLCI is fairly similar to mine. If it drops below the psychological 1400, that's a first warning. If it drops below 1370- the high recorded on August 3- you should put on your running shoes & get ready to sprint.
Hi MaxWealth88
Good observation. However you may note that TAGB's results is nothing to shout about. Its EPS for QE30/4/2010 was only 0.39 sen. On an annualized basis, it is trading at a PER of 25 times. Things may change with the launch of its Damansara Avenue project along the LDP. We will wait & see.
Hi kian
On the subject of the index going up at the close of the day, I think your guess is as good as mine. Some stocks are "taken care" by funds managers while others more speculative stocks are "looked after" by syndicate pools. A good close would keep your customers & bosses happy in the case of the funds, while for the speculative stocks the need to satisfy the bankers on funding margin as well as to keep your patsies happy & glue to your stocks. There are as many reasons to keep a share price higher in a bullish market as there are reasons to depress the price in a bearish market. Bursa has tried to stem out such manipulation but it's a fight that hard to win.
Hi Alex
Would you mind comment on kfima. These stock has been on uptrend recently. Is these rally will continue? based on its subsidiary fimacorp financial result, kfima is likely record super result as well cum dividend of 5sen
Hi Sky Quest
I agree with your observation that the FBM-KLCI is supported by a few heavy weights.
Selectively, second and third liners are being played up. This rotational play can end abruptly if the market takes a fall.
My radar was switched on when I saw the newly listed IPOs rallying over the past few days. To me, that looks like the fat lady singing. We will have to wait & see.
Hi hng
Your comment noted. KFima is in an uptrend line with support at RM1.13. The horizontal line is also at that price. If the stock can stay above that price, you should hold onto the stock.
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