Tuesday, August 07, 2012

Outlook for Major Equity Markets

Despite the gloomy prognosis for the global economy, most main indices have recovered quite substantially over the past two months. I have summarized the improvement in the major indices in the table below.

Table: Major Indices of Developed Economies as at August 6, 2012


1. The strongest recovery is seen in Singapore Straits Time Index, where 50, 100 & 200-day SMA lines have rising or hooked upward.
2. The next strongest indices are the US's DJIA & Nasdaq where the 100-day SMA line did not decline but merely dipped slightly. With the 50-day SMA line hooking up now, the 100-day SMA line should also hook up soon.
3. The weakest indices are CAC & HSI where the 200-day SMA line has just hooked up & the 100-day SMA lines are still declining.


Based on the above, the major equity markets in the developed economies are all showing signs of recovery. However, we should note that the intermediate downtrend line resistance for many indices (or, recent high in the case of DJIA) is not far away and this could cap the upward momentum for the next few weeks. If these indices can charge above their downtrend line, we should see further upside in the equity market. This upside breakout, if it happens, would probably coincide with the next round of quantitative easing by the US Fed.

Chart 1: DJIA's daily chart as at Aug 6, 2012 (Source: Stockcharts)

Chart 2: Nasdaq's daily chart as at Aug 6, 2012 (Source: Stockcharts)

 Chart 3: CAC's daily chart as at Aug 6, 2012 (Source: Stockcharts)

Chart 4: DAX's daily chart as at Aug 6, 2012 (Source: Stockcharts)

Chart 5: FTSE's daily chart as at Aug 6, 2012 (Source: Stockcharts)

Chart 5: HSI's daily chart as at Aug 6, 2012 (Source: Stockcharts)

Chart 6: STI's daily chart as at Aug 6, 2012 (Source: Stockcharts)

1 comment:

Mat Cendana said...

The mixed signals in the US about whether they are in a recession or improving - this will hold back any quantitative easing. Many economists there are against QE since they only produce temporary effects and had only benefited the capital markets. Bernanke would only dare to implement it when the economy is decidedly taking a turn for the worse.

Although there appears to be some progress in Europe, their fundamental problems are far from over. Their plans need the backing of Germany and many in that country are resenting having to sacrifice and suffer for the situations created by those profligate countries. even if Germany's government might be willing, there remains the highest court's decision next month on whether these bailouts are constitutional. These will come back soon to spook their markets again if the ECB is slow to act... again.

But our main focus is on BSKL, of course. I think we will have to undergo some correction - you should see that despite the gains in Europe, US and Asian markets at the end of last week and yesterday, BSKL's performance was mediocre. There are opportunities with selected counters but overall I think it's better to be cautious and not get in too deep.