Wednesday, October 24, 2012

Market Outlook as at October 24, 2012

DJIA had a big drop yesterday. That's because it has broken its intermediate uptrend line, SS at 13500 on last Friday. DJIA's strong support is at the horizontal lines at 12900 & 12800 and later at the longer term uptrend line, S1-S2 at 12700.

Chart 1: DJIA's daily chart as at Oct 23, 2012 (Source: Stockcharts)

Nasdaq has similarly broken its intermediate uptrend line, SS at 3050 last Friday. Its strong support is at the horizontal line cum uptrend line at 2950.

 Chart 2: Nasdaq's daily chart as at Oct 23, 2012 (Source: Stockcharts)

DAX may soon test its intermediate uptrend line, SS at 7050. If the uptrend line is violated, the next support is the horizontal line at 7000.

Chart 3; DAX's daily chart as at Oct 23, 2012 (Source: Stockcharts) 

Asian markets- like the US & European markets- have risen substantially in the past 4 months. It is interesting to note that some of the Asian markets had broken above their intermediate downtrend line in the past 3 months (July for BSE, August for STI & September for HSI). The only exception is SSEC but even that index has broken above its medium-term downtrend line. All in all, I see good potential for many Asian markets, possibly putting in a gain of 10-15% over the next 3-6 months.

Chart 4: BSE's daily chart as at Oct 23, 2012 (Source: Stockcharts)

Chart 5: HSI's daily chart as at Oct 23, 2012 (Source: Stockcharts) 

Chart 6: STI's daily chart as at Oct 23, 2012 (Source: Stockcharts)

Chart 7: SSEC's daily chart as at Oct 23, 2012 (Source: Stockcharts)

This observation is consistent with the positive outlook for our local stock market.


Anonymous said...

The 2012 structural bull market still has legs and will stretch into 2013. The world economies will bloom instead of doom. Is this your prediction too?

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Steven Lee said...

Hi Alex, may I know why there is a drop after hitting intermediate uptrend line@13500? Thank in advance, I'm a newbie in trading. :-)

Alex Lu said...

hi zhouyu44

I think the world economy will probably muddle through than bloom. The imbalances are too great. The 'rich' nations need to save in order to bring down their borrowing but they can't do that because it would cause their economies to come to a standstill. The Asian economies- developed & developing economies- need to spend & save less but they won't do that because they learned their lessons in 1998.

The rich nations will try to inflate their way out of their problem. Inflation will reduce the value of debts as well as cash reserves. The excess liquidity, meant to stimulate their economies, would instead find their way to the global assets market; thus driving up the value of all kinds of assets. This was the observation of many pundits, including Dr Doom who commented about the crazy assets appreciation in 2007-2008, where bonds, commodities, realty & equity appreciated concurrently. This time around, the flood of liquidity will be even greater and I fear that we will see bubble everywhere.

On that score, one can argue that the global economy should boom. Well, yes and no. The euphoria should be good for consumer confidence and that should translate to higher spending & drive up some investment. But the reality is that there had been massive investment in capacity over the past 5-10 years. There is also massive increase in human resources at the same time, which came from hundreds of millions of people joining the workforce in developing nations. All these resources are unemployed and underutilized.

In the past 10 years, the lower income group spent on consumption using credit. They are now up to their nose with debts. They can't spend any more and this will lead to a reduction in consumption. With underutilized capacity, there will be little incentive to invest in additional capacity. This will lead to a huge shortfall in demand. The world must agree on an intelligent way of using the available capacity- building or rebuilding infrastructure, fighting disease in poor countries, etc.

That's the challenge the world faces today. In that search, I believe we will find answer to the following questions:
1. Is free enterprise the best way for economic management?
2. Should central bank continue to circumvent the operation of economic cycle?
3. Should we continuously reduce tax on the rich & leave the poor to fend for themselves?

Some of these economic questions have serious social implications and we must find a way to discuss & debate them and make the necessary changes in order to build a fairer & kinder society. Our children deserve nothing less.

Alex Lu said...

Hi Steven Lee

Why there is a drop after hitting intermediate uptrend line@13500? I know you like to know the underlying reason why that support failed. The truth is I don't know exactly why that happened. I can guess as well as anyone out there. I merely accept that the bulls were overcome by the bears and the reasons will find their way to public knowledge sooner or later. By then, we probably don't care to read about it.