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Monday, January 27, 2014

Market Outlook as at January 27, 2014

A report in The Globe & Mail read:
The selloff (in the emerging market) underscores fears that the U.S. Federal Reserve’s decision to taper its bond purchases may take a heavy toll on the developing world, as U.S. interest rates begin the long climb back to normal levels. With emerging nations looking more risky by the day, higher U.S. rates will act as a magnet for global capital. (here)
So, are we seeing another round of emerging market selloff due to Fed's tapering?

If there is something we learned from the Euro crisis of 2011 is that when the crisis comes around again, the reactions of the players tend to be more subdued. Yes, they would run for cover but they would quickly jump back into the market because they expect the market to come back and the authority to step in to stop the downward spiral. So if we are another "tapering" selloff, then we can expect the selloff to be well-absorbed and a recovery to kick in after a week or two. Similarly, if the selloff is part & parcel of the risk-off trades, then we can take comfort that they are self-correcting in nature and the markets will come back.

If we look at the US markets, we can see that the current rally dates back to 2009. This rally is 5 years old. The previous rally that lasted 5 years was the 2003-2007 rally. We may not be at the verge of a 2008 selloff but we are sitting on plenty of profit. More than that, the market is too one-sided. We learned that if the last bull has gotten into the market, then the bears will have their days. Thus, the sharp 318-point drop in DJIA last Friday shouldn't be a surprise.

 
Chart 1: DJIA's monthly chart from 1900-November 2013 (Source: Stockcharts.com)

 
Chart 2: DJIA's weekly chart as at Jan 24, 2014 (Source: Stockcharts.com)

Meanwhile, in Malaysia we are seeing weakness in our RM. The USD-RM is pressing against the 3.35 mark. Can this level hold up? A breakout above this level would add to the inflationary pressure that is taking a life of its own.


Chart 3: USD-RM's weekly chart as at Jan 24, 2014 (Source: Yahoo Finance)

The FBMKLCI broke below the psychological 1800 mark this morning. All is not lost. The long-term uptrend line support is 1770. However, it is hard to be bullish when global equities are in turmoil.


Chart 4; FBMKLCI's weekly chart as at Jan 24, 2014 (Source:Interachart,com)

I hope some stability will return to the equity & currency market soon. It is hard to welcome the lunar new year when the news is blanketed by negative reports.

11 comments:

newbie said...

Hi,Alex.Don't worry too much about the market.You have already done your part in providing us readers with guidance.Enjoy the lunar new year and also the holidays.The market's gonna fluctuate irrespective of what happens.Have a happy year of the horse and thanks for the wonderful postings,irrespective of good or bad times.

lai said...

the employment of HF trading and some AI sh*t causes tremendous volatility.

but then again, the shark will have its day when the blood is everywhere.

Maybe, he just need to be contended that the blood is less than usual.

lai said...

Hi Alex,

Despite the current market condition, one stock that defies the trend is Maica.

Would appreciate your view on this.

Thank you.

fucai said...

gong xi fa cai

Alex Lu said...

Hi lai,

As Sherlock Holmes was prone to remark, "The game is on!" You may wonder, "What game?"

The same game as played by Ecoworld. The steps are:
1. Create your own currency (your stock is your currency)
2. Inflate your currency
3. Maintain your currency at the elevated level (to gain acceptance)
3. Use your currency to buy your intended assets (parcels of land in choice location)

The winners will be:
1. The initial batch of shareholders as their original shares would have appreciated in value.
2. The company as it would have more assets in its book as well as large capital base.
3. The first movers who joined the scheme by exchanging their land for shares valued at x.

The losers will be:
1. The latecomers who joined the scheme by exchanging their land for shares valued at > x.
2. Latecomers who bought into the shares at high prices before the trend reversed.

This could be the logic behind the play in Maica where the takeover price is only RM0.85 while the market price is now at RM1.25. See link below.

However, be careful! Not everyone can be a Liew Kee Sin. His name preceded him and there is a premium to any property stock linked to him. Ter & Sunsuria may or may not make the cut. We will see.

http://www.bursamalaysia.com/market/listed-companies/company-announcements/1522945

Alex Lu said...

Hi lai,

FYI, the support & resistance for Maica are RM1.00 & RM1.50.

Jim said...

Hi Alex,

Can you comment on Redtone?
Thanks.

lai said...

Thanks Alex for the valuable input.

Gong Xi Fa Chai to you.

Ivan said...

Dear Alex,

I would also like to take this opportunity to wish you a very Happy Chinese New Year.

May this new Horse year brings you and family lots of wealth, health and prosperity.

~GONG XI FA CAI~

Alex Lu said...

Hi Jim

Redtone's long-term uptrend line is still intact. The support from that line would be at RM0.57-0.58.

Jason Yap said...

Hi Alex, thanks for the thoughtful analysis. How's WCT outlook in 2014?