Monday, February 08, 2010

US equity markets may have reached a temporary bottom

DJIA closed on Friday with a hammer, according to Japanese candlestick charting. What's a hammer? From Stockchart, we learn that a hammer is "(a) long lower shadow indicates that the Bears controlled the ball for part of the game, but lost control by the end and the Bulls made an impressive comeback" (here). "After a decline, the hammer's intraday low indicates that selling pressure remains. However, the strong close shows that buyers are starting to become active again. Further strength is required to provide bullish confirmation of this reversal pattern" (here). Based on these, we may conclude that DJIA & the other US stock markets may have reach a temporary bottom. If the buyers come into the market strongly in the next few sessions, we may see a decent rebound in the US markets & possibly in other global markets. It is still too early to conclude that the sell-down in global equity markets has ended, but at least we may see a welcome respite for the next few days (or maybe a week or two).

I have appended below the daily chart of DJIA & the intra-day charts for DJIA, S&P500 & Nasdaq Composite.


Chart 1: DJIA's daily chart as at 5/2/2010 (Source: Stockcharts.com)


Chart 2: DJIA, S&P500 & Nasdaq's intra-day chart as at 5/2/2010 (Source: Yahoo Finance)
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5 comments:

  1. MaxWealth88Monday, February 08, 2010 11:54:00 AM

    hi alex,

    what is your take on KNM? it's strange that today the counter drop although its MD wants to take it private.

    thanks
    mbge7clt

    ReplyDelete
  2. Alex LuMonday, February 08, 2010 2:49:00 PM

    Hi MaxWealth88,

    It is very strange! It's almost as if the market does not believe the offer is genuine or that the offerors have the means to pull it off. To some extent, it is a reflection of the bearishness in the market that investors do not want to take any risk at this point (however reasonable pr small) & seek out safehaven by closing off their long positions at all cost.

    ReplyDelete
  3. ButcherMonday, February 08, 2010 11:01:00 PM

    hi alex... i still hold knm for a hope of RM 0.90 at least. Do you think it is a wise decision? In my opinion if Knm doesnt go thru this privatisation, it shud be still worth around RM 0.8 or above. What do u think?

    Since US equity market seems to be likely to reach temporary bottm, i am planning to buy stock now.

    I am looking at octagon and it's warrant. The current price really attract me so much but i am concern about octagon's business future profit. I noticed that for last yr they had a massive loss although revenue remains high. Do u know why? They related to recycle business and i think there will be one day ppl will play this green/renewal energy theme?

    ReplyDelete
  4. Alex LuTuesday, February 09, 2010 9:03:00 AM

    Hi Butcher,

    I don't think the market will offer a price as high as RM0.90 for KNM. Under normal circumstances, a stock may trade as high as 95-96% of the price proffered under a privatization exercise. The buyers may be the party(ies) making the offer or they may be third party(ies) who want(s) to make a spread of 4-5% for a holding period of 3-4 months. However, the KNM offer is being made in an environment of bearish market condition. As such, the market price is much lower than what it's expected. You've mentioned that in the worst case scenario, you can always choose to go through with the privatization exercise where you shall get RM0.90 for your share. For your information, the offeror may cancel the offer if some conditions are not satisfied (eg. an unsatisfactory due diligence study).

    I posted that the US markets may have hit a temporary bottom on Feb 5, with the sighting of a 'hammer'. However, the market action yesterday failed to bear out this observation. Nevertheless, it's interesting to note that harami has been sighted in the charts of CAC, DAX & FTSE yesterday (Feb 8). These haramis are potentially bullish reversal signals since they appear after a decline.

    Finally, Octagon has been in a downtrend since making a high of RM2.72 in March 2004. Even in the past one year, this stock continued to trend lower, without any rebound whatsoever. Something is not right about this stock. Check out on its latest financial statements, especially the Balance Sheet. See whether the company's financial position is sound or otherwise, before making an entry. Based on the chart alone, I would advise to give this stock a miss.

    ReplyDelete
  5. ButcherTuesday, February 09, 2010 10:10:00 PM

    thank you alex.
    it's so much appreciation on your explaination.

    maybe i will dispose my knm tomorrow if it is moving up.

    about octagon, yes their balance sheet is what i worry.. that is why i doubt to enter. anyway i will give it a miss..

    :) now looking for others...

    oh btw, can you explain briefly about diligence study?

    ReplyDelete