Tuesday, March 23, 2010

The unwelcome return of the Dollar

USD Index looks poised for an upside move. Its 20-week SMA line has just crossed above the 40-week SMA line. The last time we saw a similar crossover was in September 2008 when the USD Index rallied from 76 to 88 in a matter of 2 months. That was extraordinary time, with the collapse of Lehman, etc. Can a similar sharp rally in USD recur? I must admit that it does not look like a likely scenario but we can never tell. From Chart 1, we can see that the ADX is drifting lower & the +DMI is pointing down. These may indicate an milder upside move for the USD Index.


Chart 1: USD's weekly chart as at Mar 22, 2010 (Source: Stockcharts.com)

From Chart 2 & 3 below, we can see that a rally in USD Index in September 2008 coincided with a sharp drop in the MSCI World (ex-USA) Index & the NYSE International 100 Index. This round, both indices dropped sharply in January but they managed to rebound in February & March. Would they weaken again in the face of further strengthening of the USD?


Chart 2: MSCI World (ex-USA) Index & USD's weekly chart as at Mar 22, 2010 (Source: Stockcharts.com)


Chart 3: NYSE International 100 Index & USD's weekly chart as at Mar 22, 2010 (Source: Yahoo Finance & Stockcharts.com)

Finally, we can see that a rally in USD index in September 2008 coincided with a sharp drop in CRB Index. The timid rebound in CRB Index in February & March this year (after a sharp fall in January) seems to suggest that commodities in general are likely to ease off if USD were to strengthen further.


Chart 4: CRB & USD's weekly chart as at Mar 22, 2010 (Source: Stockcharts.com)

In view of the bullish moving average crossover in the USD Index, we must be prepared for a possible downside move in equity & commodities, globally & in Malaysia. As such, we need to exercise greater caution in our trading & investment decision.

Note:

(1) The MSCI World is a stock market index of 1500 'world' stocks. It is maintained by MSCI Inc., formerly Morgan Stanley Capital International, and is often used as a common benchmark for 'world' or 'global' stock funds.

(2) The NYSE International 100 Index tracks the largest 100 non-U.S. common stocks listed on the New York Stock Exchange.

(3) The Thomson Reuters/Jefferies CRB Index (CRB) is a commodity price index which composed of 28 commodities. It was first calculated by Commodity Research Bureau, Inc. in 1957 and made its inaugural appearance in the 1958 CRB Commodity Year Book.
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12 comments:

  1. cheerWednesday, March 24, 2010 9:30:00 AM

    Which is most recommended between the UNISEM or MPI for the short term investment ?

    How the USD can impact thess 2 stocks?

    ReplyDelete
  2. tanWednesday, March 24, 2010 9:56:00 AM

    hi alex,

    can you comment on myeg, lately tabung haji disposed a lot, it is possible for a breakout in short term?

    ReplyDelete
  3. LaymanWednesday, March 24, 2010 11:58:00 AM

    Dear alex,

    Share market is a risky field. But with high return when we invest the right company. I realise the pro and cons. That's why i join the field....i have no security of tenure the reason why i set aside small part of $$ for company share investment for future plan. If one (in his 30s) were to ask you for view for strong and steady blue chips counters for long term investment (to keep in safe for dust until he reaches 60s), what would you propose???.....thanks.
    Hope you dont mind with my sincere 1m question.

    ReplyDelete
  4. Alex LuWednesday, March 24, 2010 3:12:00 PM

    Hi Cheer,

    Technically, Unisem is preferred to MPI. Unisem has broken above its long-term downtrend line. Today, it has broken above the horizontal resistance at RM2.55 and it has even surpassed its recent high of RM2.60. Its next resistance will be at RM3.00.

    MPI has yet to break above its downtrend line resistance at RM7.50. As such, its upside move will likely to be slower than Unisem.

    ReplyDelete
  5. Alex LuWednesday, March 24, 2010 3:27:00 PM

    Hi KS,

    Two big sellers are Koperasi Permodalan Felda & Lembaga Tabung Haji. The former seems to have ceased selling in Dec 2009 while the latter is still selling in the market. Based on their last filings, LTH still has 6.5% shareholdings as at Mar 15, 2010 while KPF has 5.2% as at Dec 8, 2009. However, Utilico Emerging Markets Ltd is buying steadily into MyEg, raising its stake to 11.35% as at Mar 11, 2010. This demand & supply is finely balance & it may explain why the share price is stuck between RM0.40 & RM0.50 for the past few months. Until one side has the upper hand, we have to live with a range bound trading for this stock for many more months to come.

    ReplyDelete
  6. Alex LuWednesday, March 24, 2010 3:36:00 PM

    Hi Layman,

    I share your sentiment regarding the market. However, if one approach it properly, it need not be too risky an enterprise. It can be very rewarding in monetary term or experience gained.

    As far as blue chip stocks are concerned, I think I have covered a very wide field which you can choose from. I always believe it is better that a client/reader should understand a stock properly before adding it into his/her portfolio.

    ReplyDelete
  7. LaymanWednesday, March 24, 2010 4:25:00 PM

    Hi Alex,

    I will heed your advice. TYVM.

    ReplyDelete
  8. LaymanWednesday, March 24, 2010 4:32:00 PM

    Dear Alex,

    Perusing your previous article and try to find some views on Petronas Gas (is there any?). It seems the price has not much fluctuations lately. News about no more new oil well/fields by Petronas for the past few years until lately Tungku Razaleigh mentioned about the largest oil well was discovered by Petronas (which was denied). Any interesting view on this counter??

    ReplyDelete
  9. tanWednesday, March 24, 2010 5:02:00 PM

    thanks for the stat info

    ReplyDelete
  10. ronnieWednesday, March 24, 2010 5:03:00 PM

    Dear Mr Vincent,

    Your Buy call on Xingquan was excellent. Th share price has risen 16% ex-dividend of 2.5sen. And it is still grossly undervalued. The major shareholder has been buying back his own shares. The IPO price is RM1.80. My target is RM2.60.

    Thank you so much. You are fantastic.

    Ron

    ReplyDelete
  11. ronnieWednesday, March 24, 2010 5:05:00 PM

    Sorry for the typo error. It should be "Dear Alex". My apologies.

    Ronnie

    P.s. You must be making a killing managing your own funds.

    ReplyDelete
  12. Alex LuThursday, March 25, 2010 1:28:00 PM

    Hi Layman,

    I did not post anything on Petronas Gas or Petronas Dagangan. The big find that Tengku Razaleigh spoke about should belong Petronas, the unlisted holding company.

    ReplyDelete