Thursday, June 02, 2011

US Markets- more weakness ahead

DJIA & Nasdaq Composite index both dropped sharply overnight. To be frank, I was taken aback by the loss of 1.22% for DJIA & 0.99% for Nasdaq Composite index. I know I shouldn't be surprised because the charts have given ample signals that the US stock markets are likely to correct over the next 1-3 months. RSI indicator exhibited bearish divergence earlier. MACD indicator, which plateaued earlier, is now curving down. ADX is trending lower, indicating weakening momentum for the current uptrend. All in all, the DJIA & Nasdaq Composite index are likely to pull back to their respective uptrend line- 11800 for DJIA & 2600 for the Nasdaq Composite index.

Like many, I have to find a balance between the constant cheer-leading from either Bloomberg or CNBC and a more balanced commentary or analysis from the blog-sphere or other internet websites. More news or comments or analyses do not necessarily lead to better decision-making. At times, we must fall back on the charts which give the big picture of what's actually happening or has happened in the market. We can't invest if we can't rise above the cacophony of noises like this. We can only trade on noises, but for true investing we need more of this.



Chart 1: DJIA's weekly chart as at June 1, 2011 (Source: Stockcharts)



Chart 2: Nasdaq's weekly chart as at June 1, 2011 (Source: Stockcharts)

There is one market which could see some recovery over the next few months- the Shanghai stock market. SSEC index had recently tested the tentative uptrend line support at 2700 & rebounded. As at 11.17pm EDT today, SSEC was holding at 2703- a loss of 1.49%. If this support level is not violated over the next few days, SSEC index could recover back up to 3000-3050 (the resistance posed by the downtrend line). Of course, if that were to happen, we would anxiously look forward to a possible upside breakout of the 3000-3050 mark, which would signal the continuation of the prior uptrend. On the other, if SSEC were to break below the uptrend line support at 2700, the technical outlook would turn very bearish. SSEC could hold the key to the medium-term direction of the other regional stock markets in Asia Pacific ex-Japan.


Chart 3: SSEC's weekly chart as at June 1, 2011 (Source: Stockcharts)
at

2 comments:

  1. JimThursday, June 02, 2011 5:18:00 PM

    Hi Alex Lu,

    CB Industrial Product Holding Bhd (CBIP) has proposed to dispose of its oil palm plantation land for RM268 million to focus on its core business of manufacturing palm oil equipment and the provision of engineering support.

    Can you comment on this, previously your post regarding CBIP plantation division has outgrown the engineering division?

    Thanks.

    ReplyDelete
  2. Alex LuFriday, June 03, 2011 11:17:00 AM

    Hi Jimmy Yeoh

    CB Industrial Product Holding Bhd (CBIP)' proposal to dispose of its oil palm plantation land for RM268 million could be viewed as a neutral event. On one hand, CBIP will miss the earning from that division. On the other hand, the huge gain from the sale could be used to expand its business or to venture into new businesses. For a company that is so involved in the palm oil trade, the decision to sell must have been taken after weighing all the pros & cons. The company's management team is professional and I would give them the benefit of doubt.

    With this proposed sale, the shareholders may look forward to a special dividend. That's in addition to the proposed bonus issue of 1-for-1.

    Technically speaking, the stock has strong horizontal resistance at RM4.40 & good support at RM4.20-4.25 (from the 20-day SMA line). HOLD.

    ReplyDelete