Thursday, December 01, 2011

Market Outlook as at Nov 30, 2011

Our market should rally today after the global coordinated intervention by The Federal Reserve, the European Central Bank, the Bank of England, the Bank of Japan, the Bank of Canada, and the Swiss National Bank to lower the cost of swapping dollars. Specifically, they are cutting the U.S. dollar liquidity swap rate by 50 basis points. This is an effort to boost liquidity in the European bank funding markets. The announcement, which came before the markets opened, caused futures to roar higher. For more, go here.

This amazing intervention came less than 24 hours after S&P reviewed the rating for 37 of the largest global financial institutions and downgraded 7 of the 8 largest US banks (here & here).

There is a saying in Wall Street: "Do not fight the Fed!" This action on the part of the Fed and other central banks will create a surge in liquidity which would push up the price of all assets. I expect our stock market to response accordingly. We could see a good recovery rally for the next few weeks- possibly all the way to the Chinese New Year. My earlier bearish stance is now revised to bullish trading stance.


Chart 1: DAX's daily chart as at Nov 30, 2011 (Source: Stockcharts)



Chart 2: CAC's daily chart as at Nov 30, 2011 (Source: Stockcharts)



Chart 3: DJIA's daily chart as at Nov 30, 2011 (Source: Stockcharts)
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8 comments:

  1. JYThursday, December 01, 2011 9:16:00 AM

    Hi Alex

    China cuts its reserve requirement ratio. Does that mean China's tightening is coming to an end? Together with central banks cutting the cost of swapping dollars, do you think these will be enough for the market to continue its uptrend again?

    ReplyDelete
  2. williamThursday, December 01, 2011 11:38:00 AM

    I want to reiterate the opinion by Dali. Fortunately, I bought into his comments:
    This is an excerpt taken from http://malaysiafinance.blogspot.com on nov 23, 2011
    Liquidity Creeping Into The Markets

    One sure fire way to anticipate a bull run is access to liquidity. I have been hearing this more than a couple of times over the past two weeks, bankers are flying in from Singapore and HK to offer decent loans to listed corporations at highly undemanding rates.

    The last 6-7 years saw much of the liquidity in Asia gravitating towards supporting property loans. Hence equity markets did not get much of a boost from the excess liquidity in the system. There has been a dramatic shift in property outlook in HK, Singapore and Malaysia. Most have gone neutral or hold from buys. What that means is that banks are too flushed with liquidity and have to keep them working.

    Local banks are doing the same but apparently the foreign banks are a bit more aggressive. Ringgit loans of RM50m to RM300m can be had at 2% or 3% below BLR. The juiciest one is USD loans can be had at just 0.1%. Many of the top tier companies do not really need the funds, so the bankers are going second tier and soon I think not so blue companies as well.

    The natural chain of events would be that once they take the loans, they have to put it to work, usually expansion or asset acquisition, hence more corporate developments. I see this as the beginning of a bull run cycle and it would probably take another 2-4 months to ripen.

    Liquidity is a massive force in charging a bull run. You have been warned.

    ReplyDelete
  3. luckystock2Friday, December 02, 2011 10:05:00 AM

    Hi Alex,
    Seem like twsplant have a breakout since yesterday.
    Any comment?
    Tx!

    ReplyDelete
  4. Get Stock MoneyFriday, December 02, 2011 2:00:00 PM

    Now the Dow has been lifted back into positive territory - thanks to major central banks intervention.

    Personally, i think the market should continue its uptrend and will end the year 2011 with gains. Why? Based on historically data, markets usually performed well in December.

    This is just the personal opinion from the author of GetStockMoney.com

    ReplyDelete
  5. Alex LuMonday, December 05, 2011 8:55:00 AM

    Hi JY,

    I think that emerging countries have more room to maneuver than the advance countries. Like China, many emerging countries were tightening their monetary policies for the past few months in order to fight inflationary pressure. The first thing they will do- like China- is to release the brake & the economy may recover a much needed boost. However, Asia is closely linked to the OECD countries as 44% of total export goes to these countries. A sharp slowdown in OECD would be a drag on the growth of many Asian countries, especially those heavily dependent on exports like Malaysia.

    ReplyDelete
  6. Alex LuMonday, December 05, 2011 9:00:00 AM

    Hi Sky,

    Thanks for the information. I believe that once the problem of sovereign debts appears to be under control, Asian stocks should recover because we would have two things that advance countries lack- growth stories and decent financial position. Despite weak export, we would still enjoy good growth due to strong domestic demand.

    ReplyDelete
  7. Alex LuMonday, December 05, 2011 9:04:00 AM

    Hi luckystock2

    Twsplant has broken above its resistance at RM4.10. Based on projection- which is not a very reliable exercise- Twsplant may hit a high of RM4.50-4.60.

    ReplyDelete
  8. Alex LuMonday, December 05, 2011 9:07:00 AM

    Hi Get Stock Money

    Thanks for sharing. Besides the year-end effect, I think we should also look at the Presidential effect in US stock trading for the next few months. Go to the link below.

    http://www.businessinsider.com/james-bullard-europe-dollar-swap-rates-2011-11#ixzz1fKtjK9Co

    ReplyDelete