"HEADS or TAILS?" Markets in Contrarian Dilemma
If the likes of Roubini and similar bears have their way, the end has come for any stock market advances for a while:
But not all factors are pointing in the same direction, - or offer the same conclusion. Yesterday, the Chief Strategist at Aberdeen AM, Peter Elston, said on Channel News Asia that conflicting signals exist even at the Singapore level, where two indicators, covering the same topic (manufacturing), arrive at opposing views as to where economies are headed.
Technical Analysis
When we experience the pulling and shoving of bears and bulls in this way, I am often grateful for having another avenue to observe and judge market movements and sentiments, through technical analysis.
Alas, here too, indicators are anything but coherent and give pointers into both a short term positive market direction as well as the end of the line for current upside, at least when considering medium term outlook.
In my last blog, I already stated that most markets offer little hope for more upside at present, - apart from a short sharp rally into early June. Something like the start of the rally occurred Friday 27th, and Monday, 30th of May. Markets moved up more than 2%, most of it in one single trading day. As so often, such a move exceeded the expectations of many market participants and there was therefore NO follow up.
This lead to a quick and surprisingly sharp sell off in US equity in particular! Should the next move extend - straight down? Probably not, so an interim bounce is likely. How much of a bounce depends as to whether the NASDAQ remains relatively strong - and leading. The downside in this index was significantly less than in general stocks and the present uptrend remains intact in current position, still keeping a safety margin to the green line (a trend line of previous lows) before the overall uptrend is at risk.
From the current level, it is more likely to see a healthy bounce before succumbing to prevalent downward pressures.
SHORT TERM
Gold prices as also commodities, Latin America, - India and a few other Asian markets are not in the thrall of general negativity. In addition, we have seen a lot of 'action' in currencies, with the USD slumping some 2% in just two trading sessions, while the Euro reciprocated, now trading above USD 1.46, and the SGD is back in the 1.22 range. As to the options for the USD now, the framework is clearly marked: the Ichimoku cloud certainly has proved a formidable resistance level, and the Fibonacci fan lines above and below clearly form the range in which trading will remain in the 'foreseeable' future, if that is the right word.
But with USD still trending down, even with US equity markets falling, it is a strange notion to belief that its company stocks will fall further right now.
Conclusion
This is not a simple market to read, nor are the views in front of us trouble-free. I don't blame those who exit right now, though I stay with my assumption that a short rebound is due in the coming days, potentially offering a more 'opportune' time to switch to safety.
- The US congress signals the end of the road for higher debt ceilings.
- QE 2 monies are up for review in August.
- Europe's credit crisis deepens, with Greece seeking a second bail out.
- Europe now at the center of a food scare of some magnitude, a mutated e.coli strand we have no cure for and don't know its origins. Is this a European version of SARS?
- China stocks still mired in consolidation while its government imposes ever tighter controls on the financial system.
- The Arab spring could deteriorate into civil wars instead of a ripe harvest of new found self confidence and freedom.
- Japan still no closer to a satisfactory outcome of the nuclear reactor crisis - and a rebuilding of the tsunami hit coastal regions.
But not all factors are pointing in the same direction, - or offer the same conclusion. Yesterday, the Chief Strategist at Aberdeen AM, Peter Elston, said on Channel News Asia that conflicting signals exist even at the Singapore level, where two indicators, covering the same topic (manufacturing), arrive at opposing views as to where economies are headed.
Technical Analysis
When we experience the pulling and shoving of bears and bulls in this way, I am often grateful for having another avenue to observe and judge market movements and sentiments, through technical analysis.
Alas, here too, indicators are anything but coherent and give pointers into both a short term positive market direction as well as the end of the line for current upside, at least when considering medium term outlook.
From the current level, it is more likely to see a healthy bounce before succumbing to prevalent downward pressures.
SHORT TERM
But with USD still trending down, even with US equity markets falling, it is a strange notion to belief that its company stocks will fall further right now.
Conclusion
This is not a simple market to read, nor are the views in front of us trouble-free. I don't blame those who exit right now, though I stay with my assumption that a short rebound is due in the coming days, potentially offering a more 'opportune' time to switch to safety.
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