The last 24 hours: DAX down -6%, NASDAQ down -5%, ASIA STOCKS STILL FALLING - HELLLP?!


DAX - UPTREND TILL JULY & SUBSEQUENT FALL
It all started to fall apart yesterday afternoon.  Ze Big Boyz were selling, and selling hard, with the DAX losing 4% in the first hours of trade.  The DAX is of course the biggest target now, has it not defied any gravitational pull from any corrective phase in the first half of the year.  Even the Japan disaster was a one-day affair, rectified in the shortest possible time.

The latest fall from grace
Since early August, the DAX dropped 25%, the biggest fall of indices worldwide, - making up for all the corrective phases that did not produce the 'desired' effect.  By comparison, the STI is in a down trend, which started in November 2010.  The final, but equally abrupt drop of -12.5% in the Singapore index was therefore benign by comparison. 

STI - DOWNTREND SINCE NOVEMBER 2010
I have chosen to compare these two indices, as representative of two major economic realities: ECONOMIC MISMANAGEMENT. = DAX and  ECONOMIC GROWTH, = STI..  What separates them is a self induced debt burden in Europe and US, while Asia is very much a healthy, thriving economic powerhouse.

Such divergence in trends should put caution at the forefront of our investment decisions.  A realignment into a common trend was therefore only a question of time, and that is NOW.  
While the DAX could easily come down another 10% without negating the overall positive trend, the STI is at a level of what I call 'maximum retracement' (76.4% Fibonacci) of the upside last year.  It should - must really - hold for a beneficial early turnaround in the index.  If the level around 2776 is indeed breached, the correction could be extended by at least another 6% downside, - but also put in doubt the generally positive outlook for Asian businesses.

Preferred short term outlook
Once the 'bottom' is in, the emergence of a new trend with hopefully corrected and amenable debt levels in US and Europe, a new Syrian government, Libya without a Qaddafi, (more liberating events in due course) is on the cards.  Then we could be buying world equities at a discount of some +20%. That is a focus I would like to provide for my investors, rather than the doomsday media circus that we see prevalent today. 

Cyclically, an end to the current down trend should only be weeks away, with September to watch for early technical signals.  Just in case you are living in the false hope that the world returns to a Goldilocks scenario soon, be forewarned.  We, - that is the skilled allocation advisors, may still be able to attain good growth performances for our portfolios but the emphasis will be on wealth preservation (also in light of inflationary pressures).  Fundamentally, there are a number of indicators, such as less pressure on inflation, better corporate earnings, more jobs (in the US predominantly), which suggest that by last quarter market sentiment should return to more sensible levels.

For more outlook on other markets, watch this space.

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