"THIS MARKET'S NOT FOR NOVICES"
This telling comment comes from Christeen Skinner, a UK based financial Astrologer. But it could have come from any serious market observer. The last few week's market action did not just take novice traders by surprise. Indeed, I would say the large majority of even the most proficient market timers got this one wrong, except may be those who instigated the sell off.
The Who's Who in this case is probably not so obvious to many: The US government struggled to find consensus and agreement on raising the US debt ceiling. But when ideological righteousness comes into play, common values - and common sense fly out the window. In the end, some sort of deal was thrashed out, but hardened market participants thought otherwise. So, who was so disgruntled to start selling his holdings big time? One of my regular readers recounts a comment in the news that, Goldman Sachs had instructed their overseas partners in Hong Kong and other parts of Asia to start selling - on August 9th. This then turned into a spiralling rout all across the world.
SO WHERE ARE WE RIGHT NOW?
Singapore's STI
Over the week, the index fell by some 5%. Singapore celebrated its National Day on Tuesday and was spared the worst of the volatility, while other markets saw falls in excess of 8% on the day.
HANG SENG
The Hang Seng had its worst day in years - and as the graph demonstrates - has yet to recover from this onslaught. Intraday, the index opened -8% down, recovered some 6% (to the low of the previous day) only to be rejected just there and fall another 3% into the close. The Wednesday saw again a gap down opening and a rebound - and lastly, through Thursday and Friday some steadiness returned. However, one could also say that all sellers had left the pit and no buyers had come forth, ultimately resulting in a uneasy stalemate. Significantly, the index could not break through the low of Monday, 8th, - and the 50% retracement of the total downside in 2008 is very close by, forming a strong resistance for early future bullishness. 50% Fibonacci is a rather ambivalent level as it does not necessarily direct the markets as unequivocally as the 38.2 or 61.8 level does. In other words, it could allow the markets to recover provided there is sufficient momentum, but it could also hold back any further advance if the support of traders is lack lustre.
S&P 500
This US index has seen 4% intraday swings, to be repeated each and everyday only to end the week pretty much where it started. But that does not mean that it is in a better position than other indices to advance from this level. True, the oversold indicators are all nervously showing up last week's panic spree, but to actually long the market at this point may prove hazardous for ordinary folk like you and me: here, previous Fibonacci support at 61.8% (1186) has broken down as a result of the latest sell off. In the current stalemate it will need tremendous market support to recapture it right at this moment.
DAX (Germany)
Along with the NASDAQ, German indices were leading the pack in every way. During earlier soft patches in May and July, this index remained strong. It is therefore no surprise that during this latest move, it had a lot of catching up to do: From its peak in early July it lost 25%, but the biggest losses came in the last 10 days.
Fundamentally, Germany's economy should not have too much problems getting back into full swing, especially as Asian economies now show less restraint going into the third quarter, with even better promises for Q4.
Finally, GOLD PRICES
Gold has topped USD 1800 on Thursday. I sense that our gold bugs are satisfied with this result and have since sold off somewhat. Indeed, they may start to look at buying gold again, but next time via the equity route, i.e. company shares involved in mining and producing, trading or selling of gold. A break of 1720 would indicate that prices will pull back below 1700 again, - and the USD will strengthen more significantly.
Concluding
To put it somewhat provocatively, markets are at the mercy of dogmatic money makers and ideological spin doctors (and a few others in between). How this is going to be resolved is rather shrouded in obscurity, but with their backs to the proverbial wall, our leaders will need to come up with something special or face the consequences, i.e. much more severe market turmoil and - a second dip into recession.
Alfred Chia
Our CEO has coined the phrase in a recent seminar: he called the current crisis - "a crisis of confidence". Indeed, if behavioural science has the kind of impact on markets as its proponents claim, there is no getting out of this rut unless we change mindsets and values in a big way. We all know what the underlying conundrum is: too much debt with too little income. So, either do away with the debt or increase your income. Simple enough?
Whereto Next?
Some traders have decided to buy, on the basis of the enormous oversold indications. Indeed, Warren Buffett is one of them. But he is a USD investor who needs to invest to keep his wealth at the same value as his main currency keeps falling. We are SGD investors, and our currency has not really stopped increasing, except may be during the worst few days in the recent sell off. For us to go out and buy, the deals have to be rather 'good' and we need to make doubly sure we can harvest the gain that may come our way. I therefore state categorically that we do not need to rush into buying right now.
The markets may well stage a rebound of sorts, but I would be very surprised if this will help retrace more than 23% (Fibonacci 1st level) of the downside. And of course, there is no such thing as a GENERAL market move involving all sectors and countries at the same time in the same way. If you follow our comments you will know that I still expect more softness before the asset inflation express takes off again, probably with the help of QE3?!
Let's hope, our patience is being rewarded.
The Who's Who in this case is probably not so obvious to many: The US government struggled to find consensus and agreement on raising the US debt ceiling. But when ideological righteousness comes into play, common values - and common sense fly out the window. In the end, some sort of deal was thrashed out, but hardened market participants thought otherwise. So, who was so disgruntled to start selling his holdings big time? One of my regular readers recounts a comment in the news that, Goldman Sachs had instructed their overseas partners in Hong Kong and other parts of Asia to start selling - on August 9th. This then turned into a spiralling rout all across the world.
SO WHERE ARE WE RIGHT NOW?
Over the week, the index fell by some 5%. Singapore celebrated its National Day on Tuesday and was spared the worst of the volatility, while other markets saw falls in excess of 8% on the day.
HANG SENG
The Hang Seng had its worst day in years - and as the graph demonstrates - has yet to recover from this onslaught. Intraday, the index opened -8% down, recovered some 6% (to the low of the previous day) only to be rejected just there and fall another 3% into the close. The Wednesday saw again a gap down opening and a rebound - and lastly, through Thursday and Friday some steadiness returned. However, one could also say that all sellers had left the pit and no buyers had come forth, ultimately resulting in a uneasy stalemate. Significantly, the index could not break through the low of Monday, 8th, - and the 50% retracement of the total downside in 2008 is very close by, forming a strong resistance for early future bullishness. 50% Fibonacci is a rather ambivalent level as it does not necessarily direct the markets as unequivocally as the 38.2 or 61.8 level does. In other words, it could allow the markets to recover provided there is sufficient momentum, but it could also hold back any further advance if the support of traders is lack lustre.
S&P 500This US index has seen 4% intraday swings, to be repeated each and everyday only to end the week pretty much where it started. But that does not mean that it is in a better position than other indices to advance from this level. True, the oversold indicators are all nervously showing up last week's panic spree, but to actually long the market at this point may prove hazardous for ordinary folk like you and me: here, previous Fibonacci support at 61.8% (1186) has broken down as a result of the latest sell off. In the current stalemate it will need tremendous market support to recapture it right at this moment.
DAX (Germany)
Fundamentally, Germany's economy should not have too much problems getting back into full swing, especially as Asian economies now show less restraint going into the third quarter, with even better promises for Q4.
Finally, GOLD PRICES
Concluding
To put it somewhat provocatively, markets are at the mercy of dogmatic money makers and ideological spin doctors (and a few others in between). How this is going to be resolved is rather shrouded in obscurity, but with their backs to the proverbial wall, our leaders will need to come up with something special or face the consequences, i.e. much more severe market turmoil and - a second dip into recession.
Alfred Chia
Our CEO has coined the phrase in a recent seminar: he called the current crisis - "a crisis of confidence". Indeed, if behavioural science has the kind of impact on markets as its proponents claim, there is no getting out of this rut unless we change mindsets and values in a big way. We all know what the underlying conundrum is: too much debt with too little income. So, either do away with the debt or increase your income. Simple enough?
Whereto Next?
Some traders have decided to buy, on the basis of the enormous oversold indications. Indeed, Warren Buffett is one of them. But he is a USD investor who needs to invest to keep his wealth at the same value as his main currency keeps falling. We are SGD investors, and our currency has not really stopped increasing, except may be during the worst few days in the recent sell off. For us to go out and buy, the deals have to be rather 'good' and we need to make doubly sure we can harvest the gain that may come our way. I therefore state categorically that we do not need to rush into buying right now.
The markets may well stage a rebound of sorts, but I would be very surprised if this will help retrace more than 23% (Fibonacci 1st level) of the downside. And of course, there is no such thing as a GENERAL market move involving all sectors and countries at the same time in the same way. If you follow our comments you will know that I still expect more softness before the asset inflation express takes off again, probably with the help of QE3?!
Let's hope, our patience is being rewarded.
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