In search of market directions

I'm going to borrow a lot charts from Bespoke Investment of which I regard them as one of the best source for technical analysis. Why would the market broke below its strong support despite of positive news like

(1) Confirmatin of Ben Bernanke for the second term, which most will bet that he will continue to maintain "loose monetary policy".

(2) GDP growth is coming in a lot stronger. If you at the chart, it's a V-Shape.




Perhaps some are skeptical that this trend can persist as the growth mostly was coming from inventory replenishment in a very significant way. Well, my bet is that this is going to continue to be strong as most of the people refused to add capacity more than a year based on my personal observations on the manufacturing side.

(3)Earnings beat estimate at a very high rate - more than 70-80% so far.

Since the trend has changed, the momentum players will tend to look at technical charts which are not very encouranging depending on which angle they look at it.

If one connects the lower high, it is seems that there will people thinking the uptrend has broken down. However, there could be another camp of people connecting the higher high and draw a paralel line to it and found that this is very similar to July 2009 correction, hit the lower trend chanel and going higher non stop for 6 months. Those believe in the second scenario can confirm that % of stocks above 50 MA dropped to just 35%, very close to July 2009.




Me? I would prefer to watch the tape for another few more days of February. In another words, let the market tell me what they want to do rather than second guessing what the market is going to do at uncertain juncture.

Between politics and doing the right things

Life can be simple but can also be complicated when mixing up with politics. Ben Bernanke, under pressure of not going to be reappointed, is contemplating of bowing down to pressures - not doing what he believes from his studies of the great depression. He knows too early of loose monetary withdrawal will increase the chances of double dips recession. Read, he is going to tell what the market and politicians want to hear to get reappointed. Up to this point, I still believe these are noises to correct.

However, having play long enough in the markets, one will always need to stay flexible when the wind is blowing violently from the other direction. As the KLCI went below 50-d MA, a 10% correction from 1,308 will send us back to 1,175. It is also critical to watch S&P at 980. If the selling momentum is gathering strong strength at 980, just buy a ticket and go holidays.

Jan. 27 (Bloomberg) -- The Federal Reserve may take a chance the housing market can stage a comeback without its support by announcing today it will stick to the plan to end a $1.25 trillion program of mortgage-debt purchases in March.

Fed Chairman Ben S. Bernanke and other policy makers meet after the sixth straight monthly gain in home prices in November added to signs housing is stabilizing. With financial markets rebounding, the central bank has said it plans to end emergency aid to bond dealers and money markets by Feb. 1.

The Fed will probably acknowledge growth accelerated last quarter while noting that tight credit and unemployment near a 26-year high still pose risks to the recovery. Officials are likely to maintain a pledge to keep interest rates low for “an extended period” as they look for evidence of a sustained expansion that will create jobs without raising inflation expectations, former Fed governor Lyle Gramley said.

http://www.bloomberg.com/apps/news?pid=20601087&sid=axVV8waG7WMs

Britain pushes for global deal on 'bank tax'

LONDON - Britain on Monday led a push for a global deal on reforming the banking sector that could include widespread agreement for an extraordinary tax on lenders amid concerns that the US may go it alone.

Paul Myners, the minister charged with overseeing Britain's financial services sector, said international agreement on the issue 'would be the most important legacy' of the state-led response to the financial crisis.

The comments by City Minister Myners in The Guardian newspaper came as he chaired a seminar on Monday on the practicality of levying extraordinary taxes on financial institutions.

The London meeting was arranged to canvass opinion among officials from G7 nations, the IMF, World Bank and academics on the 'practical challenges' of 'implementing insurance levies', according to the Treasury.

British Prime Minister Gordon Brown has urged leading economies, including the United States, France and Germany, to consider a tax on financial transactions to make banks more accountable to society.

Mr Brown has pressed the idea of a so-called Tobin Tax but said nations could also consider an insurance scheme aimed at preventing a repeat of the multi-billion-dollar state bailouts of banks caused by the financial crisis.

A Tobin Tax was originally proposed in 1971 by Nobel Prize-winning economist James Tobin as a means of reducing speculation in global markets, but Mr Tobin himself later doubted his own idea was workable.

US President Barack Obama recently proposed levying a fee on top US banks to raise US$90 billion in 10 years to recoup 'every single dime' of the recent Wall Street bailout.

And in a bid to radically change the financial landscape, Mr Obama last week announced plans to limit the size and scope of US banks, saying they would 'never again' get so big that taxpayers have to bail them out.

In opening comments to the London seminar on Monday, Mr Myners said it was 'important that any costs that governments incur for interventions in the financial sector are distributed more fairly.

'There is clearly a strong rationale to charge for the externality caused by the financial sector and financial institutions should shoulder the responsibilities for losses they may face.'

But Mr Obama's proposals have failed to win over Britain.

On Sunday, Britain's finance minister Alistair Darling expressed scepticism at the president's banking reform plans, saying they would not have prevented the financial crisis and warning they risk undermining the global consensus.

Writing in The Guardian daily, Mr Myners said that 'finding a new way to keep taxpayers from shouldering the bill for future bailouts will be far from easy, but the UK will continue to lead the international effort to do so'.

He added: 'A global agreement on this issue would be the most important legacy of our response to this crisis, and it is a prize all governments have a duty to pursue.'

The IMF is meanwhile due to publish a report in April expected to outline what it considers to be the best form of extraordinary taxation on financial institutions. -- AFP

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My comments

It's very easy to point fingers at banks that caused the melt down of the world economy in 2008. Though I admire Obama but I think he has gone too far this time. It is very easy to get popular by taking measures like this but I think he has overdone it. To argue it the other way round, since this crisis was originated from the US, should we recover every dime from them?

What about the rating agency, the Fed(Alan Greenspan), over-consuming American, over saving Asians, bankers of the world(Japanese Yen) that funded carry trade? etc ...... ....... ......

Should Obama administration continue to be unreasonable, they are going to choke innovation and restricting lending growth that eventually slowing the economy recovery. I think the most pragmatic thing to do now is to revive lending and ensuring bank has proper identification of counter parties, regulate derivative products like CDS, MBS and etc. If he is serious to show his righteousness, just nationalize them and do whatever he pleases.

Bears come out of hibernation ?

I'm sure many are getting concerns and questioning whether this is the end of the bull run. The Dow sufferred 5.5% loss in just this week alone. I think the market needs to correct before it can go higher. Ten months of uninterrupted upward trend is not healthy. The excuses given by the market to take some money off the table is aptly summarized by this analyst.

"This is a correction precipitated by fear about a Chinese slowdown, uncertainty at the Fed and populist rhetoric by Mr. Obama on banks," said John Praveen, chief investment strategist at Prudential International Investments Advisers

http://www.marketwatch.com/story/us-stocks-week-ahead-flirting-with-correction-2010-01-23

If you have heard of Sell in May and go away. You may also have heard about October is usually a month of market crash. I want to add one more thing, 50% of the time since 1950, January is the low month during a bull run. The month low normally happens around the third week of January(Yes this week or early of next week). What are the reasons for that? This poem by Christina Georgina Rossetti will give us some hints.

January cold desolate;
February all dripping wet;
March wind ranges;
April changes;
Birds sing in tune
To flowers of May,
And sunny June
Brings longest day;
In scorched July
The storm-clouds fly
Lightning torn;
August bears corn,
September fruit;
In rough October
Earth must disrobe her;
Stars fall and shoot
In keen November;
And night is long
And cold is strong
In bleak December.

According to a pyschologist researcher, people tends to get the most depressed during winter, usually on Jan 24th of every year. May be this is the state of the minds of the market participants. Having said that, this is one of the best time to buy on weakness.

Small Cap due for a pull back?

(Click on the image to enlarge)
Small cap started with a bang on the first trading day of 2010. It has also managed to break out from so called triple tops - a damn stubborn resistance. It has been struggling to maintain its posture since Jan 15. The rotation of these stocks for the few days has been fast and furious. I would be real careful on small cap stocks until I see a clearer sign that there are genuine buyers out there. Just watch the pull back, if it turn bloody and close the upside gap - I think it will turn into a sharp pull back. Don't get me wrong, many of them are cheap with great value but I just got the funny feelings now.

Public Bank just announced their full year 2009 financial results. EPS practically flat compared to 2008. Even this giant managed to grow by 15%, 2010 EPS will be about $0.84. There are not many reasons for it to go higher than $ 13 this year fundamentally. However I don't think this is going to be a negative catalyst.

Public Bank shares up on robust earnings outlook

Saw this in the Star.

PETALING JAYA: Public Bank Bhd, the country’s third-largest bank by assets, saw its share price rise to the highest in 10 months after a report showed earnings for the financial year ended Dec 31, 2009 (FY09) may come in above market expectations.

http://biz.thestar.com.my/news/story.asp?file=/2010/1/19/business/5497537&sec=business
The interesting part of it was

HwangDBS Vickers Research Sdn Bhd analyst Lim Sue Lin said in a report that FY09 net profit, to be announced this week, could come in at 2% to 3% above market projections of RM2.41bil.

How would expectation of 2-3% sent the share price past RM 12?

In my opinion, not much has changed in the fundamentals but sentiments have changed. It's because the momentum players are piling in money after it broke the previous high.



What's next? Don't fight the trend.

US profits up, stocks down: Market madness this week?

Saw this piece in the Star

(TheStar)NEW YORK: Stocks got carried away about the recovery.

That at least is one interpretation of two curious market moves so far this earnings season.

Intel Corp. blew away expectations Thursday.

Ditto for JPMorgan Chase & Co. the next day.

And how did investors show their gratitude? They sold stocks by the bucketful. Intel was off 3 percent on Friday, and JPMorgan down 2 percent.

The Dow Jones industrial average fell almost 101 points.

"The market may have gotten ahead of the underlying economy," says CreditSights analyst David Hendler, by way of explanation.

JPMorgan's report showed that "loan demand is still contracting," which means a full recovery is still a ways off.

The weak outlook may have caught Wall Streeters by surprise, but here's the bigger shocker: that they were surprised at all.

The weak recovery is news?

http://biz.thestar.com.my/news/story.asp?file=/2010/1/18/business/20100118073627&sec=business

If you believe that this is just one of those regular recessions, these numbers in this chart may interest you. One more assumption: you must believe that it's inflation rules and not deflation. We are way below the average in terms of length and % up from the bottom.



Volatility hits record low!.



When I surfed the net over the last two days, most people have reached head scratching level - do not know what to say because things are not as bad it seems neither as it's good as it should be. Absent of big powerful negative news, those missed to buy enough in the last 9 months, will step in.