Market overview - 071110

Market overview:

• KLCI: 1511.74 - highest level after 2008 financial crisis.
• Market volume: 1.1bil - hovering above 1.0bil shares traded daily which was considered quite moderate, with little excitement happening in the market.
• Daily trading participation: It was noticed that the retailers are coming back into the market with about 35% participation, it was above daily average of about 25% before. Local institution participation maintain at 45% level and the other 20% from the foreign participation.

What was happening in the market:

• Speculative counters contributed 60% market volume with 60% active counters made up from small cap stocks.
• Commodities stocks were moving higher, due to the advance of commodities prices such as gold, steel, crude oil, crude palm oil. The main factor is the weakness of USD as US government has committed to spend USD600bil to boost the economy. Subsequently, investors were buying more commodities as safe haven, while more hot money created and flow into emerging market with higher ROI predicted.
• US unemployment rate stays at the high side of 9.6% even though the positive growth of the jobs created in the market.

Weekly trading strategy:

• Focus on hidden jewels with high growth stocks - good fundamental stocks.
• Looking for buying opportunity in commodities stocks like plantation, oil & gas, steel players.
• Stay away from speculative counters as most of them are non-fundamental sound.

4th quarter 2010 Market Trading Strategy

KLCI has surprisingly moving up slowly and steadily towards last record high of 1524 level. In second quarter this year, the KLCI was expected to go through some healthy correction before continue the up trend. But it din not happen, there were only some minor selling pressure kicked in - the interference to the market. It is mainly due to the large amount of hot money kept flowing in to the equities as it has been treated as one of the best ROI area. As far as the global economy is concerned, there are still a lot of uncertainties around, such as the economy recovering momentum & sustainability? Stubburn high unemployment rate? Asian economy overheated - bubble? western economy losing recovering steam......

As of current market situation, most of the index counters are approaching the new 12 months high and subsequently making them look unattractive - overprice. Thus, it is recommended to be extra cautious in picking a good and strong fundamental companies. The task is just getting tougher and tougher. However, there are still a lot of small to mid cap counters which are so called the "hidden jewels" in the market. Please find below as some of my recommendations:

1. Profit taking on index & mid cap counters which is hovering at the new high area
2. Apply 70% cash vs 30% equities strategy.
3. Stay sidelines with patience, wait for clearer economy/market indicators to reaffrim bullish condition.
4. Research on 3rd quarter financial report, pick the strong growth stocks.
5. Listed the favorite stocks, bargain hunting during market/individual stock correction.
6. Lastly, wait for the fruitful ROI, and profit taking during CNY 2011.

Stock hunting - HPI is flying!

As of today, the global markets have been stretching themselves to move higher and higher, with lower and lower energy. It is obviously showing that the market sentiment is about on par with the economy condition, which is stabilising and hovering at the current level. Thus, it is recommended to stay sideline and observe the situation. Just wait for a good opportunity and grab it to optimun the ROI.

KLCI index was succesfully broke the phycological 1500 level last week. Further to this, it is expected to test the last record high at 1527 very soon.

There is one counter I spotted recently - HPI.

Refer to the daily chart of this counter, HPI has successfully broke the upper line, the famous chart pattern - Ascending Triangle. Upon breaking the upper level with the support of high volumn builded, it is expected to fly sky high! Theoretically and based on the chart, it should continue the uptrend towards target price of RM2.60. This is what I am saying - The golden opportunity arise!

1st half 2010 Global markets review and 2nd half 2010 outlook

What was happened in 1st half 2010

Global stock markets:

Majority of the indexes especially Asian markets are testing the new high of 2010, while some of the others like EU markets are trying to rebound after the crash in May sending the indexes to the low of 2010 in May or June this year. That was purely caused by the turning of the high hopes of economy recovering into "Double dip recession", this was due to some of the EU countries' weak economy conditions such as Low GDP growth after the recession, High unemployment rate, high debt position. This makes the investors and retailers taking profit and withdraw from the stock markets to a safety heaven like putting back the savings in the banks as the interest rate is increasing in some of the countries like India, Australia, New Zealand, Malaysia.

Stocks financial results (1st half 2010):
Majority of the global organizations reported fantastic financial results in 2nd quarter of 2010 - Easily upbeat analyst prediction. This is resulted compare to the weak performance of 2nd quarter 2009 - year to year comparison. Most of the commodities recovering, and thanks to the government stimulus package have successfully supported the organizations to drive them from falling into financial problems.

Future prediction (2nd half 2010):

1. Global governments are trying to withdraw the stimulus package to observe the sustainability of the global economy recovering, they are hoping the economy will be driven back by the consumers. The government is forced to cut the spending in order to bring down the debt/liability level.
2. Global governments may stop or delay the interest rate's increment as worry it may bringing the negative impact to the economy recovering.
3. Global economies may achieve slower GDP growth, slow down in economy recovering.
4. Some of the countries especially EU members may fall back into recession.
5. Commodities may retreat due to the lower demand and over supply condition.
6. Gold may retreat when profit taking kicks in near term, as governments need more cash.
7. USD may retreat in line with the weakness of the US economy, Asian currencies may holding firm and appreciate against US and EU.
8. Global organizations may struggle to continue achieving positive month-month growth, and slowing down in year-year growth.
9. Most of the investors and retailers have lower confidence about the economy recovering sustainability, resulting them to withdraw and taking profit from the stock markets - leads to the fall of global markets.
10. Global stock markets may drop in 3rd quarter, subsequently creating another golden opportunity for investors to pick up good fundamental stocks for the year end rally again.

Another Recession Due Circa 2012: Jim Rogers

A new recession would be due around 2012 but central banks will not be able to throw cash at it anymore, Jim Rogers, chairman of Rogers Holdings, told CNBC Tuesday.

India's central bank raised its interest rate on Tuesday, joining other monetary authorities such as the Canadian and Norwegian central banks in hiking rates to stem inflation.

"We do have inflation in the world… most central banks should resign," Rogers said.

There has always been a recession every four to six years in the US "since the beginning of time," and that would mean another one is due around 2012, according to Rogers, a hedge fund pioneer who started the Quantum Fund with George Soros in 1970.

"When the next one comes the world is going to be in worse shape because the world has shot all its bullets," he said.

"Is Mr. Bernanke going to print more money than he already has? No, the world would run out of trees," Rogers added.

The fact that second-quarter earnings have been better than expected does not necessarily mean that the recovery is stronger than anticipated, he said.

"I'm sure some of it is expectation management… but remember what the comparison is. We are talking about the second quarter of 2009, when we thought the world was coming to an end," Rogers said.

"Worry about next year, don't worry about the second quarter now. That's history," he added.

(Source: CNBC)

Asian markets strong outlook from 2nd half 2010 - 1st half 2011

After the financial crisis hitted the bottom in March 2009, global stock markets have experienced a strong rebound and some of the markets are breaking the pre-crisis high. If we observe and analyse in detail, we are able to easily notice that the rebound was not across the board but it may apply to certain good fundamental stocks only. Those weaker stocks especially the 2nd & 3rd liners are struggling to perform as they have been badly affected by the financial crisis and may encounter a financial problem which may not be able to survive at the end. These are the stocks without strong fundamental financial support, and I strongly advise you never try to speculate or invest into this kind of lousy stocks due to the high risk exposure which potentially leads you to loss all the hard earn money!

Due to the global markets' strong and long run for the past 15 months ago, the global economies started losing steam and heavy profit taking kicks in at the moment. You may notice the market is pretty tough to move up as most of the retailers & investors prefer to stay sideline to observe the market trend. Some of the global markets like China, United States, European markets have experienced heavy sold down since May 2010 due to the slow down in the economy growth. Although the particular economy or stock may still achieving good number of yearly growth rate, but the slow down may happen in the month-month basis. That is the reason sometimes you may notice a stock price down while reporting good yearly growth percentage. This is one of the important skill to pick up in order to avoid mistake in chasing good stocks at the wrong timing with wrong interpretation.

No doubt some of the global markets are struggling to move forward but hovering in the tight range with little investors and retailers participation. There are many strong countries especially in Asian like Singapore, Hong Kong, Korea, Thailand, Indonesia, India and Malaysia are holding pretty strong near the 52-weeks new high level at this moment. Of course not all the stocks are aligned with the market's index movement as it varies between the good stocks and lousy stocks. Please to note that this might be the Prefect Timing for you to easily catch the good stocks as they will be in the "positive region" or "top gainers" list while most of the other counters are in the "negative region" or dropping. From here, you must deeply analyse the good stocks you catched to avoid some speculating cases.

Referring the strong growth in Asian countries, I am confident that we are going to have strong growth in stocks prices in the next 12 months ahead! Nevertheless, it is not recommended to chase an overvalue stocks blindly! In order to make the maximum Return On Investment (ROI), I would strongly suggest to accumulate and invest in good fundamental stocks when markets dip! You may question how to find the good fundamental stocks? I have shared with you one of the easiest way above and will try to share others in the coming post!

Similarity & the comparison between 1929 and 2008 financial crisis

Dow May Crash to 7,500 If 10,600 Not Breached
Published: Thursday, 15 Jul 2010 1:29 AM ET

This article was retrieved from the CNBC contributor, Mr.Daryl Guppy reviewing his technical analysis view about current market trend and the comparison between 2008 financial crisis with 1930 financial crisis.

Seeing there's been quite a bit of interest in his recent comments on CNBC about the historical parallels between the Great Depression and the recent financial crisis, I thought it may be appropriate to elaborate further on the chart technicals behind the observation.

The causes may have been different, but the collapse of the U.S. markets in early 2008 followed the same behavioral patterns as the collapse in 1929. The recovery pattern seen in 2010, is also very similar to that developed in 1930.

The crash of the Dow Jones Industrials in 1929 was signaled by the development of a well defined head and shoulder pattern, seen most clearly in its monthly chart. It is a reliable pattern that captures the behavior of investors who are becoming increasingly disillusioned about the future prospects for economic growth.

The downside pattern targets in the 1929 Dow were exceeded with a fall of around 49% before the market recovered in 1930. The 2008 dow pattern targets were also exceeded with a market fall of around 52%.

In 1930, the market developed an inverted head and shoulder rebound pattern recovery that led to a 46% rise in the market. The Dow rebound in 2009 also developed from an inverted head and shoulder pattern. This was a powerful rise of around 69%.

The historical development of the recovery in the DOW in 1930 ended with a new head and shoulder pattern. This was followed by a rapid market decline that created the first part of a long term double dip pattern. This retreat also exceeded the pattern projection targets with a fall of 28%.

Fast forward to today, we're seeing the Dow is developing a new head and shoulder pattern which indicates a beginning of a bear market. The rally peaks in the Dow appear in January and May and June. The downside projection taken from the neckline of the pattern sets a target at 8,400, or a 25% decline.

A very bearish analysis using the pattern of retreat behavior in 1930 suggests the Dow could retreat to around 7,500 in 2010.

The head and shoulder pattern in the Dow and its downside targets, are invalidated with a sustainable rise above 10,600. A move above this level does not signal a resumption of the uptrend, but it does reduce the probability of a double dip.

It must be noted that while the behavioral patterns in 1930 and 2010 are similar, they don't necessary point to the same result. But it does sound a warning that markets could continue to stand on the edge of a precipice.

(Source: CNBC)