Tuesday, December 8, 2009

Bearish Confirmation

As I implied in my previous post, the simultaneous rallies of both the dollar and equities were quite suspect... and would need confirmation. Today may be the actual confirmation that the environment wherein both are inversely correlated is still intact - as the Dow is currently down triple digits. This is a very bad sign in the short-term, because despite the good employment numbers, the equity markets took a nose dive. It may mean that the economic numbers had already been priced in during the unusual rallies in October and November (both historically bad months), and now, people wise enough to buy during those months may just be selling into the news.

I guess Santa Claus isn't coming to town.

Anyway, despite my bearish feel for equities, there are still a lot of opportunities out there since the markets are still flush with cash. The key, again, is finding the strong issues (ADX > 30).

Friday, December 4, 2009

Dow 11,000?

October non-farm payroll jobs lost went down to -11,000 from -111,000 the previous month - an astonishing number given that the consensus estimated it to be at -125,000. The bullish data may be indicating that the Dow may reach 11,000 in the next few days/weeks. And we can go on even higher if the bearish traders on the sidelines walk their talk and start buying stocks (or covering shorts) now that employment numbers are improving.

What's quite surprising are the simultaneous rallies of both the dollar and equities, which the world hasn't seen in a while. What does this mean? Are we really at a crossroads wherein the inverse correlation between the dollar and equities will soon reverse? Or, is this unusual move telling us that the recent rally in equities is a mere head fake?

No one knows for sure. My stand is neutral. I did say a few days ago that I was already short-term bearish on the markets. But if all the significant indices (Hang Seng, Dow, Shanghai) break out of their patterns, along with a sustained move in the dollar, then I will change my view and be more bullish at least until the earnings season in January.

The Dow entered its current bull market when the dollar started its bear market last March:

Tuesday, December 1, 2009

Philippine Market Tip #2

MWC: Manila Water Corp.

Technicals: The stock has been bullishly consolidating at its highs for the past few weeks, and the MACD indicates (near 0 line) that it may explode soon. Moreover, MWC is a defensive stock, so, chances are, it will hold even if the market crashes.

Entry Price: 16-16.5
Target: 18
Cut: 15.5-15.75

I'm still all-in in MPI so I'm not going to execute this trade. :)

Impending Doom?

The heat of the Dubai debacle is slowly fading away, as markets rallied massively the past few days. The central bank of the UAE soothed fears by saying that it would back up the deposits of local and foreign banks in the area. It also became public knowledge that the potential losses of global banks in the event of a default by Dubai are relatively small compared to the hundreds of billions lost during the bursting of the US real estate bubble. However, despite the brief and muted response of the markets, we should all be wary of how "fragile" and "panicky" investors and traders are right now. Using the Chinese market as a reference, these sudden and unexpected big down days may indicate an impending deep correction.

As you can see from the chart below, the Shanghai Composite (represented by HK:2823) also went down by as much as 10% (intraday) last August as people sold into the rumor that the Chinese government would start draining liquidity to prevent overheating the economy. After the big down day, the market then rallied for 3 days(bargain hunters), breached new highs, before correcting heavily for a whole month.

In my previous post, I already mentioned that the safest immediate buy for the Dow and the Hang Seng is at the 130 day SMA. But that doesn't mean that you shouldn't trade the bounce. As you can see below, the Hang Seng itself went up by a thousand points in just a couple of days. It filled the "Dubai gap" and is now right smack at resistance (trendline and 32 day SMA). Within the next few days, I expect it to retest the 23,000 barrier or hit the parabolic resistance at around 22,800 before going down.

The Dow, although seems resilient, is still the laggard. There is still nothing wrong with it technically as it hasn't broken any major support areas. But you have to be cautious of the multiple bearish divergences (upward price channel + weakening MACD) that are showing. The Hang Seng had similar bearish omens before it broke down.

So yes, I'm already short-term bearish on the markets. I will continue trading since the Santa Claus rally may still bring us to new highs, but I will not carry heavy positions overnight.