Friday, September 19, 2008

market trend: some interesting points for all to ponder on...

Oops! a two months lapse since my last update. Well, that end of August thingy did happened. When i posted my comment then, there was no news on budget being brought forward. And bang!, there it happened. Anybody caught on short would have soiled their underpants on that budget day. Sad to say that i was one of them( short Sept on 29th August at 1056.5). Ironic, isn't it? But i truly deserved it.. That's for going against myself. Once we get caught on the wrong way, it actually mean that we lose out on opportunity to make both ways on index trading. I sat on my paper loss and came September, the market started to turn negative again. I sat because the volume was unusually thin. We haven't see this volume for quite some time now. Anyway, I managed to make some money out of this trade. Covered my last lot at 1016 on September 15th because of the 916 hype about change in government. Moral of the story: It's alright to be smart but don't try to be too smart.
Enough said here. Just another repeated mistake on my part. Even after i realised my mistake, I had two chances to cover back even and turn long but i didn't react. Stubborn and indiscipline or whatsoever but it was blatant stupidity.
So, what now? Subprime woes still looms. Fannie & Freddie bailed out. Lehman Bros busted. AIG screwed up. Surprising? Not really though. It was all there waiting to be exposed right from the beginning. It was them living in state of denial.
So much have been written off and it is still not enough. Now, Paulson wants a balance sheet cleanup. All illiquid assets have to be written off from the balance sheet. Sounds familiar? Lets go back to Year 2000 with Mahathir-nomics... Tax free year with base accounting at Year 2000. In another words, it is balance sheet cleanup. All illiquid assets is being taken off from balance sheet through write-offs or transferred out somewhere. For our case, it was danaharta. From that base year, the future operating accounts and balance sheet will reflect positively. Yeah, taking it out from the accounting system and parked it somewhere off the record. Another way to buy time and create a positive perception toward the health of the the country's economy. Lets not talk about the scandals behind this move on the local front.
Allow me to do my layman view on this balance sheet cleanup move by the Fed. Illiquid assets from subprime carries in balance sheet at high value (probably at 90% of the asset valuation during the peak). With the housing market slump now, the value would have fallen by a conservative 50% ( many which are rotting away in ghostly residential estate). This is indeed a major one time write off. I don't really have the exact figure but this amount could very much be in the region between 15-20 trillion USD.
The message here is clear. It is time for us to lick our wounds and pray that our Real Economy is going to get us out of this subprime shit. That is for US and these will definitely takes time to materialize. To me, Dow is going to remain volatile for the time being with more downside until the state of their Real Economy dictates the direction of their capital market.
When US goes into that mode, then only we can see some actions in other part of the world. Simply because funds cannot lie ideal for long. There will be some creation of themes and hypes. Asia would still be their favourite haunt as Asia countries were spared from subprime woes.
And for us, we clearly have our own problem here. Politically, we are at a crossroad. Uncertainty looms. And it is not about who wins or who prevails at the end of it. It is about whoever that leads this country having the ability to reform and steer us away from this regulated system. Good human rights record, free market, good business climate and good governance are some of the important factors that funds look at. And until we straighten out ourselves, don't expect too much here. In fact, my calculation tells me we have 2-6 months to do so. That's based on cycles.
Technically speaking, our index broke 970 level momentarily with the help of a 4 over percent drop in Dow. That was a strong support level. Anytime when there is a breached of support level, a technical is inevitable. I did made my stand known to 2 friends but i was reluctant to commit due to our political scenario.
The USD247B injection into capital market would stabilize the world market momentarily. It is seen as a measure to soften the landing but the fact remains: damage has been done. Not forgetting the recent collapse in commodities derivatives... many funds got burnt and yet to unfold..
On the local front, again we need to monitor the volume. Overhead resistant is cap at 1035, 1056/57 and the strongest is at 1067/8. Again any breach of these level, do expect a major retracement. Catch my hint??
Personally, after missing that 970 yesterday, I would stay sideline for the moment. Once volume dwindle and resistant level hit, i might take a short and go for 20-30 points.
Again, the index futures is still a better instrument to make a punt. Forget about shares for the time being.

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