Tuesday, October 14, 2008

Global Markets Rebounded: Is The Worst Over??

Dow up by 11% last night. Europe all up between 8-12%. All up on news of Europe bail-out plans for banks couple with the expectation that Fed's announcement over the utilization of US250billion of the US700billion rescue package today.
Only on Friday (3:43 Malaysian time), I made a call in my post:

For traders, I would suggest all of you to take a look at the S&P 500. You may consider taking a calculated risk to call for a buy when S&P 500 hit 800 and below. Why the 800 level? Layman instinct. But the truth is... remember last year when someone took a US1B bet on S&P 500 futures to hit 800 points by a certain period? See, so simple from layman. I just take that as a guide. Crude may bottom out after hitting around the US77 mark.

And on Friday, S&P500 hit a low of 839.80 before staging a rebound. Crude oil closed at US77.70. Well, it was slightly off but given the panic that plagued the glodal equities markets at that time, the timing and the margin of error can be considered reasonable. Again, the timing of entry is important. If you would have committed yourself a day or two days earlier, you would have panic sold by early part of Friday when the Dow at one point was down more than 700 points. So you must understand, one cannot afford to get his timing wrong especially in this volatile market environment. You would be pushed to make all the wrong decisions.

What would happen from now? Is the worst over? Buy on rumours, Sell on news?
Let me start off by answering 'Is the worst over?' question. These facts remained. 1) Real economy remains gloomy. 2) Rescue package is insufficient. 3) Serious damage has been done. Based on the following, I would foresee a market trend where Dow would rangebound temporarily within the 8300-10600 range more towards a near-term, medium term and long term downside biased. We are still staring at the door of a Mother of All Depression. What IMF and G7 could do is to soften this landing. Now that they have committed themselves to rescue banks, what is left for them to do is to pray that this could work. Chances are slim here.
On the local front, we are more on our own. Foreign involvement in local market is next to none. Political uncertainties coupled with administration incompetency could only worsen the situation. Forget about Nor Mohammed Yakcop statement over the government's confidence on the country's ability to register growth. He is talking cock like singing song. Who is he trying to lie to? Government spending stalled, local businesses facing slowdown coupled with higher costs, etc. etc.. I supposed he meant Umnoputra growth through pricey projects and purchases. Maybank-BII is definitely one of them. A deal that made many riches from Malaysia to Indonesia via Singapore. Public money again being misused to add to their coffers.
Cash is still king. Not time for one to depart with it yet.
For futures traders, I am at a lost now. Personally, I would more or less favour a short on strength approach. Patience is Virtue.


ctchoo said...

I agree with your caution. Since Monday there has been a positive reaction. But that's it, a reaction. The rescue packages are good. But you and I are in good company, even Paul Krugman lauds the rescue packages and advises caution. Those not exposed to the markets should only nibble. No big bites, please! Better still, stay sidelined until the coast is clear.

Good analysis, Whisperer.

TheWhisperer said...

Trying my layman best using rule of thumb.

Ironically, rule of thumb have been breached many times since March 07. I thought it was a new technique for the new age. It was merely a power play by Yen Carry trade. And it is through these power play they unwind. Thus, leaving a vast vacuum in the global banking system. That should more or less gives us a clearer picture of this crisis today.

I don't really know who is behind this Yen Carry. It was very well planned and well executed.

An economic warfare which I heard about many years ago. 3rd world war, they said. No weapons. Just exploit the system.

Now, I understood after seeing it unfolded.