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Stock market review (weekly) after 18th May, 2012.

Hearing different discussions in the early days of this week many were thinking that it is a matter of days that they will get the news of Greece exit from Euro, yet it does not! Defeat in the local election by Angela Merkel’s party and remarks of Draghi also fueled those discussions. On the other hand Spanish PM intensified the fear contagion risk by predicting the risk of losing access of debt market for his nation.

During couple weeks everyone is talking about Spanish banks, at first it was due to their exposure in the real estate sector and now due to rise in 10-year Spanish bond yields above 6%. This is because these banks bought huge amount of government debts through ECB’s cheap loan and when Spanish bond yields goes above 6%, they are making losses in their investments. But I think this is temporary problem because many other banks from different nations are also suffering the same consequences or in future they will suffer.

Situation can be quite understandable when we saw that Germany is getting bid around 1.5 times, in its bond auction this week, with such a low yield. Looks like investors are looking only for quality.

18th May, 2012
5/11/2012-5/18/2012 (%)
5/04/2012-5/11/2012 (%)

Australia S&P
Shanghai Com.
Hang Seng
Russia :Titans
Argentina: Merval
South Africa

Many markets were in oversold zone but expected reversal did not happen because Euro zone did not permit that. In the first day of the week markets got the news of CRR cut from China but Greek fear overshadowed it. In the later days of this week Moody’s downgrade of 16 Spanish banks has created plunge in Spanish banking stocks but it is good to see that later they recover to some extent. Upside movements of US dollar is making things hard for stock indexes.

Stock market forecast for coming week.

Right now there are lots of negatives which are denting the sentiment of the stock market. I don’t know whether Euro zone is going to see severe recession in coming days but they need to do something for their own and for rest of the world. I don’t think that market is anxiously looking on G–8 meeting. One good thing is Crude price is falling and this is better news for those nations which is facing inflationary problem.

Few weeks ago I was telling that “sell in May and go away” may not be true every time but up to now the month of May, 2012 is not showing any different result. Stock indexes are now in more over-sold zone, as technical indicators are saying but sometimes this means nothing because those technical indicators may remain in over-sold zone for long. As it looks like that this type of corrections may not see sharp reversal, what we are seeing that is one or two days up move and again a drop. Market is changing its nature so what we saw in past that may not work. But that does not mean that market will be in this condition for prolong period of time, market will bounce but it is difficult to predict the exact time. Now if we consider USD movements then I think we may see flat to small upward movements in early days of the coming week but things can change later.

In this type of market condition it is getting hard to predict the market in advance, here it is better to take call on day to day basis. Anyway, let talk about some stock indexes.

It is good to see that at last Dow Jones I.A. has finally trigger the bearish pattern, I was expecting DOW to test little higher levels in early days of this week but it decided to act on that bearish pattern form the starting. On my 4th may, 2012 forecast I mentioned that if DOW drops below 12900, investors should cover their long positions and I think that was right call.
As I mentioned in past week that if bearish pattern triggers then it has the option to go up to 12100, here I must say that 12200 is acting as a good support for DOW. So it may give some flat movements in early days and then it has a chance to bounce back from that level. Here it may get initial resistance at 12600 and better one is at below 12800. Even if DOW starts upward movement from early days of the coming week then also those will be the resistance level. But if DOW chooses to drop below 12100 then next important support level is 11800. For coming week emphasis should be given on 12200 level.
Last day I was talking about a bullish pattern which I think that DOW is forming. Though it will be good if I talk less about that because that is in initial stage and also there is a chance that DOW will start making lower highs and lower lows from here, so it needs time to say any specific trend about future.

Last week I told that if German DAX if unable to cross 6600 level then it will drop, it is good to see that DAX close just above the level of 6200 which I mentioned.
Technical indicators are showing that DAX is in over-sold zone but it has the option to go more in the downside. Therefore 6100 can act as a good support for DAX. In fact in past 6100 was a good support for it and if DAX breaks that then 6000 is next support level. In worse case scenario, 5800 will be an important support level for DAX.
DAX is still following lower highs and lower lows pattern. Here I have a feeling that it may try to make a base at around 6200 level and early days of the coming week may give a signal of that. If it makes a base here then we may expect a reversal of trend from coming Tuesday to Wednesday. But I am not fully confident about that reversal, especially about the levels. It is an aggressive call, so for general investors the best way is to wait for couple of days so that if DAX drops. Therefore they need to watch movements around 6100 level very closely.

Shanghai Composite has tested lower levels and looks like that it is trying to make a base at around 2340 level.
The bullish pattern that I said during last few weeks is still open for it and it can test level above 2400. But during last few days its moves compel me to think about a bearish pattern too. In fact if it breaks around 2240 level then it may trigger that bearish pattern, which can take it towards 2000 level. If this bearish pattern works out then I afraid that the above mentioned medium term bullish pattern will not work for shanghai composite. Because if it breaks 2130 level in the downside then it will be out of that bullish pattern. I am not expecting much movement during early days of the coming week. Therefore I will be giving emphasis on its move during middle to later part of the coming week, which can indicate us about the future.

This is the first time I am talking about Australian S&P/ TSX Composite Index. Long-term chart says that it is forming a big H&S pattern and coming future is going to say whether it is going to trigger or not.
Now I am not sure about the H&S pattern but it is forming medium-term bearish pattern. It looks to me that this week it has already triggered this bearish pattern and it can drop more. If this bearish pattern works out then S&P/ TSX Composite Index can go below 10500.
But for coming week, I have a feeling that we may see a reversal may be around 11500 level and technical indicators are supporting that. But even we get the short-term reversal it is due to drop more on its medium term bearish figure and that is in spite of being in over-sold zone.

Reports due in coming days (from US)

Monday, 21st May, 2012 – Chic. Fed Nat. Index

Tuesday, 22nd May, 2012 – Existing Home Sales

Wednesday, 23rd May, 2012 – New Home Sales, Home Price Index.

Thursday, 24th May, 2012 – Unemployment Claims, Durable Goods Orders, Kansas Fed Index.

Friday, 25th May, 2012 – Consumer Sentiment

For the sake of discussion even if we consider that in coming future Greece will exit euro, then all things will not change dramatically. I am talking about contagion risk, the way the bond yields of PIIGS nations are increasing, I think even if Greece exit from euro there will not be much change on those yield figures. In fact Greece exit may open a new global problem because in that circumstance problem may cross Euro zone boundary. And then an important question will come, who is after Greece?  Because there are lots of names, let say Portugal, Ireland, Spain, Italy…… Japans ……. US……….!!!!!!

NOTEPlease see the disclaimer of this blog.


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