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Stock market review (weekly) after 4th May, 2012.

Situation does not change much from last week; in fact it becomes more complicated after US jobs report. It could be better if markets would get an assurance from Mr. Draghi, as it got from Bernanke in past week. Spain’s bond auction was good but declined in German bund yields are indicating the overall situation of riskier assets. Germany is now holding an important position but this type of bad PMI report may create lot of problems not only for them but also for whole world.

4th May, 2012
4/27/2012-5/04/2012 (%)
4/20/2012-4/27/2012 (%)

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

On any bad news things become bad for Euro zone stock indexes but still many emerging markets are facing lot corrections. Australian rate cut was due, as I said that many times in my past reviews. I think market is expecting more rate cuts from RBA in coming future, especially after the lower growth forecast from RBA and when inflationary outlook is low. Chinese PMI report was good but many markets were closed in early days of this week so the effect was not much. Participation in the US job market fell to lowest level since December, 1981 so that 8.1% rate is not a comfortable situation at all.

Stock market forecast for coming week.
“Sell in May & go away” this line is creating fear in the mind of general investors. It is true that many times this is the fact but every time it may not repeat and this line is also not totally true for Emerging markets.

Many are saying that Emerging markets are facing corrections because they are seeing what is ahead of them!  I don’t believe all this political and macro things. I don’t think that time has come yet to say that EU will collapse; yes it is true that they are facing extremely hard times. I think what is going on and what will be, these all are laying grounds for big inflows which these Emerging markets are going to get in coming future.

Liquidity is one of the main ingredients behind January, 2012 rally, which market is lacking now. Earning season was good for companies around the world but inflation is not showing any improved picture yet. This inflation situation can deteriorate if any bad news comes from gulf-area. Election outcomes from France & Greece may affect the financial market in coming days. Monthly US jobs report was very important data for market and I think it may change lots of calculations. Here I must say that Friday’s jobs report may create lot of panic among retail and some high net worth investors or for those weak hands who are holding shares in between February end to April. I will think about crash if big institutes (who are mostly immune up to now) participate in that correction.

Let talk about some stock indexes.

Last week I told that Dow Jones I.A. is going to set the trend, it is getting a good resistance around 13300 level and its last day correction was big. If it able to break 13000-13050 level then next important support is at 12930. Now if it drops below 12900 then there is a possibility that it may test level below 12700, though this is subject to new bad news. I have a feeling that down is making a pattern and if it follows that then it can drop up to 12650–12700 level in the bottom end. I must say that for this moment worst case scenario for DOW is 11600.
If DOW turns around at some point of time then it will get resistance at 13200. But in early days of the coming week if it drops more then initial resistance will be at 13050–13100 level. Though all these resistance levels depend upon its moves in early days of the coming week. Investors may feel panic if DOW moves around 13000 –13150 level. I think person who has long position should cover it if DOW drops below 12900.

Last week I was not sure about any specific levels for German DAX in the upside, as it is in over-bought zone and I was expecting correction at some point of time. So now it looks to me that it may again test 6500 level in early days of this week and from there if it drops then there is a chance that it will test level 6400. Though it is in early stage but if it drops below 6500 level then it may follow lower highs and lower lows trend, which indicates bearish environment. In case of any big sell off we may see DAX below 6200.
If it drops in early days of the coming week then DAX may come under over-sold zone. So a reversal may come in middle to later part of the coming week, here also that 6500 level in important. If DAX maintains 6500 level then it has more chance to go upside in coming days. Then important level to watch is 6880, if DAX breaks that then it may again test higher levels and investor may cover their short-positions here. But this type of expectation is too much for now. I will give more emphasis on 6500 level for DAX.

In spite of being in over-bought position I was expecting that Shanghai Composite may test more in the upside. From March, 2012 end it is going up, so a correction is due. But I don’t think it will be a dip correction, indeed if any correction happens then important initial level to watch is 2385–2400. I will think about Shanghai Composite if it crosses 2300. I am still positive about the medium term bullish pattern of Shanghai Composite provided it does not go below 2130. On the contrary if Shanghai Composite able to maintain itself in early days of the coming week then it has a chance to trigger the bullish pattern which I talked during last few weeks. I think Shanghai Composite is in better position than many of its peers and if this bullish pattern works out then it can go above 2700.

I was expecting that Brazilian BOVESPA has more chance to drop. Now I think 59500 is a good support for it and if it breaks that then it can test level up to 54000. Technical indicators say that it can correct more. But BOVESPA may again try 62000 level in early days of the coming week but if it fails to do that then it has more chance to drop.


Reports due in coming days (from US)

Tuesday, 8th May, 2012 – Business Sentiment Index

Wednesday, 9th May, 2012 – Wholesale Trade

Thursday, 10th May, 2012 – Unemployment Claims, US Trade Deficit.

Friday, 11th May, 2012 – Producer Price Index, Consumer Sentiment.

Every politician will try to create a pleasant atmosphere before election and if the health of the nation is fundamentally weak, even then they must try to do window dressing. So considering this I think that we may expect a better environment for financial market before US presidential election. I think if something is going to come, then it will come during July–September this year, if not before. This is especially after considering yesterday’s US jobs report, irrespective of what recent US manufacturing reports showed or what some policy makers think. Matter will be more interesting if similar things come from both side of the Atlantic. Here an important question comes in my mind, will those be best for their respective economies or just a ………????

NOTEPlease see the disclaimer of this blog.


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