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Stock market review (weekly) after 8th June, 2012.

Market is in clear bear phase because the way Chinese rate cut news develops in later part of this week that is compelling me to derive this conclusion. Chinese rate cut really surprised many; I think they have limited options especially considering the inflation and output reports, in fact experts are expecting more rate cuts in coming future. Through out this week Spanish bail-out story reflected in the market and still it is not clear to me. But they must be happy with their bound auction this week.

8th June, 2012
6/01/2012-6/08/2012 (%)
5/25/2012-6/01/2012 (%)

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

Last week I was expecting that if stock indexes maintain their initial support levels in early days then there is a chance that they may test higher levels in later days of this week. But Chinese market faced correction due to some of the macro reports or I would say that negative news effect but other markets were quite good.

Stock market forecast for coming week. 

Greece will again be the focus area in coming week due to their election so it is expected that all those concerns related to Spain will disappear if not in early days but sure in middle to later part of the coming week. At this point no one wishes to see again a deadlock related to Spain. Spanish outcomes will not get much time to affect the market because market will be worried about Greece.

 I don’t know what will be the outcome from Greece but I still believe that main problems are there, in other side of the Atlantic. If US economy comes into the track then all these PIIGs problems will be overshadowed. But here the problem is, in the era of globalization US itself is getting the heat of Euro zone debt problem. But beside that they have their own problems, like their huge debts, their economy which is not responding the way it is expected and their policy related limitations. But I think the biggest problem is the status of US dollar as a reserve currency. The way many big nations are accepting their own currency for bi-lateral trade (like recent agreement between China and Japan), it is sure that US dollar is loosing these businesses. Ultimately these excess dollars are going to return back in home, which is going to reduce the values of US dollar. I think considering these all matters Mr. Bernanke & co. is delaying QE-3 and if possible they will avoid it. (Do not forget to see - US Dollar & Stock Indexes will be the indicators for QE–3.)

What that means, are these problems never going to end! I am not seeing the light yet, but it is sure if Greece gives us a good outcome in their vote then we may think about that, unless there is no meaning. I still think it is good for Euro zone as well as overall financial market if Greece stays with Euro.

I talk to many investors and most of them are not yet ready to put their money on buying stocks but they are more confident about shorting on higher levels, this illustrates the true nature of the market. Many are talking about bearish Flag pattern, I don’t want to go into that debate but it is sure that many stock indexes are creating long-term bearish pattern. So, if technical study is true then those markets are going to see huge sell-off but it is hard to say when.

Drop in commodity prices are an indication of turmoil which global financial market is facing. Most of the stock indexes are not showing any particular trend, so in this type of market condition it is getting hard to predict the market in advance. Here it is better to take calls on daily basis. Anyway, let talk about different stock indexes.

Last week I was suspecting that if Dow Jones I.A. does not drop in early days of this week then there is more chance that DOW will test 12600 level in later part of this week.

Last few days moves in DOW were very encouraging but as I said in past it needs to break 12600 level clearly to set a new trend. I have a feeling that DOW is making a short-term bullish pattern though it will be clear in coming days and I will change my opinion about this bullish pattern if DOW breaks 12000 in the downside. If DOW really triggers the short-term bullish pattern then it can go above 13000 but for that it needs to break 12600 convincingly in coming days. In the upside its next resistance is at 12800 level. 
During last few weeks I was talking about two future options for DOW. Since it is unable to break 12600 so still it is not clear to me whether DOW is going to make lower highs & lower lows or it is going the make the medium term bullish pattern. In coming days if DOW fails to break 12600 level convincingly then it has more chance to drop and it is also little short-term over-bought condition. If these drops continue then we need to consider the lows of year 2011. But as DOW is following higher highs and higher lows trend (in long-term chart) from year 2009 so if it still maintains that trend then I don’t think that DOW will test 2011 low levels. Around 11860 is the 50% Fibonacci retracement level for DOW but if it goes more then 11506 is the 61.8% Fibonacci retracement level. I think for now the worse case scenario is 11200.

Last week, I was expecting that German DAX may make small moves to test 6200 level in later part of this week. It is still very frustrating that DAX is unable to cross 6200 level. When I compare DAX with others, I think many other stock indexes are showing the chances of making bullish patterns but DAX is lacking in this respect. It needs more time to show that type of pattern. But somehow if in later periods it develops the bullish pattern then it may test level above 6800. If DAX fails to break 6200 in early to middle of the coming week then it has more chance to continue with the lower highs & lower lows trend which it is following during couple of months. But the options of any reversal or some kind of bullish pattern will be there if DAX maintain the same level of last week which is above 5900. But if it goes below that then 5800 will be an important support level for DAX and if it breaks that then it has the option to test lower levels may be around 5400. So I will give emphasis on breaking 6200 level for showing any uptrend and 5900 level for any downtrend.

FTSE 100 has reacted on its very short-term bullish pattern which it formed during last few weeks. But it could not maintain that level.
In the upside level above 5600 looks far for now so first it has to cross 5500 (around 5524 is the 50% retracement level considering its May top). But these all come when it will show positive moves above 5400 for few more days, as right now it is facing resistance around 5450 level (5455 is the 38.2% retracement level).
So if it fails to cross 5524 level in early to middle days of the coming week then it has more chance to drop but here I will not surprise if it drops less. Because it looks to me that FTSE 100 is creating a reverse symmetrical triangle, though it will be wrong to come into a straight conclusion because it has the options to develop different other patterns too, therefore reaction can be deeper. I think coming days may give a clear indication.
FTSE is making a long to medium term bearish pattern which can take it near around 4500 level. So considering that I think FTSE has more chance to drop in future and I will think otherwise if it breaks 5600 level in the upside.

I was expecting that if Shanghai Composite breaks its 10 DMA then it has a chance to drop below 2300 level. Though it did not break 2240 yet but there is a chance that it may and thereby triggering the bearish pattern which can take it towards 2000 level. If this bearish pattern works out then I afraid that the above mentioned medium to long 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. It is in over-sold zone and considering that I don’t think that it will drop more from here. Initial days of the coming week are very important for Shanghai Composite and if it gives flat early days that does not mean that we are going to see reversal in later days of the coming week. I am little confused about Shanghai Composite, as the way they decouple this week.

South Korean KOSPI maintained 1750 level and it close almost flat this week so there is not much change in my views about it for coming week. 
Last few days movements are making me to think about a positive pattern. In coming days if it does not drop below around 1776.85 (or even from 1835 level) then it has a good chance to test higher levels, may be around 1950. But for any up moves it needs to cross 1850 level convincingly.
On the other hand it has a chance to move inside a reverse symmetrical triangle (if not any other bearish pattern, which is not clear now!), in this case the upper boundary will be below 1900 level for now and in the downside it may test lower levels. Things can be worse for KOSPI if it breaks 1650 level in the downside. KOSPI is making a medium to long-term bearish pattern and unless it crosses 2050 level in the upside I will not change my stand on this bearish pattern.

Last week I was suspecting that S&P/ASX 200 may test 3850–3900 level where as it bounced back from 3985 level but as we all know that every pattern may not react 100%.
It is getting some resistance around 4122 level and if S&P/ASX 200 does not break this level in coming days then I will think differently because it is making lower lows. Though it is in early stage but if it drops more than 3985 then it may be making a bearish trend.
On the other side if it does not drop below 3985 then it will be making a very short-term positive pattern which can take it around 4250 level but for that it needs to break the 4122 level which it failed to break during last few weeks. Here I must say that 4162 is its 38.2% retracement level considering its May top.
So 3985 is the level that needs to be watched and for any kind of upside break-out, the level is around 4122.

Reports due in coming days (from US)

Tuesday, 12th June, 2012 – Small Business Sentiment Index

Wednesday, 13th June, 2012 – Producer Price Index, Retail Sales.

Thursday, 14th June, 2012 –Unemployment Claims, Consumer Price Index.

Friday, 15th June, 2012 – NY State Mfg. Index, Industrial Production, Consumer Sentiment.

Bernank’s remarks were quite confusing because he is playing the same monotonous music. I don’t think that market is going to get anything in 20th June. Market is looking for two answers, when and what? So in this circumstance any other remark will not change the situation. In my earlier postings I told that being a stock trader of an Emerging nation I don’t support these QEs because of fundamental reasons. I believe, it will create asset backed inflation and bubbles as it did in past. In spite of that QE–3 is the need of the hour; otherwise markets have to suffer painful days ahead.

NOTEPlease see the disclaimer of this blog.


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