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Stock market review (weekly) after 6th July, 2012.

If I consider that expectation of rate cuts and further stimulus were the cause of rally in early days of this week then I would say that market is tired to go upside without any further fuel from macros. This week Emerging markets performed better that developed markets, whereas Spain’s IBEX index was in pressure.        

6th July, 2012
6/29/2012-7/6/2012 (%)
6/22/2012-6/29/2012 (%)

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

Most markets were good in early to middle of this week but in last day it was US payroll report that created concern regarding the economic recovery. As we saw that Spanish 10-year yield again went up above 7% but it is good to see successful Irish bond auction. I was little bit surprise that market has not shown much reaction on Chinese & ECB’s rate cut decision, probably these are already been discounted.

Stock market forecast for coming week.

Few weeks ago experts were talking about big sell-off but it looks to me that game is changing, as now many indexes are looking better. I think that only aggressive investors may take a call now and for others it is better to look on March top. Coming week is very important for these stock indexes because most of them are in a position where from they can go either way. So therefore, specific levels are going to be the key for any decision making.

Though I am talking about either direction but if someone has to judge on the basis of macros then condition has not change much. If we consider that those Chinese and ECB rates cuts have already discounted then this week’s IMF warning, US and Euro zone reports are something which are not good for market and even we can consider the macro reports from Emerging nations for this purpose. The way, the number of members for bail-out fund is increasing in Euro zone, is not reflecting a better environment.

So how these stock indexes will run because ultimately what needs for a strong run, is the good fundamentals. That means what we have seen in last few weeks in most of stock indexes are only short build up! I don’t know for sure but for some nations there are little long positions created in index future but that can be very disguising for investors if they consider the volume. Most of the stock developed nations showed more than 61.8% retracement (considering May top) where as many indexes like Shanghai Composite are lagging in this matter.

Now in this condition if we consider Euro & USD then more pains may be waiting there for coming week. USD makes a short-term pattern which may take it towards 84.5 and if it triggers the pattern quickly then early to middle days of the coming week may remain negative for market and obviously this will be true if USD maintains the same relation with the market. Liquidity may again be a problem in coming days, as investors may not participate in these higher ranges when the atmosphere is again turning into negative.

Let talk about different stock indexes.

Dow Jones I.A. makes a positive pattern and it is due to act on that but like many other indexes it is not triggering. 
If that bullish pattern works out then DOW can test level above 13400. Last day’s close was better, considering its low. So early days of the coming week are very important for DOW, if it maintains 12750 level then it has more chance to trigger the bullish pattern. From June, DOW is moving upside and there is a chance that it may make higher highs and if that is true then we are going to see positive moves from it in coming days.
On the other side if DOW breaks 12750 level in early days then it will get support at 12600 level but if it drops more then it will get good support at around 12400 level. Here I must say that it has a chance of making a short-term bearish pattern if it tests levels around 12400, though it is in initial stage.

This week’s higher levels in German DAX makes it comparable to other leading indexes in developed nations, on basis of reversal from June low. DAX made a positive pattern in last week and it has acted to some extent on that. If DAX completely acts on that pattern then it can go up to around 6800. Last day it faced little correction, now it is very important for DAX to maintain 6400 level so that it can make higher highs.
In early days if DAX breaks 6400 level then it can drop more, therefore 6300 will be its initial support area. Here I must say that in the downside if it tests 6150 level then it may create a bearish pattern but this is a very early call.

FTSE 100 broke crucial 5600 level this week, now important thing for FTSE is to stay above 5600 level. It is getting resistance around 5700 level but as it looks like that FTSE has created a bullish pattern and if that pattern works out then it can go around 5900 level. Here I must mentioned that if FTSE breaks 6000 level then in technical term it will not act on its medium to long-term bearish pattern which I talked in past.
In the early days of the coming week if FTSE drops from here and re-test 5450 level then it has a chance of creating a bearish pattern, though it is in initial stage. I have a feeling that we may see little correction but not at 5450 level because from last few weeks it is creating higher highs and higher lows and if it continues that trend then ultimately it has more chance to test higher levels. So it is very important for FTSE to stay above 5600 level in early days of the coming week so that it can trigger the bullish pattern.

During couple of weeks Shanghai Composite is decoupling to some extent with most its peers. It is good to see that Shanghai Composite did not fall much and it looks to me that it is getting some kind of support around 2190 level. As I said in past that it will trigger the short to medium term bearish pattern if it crosses 2240 level, so now it has a chance to drop more. 2150 level can act as a support for Shanghai Composite. If this bearish pattern works out completely then it will not act on medium to long term bullish pattern which I mentioned in past weeks. Because in the downside if it breaks 2130 level then it will be technically out of that bullish pattern.
Last day it made a strong move and to some extent it looks like that Shanghai Composite makes a very short-term double bottom, so if that works out then we may expect a change of situation. But if it fails to break 2240 resistance then it may drop much.

Looks like South Korean KOSPI is making a positive pattern and it can trigger that if it breaks 1900 level in the upside, this positive pattern can take it towards 2000 level. This week KOSPI was little disappointing comparing to its last Friday’s move. Now in early days of the coming week if it goes below that 1850 level then the chance of triggering the bullish pattern is less.
If KOSPI drops below 1800 then it may continue its reverse symmetrical triangle or it may create a new bearish pattern which is not clear yet but that level is very important 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 about this bearish pattern.
If it maintains 1850 level in the early days then there is a good chance of breaking 1900 level may come at later days.

Finally S&P/ASX 200 goes to its 38.2% retracement level but still it is not showing any specific trend. During last few months its moves reflect that it is following a reverse symmetrical triangle but I will not be surprise if it ends that in coming week by testing level above 4200.
Last week I was unable to look on this index but as I am seeing now it looks to me that S&P/ASX makes a short-term positive pattern which can take it around 4300 level. But I will not be surprise if it re-tests levels around 4100 again in early days of the coming week. Since it is in over-bought zone so if it drops more then I will be emphasizing on reverse symmetrical triangle than that positive pattern, in fact in the downside it has an option of creating a short-term bearish pattern.

Reports due in coming days (from US)

Tuesday, 10th July, 2012 – Small Business Optimism

Wednesday, 11th July, 2012 – US Trade Deficit, FOMC Minutes.

Thursday, 12th July, 2012 – Unemployment Claims

Friday, 13th July, 2012 – Producer Price Index, Consumer Sentiment.

This week’s rate cuts produced almost nothing but US authorities must be thinking more after yesterday’s payroll data. In this moment most of those so called big events are very short-lived, as market is reacting hardly for few days on those events. As I said in past that US authority must be thinking about this and gradually that may stand as a big obstacle for QE-3.
Some of the base metal prices have been bottomed out to some extent therefore renewed buying interest from nations like China can be a good sign.

NOTEPlease see the disclaimer of this blog.


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