This week things are not getting any better. The Dow is touching 11,000 and the S&P is now at 1259. The sellers are in control with lasts weeks rally transforming itself into a dead cats bounce with no buyers willing to risk going in on dips. A few weeks ago 1000 on the KLSE was on the cards. Now, where that just seems like a pipedream. Expectation to Illusion - we learn a very important lesson in stock market psychology today on how quickly perceptions can change.
But I am not worried because I have positioned myself very lightly into the market and done relatively little buying over the past few weeks, except to sell into Tenaga today. I have however, been searching for a medium term safe haven and trying to figure out what is at play - and more importantly, where the next bull market is going to occur. Since everything has been going down so broadly that seems a bit like looking for a needle in a haystack, but here are my comments anyway, which I hope will provide some food for thought (down days are good for catching up on things like this and and reading and responding to emails…. anything but trading!) I should add that a lot of my comments, charts and ideas are drawn from my favourite blog so I have to give some credit where it's due.
Comments:
US$
Is this a mini rally or more to come? The bounce has certainly caught some off guard, but with fundamentals still weak and the latest Iraq scandal on the cards, I don't see the dollar finding strength anytime soon. However, as a de facto currency reserve, the world's governments may have no choice other than to continue putting their money into the dollar, and if the Fed keeps tightening then the dollar may struggle to sell off. The big fear is that respect is is economic growth declines and the Fed stops raising. If (and in my view, when) that happens, then we will really see a slide in the dollar.
OIL
It also perplexes me why people don't see any correlation between the dollar and oil. Oil is priced in dollars so if the dollar is weak, then the price of oil will go up. That does not necessarily mean that we are running out of oil. Secondly, it is important to realise that the biggest consumer of oil is the US, with China following closely as the fastest growing consumer. Should there be a slowdown in the demand by any of these countries, then the price of oil could easily drop to $35 (according to my favourite analysts in this review made last year). Now, despite jumping back up again this week, is oil likely to head higher in the coming months? That depends on whether you think that growth will continue or that the excesses of the past year will be purged as the world 'rebalances'. I favour the latter.
COMMODITIES
I believe that commodities are the safe haven to go into right now, except that the big fly in the ointment could be an oil sell-off and overdue correction in gold. However, they seem to have found support so I am looking to park some cash there for the moment.
US EQUITIES
Not much to say here, except that Utilities seem to have held in the past week due to expectant interest rate relief. I see them as a sort of safe haven of sorts, in the same batch as consumer staples (food, health etc.). In Malaysia, we had Tenaga. Gold also features.
and that brings us finally to:
KLSE
If you think we got it bad, just take a look at Latin America. Brazil, for example, rose almost 100% last year and got whacked more than 20% in these past few weeks. At least the KLSE only lost 4% in the past month. If last year is anything to go by, when the KLSE dropped from 950 to 880, this bear run could do the same. Despite all of our problems, I keep the faith..
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