Monday, May 28, 2012

Are we out of the doldrums yet?

After a 3 months hiatus from the equities market thanks to a timely break to the West, I am back finally to a interesting market situation today. The Great Singapore Sale some call it. Exactly how much of a bargain are we getting from the market today and is this so cheap that we are going to ignore market momentum and news pouring out of Europe?

I prefer to base the analysis with the US Dow Jones chart where there is most liquidity and consequentially the one that gains the most benefit from bank withdrawals happening right now in Europe and ECB liquidity injections.

So what is the Dow chart telling us right now?

  1. Strong US - Evidently, the bull market is still clearly intact and the US has been on a recovery since the crisis in 2008. The plus here is in the market's strong belief as well as healthy statistical evidence that the US is going to be a key player to lead the world out of this crisis. 
  2. No, not out of the woods yet - Contrary to popular belief right now that stocks are at a cheap especially those of commodities that were badly hit this month and ending last, the momentum of this correct is still heavily downside biased. There is nothing to suggest that the Dow has reached really horrendous RSI or MACD levels that a cheap equities market is for the taking. Furthermore, prices are still uncomfortably above the 100w MA and sitting on the 55w MA precariously. 
  3. Volatility has increased but it is still LOW - Again, if you ever heard good traders speak - Anton Kreil is one of them - low market volatility is a boring and poor period to trade. To make good gains with bets (let's face it, however we argue, any stock market trade is but a bet after all) is to trade when volatility surges. In this case, note how the bollinger bands have been squeezing together.
Market Outlook
Despite the bad news still earmarked on most indicators, take light of the small white candlestick that has appeared on the lower bollinger band of last week's market action. Perhaps there might be a short bull rebound to reclaim ~13000 but it really depends on the US job market news to be announced this week. Nonetheless, any small news from Europe and supply of oil is going to further impact the market and drive it downwards further. 
The easiest way today is still downwards; take heed.

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