Sunday, September 30, 2012

Are We Setting Up for A Fall? - Weekly Update

Exuberance aside, the market seems to have fully digested the QE3 impact and traders have already began looking for other news sources to fuel their trading activities. In Singapore, the STI has done fabulously well over the last 3-4 weeks, outperforming the Dow and HS indices. 

Market participants that I have generally been speaking with these days seem to have a changed perspective of the upcoming 4th quarter of the year of one being optimistic and rally-like. Reason being: QE3 money will finally find its way into the money system globally and start to push up prices of commodities. Growing tensions in the Middle East and a looming war between Israel and Iran are threatening oil prices to levels past 100$US per barrel. This is still slightly good news for the badly battered commodity stocks and oil counters in Singapore and a rally in these pillars of Singapore economy looks imminent. 

Prices do not lie, don't they? And the fact that they are at their highest levels since the year start rally for most stock markets surely must tell us that people are predicting further upside. 

But wait, things are never as simple as they are usually. Traders know with ample information that the fiscal cliff is around the corner and it may be a rocky road ahead. Very rocky indeed should US politics fail to achieve a sort of consensus and delay action, as we have seen from their polarized political scene over the last decade. 

Technically, the STI (see chart below) seems to be redo-ing a pattern it was familiar with in the year start rally. With prices hanging at high levels and the MACD decreasing, it soon found itself in a huge slide back down to 2700 by June. Chances are people are jumping fervently onto the bandwagon today with smarter traders winding down positions in hordes lately. That explains the relatively unchanged levels since 3-4 weeks ago as well as the high volumes. MACD has been sliding downwards despite being provided a short respite by QE3. In the short run and near term, I am definitely not betting against the downtrend. Just so that I am on the safe side.

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