Wednesday, February 1, 2012

Market Analysis -- 1st Feb 12

Global stock markets started the year 2012 very positively ending the month of the year with a gain, STI up 9.84% due to mainly of optimism.  To be realistic, should be cautiously optimism rather than overly as the underlying issues that faced in 2011 ( EU debt crisis, US economy recovery in particular the high unemployment and slowing growth in Asian countries ) still persist.  Though recent events and economic data have shown improvement as compared with last year, it is still too early to be overly optimistic.

STI since hitting a low of 2,521.95 on 5th Oct 2011, it has rebounded 15.26% when it closed at 2.,906.69 on 31st Jan 2012.  Till now most still unsure of whether that level was the lowest but do not rule out of the possibility.  From October 2011 onwards, US economic data showing sign of improving, unemployment rate also came down to 8.5%, EU produced some measures to resolve the debt issue ( though not a quick-fix but definitely in the correct direction and just a matter of time to get the full issue resolve ) and Asian countries also improving on their economic situation with improving economic data in particular China avoid a hard landing in the process.  Asian countries also started to act to loosen monetary policies so as to spur economic growth.  Underlying problems still not fully resolve but global leaders aware of the systemic risk that could bring should no action is taken and that has more or less prevented further downside to the global economy and that is probably the best way to judge whether market has hit the bottom in October 2011.  Hence, do not rule out that possibility and maintain cautiously optimistic at the moment about the global economy.

With a sharp rebound since October 2011, global markets might have overshoot for the upside in the short-term and hence a very much needed pull back or correction is need so that markets can consolidate before heading higher or achieve a sustainable rally.  Come February, earning season for Singapore companies will be coming to an end and that probably is the period for market to consolidate.  In fact market consolidation has been a common sight after every earning season as fund managers adjust their portfolio according to the latest earning performance.

From a technical point of view, DJ achieved a golden cross when the 50d MA cut up to the 200d MA and that is a sign of bullish.  STI so far does not have that luxury but at least 1/3 of its component index stocks already established such a pattern and these stocks include Jardine C&C, JMH, JSH, F&N, KepCorp, SingTel, SPH, ComfortDelGro, etc.  Other stocks with strong fundamental that are not part of the index component do display such a pattern too.

For investors with a long-term view, with an option that last October was the bottom and maintain a cautiously optimistic view should embark on buying on dip or dollar-cost-average method targeting those strong fundamental stocks.

For investors with short-term view, it is a bit tricky as markets have rallied to a scenario that it is highly overbought and a pull back could be on the way and jumping in with short-term view could be get caught at the wrong end.  Monitoring the pull back to see where the support will be and wait for opportunity to enter would be a wiser move.

As a whole, 1H2012 should not be rosy but optimism is for 2H2012 in which most believe will be good.  Do monitor economic data and companies earning for 1H2012 closely and that will give us signal of what should be expected for 2H2012 ie is the optimism now justify ?

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