Global stock markets have lately rebound from their respective early March low with at least 20% after news of US banks expecting profitable 1Q, US Government plan to clear up the toxic assets of the banks and the G20 meeting. Much still in debate whether current rally is just another bear market rally or an emerging new bull. Analysts' views are still pretty much divided on this.
Emerging Bull
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By the technical definition of 20% rebound, STI and other global indexes already exceeded this value and some individual stocks like those in the Property, Commodity and Offshore/Marine sector are even trading at 30% rebound range plus above the 200d EMA level.
China after injecting 4 trillion yuan of stimulus package is starting to show effect as for the past weeks, it economic data has shown sign of recovery. US economic data though still in the ugly range but have show sign of slow decline in those data. These are the pretty comforting signs that global economy might be on the mend and since stock market is renowned as a forward indicator, the present rally could signal global recovery in 2H09 and hence market bottom in the early March period.
Stock market rallied up with large volume but correct down with small volume coupling with a drop in gold price fit pretty well into the definition of a bull market. In general for past weeks, the number of down days for a market is about 1/3 that of up days.
Bear Rally
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From fundamental point of view, US economy is not out of the wood yet. It recent released of unemployment rate of 8.5% ( if including part-time worker and those gave up looking for job months ago, the unemployment could be in the range of around 13% ) still consider bad as people still have a worry of job security and keeping cash tight instead of spending. Without spending, the country economy cannot pick up and less talk about recovery. The automaker companies General Motors and Chrysler still facing the prospect of bankruptcy. If so, the unemployment rate will continue to rise and other companies having business association with the automakers will be directly affected too. The US banks still need to clear up their balance sheet including how to write-off or dispose of the toxic assets.
Market rebound fiercely could be partly due to stocks were depressed to a deeply oversold region since start of the year till early March and the present rally is none other than a long awaited technical rebound from oversold.
With the US Government keeps on printing money to save the economy, the world is now inflated with USD and with lot of cash in the sideline, risk of inflation is running high, bank interest rate still low, the only way the cash that could channel into is stock market.
Looking Ahead
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As much as analysts and economists are still divided about the view of bear rally or emerging bull, there are couple of factors that could decide the direction within these 2 months.
1. Earning season has just started and market will be closely monitored how worse those set of results will be and what are the companies' projection for the remaining of 2009. So far US Aloca has reported a worse than expected earning and STI's Ezra also reported a worse than expected set of result. The coming week will see US banks like JP Morgan and Citigroup reporting their earnings. SPH will be the first local blue chips that roll out it set of result on Monday.
2. Economic data, Singapore 1Q09 GDP and unemployment rate this week. China 1Q09 GDP also this week. US 1Q09 GDP and unemployment rate by end of this month. Most expected worse and the thing to look out for is the rate of decline of this data as compared to the previous quarter.
3. US stress test result for the banks at end of the month. This should be market sensitive set of result as it ultimately determine whether the banks are in need of capital. If the test result is another ugly set then global stock markets will react badly to it as new worries of the health of US financial system will resurface again.
4. US automaker General Motors and Chrysler fate will be again in the focus. If the US Government does not approve on the restructuring plan from the 2 companies, there will be no bailout funds for both and this will lead to both the companies potentially filing for bankruptcy. The impact of that will be very hurting to the US economy especially the unemployment rate.
Strategies
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Technically, global indexes are very near to the resistance level, if ability to breakout from there, might confirm as an emerging bull but if fails, it will be just another bear market rally. For the moment, DJI resistance level is at 8200, S&P500 at 880, HSI at 15,000 and STI at 1,930. Current indexes are very near these resistance levels and a breakout from these levels might see a change in the overall picture of global markets. Investors who have bought during the early March period and still holding might want to continue to hold on to their position and see how global markets fare when meeting the resistance levels. Failure to break those levels should consider taking profit from it. For investors who are still eager to jump in presently, risk level is higher than rewards, should maintain cautious and consider investing small quantity. Investors who have a view that current rally is none other than bear rally could potentially place short position near the resistance level.
