the Juice weekly vol. 1

EDITOR'S NOTE

Volume 1 of the Juice weekly is here on the soft launch of market-juice.

In this weekly note, we shall be covering all the Juice in charts, banters, news and anything noteworthy in the markets.
Do give us your feedback to help us improve this note to you.
Have a great weekend!


FEATURE

Chart of the week

In our first edition, we shall look at one of the leading benchmark indices of the world, the S&P 500

S&P Daily Candlesticks

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S&P Weekly Candlesticks

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We shall do our charting covering the following factors:
Candles: Dark candle momentum may be set to continue both on the Daily and Weekly
Moving Averages: MAs on the Daily have since give a -ve cross while on the Weekly there seems to be hope for another rebound
Oscillators (RSI and Stochastics): Daily oscillators are oversold while Weekly
Ichimoku Overlay: Price action is trading under the could, -ve signs both on the Daily and Weekly. Chikou Span has had a negative cross which may be set to continue as well

Some basics on the Ichimoku Overlay:
Tenkan Sen (Similar to Shorter term moving average)
Kijun Sen (Similar to Longer term moving average)
Ichimoku cloud (Support and resistance indicator)
Chikou Span (Lagging indicator)

Verdict: Market could have more weakness in the coming week while some strength remains in the coming month. As such, the probability of a large crash moving forward is relatively low while there exists a probability of a short-term bounce in the coming month. However, the strength of bounce may not be strong.

Do note that the above is just technical analysis. A more comprehensive analysis will require fundamental valuation of index components and also the analysis of market behaviour (based on psychology instead of charts). And this is beyond the scope of this section.


Banter
These points are excerpts from a coffee shop discussion with an interest-rate swap dealer:

1) Banks are increasing lending rates and tightening credit limits. They seem to be reducing risk
2) This is not normal as banks would want to lend more if interest rates can be increased. They will make more money getting more interest on their lending. Reducing credit limits are contradicting
3) Highly leveraged individuals or businesses may be more badly affected

Comment: A rather bleak and depressing discussion. The effects of which may only be felt towards the middle of 2012. As for now, let's enjoy the ride in the markets while keeping tabs to conserve for the future

Market Views 24 November 2011

Click to enlarge the table above

ANNOUNCEMENTS

Do take note that today is Thanksgiving Day in the US. US markets are closed on Thursday and have a half day on Friday

IDEAS

Macro
Germany failed to receive sufficient bids at a debt sale, adding to concern Europe’s crisis is worsening and driving away investors from risky assets.
Comment: Germany is considered the safest country in the Euro-zone and government debt is the safest investable asset other than keeping cash itself. If not enough investors are willing to buy German debt, it just goes to show how risk adverse the market is

Flow data suggests
1) More interest in cash than anything else (from the movement in Currencies)
2) There is ONLY interest in buying US Treasuries and not other Fixed Income instruments
3) Negative flows have begun to show in Equities across the world
Comment: We can see where this is going. Previously, we have hypothesized that there may be a switch flows to other asset classes as markets move sideways. However, the situation of Buy USD and Buy US Treasuries seem to be the theme as investors seek to protect their money at least until year's end. Currently there is also a significant -ve flow is AUD while the Australian stock market still sees +ve flow. Investors with a more global outlook may seek to go short on Australian stocks as flows may reverse in-line with the rest of the globe

Sources: Bloomberg, Reuters, WSJ, The Business Times, Analyst Reports, Company Announcements

Short Memory, Quick Reaction

Today's Market Action
In the news today, various sources have voiced out opinions that eased yesterday's fears and the US market reversed. This has sparked our local market to gain a solid 31.00 points to 2917.62.



From the chart above, the HSI seems to be experiencing more volatility than the STI. The Nikkei which closed a little earlier did not get to experience the rebound. Markets are currently still closely coupled.

Blue-chips ruled the Top Gainers while index Call Warrants rules TOp % Gainers. On the other hand, Put Warrants dominated both the Top Losers and Top % Losers.

Insights and Opinion



Nothing much happening now is changing the short term range outlook. I read an article about the softening of the commodities market today. Hard commodity prices seem set to correct themselves especially for crude oil, which analysts think, will return to its fair value later in the year to surge again early next year. Not much to comment about commodities as I am not an expert, however, the effects of this could be beneficial to the equities market which everyone seems to be underweighting now.

The major indices around the world have been negatively correlated to the price of oil and even gold. If these hard commodities are set to soften in prices later in the year, we can well expect a late year rally in equities. Even though it is hard to say when this will happen, it may be beneficial to collect what people are dumping now, equities. However, we do have to keep in mind that not everything is very cheap even now when the market is not in a strong uptrend. In fact, most counters in the Singapore market are hanging in a "neither expensive nor cheap, no one can tell what is going to happen so don't rush in" state.

Even though the current sentiment is to hold cash, I cannot help but think that cash in my bank account is depreciating at a rate of about 6% this year. When interest rates are low, fixed income instruments are not attractive. Reasons: 1) At low yields, fixed income instruments are relatively expensive. 2) Liquidity is not optimal (At least for me. As a calculative risk taker, you can see where my interests lie).

Round Bottom Phenomenon?

After 6 "black candle" sessions, there is finally a white candle. Well, when there is a low, a little perk is what we can expect. The market closed on Friday at 2892.54, up 12.09 points from Thursday in a relatively weak upswing. Just when you think it is headed for doom, it crawls back after 330pm.

Right now, I would turn my sight on the US markets. The Singapore market is still reacting to how the US market has moved the night before.

The key word now is INFLATION. Such a simple concept that we often take for granted when all is fine and dandy. Here, I would like to take the opportunity of introducing Mosaic Theory. Mosaic Theory is an idea that people can piece together a picture of what is happening by putting together bits of random, seemingly unrelated information. By putting various sources of information together, here is my opinion of what is happening:

Commodity prices are obviously rising and this has not only driven inflation but also interest in the commodity market. Speculation can be expected to drive prices much higher if no intervention takes place for the short term. The root of all evil now is Oil. Oil is a necessity not only for energy purposes but also for transportation and cooking and it is what we eat too. If oil prices continue to skyrocket, which it probably will in the short term, there is no end to this inflation. Sounds like a non statement? Well, the thing is, I believe there is a price we are all willing to pay for oil and there is a conviction to increase production somehow and also a conviction of commercialising alternative sources of energy. Keeping this in mind, the high oil price will only make more expensive sources of energy more viable and put a stop to this frenzy soon.

That is easier said than done but the point is, the markets are not about to recover that quickly. This further supports my inclination to believe those that talk about a long recovery.

Good news for all. This also means that people have a longer time to seize opportunities when they come. We are all trying to spot a bottom but we don't have to. We just need the guts to tell ourselves to take the plunge in a bad market whether it is early or late and profit in a longer run.

Once again, this is an opinion. Readers, please feel free to challenge or question it. There have been no comments so far but it is welcome to spark a more lively platform.

Creeping at a low

The market crept at a low after it gapped lower in the morning. It finished at its lowest in the past 8 sessions at 3042.96. This followed Friday's drop in the US markets.

A 6-month chart of the STI shows a downtrend that would probably find its way down to around 2800 points. No fret here. A range market seems to be highly probable, unless the market breaks its support of around 2750. If the Bear is in, it shall be slamming the market below its support.

Looking on the bright side, buyers can look forward to another buy session coming soon in May. Technically, from a wave principle perspective, this could be the last bump in the Bear trend. There is also a good chance that Leather (or Beef) shall be in vogue thereafter and last for a good few months for us, small fries, to surf on a wave.

In contrast to employment trends, the stock markets are leading economic indicators. Fundamentally in the news, the US expects to pull out from this momentary recession in the second half. This positive sentiment may well bring a ray of hope to the markets to fulfill this self-fulling prophesy.

Inflation and you

Inflation. The topic that has everyone talking recently. People are getting more concerned about the value of their money, their assets, their pay and the list goes on. Thursday, the STI closed in a black candle. I have not much to comment on that given that I have no change in my outlook for now. I shall use this entry to discuss a topic which I promised to discuss.

I guess everyone knows what is inflation. Basically, the prices of things go up. Consequently, the money we possess buys us less things.

Inflation is the reason I invest my money. One has to do something to my money in order to maintain its value. A savings account that gives me a 0.25% return annually means that my savings devalues at the rate of (Inflation rate - 0.25)%. This is not good because at a rate of 4%, it will half in 20 years and become a quarter of its current value if I retire 40 years later!

This covers the first 2 concerns listed above and now for the third...

Inflation causes people to panic about their pay. "My earning power is reduced if my pay does not increase more than the inflation rate!" people say. The cruel reality is, that if people maintain the same level of disposable income in a high inflationary environment, prices will continuously be driven upwards. Businesses will find it expensive to produce and supplies do not increase as drastically as demand. This leads us to another cruel reality when it comes to increments. If the proposition above holds true, businesses have no reason to give better increments for 2 reasons: 1) that the inflationary environment will continue and, as a result, drive up operating costs and reduce profits. 2) Profits will be further reduced if human capital costs increase due to increments. There will be no sense in giving staff more than the business can profit. For example, if my profits are 5% before budgeting for increments, there is no reason in giving my staff increments greater than 5% because my business has not been growing that rapidly.

The markets have been uncertain and crawling at a low. The outlook for the coming months is not very bright either. What will you do if you own a business?

2 black crows and counting...

In a time of crisis, capital markets are closely correlated i.e. their betas with respect to one another tends to "1". The markets have been heading south at the same time. The market indicators in my Tiger Dashboard show 5 blue-chips and 5 major indices all in the red for Tuesday and Wednesday. In Asia, markets have been falling with the Hang Seng at the lead, losing 1.35% and the Nikkei close behind with a 1.05% loss on Wednesday.

The STI shed 40.70 points on Wednesday after a good morning of treading above the water. It has been 2 black crows and I expect to see another one coming. The next resistance point to break is 3000 points. Once it starts trading consistently below this mark, I would expect it to remain below for a few months to come.

Unemployment and the market

Today, I shall skip chatting about the 51.50 point loss in the STI by writing on a more interesting topic of employment.

Unemployment rates have increased recently and this tells a good sign. Economists use employment rates as a gauge of market conditions. When the economy is good, there is more work to be done, hence more jobs and a higher level of employment. In a downturn or recession, the opposite happens. Interestingly, as businesses take a little time to respond to market changes, there is a lag between the market and employment. Employment rates can hence be a lagging indicator of economic and market conditions. When unemployment rates show an all time high, i.e. employment is low, this will be a lag from a low in the markets. This implies that market lows are over and we can expect a better outlook. However, the assumption that employment has reached an all time low is questionable.

Globally, we see that hiring has slowed down and that businesses are keeping a tight budget for manpower. We can expect this phenomenon to sustain for the next 12 months as annual business cycles determine such measures.

I shall be covering the topic of "Inflation" in the coming days if the markets show no interesting signs. Today's big black candle does not affect my outlook as it is still within range of the market movements of the past 5 trading days.