October Ends

The so called ‘worst month for stocks’ will finally be ending in a few days time.

So far, so good. Stocks ain’t crashing the way they were expected to. Stocks are still not at an attractive price that many are expecting. But will the market be moving up or down in the next month?

I have remained bullish for the past one month, and yes global market has been rallying before succumbing to a breakdown these few days (Not including STI, this laggard has not run up much, but corrected together with the rest of the world).

Now, from the movement of STI, I want to turn to become a bear, and short or sell into any rallies. My reason, being very simple:

1) When global market is rallying, we are not.
2) When corporates announce good earnings, it did not cause the market to move up as well.
3) But when a bit of bad news is announced, it drops fast.
4) Vol has become very light, funds have stopped buying.
5) Looking at US Side, see how bond yields fall in the last few days.

http://finance.yahoo.com/q/ta?s=^TNX&t=5d&l=on&z=m&q=l&p=&a=&c=

6) And compare it with the strength of USD.

http://quotes.ino.com/chart/?s=NYBOT_DX&v=w&w=15&t=l&a=2

7) VIX climbing steadily, poised for a break above 30 level.

http://sg.finance.yahoo.com/q/ta?s=^VIX&t=5d&l=on&z=m&q=l&p=&a=&c=

8 ) STI has broke its 50 days MA.

The sudden spike in USD could be a technical rebound since it has hit its major support, but I believe the sharp rebound in USD and sharp fall in bond yield could also indicate that funds are shifting into bonds. Bond yields and stocks normally moves inversely, thus such a big movement could means that funds are already getting ready for a correction, and are seeking for a safe haven, which is none other the the T-bonds and USD. Also, VIX is climbing steadily. The VIX is a widely used measure of market risk and is often referred to as the “investor fear gauge”. A value greater than 30 are generally associated with a large amount of volatility as a result of investor fear or uncertainty. Thus I think it is time to be caution. Of course, we may see STI rebounding, but I do not think it will be strong enough to break new highs anytime near.

To me, this is a healthy correction. I don’t foresee any crash, unless some major problem surfaces again. I would expect this correction to be at least 10%, so at least until STI dips to 2500 region, its 100 days MA, if not I would not be looking to buy on any dips.

Today US has announced better then expected GDP results, and the world largest economy is finally out of recession. Market is cheering on this news, but how long can this euphoria last?

But one thing for sure, on a macro level and a longer view, we are definitely on the road to recovery. (I refused to trust Elliot Waves theory this time that this correction will bring us down to below march 09 low in the next coming down wave) =)