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Saturday, December 13, 2008

Where is the Dow going?

Where is the Dow going? by Zhuge Liang

Knowing where the Dow is going will help us gauge the KLCI

We have been saying all this while that sooner or
very much later, the KLCI will eventually follow where global markets are going. Recently, the KLCI was 3 weeks late in joining the global equity recovery 2 days ago. Now, we are faced with the awkward fact that global markets may start to correct, just days after the KLCI decided to begin its rally. Hence the sell into strength call in the KLCI yesterday.

Dow Jones : Descending Triangle a bad sign for global markets
To get a better understanding of where global markets are going, let’s have a look at the Dow Jones. After rallying for a good 3 weeks from the bottom of 7,449, the Dow gained more than 1500 points to reach a short term peak of 9,026 on the 8th of December. Since then, a somewhat ominous tone can be detected in the market.

For the last few days, the Dow has been carving out a mini descending triangle pattern. A descending triangle pattern basically signals the continuation of the existing downtrend. To put it in short, it basically points downwards. What’s more, the Dow has consistently failed to make significant headway above the short term 30-day MAV line, basically denoting that the bears were never far behind in hounding the Dow.

Strategy : Sell into strength ; Strong CPO prices will partially cushion negativity
The negative tone being set by the Dow would also lead to similarly negative tones being implanted in global markets, thus marking it hard for the KLCI to extend its rally. The somewhat marginally good news is that Crude oil rallied 10% last night which would lend strength to our Crude Palm oil prices today. Strong Crude Palm oil prices today will partially cushion the negative effects of the Dow’s overnight 200 point plunge. Despite the cushioning effects, the mood still remain negative on global markets and the KLCI and would recommend a sell into strength on KLCI stocks.

Where Art Dow (Thou) Going???

oilcorp, knm, genting, gamuda, resorts, ioicorp

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