Technical | Fundamental Analysis Discussion Stocks Listed In Bursa

Thursday, July 30, 2009

GDP Zenith?

In a hypothetical scenario, if there was a big black bear out there, he would mark the zenith of the rally during these few days which would coincide with the release of the US GDP data (advanced estimates) tomorrow night.

Late last month, we called for this bullish wave which has pushed the KLCI up by 100 points to a peak of 1,179 yesterday. We believe that the main force driving this 2 week rally is the upcoming US GDP results, which experts think could surprise on the upside. With the US GDP results out tomorrow, we opine that this could possibly be a short term peak, and that traders should be more cautious in the next few days.

On Monday, we called for a correction towards the end of the week. This scenario is now coming into play with the KLCI down 7.9 points yesterday and the Dow mildly negative for the last two days. These are small symptoms of toppishness.

US Q2 GDP Results out tomorrow
The critical US GDP results advanced estimates for Q2 will be released tomorrow night. Consensus estimates peg an annualized GDP decline of 1.5%which is a significant improvement over the previous quarters annualized decline of 5.5%. We think that positivity of the GDP data has already been priced in with a 12% rise in the Dow and a 9.3% rise in the highly correlated FBM-KLCI in the last two weeks

Peak of Positivity
With a string of US economic reports (Case Shiller Housing Indexand Durable Goods ex-trans) showing positive results yet still failing to push the Dow above its 9,124 high in the last few days, it is obvious that US traders are now uncertain and awaiting the release of the GDP data tomorrow. We think that theGDP data might possibly be the short term finale of the recent bullish wave.

We still retain our bullish view, but opine that KLCI traders should now i) take profit at upticks and ii) suspend buying for now and observe the post-GDP behavior of the US Dow Jones. If the Dow and global markets can still rally post-GDP data then it could be a positive continuity sign for the global bull rally.

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