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Saturday, 21 February 2009

Where To Now, Brown Cow?

Courtesy of Conrad Alvin Lim

Well, it’s not quite the Bull run that geomancers were saying would happen in the Year of the Cow, is it?

The DOW, as of last night’s close, is sitting just above the critical level of 7,500, having gone to 7,480 early in yesterday’s intraday session. Whether it holds above 7,500 is going to be crucial over the next two days. I, however, am not that hopeful and am expecting a major sell-off this Expiration Friday. If that really happens, then we won’t be far away from my 6,000 point target before May this year.

Posted by Conrad at January 2, 2009

If you though that 2008 was a rough year, watch out … 2009 is going to get tougher! Expect more gyrations that could send the markets much lower than where it is now (DOW 8,776.39) …. although the DOW broke above the 50DSMA for the second time in two weeks, personally, I am not so hopeful - I suspect more downside before we get any upside. And we will test the Nov ‘08 lows of 7,500 before we can have any hope of it not getting down to 6,000.

Now here we are at the Nov 08 lows. And it’s not looking rosy at all. We might get a technical bounce but that is all it will be … another dead cat for the collection. The DOW seems hell bent on taking my trend lines down to the netherworld - it has broken below my five month channels and is on the 38.2% Fan line. It is also below the 6 month OP to the downside with an XOP at, where else but 6,000 (5,930 to be exact).

Just a reminder about what I said on 1 Dec 08;

So in summary, DOW for 6,000 on the low between now and May 2009 and daylight will not get much brighter than 9,500.

Weekly candles are forming a Three Outside Down formation which translates into a long term downside, especially if the current candle closes lower on the week (conviction candle). DOW is also below the 11 year historical retracement line of 8,044 - this one is going to be hard to break above now that it has become a resistance.

Someone asked me at the TA Masterclass if there was any possibility of a repeat of the 90% loss suffered in the Great Depression. It was thought provoking, to say the least. Let’s consider that …

* Current levels of 7,500 brings the DOW back to Mar 03 levels. Five months before that Mar 03 low, DOW had a low of 7,200. From its Jan 00 high of 11,722, this represented a loss of 38.5%.

* The AFC in 97/98 took the DOW down to 7,400 from 9′350 for a loss of 20.8%.

* The Oct 87 low of 1,616 from the Aug high of 2,735 was a loss of 40.9%.

* In Oct and Dec 74, DOW hit average lows of 575 from a Jan 73 high of 1,067 for an average loss of 46.1%.

Current levels of 7,500 from the Oct 07 high of 14,160 put the current losses at 47%. We are at loss levels not experienced since after the GD of the 30s. Can we get there? There is always a possibility. But it will be one heck of a slim possibility if you consider that the whole world is fighting this thing with a collective effort.

However ….

Those of you still harboring hopes of an early recovery, please be informed that the rest of this posting is really going to kill your mood.

The depth of this recession has forced dirty worms out of the cracks in the form of the Madoffs, Stanfords and Phuahs. Goodness knows how many more are going to get weeded out. The world would not have been the wiser if not for this terrible recession. China has also lost more than half its billionaires and the Trump is trumped again. If these are not signs of how deep in trouble we are, then one has to wonder what it will take to make people realize that we are in a world of deep s**t!

The ironic reality of this situation is that the pain levels amongst citizens here in Singapore is not what I thought it would be in this recession. Or maybe in sunny and hazy Singapore, it hasn’t reached those drastic levels yet and that I am being too optimistic thinking that we should be there now rather than later.

Compare the pain levels of 1987, 1997 and 2001 and you’ll notice that we’re not hurting now as much as we did back in those years. What’s wrong with this picture is that if you consider that this recession is by far the worse we’ve ever had since Independence in 1965, then why are the pain levels not worse than those three preceding recessions? Or like I said, maybe we’re not there yet.

One of the reasons could be attributed to the ease at which we are able to attain credit to sustain the lifestyle or delay the pain. Personally, I see it as a timebomb waiting to implode. While the world aches, Singapore is buying condos at $1,000 psf. While some auto industries are on the verge of extinction and others are clinging on by their nails, Singapore has plenty of cars with SJM plates. Where’s the recession?

The spending habits of Singaporeans doesn’t seem to have changed and the average Singaporean seems impervious to this recession. Property prices are still considered on the high side yet people are still snapping up new projects like they were going out of style. Jan/Feb 09 New Home Sales is actually outpacing Jan/Feb 08’s numbers - and Feb 08 had averagely LOWER prices! People seem unaffected and won’t think twice about splurging on a two bedroom condo for $1,000 psf (albeit at an ownership price that is below $500K for a condo) in Queensway while larger ready-to-TOP projects in Katong and East Cost, selling for $700psf are not moving as fast.

People are still buying cars, flashy ones at that, without batting an eyelid. COEs are going to get thin which will surely spike car prices. Yet talk on the street is that cars will still be affordable. But on the darker and quieter side of the business, owners are slowly returning their cars because the pain is starting to get to the owners of flashier cars now. These returned exotic cars are being sold by the dealers but the dealers are not buying back the cars to sell them. Soon enough, the sporty street cars are going to do the same.

Credit, or should I say, bad debts as a result of credit, is starting to take its toll. Car owners with 100% financing are now regretting their decision as crunch time dawns on them. Deferred-payment house owners/speculators are falling victim to a credit time bomb that has caught them on the upside as the market goes down. As TOP dates near, funds and financial muscles get severely tested and already, some have been found wanting. More and more people are building up unhealthy credit card bills and racking up the ready-credit interests. The number of credit defaulters appears to be increasing as indicated in the (lagging indicator) Classfied Ads’ Notices.

All this in the name of delaying the pain. And maybe that is why SIngapore is not yet in full pain … we have credit to delay or stave off the pain.

Back in 1987 and 1997, credit wasn’t so accessible. I remember having to qualify for my first AMEX card in 1992 with a S$45K per annum income tax statement. I got my VISA and Mastercard Gold Cards with a $36K p/a proof. Today, credit arrives in your mail box in the form of a pre-signed check that only requires you to fill in your name and deposit it into your account.

If it was credit that got us into this mess and the lack of credit that squeezed out the likes of Madoff, Stanford and Phuah, then it seems that Singapore has not learned its lesson yet. Or maybe we are too confident in our Reserves. Although I accept our President’s reasons for releasing the funds, the general and undeniable consensus is that it was too quick and easy. And maybe for that reason, Singaporeans are counting on more.

We are no where near the pain levels of recessions past. No one has thrown himself off a rooftop and crime is not half as rife as it was back when. The pain has only just begun. Will credit save us? delay the pain? or destroy a few lives in the name of Interest Payable?

Another tiny statistic that scares me is the number of patients doctors are seeing … its less than average. One reason could be that minor ailments are no longer deemed important when you factor in the cost of treatment, especially amongst those who are already tightly strapped. Self medication seems to have picked up. You only have to go the Guardian and watch the pharmacist - they’re busier than I’ve ever noticed. Another reason is that people may be realizing that MCs for a cold or cough are not a good way to recession-proof yourself.

The scary prospect of this trend is that when someone with a serious ailment doesn’t see a doctor, that person could be carrying the next pandemic and spreading it all around. And with all these little hotspots increasing around Asia, that possibility scares me.

QUICK MARKET UPDATE

Enough of the doom and gloom. Let’s quickly catch up on the market and see what happened …

Posted by Conrad at January 2, 2009

For those who want to take more risks with the possibility of high returns can look at Gold ($XAU) ….

I also mentioned that at my Gatherings and in my forum that HMOs would be a safe buy too.

Those who got it are really reaping it big time today. For those who didn’t, wait for the next pull back because these two sectors have a few more up-waves left in them. Gold is going to be a little sticky, however, as $1,000 is going to prove a stiff resistance so you may want to wait for the breakout and confirmation before timing an entry.

All in all, there are opportunities abound in the equity, forex and bond markets. You only need to know where to look and how to do it safely. For now, let me leave you with a hint; watch the Biotech and Big Pharma sectors for the next two months.

Cheers! (if you’re still happy after reading all this) and Safe Trading!

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