Critical Market Observation

Critical Observation

In response to Trump’s firing trade war with China, US equity markets reacted with another huge drop since February in last 2 trading sessions. It ended with the same level as the previous low which is technically defined as the 10% market correction.  (Chart A)

ES Future possible development
Chart A ~ US market had a big drop for the second time.

However, looking at the major trend by plotting the tops and bottoms linear lines, there seems appear a bearish down trending pressure. When Monday (US trading hours) market opens, market can either rebound or continue to slide down below the immediate support. So what happens during this weekend break is critical. If Trump shows signs of willingness to soften his tone on the China Tariff, or China losses her patience and voices out more harsh words of trade war, equity market will react accordingly.

Technically speaking, the current support where S&P Futures is sitting is strong enough to hold for current price movement. There will be possibly a technical rebound on Monday (US market). If it does, the descending symmetrical triangle will be temporary respected. By then, investors have to keep an eye whether it will break the upper down trending resistance line. If it fails, the down trend pressure will persist. If the downtrend pressure holds, there will be going to be a triple bottom break down. Then, the big bear is confirmed entering the stage. (Note: Official/Professional announcement of bear market is when market pulled back below 20% from the top. By then, it would be too late for us as retail investors. We need to prepare ahead of time.)

Fundamental Cause of Recent Drop

Trump might have something in mind but has not been fully pushed out for public disclosure. Just like how he executed tax tariff on steel and aluminum previously, he announced heavy tariff tax to the public which jittered the market for a while but slowly moved into exemption grants to most countries except a few. Then market resumed northward bound.

We do not know what he will propose or negotiate on his next move with China. But anyhow, the equity bull markets have been damaged or slaughtered in the process. Resuscitation could not be an easy task. The previous drop caused by frenzy maniac buying was a healthy correction on February 5th, but this second drop caused by Trump’s trade war firing to China was most probably an unhealthy pull back. This second one will most probably invite the big bear to come into the market center stage.

Prices of Gold

Another interesting and critical observation is about the price movement for gold. Prices of gold did not react in the February fall. But this time, it really did (Chart B).

Gold shot up
Chart B ~ Prices of gold reacted with shooting up strongly

It looks like gold investors are anticipating an imminent bear coming, therefore rushed to buy gold, the safe haven.

Technically, however, there will be a strong resistance in its headroom very soon. It will meet a ceiling at around 1350 point area. It is expected to drop back down again into the side way range bound after it hits this ceiling. If that’s the case, it probably indicates that this current bull is not easily going to die very soon.

Investment Maneuver

If you have listened to my advice to escape on the article entitled “A Day of Decision,” you are the happiest investor now. If you have partially withdrawn and still have some remnants there, you are also a happy investor.  However, I would advise you not to pull out on Monday (Asian market) even if there will be a technical rebound (most probably still dropping heavily). For every market crash, there will be a limit on the downside. It will not be possible to go straight down until it reaches hell.

Market goes on zigzag travel either in bearish or bullish trending. When it reaches the bottom, a technical rebound will occur.  When it about to fall back down again on the next topping, there will appear another perfect exiting opportunity. There your losses, if any, will be kept minimum. After which, you may want to totally withdraw from the market to avoid the big bear.

As for me, I will most probably not be totally withdrawn from the market. Currently, I have swopped my total portfolio on Friday between the defensive and the offensive standing. While possible, I would add more during the downside or before it moves up high.

The reason of doing this is because I want to learn the skill of sailing through the storm rather than sitting at the side shivering with fear and regret like I used to be in older days.  In the previous drop, I did learn a successful experience in maneuvering through the storm by keeping my fund invested.  In last weekend record, my funds have almost reached for the first RM 10,000 profit for 2018 (shortly after 3 months just because of the drop and the sailing skill I have tried to employ).  It was just short of RM 1,281.52 before I could make the official announcement.

The Next Tentative Move

Looking at the reaction of gold prices, it will be possibly good to move your asset slowly to invest into gold funds. There are two gold funds in Fundsupermart, RHB Gold and General Fund under RHB Asset Management Bhd and Precious Metals Securities under AmFunds Management Berhad. But the perfect entry opportunity has not yet arrived. We shall wait for the confirmation of the arrival of the big bear, then jump right in, unless you don’t mind to hassling enter for long term purposes.

Remember, there will be a resistance ceiling immediately ahead of gold price movement. We are not sure whether gold price movement next week will be strong enough to break through the ceiling right away. If it does, then it will be good to be jumping in right away. If not, wait for the big brother bear arrival announcement on my following article when the right time comes.

So just subscribe to this blog webpage and keep watch with market movement and development.

 

(Postscript: In the coming Monday in Asian trading hours, all Asia markets are expected to have another  drop because of the US market large drop on last Friday. The direction of Asian markets on Tuesday will largely dependent on US market behavior on Monday US trading hours.)    

 

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