A few days ago, US markets had two days major slide leading global market retrieve overnight. The cause of the slide was bad corporate reports started the quarterly reporting season in the fear of the backfire from the trade war effect. However, a few more good US economic reports like high employment rate has calmed the market’s nerve down. Markets have had taken back a large portion of its previous losses.
However, moving forward, there is still unknown territory we are charting in from now on. Since we have started entering another quarterly report season, analysis and market observers will have their big bet time around the corner.
Dead or Alive Critical Moment
So far, the US market has been withholding the effect of the trade war and is now a stand-alone economy in the world that is still growing. Everyone is now wondering how long it will stand. I believe this quarterly report will be the dead or alive verdict for the US bull this round.
Looking at the US market chart represented by S&P 500 index (chart A), it has double topping in the past (if we ignore the small pullback in late July because the other major market indexes didn’t show such significant pullback) since July 2019. If the index can reach its historical height once more, it will have the potential to break up above resistance making it a triple top break up. This will be most probably if we consider the trend of the gold index.
According to the Gold Futures index (Chart B), the trend has been bearish starting from its top at the beginning of September. However, since the Gold bearish channel was just created in a short time, its trend may not be curtained as yet. A long-term trend has to be determined by the time spent. The longer the time it spends, the more certain the trend it becomes.
In other words, this bearish trend may be temporary. It will break away this down trending anytime. It all has to do is to break up above the upper down-trending resistance line in the next few trading days. But it’s got to have a valid reason to do it.
If the US equity market failed to have a triple top break up, it would most possibly reverse or be breaking down and dangerously forming a reversal or bearishly in market direction. Because market chart rarely have a quadruple top break up phenomenon. Normally market strength would have greatly been reduced after three attempts. Therefore, market watch for the coming weeks can be very crucial and critical.
Technically, for the next few trading days, if the US market can break above resistance line charting into another new historical height territory, I am sure the gold index will continue to trend down. If it happens otherwise, gold will break above its downtrend upper line. All observers can easily see their negative relationships between gold and equity indexes at this moment in time.
On the Asian market front, it is interesting to note that China market has been showing stubborn resistance against the trade war threat coming from the US (Chart C). It has successfully resisted to bow down to numerous attacks from the US. We are not sure whether it has found its way to develop China’s economy or whether the index is fictitiously supported by government intervention.
Back in the home country, Malaysia KLSE (Chart D) is not looking good. An obvious bearish down-trending direction has also been developed since April 2018. If you are concerned and having a lack of confidence for the new government handling business in this new challenging environment, you may quit the Malaysia market when it rebounded nearer to 1600 points, it would most probably a good idea to do so.
Possibly foreign investors don’t see any strategic attraction to bring their capital to Malaysia. They would have most probably gone to Vietnam, Thailand or even Indonesia. After all this new government is carrying obsolete mentality to govern the country’s economy. Unless there are any changes in the government, things are not looking too rosy.
As for US fund investors, if you are also concern about the effect of the backfire of the trade war, it would possibly be a good idea to quit or lessen US market exposure when the US index reaches near to its historical height region. If you think it takes a more convincing reason (which you think is most possibly lacking) for it to break up above resistance line this time, it will be better for you to quit while it’s still early. But you better be ready to accept reality when it develops stronger than expectedly.
As for gold related fund investors, it will not be a good idea to quit any time in the season like this. As I have forewarned you that when you invest, you should not be greedy, you enter little by little chunk to absolve the risk factor. If it drops now, possibly below 10% of your entry price, you may enter some more chunk to pull down your average entry price. I have anticipated this trade war effect will drag longer than anyone expected.
So, please stay tuned, for the next few weeks, market observation will be exciting.
Happy investing or pulling out! 😊
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The view and opinion expressed are personal views of the author and are subject to change based on market and other conditions. This write up does not constitute sole advice for investment decision. Investors are advised to do further reading and research to conclude individual decision.