Friday, June 14, 2013

STI Market Rout - Is the bottom in sight?

They say it is foolish to predict market directions, and its been sometimes since I last posted my trades...
The past 3weeks have been a painful down market, and it started all by a change of perception "the fear of QE withdrawal".
I thought it is funny, that people are so fearful that market will collapse, because Fed felt the economy is strong enough to exit ICU (aka reduce QE, monthly bond purchase).

In any cases, the fear is valid for certain sectors (such as REITs, high debt companies), why?
Because the removal of QE or reducing of monthly purchase of bonds will eventually allow bond yields > Treasury yields > bank interest lending rate to rise, possibly breaking the 4% and back to 5%? Observer should note that the current money supply in the economy are several times larger than it was in 2007, and this huge money base in the economy is still set to grow bigger (but at a slower pace, with lower bond purchase).

In any cases, companies such as those "Buffett stocks" with strong brands, EPS, yield etc. is great for load up now. But companies that are already heavily financed with debt, especially bank loans, should be avoided and trade with caution, as these companies will be dragged by increasing interest and cost of interest servicing.

So, after so much talk about QE, economy, the big question is "is the bottom in sight"?
Should we enter market now?
My short answer, yes!
Why? Good to ask.

From a fundamental point of view, the current PE ratio of STI index is only 12.98, this is lower than the average of 15, not to say the typical market peak's PE ratio of 22-25.
Furthermore, most companies are still predicting similar level of forward earnings, hardly a market peak.
 
From Technical point of view, see the chart below:

STI just form a "kangaroo tail" where the valley "V" is formed, with a bullish white candle following on Fri, 14/6/13. So, even if S&P500, Dow were to continue to fall tonight, it is likely to bottom in the next few days, and begin a slow and steady uptrend.
 
The Force Index has formed a shallow bottom, implying the "V" is losing strength, the MACD line has "flatten" and soon to turn up, the RSI has already turn up. In short, multiple bullish indicators signal that the bottom is over, and reversing to uptrend soon.
 
How high the uptrend will be? This I cannot tell, but I can say is the market has bottomed.
If you have escaped the "crash", now is the time to open your savings wallet and go "Great Singapore Sale" of best Singapore companies! Load up on those companies, with positive operating cash flow, low debt, and best high discount to NAV, and some dividend yield of 4-6%.
 
This should fatten your money, by the time this year's Christmas for you to buy those latest gadgets for the kids' Christmas gifts!
 
One point to note, unless tonight's US indices fall by 3%+, & STI dropped 3% too on Mon, resulting in a gap down or long dark candlestick, lower than the "V"; the bottom is safe & you should shop now. But if the markets drop by 3% more, which I feel unlikely, unless there's some material news which are not announced, then the bottom is intact.

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