What I really think about global stock markets

Deeper correction coming in 2016

Some of you might remember the correct call I made on 19 August 2016 when I did an event on CFDs for short selling stocks. This event was part 2. Part 1 was at a 13 August TASS meeting (Technical Analysts Society Singapore) which I am a member of. My tone was very bearish. I would like to do a follow up through this post. First some recap:

  1. Selected slides from TASS presentation on 13 August. Full slides are available to TASS members. Contact Christina Ng to ask for them if you are keen. Salient points – I highlighted that Baltic Dry Index, price of copper, oil and natural gas was giving away the lie that global economy is booming. If trade and growth was booming, why crash in prices? In addition I talked about HSI index showing a huge wash and rinse.
  2. Full slides from my CFD talk on 19 August here. In my opinion, the narrative was even more exciting.
  3. If you have paid attention, then any of these 5 posts herehere, here, here and here should have warned you to start reviewing your stock portfolio, or to start looking for a CFD account (to hedge or go short). Let me put it bluntly: I don’t write about stock market crashes every week and giving warnings if the market was rosy. Someone might just think I am nuts and throw me into an institution.

 

Indicators still shouting bloody murder

Some postings I made these two days that you may or may not have read. This was a post 2 days ago to TASS’s private FB group. Gist: Neptune Orient Lines which is Singapore’s flag carrier is looking for buyer(s) since years in the doldrums.

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My post to TASS (private FB group)

 

Here’s another one sharing new low multi-year low in copper (2 days ago).

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Copper was printing new low 2 days ago

 

Here’s a special treat for today. Crude palm oil nears decade low. The irony is that Malaysians and Singaporeans are putting up with the haze because Indonesians are busy doing slash and burn to plant new palm not because of booming demand but because they are trying to increase production to meet falling revenue amid decade low prices.

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Palm nears decade low

Here are two pages from SGX-listed company First Resources which is a palm producer (Annual Report 2014, p.6, p.8).

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First Resources, production numbers

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First Resources, financial indicators

If you get what I mean by now, let’s see look at some market charts.

 

Stock investors need to watch out for these!

Stock markets are not good indicators of the economy. Real indicators like employment and consumption are. That said stock markets are good inflation indicators. Since US is running QE i.e. printing money, stocks are up. At this point, the inflation is hidden but no doubt it is there. It just goes into stuff like expensive art and so on.

Dow Jones Industrial Average is a poor indicator.  The US Federal Reserve would happily continue to print (or even raise rates with the left hand, and QE with the right behind its back) until DJIA is 180,000. Just look at this chart of the Dow. It went through a 20% correction as well as Black Monday on 24 August and now it is back to nearly unchanged while entire fortunes are won or lost.

DJIA

DJIA weekly chart

No. In fact investors are facing grave danger. Because countries like US, Japan and China are happy to QE doesn’t mean that stock markets are protected from now on. In fact the danger will come from emerging markets. Emerging markets like Malaysia and Indonesia cannot run QE. If they do, their currencies will be trashed like the Asian Financial Crisis. Either way they will go down. When they do, Singapore will not be spared because of contagion from reasons like corporate debt. Singapore’s banks do not have exposure to US, Europe but will be highly exposed to Southeast Asia. This will also look like what happened in Asian Financial Crisis. Older Singaporeans will remember that we had banks like Keppel Tat Lee and OUB. Where did they go and why did they disappear? Right. Contagion from the crisis that started in our neighbours.

A deep correction will be forced on the world by emerging countries. Here is Asia we just have to look at some of these.

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Jakarta Stock Exchange weekly chart

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Kuala Lumpur Stock Exchange weekly chart

 

Singapore Straits Times Index

Our local stock index is not going anywhere. Share trading volume is at record low and droves of remisiers and dealers are leaving the industry. In fact deep dissatisfaction may have led to the departure of SGX CEO Magnus Bocker. Visually you can see that it made no headway for years (unable to break many box-highs) and has in fact printed a bearish expansion in addition to the dead cross. In fact if you followed my quarterly updates, you can see the internals breaking up i.e. number of losers exceeding winners even during the H1 rally stage.

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Straits Times Index weekly chart

What to do now?

The world is not ending. Things will not happen overnight so please don’t go about selling your wife and kids, pawn your pet dog to go all in. Clear logic and careful planning is the most important. Anyone with a portfolio should consider to make plans to hedge (recall my CFD presentation again – link on top). Follow the development of constituent stocks in the STI closely. Look at also performance of regional indices like Hang Seng Index. Many are strongly correlated so when divergence appears, it means something may be happening differently.

In the mean time, I share this segment from one of my favourite speakers. For friends who don’t understand Mandarin, transcript is available here.

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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.   Soh's Twitter account @sohtionghum was ranked #23 out of The Top 70 Twitter Accounts To Follow In 2015 by MahiFX.   Disclaimer notice: "I do not have a financial advisor's license. I am not qualified by any regulator to give financial advice. I do not know you the reader. Your investment means and motive may be different from me. My posts here are based on observations and meant for education. I am not responsible for for any consequence from your actions."
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