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| • EXCH RATES |
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Baht/$ 33.35/39
Bid/Ask
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GOLD |
14,650
- 50
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Limiting exposure on the SET will not lead to significant lost opportunity in the short term, but baht could also come into play
July 2, plus or minus a few days, marked a crossroads for global markets, with investors watching to see whether the global trend will continue down significantly or whether it will recover. The global risk has not subsided yet. Therefore, after the signal to cut back last week, the advice is to wait until the dust settles before considering a re-entry.
To watch the reaction of the Stock Exchange of Thailand to the early July global cycle support, also watch the support at 520 for the SET50 futures. If the SET50 futures index falls below 520, along with the SET going below 737, even during trading hours, it will be a warning that the early July cycle support may not hold up.
There is an important support for the SET lower down at around 724-700, which is not too steeply down from 737. But the idea is to limit exposure and see, instead of maintaining substantial exposure and hoping for the rebound from there.
If a meaningful rebound does take place from 724-700, or even from the higher level, those who have already cut back will not lose much, but only have to reinstate their positions for medium-term gains. If there is no rebound from 724-700, the downside could be anywhere for those who stay too exposed. In short, this is the current risk/return equation when global risk is still evident.
As to the global risk, if there is no recovery by this week, the downside could be relatively steep. For example, the Hang Seng is currently testing the key support at 21,160. In the worst-case scenario, if the early July cycle cannot help hold the support up, the index may breach below 21,160 and head steeply down to around 18,000, or minus 16%.
On looking at the other markets, however, and on the more conservative downside equation, if the early July cycle support is a failed support, the downside for the S&P 500 would be 1,210, or minus 4.20%, as shown in chart B. The downside for the Dow would be around 10,700 or minus 5.20%. The downside for the Nikkei would be 12,200, or minus 8.46%.
Whether the downside risk is very steep as the Hang Seng suggests, or moderate, as some other key markets suggest, the idea is to stay largely on the sidelines, after cutting back.
Let us now go to the charts behind the above scenarios, beginning with the charts on the current global risk.
The downside risk is easily seen based on the S&P in chart B, which is likely to head down to the lower channel line, to close the downside gap at around 1,210 (last week's closing was 1,262.90).
Similar downside pictures, based on the channel pattern, can be seen in the Dow, the Nasdaq, the Footsie and the Hang Seng.
Another clear warning is seen in the Nikkei breaching below the support in chart A, and on looking at the chart, we can see that the downside could be steep.
Given the above examples of risk, it appear advisable to observe the early July cycle support in chart C, for at least a few more days, before betting on the global rebound.
On looking at the past rebounds from the 116-day cycle support in chart C, we can see that the rebound can extend for weeks, so we will not sacrifice too much of the upside if we are among those who buy after the fact.
And, if the 116-day cycle fails to trigger a global rebound, that will add to the long-term global warning that we discussed last week. The long-term warning is reiterated in chart D, where we can see the potential bearish head-and-shoulders pattern showing up in the Hong Kong market.
There is also a long-term warning for the Thai market. It has not reached the red alert yet, but should be kept in mind. The warning is based on the potential long-term decline of the baht relative to the dollar as shown in chart G, which is potentially negative for the SET.
One of the key indicators for monitoring the reaction of the SET to the weakness of the baht is the upper indicator in chart E, which tracks the SET versus the dollar, based on the ratio of the SET divided by the baht/dollar rate (onshore). If the indicator falls decisively below the 22.22 stop-loss line in the chart, it will add to the warning for the SET, short- and long-term, based on the correlation to the SET shown in the same chart.
In sum, even if the SET goes down to the potentially good support at around 724-700 as shown in chart F, it is advisable to wait to buy gradually after the actual rebound. And as we mentioned earlier, look for the global rebound to back the SET up, before making a re-entry.
The analysis is prepared weekly by the Kasikorn Securities Research Department, www.kasikornsecurities.com
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