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Baht/$ 34.57/62 (Bid/Ask)
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GOLD |
13,100
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Warnings can be seen in many global markets, along with indicators of a rising risk of 'Tom Yum Kung 2'
While the Thai economy is being held hostage by a certain party, the global risk is also rising and is adding to the downside potential for the Stock Exchange of Thailand. On the technical front, some key supports were already broken last week, and we should be prepared that the SET may go down to test the 600-587 support.
Recalling what we examined earlier with charts a few weeks ago, the rising dollar is a double-edged sword, and we have asked readers to cut back and see. On the positive side, the rising dollar means lower commodity prices, which should be positive for both global equities and the SET. On the negative side, the rising dollar has been known to be negative for the SET.
In this update, while commodities versus global equities are at a crossroads, and pending the outcomes at the critical $104-105 support for Nymex oil futures and at the $96-97 support for the Brent spot price, it appears that the SET is already at the negative side of the sword. The weakness of the SET versus the dollar has reached the alarm level.
Be particularly careful if the ratio of the SET divided by the US dollar index goes below 7.90 and/or 7.42. At 7.42, the corresponding downside for the SET is not certain, but could be in the 608-587 range. To track that, the formula for the ratio is SET9/Dxyo in Bisnews.
The broad-based US dollar index broke out above another key resistance, last week. And, the medium to long-term target is at 81.00-81.43 or higher. Last week's closing was 78.932. We are likely to see the dollar at 35 or 39 baht this year, which may be too much for the SET to digest. That is a warning of Tom Yum Kung 2.
In the first Tom Yum Kung crisis, in July 1997, when the baht was devalued, the SET went down from 696, before bottoming out at 205 in August, 1998.
Tom Yum Kung 2 may or may not be as severe as Tom Yum Kung 1, but be prepared for the following downside:
In the current situation, if the SET falls below the 642 support, the index is likely to continue down to test the 600-587 support, which may or may not hold up. And, in the process, the SET P/E is likely head down to 8.55, which is a steep gap down. Last week's closing of the SET P/E was at 10.08.
Let us now go to the charts behind the above scenarios, beginning with the big picture, in chart A, which warns of the potential for Tom Yum Kung 2, which puts us in the orange medium- to long-term alert.
The upper indicator in the chart tracks the relative strength of the SET versus the US dollar, and is the ratio of the SET divided by the baht/dollar rate onshore. When the indicator goes up, the SET is stronger than the dollar, and the opposite is true when the indicator goes down. The upper indicator in chart C is similar, but tracks the relative strength of the SET versus the broad-based US dollar relative to the world currencies, not just the baht/dollar rate.
In chart A, the Tom Yum Kung 2 warning came when the SET versus the dollar fell below the critical long-term support in the chart. And, that is just about the same as the warning that the SET is falling below the critical long-term support, by comparing the movement of the SET itself and the SET versus the US dollar, in the same chart.
And, if the SET versus the US dollar index in chart C falls below the 7.90 support, consider that the red alert. Readers can track that by using the formula as explained above.
Adding to the risk, the Nasdaq is increasingly negative, after running into the major resistance in chart D, which is also a warning for the Asia Pacific. The Nikkei already fell below the key support last week.
As for the Hang Seng, the head-and-shoulders pattern in chart E is a long-term warning. And, short term, the Hang Seng is likely to head steeply down to test the 18,290 and/or 17,890 support, as shown in chart F. Last Friday's closing was 19,933.
All these signs add up to the warning that the SET may go down to 600-587, as illustrated in chart B. And, even without considering the dollar factor, the SET falling below 660 is just as negative as the SET falling below 737, in the chart.
There is a clear and useful marking that investors can use to gauge the downside, on looking at the SET P/E. Be prepared that, in the medium to long term, the P/E may go down to around 8.55, based on the long-term channel lines in chart G.
Given all of the factors noted above, it is not time to play a contrarian trader to buy on weakness yet.
The analysis is prepared weekly by the Kasikorn Securities Research Department, www.kasikornsecurities.com
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