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Baht/$ 34.36/41 (Bid/Ask)
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STOCK ANALYSIS
With Wall Street faltering and SET likely to test support at 370, few safe havens remain aside from cash
ANANT TANTUVANICH and PATTARAWAN WANGMINGMART
The Dow has already lost 39.70%, since its peak at 14,198 in October 2007, but the long-term global meltdown may be only just beginning, because the long-term double-top warning in the S&P has only started to become clear.
The Stock Exchange of Thailand is likely to test the major support at 370, and that support may not hold up, because of the global situation. Stay largely in cash.
The double-top warning in the S&P means that the long-term global trend may zigzag down well into next year. The warning will come increasingly close to becoming reality if the S&P falls below the 790-770 support, along with the Dow going down below 7,200. In such case, the downsides may extend down to around 500 or 400 for the S&P, and 3,700 for the Dow. Last week's closings for the S&P and the Dow were 899 and 8,451.
For the Thai market, if the SET falls below 370, along with the SET50 going below the major support at 270-260, the SET may go down to 260. There is still some hope at the said supports, but if they are taken out, imagine the SET bank index going down to the two-digit range, or BAY at 4.00 baht. We will show the chart on BAY in a future column.
While panic looms and money is tight, be careful about investing long-term even in sound stocks, as we are often told. Wall Street and some foreign players in the Thai market have already thrown that out the window. World money remains tight, despite the global lowering of interest rates, because many lenders prefer to hoard cash.
There are very few safe havens for the limited money available, and even gold is not a safe place. The gold price is likely to be peaking in a very major and historical way, as shown in chart G. And, that would confirm the likely further decline in oil prices, which would reflect further pessimism for the outlook of the global economies.
Adding to the confirmations, the dollar, which usually moves in the opposite direction to the gold prices and oil prices, is making a long-term bullish breakout, as shown in the chart on page 9.
As to where the limited supply of world investment money is now going, it appears to be going into speculating on the US dollar. The US dollar index has outperformed both the Dow and the SET - by 75% and 125% respectively - since May.
The US dollar index is likely to test the major resistance at 92.63, and if there is a breakout above that, the index may continue up to 121, which was the high in July 2001. Last Friday's closing of the index was 83.10. Given that, and the likelihood that the dollar may go up to 39 baht, this year or next year, if you are a global fund manager, why should you buy the SET when you can buy the dollar? The outcome at the 92.63 resistance will be the major crossroads for global equities and for the US dollar, and will be updated. As to the dollar going up to 39 baht, which would also be negative for the SET, we will show the chart on that in the future columns.
Let us now go to the charts behind the above scenarios. Some charts are plotted up to Thursday, but the analysis is based on observations until Friday's closing on Wall Street.
Chart A shows the Dow falling below the major 18-year-old support. That is a very serious warning. Another serious warning can be seen in the potential long-term double top pattern in the S&P, in chart B. What we mean by a double top, which is a very negative pattern, is explained in chart C.
To monitor the threatening double-top pattern in the S&P, let us go to chart D. Based on the chart, if the S&P falls below the 790-770 support, the double top would likely become a reality. And, it is a very dangerous double top because, as the chart shows, it took seven years to form, which means that the long-term negative outlook for Wall Street could be very long.
Given the negative signs in Wall Street, it is quite thinkable that the SET will come down to test the major long-term support at 370 in chart E. And, if the SET falls below the said mark, the downside may extend down to 260. In fact, some observers may already be more bearish than that and may already have started to think of the 204 low the SET reached in August 1998, during the Tom Yum Kung crisis.
In any case, whether all of those warnings will be true or not, we should be prepared for the meltdown scenario. And, based on the SET bank sector, as shown in chart F, the bank index may zigzag down to the double-digit range. Last Friday's closing was 154.41.
The analysis is prepared weekly by the Kasikorn Securities Research Department, http://www.kasikornsecurities.com
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