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| • EXCH RATES |
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Baht/$ 33.51/56
Bid/Ask
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GOLD |
14,350
+ 350
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SET's resilience will face a sterner test as Dow falls below a key support that could signal a 1973-style bear run
The SET looked impressively resilient as the world went down last week. But the truth is, since we advised you last week to make a limited re-entry in the local equity market, the global risk has now become alarming. As a result, we will have to ask you to have stop-loss lines as given below. There are still reasons to maintain limited exposure in the local market, as will be explained, but do so with the following stop-loss lines. Cut back partly if the SET and the SET50 futures both fall below 765 and 542.50 during the trading hours. Cut back more aggressively if the following alarm signals occur: the SET50 futures closes below 523.60, or the SET, when divided by the baht/dollar rate (onshore), closes below 22.22.
To understand the above stop-loss lines, look at chart C. And, in particular, if the SET50 futures closes below 523.60, the downside could extend steeply down to 480, or minus 8.33%. As well, the SET could go down to test the support at 825-700, which does not mean that the support will hold up.
On raising the exposure, there may not be a signal to do that until after July 2, which will be updated here, as well as in the daily Market Timing, www.kasikornseurities.com.
On looking at the global trend, if there is no immediate rebound early this week, we may have to wait until after July 2, where the global trend may start to rebound for a number of weeks. But behind that is the dangerous big picture, in that we may have entered a long-term global bear cycle that could last until next year.
The long-term warning occurred last week, when the Dow closed below the major long-term support in chart A, which is one of the key global supports. And, if the Hang Seng falls below 21,000, it will be a similarly severe bearish long-term sign, which also involves a long-term bearish head-and-shoulders pattern, which should be watched.
As we have said earlier, and this is not just for intellectual entertainment, but concerns your preparedness for the things to come, the current global risk is beginning to resemble the 1973 global meltdown, when the Dow lost about 40% in the process. So far, the Dow has lost 19.9% from the all-time closing high at 14,165 in October 2007. We would not be surprised to see the Dow at 9,700, sometime this year or next year, which would be 32% down from 14,165 _ and it can go lower.
Some may blame Watergate, but back in 1973, by and large, the trigger point of the meltdown was the sudden and big jump in oil prices, following the Opec oil embargo, combined with the stagflation. In the current global equities downturn, since 2007, the rising oil price has also been a culprit, combined with the resurfacing sub-prime crisis, and the threat of stagflation. (Incidentally, the word ''stagflation'' did not come into popular circulation until the 1973 episode.)
As an aside _ and a development that was to be expected, unfortunately _ in the conference in the Thai House of Representatives last week concerning budget strategy, there was no suggestion to trade oil futures as a strategy to stabilise oil prices to alleviate a potential crisis in Thailand, and, accordingly, to stabilise the economy. When the oil price reaches $200 a barrel, we will wish that our government and those managing the Thai Oil Fund would have had the vision to trade on the rising oil price. Perhaps they didn't read the Bangkok Post, where we have mentioned that strategy for years, when the oil prices were still well below $100 a barrel.
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 the Friday's closing on Wall Street.
Starting with why we may maintain a limited exposure, but with stop-loss lines, the reasoning is based partly on the good rebounds from the key supports in chart C. These also coincided with the SET bank sector reaching the oversold juncture, namely the Y-juncture in chart B.
To understand chart B, notice the repeating X-Y correction gap, and the oversold level, where we should accumulate something is at the Y point.
But a stop-loss line is still in order, because, as we can see in chart D, the current downside risk for the Dow could extend steeply down to around 10,700. This is also consistent with the warning in the Nasdaq shown in chart E.
In sum, if the global trend cannot rebound from the June 26 cyclical juncture, based on chart F, the downside between now and early July in chart G could be steep, before we can expect a global rebound.
Whether there will be a meaningful rebound after July 2 still remains to be seen, and will be updated here, and in the Market Timing.
The analysis is prepared weekly by the Kasikorn Securities Research Department, www.kasikornsecurities.com
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