Saturday, May 10, 2014

Weekly Chart Update 9/5/2014

The US market

This week we continue to see divergence in the US market whereby the Dow Jones Industrial Average was closing on Friday at near historical high of 16,583 while the Nasdaq was down 8% from its recent peak since March. The worst hit were the China technology stocks with big names like Sina, Qihu, Bidu and SouFun that lost 20%-50% in 2 months time from Mar till May. Besides the Chinese Tech stocks, the Bio-tech stocks also performed poorly with the Bio-tech index - SPDR S&P Biotech (XBI) fell 30% since March. Social media stocks did badly as well with Twitter even fell below its IPO price at $32 now, its peak was $73 in December 2013.

People began to question whether the historical high of the S&P and the Dow indices are sustainable due to this divergence. Generally speaking, in a healthy bull market, most sectors should be bullish all across especially important sectors like the Technology. But the interesting part is that although the individual counters did badly, the Nasdaq index was still holding at above the 4000 level. If calculated from the peak of 4,371, this correction is not even 10%! Some analysts explained that the technology and internet stocks were ahead too far with PE ratios in hundreds times, and there are bound to due for corrections. Other analysts are concern if this is the beginning of a down trend like the dot com bubble in 2000. It started in the tech sector then spread  on to other sectors like a domino effect. At this moment we can't tell yet because from technical analysis perspective, the S&P and the Dow are still in bullish trends.


As I mentioned last week that the Singapore market is likely to undergo a consolidation phase for this May and June, I think it would be a great opportunity for long term investors to accummulate some good quality dividend stocks during this period.

From the chart below, we can see that the STI is currently bouncing off from the long term trendline at around 3100, and it is still 20% below its historical high of 3900 while our KLCI has already passed that 2007 high as early as 2011!


KLCI is operated in an unique environment whereby we have strong local institutional support for the blue chips stocks, while the local retail players tend to favour the smaller cap stocks. As long as we see these 2 groups of people are still interested, there won't be a crash in the market. In addition, if we see that the foreign institutional players are also interested, then that will be a bonus.

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