Aftermath of the falling knife

Art, 22 Jan 08

Since I last wrote about a week ago, the market did dropped like a very sharp knife, but what will it be like from here on? The latest sell-down over last few days in Asia is triggered by fears and margin calls, given the significant drop of the most markets.

The decoupling theory is dead. US is still the leading stock market and any crashing will leads to further crashing of almost all other markets. As such, I will from hereon assume global coupling markets.

The mid-term view, or three months' view is still down. What about this week?

No major US econ news till Friday, Existing home sales and Weekly unemployment claims benefits. Home sales is expected to stablised and Unemployment claims is expected to be increased (ie. more unemployed) but it is a weekly data, not so consequential, unless it is much worst than expected. Stimulus budget is still cooking (earliest March08) and FED rates cut is end Jan08, next week.

Key to this week US stock market's retracement, or moving UP slightly will come from corporate results on Wed evening (Sgp time) of APPLE, Johnson & Johnson, Dupont (DJ component stocks) which will likely meet expectation, but it is their projection of next 2 quarters that will greatly affect the sentiment. Given that their businesses are global, they are likely to be more sanguine about business growth than the CITIs and Merrill. BOA will reports weaker results, though not at the same level as CITIBANK.

Friday evening may be a challenge, Microsoft may report poorer results which can affects market sentiment again and US econ data of unemployment and housing sales may weaken the sentiment. By then, Asian markets will be close and all investors will be holding on to their chairs (or pants) hoping that the following week, Bernanke, FED chairman is gutsy enough to cut .75% instead of the current market expectation of .5% on 30 Jan08. A cut of 0.75% will give US stock markets a short term boost.

If you trades short term, you might consider buying calls option which is cheap and should the market totally goes against you, you only lose the option premium, eg STI at 3200 level is valued at .015 cents (expiring 28Feb08). As long as the markets move up to 3000, your call options will be about .025 (40% gain) or even more if above 3200 level, and should it falls all the way to 2000, your call option is worth 0 cent, comes end Feb08.

(If Bernanke cuts 0.75%, the USD will weaken and if you have some cash, it is worthwhile to consider the dual currency (AUD/SGD) that yr private banker can offers you. Eg. AUD/SGD is at 1.2400 and if it is for one month, certain bank is willing to pay you 9.5% interest p.a. pro-rated, but if it drops to 1.2250, your SGD will be convert to AUD. Current SGD deposit rate is 1% or less

Gold has dropped from USD913 to USD880. Is the story of as good as GOLD over? No, by next week when Bernanke cut FED rates by .5%, it will stablise, but if it cuts .75%, Gold will climb again. Now, there is a 50% chance that FED may cuts .75%)

Art, 22 Jan 2008
Delta Fund Investing