Stock market poised for sharp correction?

Technical indicators on the STI chart have been diverging for an extended period. Caution is warranted, especially for short-term traders.

STI rally is also largely driven by DBS, OCBC and UOB which appear to be running out of steam. DBS Bank

Not forgetting VIX is near 5-year lows.

 

Phillip Ang

* The author blogs at LikeTatAlsoCanMeh.

 

 

 

 

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9 Responses to “Stock market poised for sharp correction?”

  • PAP Pledge's,a Child Abuse!:

    Thanks Mr Philip Ang for this information. For a change – IMMORAL PAP POLITICS have taken too MUCH of the centre stage of lives of the 30% – we need a pause.

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  • Too early to say so:

    Still vested.

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  • oxygen:

    PHILIP ANG, very interesting technical chart analysis. On the global basis – since the election of Donald Trump, global market indices have shot up a lot in such a short time of three months. The result is that US stocks have never been so “overvalued” according to some highly experienced market analysts. Here is one from Marketwatch com. who correctly predicted the bear market tumble in 2000 and 2008

    This is the most overvalued stock market on record — even worse than 1929

    http://www.marketwatch.com/story/this-is-the-most-overvalued-stock-market-on-record-even-worse-than-1929-2017-03-13

    You are right of the VIX index – the lack of volatility of this fear gauge is telling – market players are COMPLACENT of risks taking – a lot of punters are throwing caution to the wind. A sure sign that it is DANGEROUS and can turn any moment.

    I tracked the 10 yr bond market – it is CONFIRMING of the equity market boom since DT election – bond market has taken a beating from US,Japan, Germany. In the case of US, it it double-top at 2.6% yield. The Fed has NOT yet raise interest rate. Check the 30 yr Treasury bond yield – that has climbed from 2.6% to 3.2%. That makes me suspicious that the Fed is behind the curve. The 30 yr bond has move 0.6% and the Fed watching – unsure to lift interest rate last month (although it could raise tomorrow’s FOMC meeting). If the Fed hike interest rate tomorrow and 10 yr Treasury move up to 2.65%, it may signal the end of the bull bond market and we are in the era of rising interest rate. That would swing up mortgage lending rate undercutting the stronger US housing sector which Jeffrey Gundlach have been warning when DT got elected on that day.

    “I mean think about the residential housing market where so many mortgages have been priced out at 3 percent over the last many years. And what happens if mortgage rates go further from what they’ve gone up so far.”

    http://www.cnbc.com/2016/11/11/bond-guru-jeffrey-gundlach-says-the-the-rate-rise-is-about-80-percent-of-the-way-through.html

    Me thinks a lot of action in the equities and bond market is “animal spirit” – the fundamental has yet to assert itself. Commodities prices including oil, except copper, is giving the bond/equities market the cold shoulder. DT has yet to deliver his economic/budget agenda, and until that time, the global stock market is susceptible to a correction – like you think too.

    We are on the same page of your technical analysis and my thoughts on fundamentals. Interesting I thought.

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  • MarBowling:

    Think it’s about time!

    Be the 1st person to dash through the EXIT when SHTF!

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  • oxygen:

    Here is Bill Gross’ technical analysis of the US 10 yr treasury market.

    “Ten-year yields have practically doubled since touching a record low 1.32 per cent in July. The losses accelerated after Donald Trump won the presidency in November with promises of tax cuts, deregulation and fiscal spending. Fed signals that a rate hike is likely next week spurred the latest leap in yields.

    “If the 10-year breaks 2.6 per cent on a weekly or on a monthly basis, because it’s so strong and so important in terms of technical analysis, that if and when it’s broken on the upside, it’s a bear market,… ”

    http://business.financialpost.com/investing/trading-desk/bill-grosss-bond-bear-market-looms-as-10-year-yield-nears-2-6-2

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  • oxygen:

    The US market indices slightly correct further last night. Interesting enough, gold is ALSO slightly weaker i.e. there is no cross validation confirmation. Trump tried hard to talk down the US dollar but with little success.

    http://blogs.barrons.com/asiastocks/2017/01/17/trump-dollar-is-too-strong-and-its-killing-us/

    Of course, weaker dollar favors gold but that is not happening. A strong dollar is hurting US economy and GONAD Trump’s economic agenda of America First policy. A strong US dollar sucks in imports and undercut US export competitiveness. For GONAD Trumponomics to work, he needs a weaker US dollar. He is trapped in his own quagmire because US Treasury yields – be it a 2 yr or 5 yr or 10 yr or 30 yr Treasury yield is much higher than Japan, Germany, UK, or most of the EU economies (some even still has negative interest yield). As inflation picks up in US, and as yields rises, a Fed rate hike in confirmation (suspected to be behind the curve now) could drive up US Treasury yields higher.

    The results could be a STRONGER DOLLAR, WEAKER gold price and WEAKER US MARKET INDICES (DJIA, SPX, Nasdaq) and that could come as soon as later this week -IF THE FED RAISE INTEREST RATE AND TAKE A HAWKISH WARNING STANCE of further rate hike greater certainty later this year.

    Phillip Ang’s technical analysis alert is good timing I thought.

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  • oxygen:

    FOR GONAD TRUMP’s ECONOMICS TO WORK OF AMERICA’S FIRST POLICY, he has to unwind the implicit and explicit economic policy of strong US dollar that had been in place since the Nixon era of the 1970s. Here is some interesting insights.

    “It’s our currency but it’s your problem,” John Connally, Treasury Secretary under President Nixon, famously declared about the dollar at a meeting of the Group of 10 after the U.S. a few months severed the greenback’s last remaining tie to gold in August 1971.”

    and this

    “For going on two decades, the official policy on the dollar has been what was enunciated by President Clinton’s second Treasury Secretary, Robert Rubin: that “a strong dollar is in the interest of the United States.”

    http://www.barrons.com/articles/has-the-strong-dollar-become-our-problem-1433826537

    But for that to happen, the yield differential between US bonds and Japan/EU has to close substantially. That s most unlikely to happen if the US interest rate moves up this week. Neither Japan nor EU can afford a rate hike now given their much weaker economic conditions prevailing compared to the US where the economic stats shows stronger housing, autos, manufacturing and definitely employment figures in the last two months.

    Financial Times also cautions that the strong US dollar is likely to persist for a while.

    https://www.ft.com/content/56558e7e-b257-11e6-9c37-5787335499a0

    And that caution is basically correct – the US dollar have already risen by 6% to 8% in 2016 against its major trading partners. Another 4% or higher rise in 2017 could be dangerous waterfall for GONAD TRUMP pie-in-the-sky-economics, sending US stock markets indices lower – particularly if longer dated 30 yr bond uplift drive up mortgage rate killing the nascent US housing recovery so vital to underpin the US economic recovery.

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  • oxygen:

    US EQUITIES MARKET RALLIED STRONGLY LAST NIGHT after Janet Yellen raised interest rate. The market reaction? Perversely! Why?

    The bond market rallied – 10 yr bond yield DOWN almost 10 basis point – as bond prices risen. Money flooded back to bond even as equities flew north – counter-intuitive. The dollar was largely flat but gold climbed almost US$18 per ounce yet another BIG COUNTER-INTUITIVE move in the opposite direction of gold speculators.

    THE REASON – A LOT OF SHORT-COVERING after the Yellen announcement – a lot of money bet the “wrong” way, a gambler’s market thinking full complacency – the bond market, equities and gold market all got caught. Like I warned above, THERE IS NO CROSS VALIDATION CONFIRMATION

    oxygen: The US market indices slightly correct further last night. Interesting enough, gold is ALSO slightly weaker i.e. there is no cross validation confirmation.

    The commodities sector were weak including oil except copper. Market is NOT convinced that the US & US economy is that strong as nascent statistic suggest.

    Fed rate hikes + low growth = recession, says stock-market strategist

    http://www.marketwatch.com/story/fed-rate-hikes-low-growth-recession-says-stock-market-strategist-2017-03-15

    From this point, the market will be watching US economy closely to see if “animal spirits” translate to the real thing of a GONAD TRUMPONOMICS revival or a recession. The bond (safety bet) and gold market (safe haven bet) rally last night tells me financial market is pessimistic.

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  • oxygen:

    MORE BAD SIGNS AHEAD after the Fed interest rate hike – both HK & China raised their interest rate.

    People’s Bank of China Raises Borrowing Costs in Step With Fed

    https://www.bloomberg.com/news/articles/2017-03-16/pboc-hikes-reverse-repo-interest-rates-for-second-time-this-year

    Hong Kong too.

    http://www.kitco.com/news/2017-03-15/UPDATE-2-Hong-Kong-c-bank-raises-interest-rates-after-Fed-move-shares-jump.html

    And MORTGAGE RATE in US is ALREADY TRACKING HIGHER. The expectation is that mortgage rate in US will trend higher for the rest of this year.

    http://www.marketwatch.com/story/mortgage-rates-jump-as-economy-revs-up-2017-03-16

    Jeffrey Gundlach’s warning of 9 November 2016 is correct – the date which Trump won the election.

    More rate hikes is ahead – the Fed is definitely behind the curve.

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