News / US Equities
The biggest topic in Wall Street nowadays is the strong possibility of a US recession as evidenced by the recent reports of prominent houses such as Goldman Sachs. This came after Fed Chairman Bernanke’s statement last week indicating strong concern over the economic growth of the world’s largest economy.
Markets across the globe (led by the US) has thus far been under a lot of pressure. The Dow Jones Industrials has now retreated back into the 12,500 level and it looks like the technicals indicate further declines in the near term.
All this is coming on the heels of the ongoing 4Q07 earnings season which, similar to what we saw in 3Q, indicate weakness for financial stocks. Most recent was the Citigroup results which showed a marked slowdown in earnings and close to US$20 billion in write offs coincided by job cuts worldwide.
With the earnings of other US financials also expected to be less than bouyant, it appears that the markets may continue to weaken in the near term.
However, on an encouraging note, we are seeing signs of a “decoupling” of other Asian markets such as India, Malaysia and Indonesia who are posting new highs over the last few weeks despite the weakness in the US equity markets.
To me this is a good sign as it is likely that more Asian bourses may decouple at some point after a series of bad news in the US has come out.
Prospects of further rate cuts has increased as crude prices has recently gone Recent inflation data in the US also point to a benign outlook. This should give the Fed room to cut, which should ultimately be good for the equity markets.
Once the earnings in the US are out and the Fed starts to cut rates, this should be the necessary backdrop in order for a decoupling scenario to happen for Asian equity markets including the Philippines. But for the near term the markets can still be volatile.
The technicals of the Dow shows a clear head and shoulders formation. Strictly speaking this would mean a downside of 11,500-12,000. My Elliott wave count shows its on the C leg (i.e. last leg of the correction) but is still on the fifth of the C leg which means another decline in the near term. This should bring it to the support/target I mentioned above.
So let’s brace ourselves.
|
