Asian Markets

Posted by Ray on October 27, 2008 under Main | Be the First to Comment

Currently the Asian markets are mixed with no real direction. Of course, they were trading flat last night as well with a surprise decline before trading ended. The US futures are trading higher at the moment, but as stated last night, that does not mean anything until they firm up in the morning.

We did see significant strength in the US markets today, but had selling at the end of the day. We predicted, the night before, that there would be a rally in the US markets, but changed our course by early morning. We were correct in both moves, a positive rally with a negative closing, or as close to correct as possible.

What happened today is not a good sign for forming a bottom. We are getting closer, day-by-day, to the lows of 10/10/08, 7,800 on the Dow, which will be the test of the lows. The Dow is in a definite downtrend at the moment making lower highs and lower lows. This is a sign that the decline is far form over and it is technical at this stage of the game.

We believe that the selloff is now way overblown, but it is not over by any means. After all the entire banking system almost went bankrupt this was kind of a big deal. We are seeing more bank mergers which is not surprising given the weakness in the sector and the abundance of government cash injected into the largest banks.

Consolidation will continue over the next few months to strengthen the banking system and end the blanket Fed guarantees, which they could not actually pay for if they had to. Inflation is not a concern as energy prices, which was the major cause of inflation, have subsided with some estimates of the price of crude dropping to $20 a barrel, unlikely, but we can hope.

This will lead the Fed to cut interest rates as other countries have already done. a 50 basis point cut is definitely in the works, possibly 75 or 100, but 50 basis point is a certainty. This needs to be done and we thought it would have happened a couple of weeks ago, but the Fed decided to guarantee the banking system instead.

We expect to see the markets open higher in the morning based on what we see tonight, but the end of the day close is unknown, obviously. We expect to see the same volatility tomorrow as we have seen over the past few weeks. Right now fund managers, hedge funds and pension managers are still building cash positions for redemptions that are still coming.

There is still a 15 to 20% decline coming as the technical indicators are still pointing in that direction. Caution is important for those looking to buy stocks right now.