Sunday, April 12, 2009
Upcoming Important Market Catalysts
It seems that the markets have gone into bullish mode. Still, the majority are still very cautious on this run. To me, the bull runs from here on will come in spurts and stop-start as confidence has to trickle back in. What is probable is that we probably would not retests the lows achieved recently but rather finding new levels to build on. Hence we have to be more vigilant to look for short term markets catalysts that can push markets higher or cause a mild correction to set it. Its still a trading market, i.e. more like a 3 steps forward 2 steps back. We should be clear that the markets will not get anywhere close to previous all time highs this year, so bear that in mind. If we can even get back half of the losses i.e. 25%, that would be very decent for this year. For the KLCI, I can see an upper range of 1,050-1,100 being the high range for in 2009. I doubt very much it will break down past 850 again this year, unless something out of the ordinary happens.
To get a better idea of the market's pulse in coming days and weeks, we have to pick out the likely important catalysts. I have already mentioned how the markets started this rally: Pandit's announcement, Geithner's new plan, AIG's generosity etc. The rally was boosted again by an early announcement by Wells Fargo that it made $3bn odd for 1Q2009. The banks dragged the whole market down, their fortunes will again pull the markets up. Hence, Goldman Sachs 1Q earnings to be announced on April 14 is vital, so too will be JP Morgan's on April 16, followed by Morgan Stanley on April21. The first two can be said to be the bigger and more healthy banks running around now. It is crucial that they post decent and positive results. If we take Citigroup and Wells Fargo as examples, it is likely that they will post stellar operating profits. What is more crucial is the amount of write downs - that has to drop significantly in order for the markets to continue its bull run.
Having said that, a very strong run this week may indicate that many are trying to discount the very good earnings of the banks already. Hence it may actually be a sell on news following the earnings. Even so, if the banks showed positive results and little write downs, the correction will be swift and shallow, the run will still be intact.
We also know that Goldman Sachs is raising $5bn as we speak. It is very likely that Goldman will be the first to pay back $10bn to the US government's TARP. That should be greeted as good news as well.
Japan's new additional stimulus is another positive, and the amount of new lending in China has continued to be mind boggling. It is hard to see negatives for the time being. It doesn't mean its safe. Even when the conditions are good, markets will find ways to correct itself by being overbought, but its likely to be 3 steps forward 2 steps back kind of market tango in the upcoming weeks.
p/s photos: Gao Yuan Yuan