Stock market review (weekly) after 27th April, 2012

By: Submissions

Manas Banerji writes: Global recovery is heavily threatened by bad to worse macro economic reports and by rating downgrades. Financial market is again feeling the environment of last year; in fact I would say that it is more this time. China and many other major Emerging nations are also getting in trouble. Now it is no meaning to discuss the real cause behind S&P downgrades, only thing I can say market is in risk.

All of a sudden Dutch political problem increases the panic in Euro zone, beside Spain’s problem. On the other hand two consecutive negative GDP figures, put UK officially in a recession this week. Manufacturing reports were not good, in fact in Euro zone stock indexes have fallen on it but Chinese report was better. Argentina’s index is facing 6th straight negative week, it has corrected heavily in this time.

Stock market forecast for coming week.
Election in France and note auction in Spain can affect stock indexes in coming days. Some believe that Spain may have to go for bail-out; I think we should not compare Spain with countries like Greece.
In US, macro economic reports are showing reversal trend. I am very confused about Bernanke’s remark. Bernanke promised to come into rescue if it becomes necessary, now what that means? Are we going to see more bad days in coming future! May be they are waiting for double digits plunge in the stock indexes!
Next US Fed meeting will be in mid-June and operation Twist will end in middle of this year. So I don’t know whether stock market will run in this fashion during this coming 50-60 days! One of my friends was suggesting me that traditionally May is good for selling. I am really confused about all of these but market is still facing the liquidity problem which I mentioned during last few weeks, so if more corrections happened from here I will not surprise. But all these corrections which are happening or will happen, those are creating good buying opportunities for aggressive investors. In coming week employment reports are due in US and that may give us a signal about the future.


In my last week review I was not totally sure that DOW will cross 13200 level but as I said that it is in over-sold zone, so there was a chance of that. It is good to see that it did not drop in later days of this week. Now the early days of the coming week will be very important for DOW, it is in short-term over-bought zone but still it can test higher levels. I am saying this in spite of the fact that last day it made an uncertain figure. So even if it remains flat in Monday, I think it may decide the trend in next day. If DOW gets down in early days of the week then important level to watch is 13000-13050. I think even if it tests that level, there is a chance that it may bounce into higher levels from that range. Here I must say that I am not sure that whether this 13300 level is good for making short position. Now if it drops below 12900 then there is a possibility that it may test level below 12700, though this is subject to new bad news. Worse case scenario for DOW is 11600.

I was expecting little more corrections in DAX and it got that in the earlier days of this week. Now days, things are changing in a moment, as stock indexes are getting vulnerable to any news. It looks to me that DAX is making a lower base at around 6500 level, thought I am not fully confident about this level. Last few day’s moves were very encouraging and it reflects that DAX may test more in the upside, though I am not sure about any specific levels. But as I said in last week, that 7200 is too much of expectation in this moment. Coming days will be very frustrating if DAX moves around 6650-7000 level. Here I must say that DAX is in short-term over-bought zone, so I will not surprise if it tries to test lower levels at some point of time in coming week. If DAX breaks 6500 support level then next important range for it is 6400. In case of any big sell off we may see DAX below 6200.

I was expecting that Shanghai Composite may correct but it ended flat this week. It is in over-bought condition so a correction is due but in spite of that I will not surprise if it tests higher levels in the middle to later part of the coming week. 2330 is the initial support for it and if it breaks that then it can cross 2300 level. I am still positive about the medium term bullish pattern of Shanghai Composite provided it does not go below 2130.

BOVESPA’s moves were more or less flat this week, around 61000 level it is making a base. But that does not guarantees that it will not drop in coming days. Technical indicators say that it can correct more from here, therefore its initial support will be at 59500 and the worse level for now is 54000. But if we consider that it is making the base at 61000 level, then it can go more in the upside therefore important resistance is at 64000.

Reports due in coming days (from US)
Monday, 30th April, 2012 – Personal Income & Spending, Chicago PMI, Dallas Fed Mfg. Index.

Tuesday, 1st May, 2012 – Auto Sales, ISM Mfg. Index, Construction Spending.

Wednesday, 2nd May, 2012 – ADP Jobs Report, Factory Orders.

Thursday, 3rd May, 2012 – Unemployment Claims, Productivity, ISM Non Mfg. Index.

Friday, 4th May, 2012 – Labor Dept. Monthly Employment Report

I have a feeling that investors are habituated with economic problem, as they are expecting economic stimulus in coming future. It looks to me that many investors and authorities are not really accepting the problems, the way they used to do it in previous two occasions, when Quantitative Easing were announced in past. Now it will be very interesting to see whether US Fed repeats the mistake of ECB! I am saying that about the delay which ECB did.

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