Market Report for Jan 18-22, 2010 by Bill Wermine.
Dear Traders,
Martin and I would like to thank all of you who attended last weeks traders club and purchased our new book Dividends Don’t Lie.
For those who want a road map to build wealth over time, consider to invest RM 40 for this book which you can purchase at MPH
or call me or Martin for an autographed copy.
Now maybe the right time to be holding super defensive dividend shares and companies that can raise their prices with inflation
Some of you who hold managed accounts and EPF money with us under the share withdrawal scheme have asked me why we are holding large cash positions and only a few super defensive high quality dividend shares and why we have taken profits on some of our holdings. This is in the face of the extreme bullish sentiment of the investment crowd, the media, and the stockbrokers. We look at the evidence and facts rather than the emotion generated by the stockbroker hyping machine.
The evidence
First, the current KLSE PE is at the higher end of valuations at 22.2. This is a deviation from the earnings mean and mean reversion in the KLSE is a reality
Second: The low hanging fruit has already been picked.
Third: China raised their reserve requirements by 1/2 % and intends to do it again: This will drain liquidity from the system and knock Asian markets sideways for a while.
Fourth: The central bank in Australia has raised rates to counter inflation and other central banks are contemplating rate rises including Korea. Rising interest rates go right to the bottom line and impact earnings. Hire purchase rates for cars in Malaysia have increased as well as housing loan rates.
Fifth: We have had 6 month highs in volume in the KLSE in the last 2 weeks but the price bars are narrow showing no demand. This is a distribution pattern. If the price bars were wide that would mean bullish pushing through supply but smart money has been using the high volume to offload and this has capped prices. (Notice attached KLSE price and volume chart)
Sixth: Mr.Pong Teng Siew, a trustworthy analyst and head of research for Jupiter Securities showed me his money supply chart which has accurately picked KLSE tops in the last 22 years of KLSE market action. Based on this indicator when money supply reaches a certain level Bank Negara removes liquidity and the market has a steep correction. so he feels we are close to the top at this juncture.
He feels the bull can run only a bit longer- perhaps a month to a month and a half. He also noted that second liners/penny stocks are moving swiftly . Retailers/sheep investors traditionally chase these low quality shares near the end of a bull run.
Have a profitable week
Bill
Dear Traders,
Martin and I would like to thank all of you who attended last weeks traders club and purchased our new book Dividends Don’t Lie.
For those who want a road map to build wealth over time, consider to invest RM 40 for this book which you can purchase at MPH
or call me or Martin for an autographed copy.
Now maybe the right time to be holding super defensive dividend shares and companies that can raise their prices with inflation
Some of you who hold managed accounts and EPF money with us under the share withdrawal scheme have asked me why we are holding large cash positions and only a few super defensive high quality dividend shares and why we have taken profits on some of our holdings. This is in the face of the extreme bullish sentiment of the investment crowd, the media, and the stockbrokers. We look at the evidence and facts rather than the emotion generated by the stockbroker hyping machine.
The evidence
First, the current KLSE PE is at the higher end of valuations at 22.2. This is a deviation from the earnings mean and mean reversion in the KLSE is a reality
Second: The low hanging fruit has already been picked.
Third: China raised their reserve requirements by 1/2 % and intends to do it again: This will drain liquidity from the system and knock Asian markets sideways for a while.
Fourth: The central bank in Australia has raised rates to counter inflation and other central banks are contemplating rate rises including Korea. Rising interest rates go right to the bottom line and impact earnings. Hire purchase rates for cars in Malaysia have increased as well as housing loan rates.
Fifth: We have had 6 month highs in volume in the KLSE in the last 2 weeks but the price bars are narrow showing no demand. This is a distribution pattern. If the price bars were wide that would mean bullish pushing through supply but smart money has been using the high volume to offload and this has capped prices. (Notice attached KLSE price and volume chart)
Sixth: Mr.Pong Teng Siew, a trustworthy analyst and head of research for Jupiter Securities showed me his money supply chart which has accurately picked KLSE tops in the last 22 years of KLSE market action. Based on this indicator when money supply reaches a certain level Bank Negara removes liquidity and the market has a steep correction. so he feels we are close to the top at this juncture.
He feels the bull can run only a bit longer- perhaps a month to a month and a half. He also noted that second liners/penny stocks are moving swiftly . Retailers/sheep investors traditionally chase these low quality shares near the end of a bull run.
Have a profitable week
Bill
