COMMENTS FOR MONDAY (JULY 29, 2013): On Friday’s close the KLCI down 0.81 points or 0.04% at 1807.61 on volume of 1.11 billion shares traded. Decliners led advancers by 443 to 303 with 323 stocks unchanged.
‘WALL ST AHEAD’: STOCKS FACE FED, JOBS, EARNINGS: The coming week on Wall Street could be a summer blockbuster, with the marquee featuring a triple bill: the Fed, jobs and earnings. Of the three, the Federal Reserve has the most potential to upset the market. The Federal Open Market Committee is expected to release a statement on Wednesday after a two-day meeting. Fed Chairman Ben Bernanke jolted markets in late May by saying the U.S. central bank planned to ease back on its stimulus efforts once the economy improves. Investors have been glued to his every comment since then."The Fed can easily either scare investors or encourage investors without having to say very much," said Bryant Evans, portfolio manager at Cozad Asset Management in Champaign, Illinois. It "tends to create the biggest knee-jerk reactions out of the market."As part of its quantitative easing policy, the Fed has been buying Treasury debt and other bonds each month to keep interest rates low and promote growth. Stocks have rallied for most of this year, with both the Dow and the Standard & Poor's 500 hitting record highs, partly because of the Fed's stimulus efforts. The market slid after Bernanke's comments on May 22, with the S&P 500 dropping nearly 6 percent in the month that followed. But remarks from Bernanke and other Fed officials since then have calmed the market and erased those declines. Bernanke reassured markets last week, saying the timeline for winding down the U.S. central bank's stimulus program was not set in stone. The S&P 500 is up 18.6 percent for the year so far. Trading has been more subdued this week, with more focus on earnings. The S&P 500 ended the week with just a slight loss of 0.03 percent, breaking its four-week winning streak. While some analysts said the CBOE Volatility Index (.VIX) did not appear to be pricing in a lot of volatility for next week, there could still be a shift in sentiment. On Friday, the VIX fell 1.9 percent to end at 12.72."I do expect to see an increase in volatility next week, but that increase is coming after a week of very quiet trading," said WhatsTrading.com options strategist Frederic Ruffy in Chicago. Some market attention has also shifted to speculation over possible successors to Bernanke, though a senior White House official said on Friday that no announcement is imminent. President Barack Obama has signaled that Bernanke is likely to step down when his second four-year term as Fed chairman ends January 31. Former U.S. Treasury Secretary Lawrence Summers and current Fed Vice Chair Janet Yellen are among names cited. Friday will bring the Labor Department's July employment report. The job market's recovery is seen as key to the future of Fed policy. The Fed has said it will keep interest rates at historic lows, where they've been for more than four years, until the U.S. unemployment rate drops to 6.5 percent. Employers are expected to have added 185,000 jobs to their payrolls in June, according to economists polled by Reuters. That's slightly below June's count of 195,000 new positions. The U.S. unemployment rate is expected to dip to 7.5 percent in July from 7.6 percent in June."July historically has been all over the place, in terms of employment. Factories often times do shutdowns in July, and there's turnover in agriculture," Evans said. Analysts have worried that big gains in jobs numbers could prompt an early end to the Fed's bond buying, but stocks rose sharply earlier this month when June's payrolls far exceeded expectations. While the jobs report is expected to be the biggest piece of economic news next week, the economic calendar includes data on gross domestic product and the Chicago Fed Midwest Manufacturing Index for June. The Institute for Supply Management's U.S. manufacturing index for July and monthly car sales will also be part of the mix. With results already in from 259 of the S&P 500, the season has entered its second half. But next week will still be one of the heaviest of the season, with 131 names from a wide range of industries due to report, including Time Warner Cable (TWC), Chevron (CVX), Coach (COH), U.S. Steel (NYS:X) and Allstate (ALL).Stronger-than-expected results since the start of the season have pushed up the growth estimate for the quarter. Second-quarter earnings are now expected to have increased 4.1 percent, up from an estimate of 2.8 percent a week ago, Thomson Reuters data showed. Revenue growth, at 1.6 percent as of Friday, has not been strong, but 56 percent of companies so far are beating expectations, above the 48 percent average of the last four quarters. We are at all-time highs in a lot of these names, and I think this earnings season is supporting that," said Natalie Trunow, chief investment officer of equities at Calvert Investment Management, which has about $13 billion in assets. But she said that also means the market may be "vulnerable to some profit-taking."
GOLD IS FLASHING A SECRET BUY SIGN: Quietly, gold has risen almost 10% in the last three weeks, its best stretch in the past two years. And, according to one respected source, there are two very big signs that the yellow metal may be getting better. Juan Carlos Artigas is World Gold Council Global Head of Investment Research, points to two indicators he believes investors should look at in making a decision to buy bullion. Artigas’ believes the first sign is in the technicals. Since the start of the millennium, gold has dropped more than 10% seven times. Including the current fall from 2011 highs, the average time it has taken gold to recover has been 293 days. The longest period was during the start of the last decade, when it took gold 538 days to get back to its 2000 highs. As of now, gold is in the midst of its most severe pullback in the past 13 years, having fallen 37% since 2011. “Pullbacks in the gold market are natural and even healthy,” says Artigas. “Those who don’t currently own gold, or wish to increase a position, can benefit from this opportunity to buy at lower prices.”Artigas believes the second indicator making the case for gold is the fundamentals, specifically, increased demand versus constrained supply. For example, the China Gold Association estimates an increase of demand by nearly 30% to 1,000 tons in that country alone. However, on the supply side, the two types of gold suppliers – miners and recycled gold – are both expected to decrease output due to lower gold prices. “Mine production will likely be cut if prices remain at current levels,” says Artigas. “Recycled gold, which has accounted for about a third of supply over the past five years, is likely to contract by 300 to 400 tons as fewer people are selling gold jewelry and coins.”
GOLD TRADERS’ FULL PLATE NEXT WEEK INCLUDES FOMC,U.S. GDP, PAYROLLS, ECB, ETC:Gold Traders and investors in other markets have a full economic calendar to monitor next week.“There's no shortage of potential market movers,” said Nomura, listing a meeting of the Federal Open Market Committee, July U.S. employment report and second-quarter gross domestic product. On top of that, the Institute for Supply Management releases its manufacturing report, and the European Central Bank and Bank of England hold policy meetings. In particular, market participants will be watching U.S. data and a policy statement after the FOMC for more signs on when tapering of quantitative easing might start, and the impact of this on Treasury yields.“They (gold traders) will be keying off interest rates and the dollar,” said George Gero, vice president and precious-metals strategist with RBC Capital Markets Global Futures. The large number of news events means potential for the market to be volatile and chop around. Further, light summer trading conditions could also add to price swings, said Afshin Nabavi, head of trading with MKS (Switzerland) SA.“We’re in the middle of summer holidays,” he said. “The volatility we’ve seen is because of a lack of liquidity more than anything else. This could continue into a good part of August – this directionless $20-$30 up and down.”Ahead of the heavy news slate, participants in the Kitco News Gold Survey were mixed on expectations for price movement next week. Of 23 respondents, nine saw prices up, six down and eight sideways or steady. Gold posted a gain this week and so far is up for the month of July after previously falling three straight months. August gold settled after the pit session Friday at $1,321.50 an ounce on the Comex division of the New York Mercantile Exchange, up $28.60 for the week. September silver gained 30.5 cents to $19.765.A meeting of the FOMC winds up Wednesday, and a number of observers said they look for policymakers to rehash their message of the last several weeks. If anything, sentiment may have shifted some toward a more dovish Fed after a Wall Street Journal article saying policymakers may fine-tune their forward guidance, thereby re-emphasizing their intentions to remain accommodative despite any modest tapering initiatives. Economists do not expect the Fed to announce any scaling back of QE next week, although many feel it could happen in September, if data keeps improving.“(Fed Chairman Ben) Bernanke has tried to reassure markets by stressing the need to continue providing accommodation, while at the same time stressing the ‘data dependent’ nature of those plans,” Nomura said. “However, we do not expect the FOMC to announce any change in its asset purchases program and believe the first reduction in the pace of purchases is more likely to come at the September meeting. In the FOMC statement…we will look to see if the FOMC provides any new forward guidance with regards to its asset purchases program and the first rate hike. In addition, it will be important to note if they speak about the volatility in financial markets since the last FOMC meeting and its possible negative impact on the FOMC’s economic outlook.”Besides the Fed, traders will closely monitor economic data, since policymakers say this ultimately will dictate policy decisions. Key reports next week include consumer confidence on Tuesday, followed by the ADP private-sector employment report, gross domestic product and Chicago Purchasing Managers Index on Wednesday. Thursday brings weekly jobless claims and the ISM Purchasing Managers Index. Friday brings what is generally regarded as the most important report of all – non-farm payrolls, as well as personal income and spending and factory orders.“The jobs numbers will be pretty much the thing that everyone will be looking at,” said Kevin Grady, president of Phoenix Futures and Options. Expectations are that the government will report a 1.1% rise in second-quarter GDP, down from 1.8% in the first quarter. July non-farm payrolls are expected to climb 188,000 after a 195,000 rise in June, with the jobless rate forecast to dip to 7.5% from 7.6%.Sean Lusk, director of commercial hedging with Walsh Trading, commented that gold could be hurt if the data is strong, particularly if non-farm payrolls suddenly grew by more than 200,000 in a month. Still, he doubts there will be major upside surprises in the week’s data based on the recent trend.“Looking at the jobless claims, one week they’re up by 30,000, the next week they give it back, and then we had an uptick this week. As far as the housing and retail numbers, it’s all been mixed,” he said. While the FOMC tends to take center stage among central banks in terms of influencing commodities, the market also will be focused on the European Central Bank Thursday. A dovish ECB tends to undermine the euro, which supports gold, and vice-versa. Nomura economists said they anticipate an extensive discussion on whether to cut rates, as was the case in July.“At this stage, we believe the ECB may send a ‘warning salvo’ to markets – threatening to act in September if there is no improvement – leaving the September meeting as more likely than August’s meeting in terms of actions, though there is a high chance it could happen next week because of the extent of the current debate within the council, including the clear ‘downside bias’ on rates communicated last month,” Nomura said. On other topics, Grady said he sees potential for gold to run into some selling on rallies from producers who might need to hedge, particularly when they are trying to obtain financing for projects. Lusk pointed out that some profit-taking selling pressure could emerge yet in gold, particularly with the August futures headed toward a monthly rise. However, a bottom may be forming, he said. Soon, Lusk pointed out, seasonal factors will start to move to the forefront in gold. “As we come into the Indian wedding season into September, I think traders will get a jump on a potential rise in prices,” he said. The yellow metal typically tends to draw support from late August into year-end due to physical buying tied to gift-giving holidays around the world, ranging from autumn festivals in India to Christmas in Western nations. Another focus next week, Gero added, will be first-notice day for the August futures on Thursday. To avoid delivery, traders must make decisions on whether to exit positions or roll them ahead into deferred contract months.
GOLD CONCLUSION: GOLD HAS TURNED BULLISH LONGER TERM. Go long: Gold has rebounded after the 1305 level triggering a buy on the longer term “swing chart”. An up-arrow on the weekly Bollinger band chart has triggered a much-awaited “buy”. We are bullish on gold.
KLCI CONCLUSION: Not all local stocks are going to rally this round. Only a selective few are being “pushed” by syndicates. And the Dow’s defying of gravity is one of the reasons why some selective few stocks on the KLCI are lifting our bourse up. So buying the right stocks that are being “played” up is important. Some of the stocks that are in a strong technical position for today are: ALLIANZ, GTRONIC*. Many stocks look weak, but we see KLCI capable of making new highs. We sre still bullish on KLCI.
Upside Targets: - 1900 (Amended on 07/05/13)Downside targets: 1740/1712/1685 (amended on 24/05/13)
Disclaimer: This analysis is based on pure technical analysis. Statements and comments are subject to the limitations inherent in this technique of analysis and may change as the market unfolds. Those wishing to trade are advised to seek professional opinion. Our comments should not be construed as market advice and is not a solicitation to buy or sell any stock/futures referred to herein, if any PI Graduate Studies Sdn Bhd or its staff may have positions in stocks/futures covered in our newsletter.
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