My Market Observations

Have Markets Bottomed?

Publish date: Sat, 30 Jul 2022, 11:15 AM
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I watch and trade markets based on observation and logic. Leave the emotion and ego at the door and you will survive!

In my last article on 9 July 2022, I wrote that the markets were likely in the middle of a bottoming process with constructive price action. With the market's key event for the month out of the way after the FOMC raising interest rate by 75 basis points, what phase are we now in the market?

Markets Have Rallied

Since 9 July 2022 the markets have rallied hard with the key benchmark Dow Jones Industrial Average up 5% while the tech heavy Nasdaq has rallied even more by a whopping 7% Even our KLCI has gone up 5% in the last 3 weeks which is commendable since we looked really bearish 1 month ago with no catalyst in sight.

Key commodities like crude oil and soft commodities have also moved up strongly with WTI crude up as much as USD101,88 last night. Closer to home we also have crude palm oil price going up 9% yesterday and up over 22% from the recent lows of RM3489.

Possible Bottom In Markets

I am a big believer in price action and what the message it is trying to convey. Based on what I have observed in the last 3 weeks I am of the opinion that markets have put in a firm bottom. If you notice one of the key signs that traders look at is reaction to key economic data. We have seen positive price reaction after every key economic data in the last 3 weeks which is a very positive indication of investor sentiment. The VIX indicator which is a measure of volatility and fear gauge has dropped further to the 21 (from 24 three weeks ago) and is now closer to the long term average of 20. It was trading as high as 34 in the middle of June.

Jerome Powell also adopted a more dovish stance on interest rate hikes and the market seems to like the tone of his message as the Dow Jones rallied over 400 points after his comments at 230am on Wednesday. The investors seem to be voting that they have faith in the FOMC in implementing the right policy mix to avert a full blown recession

My Market Strategy

I have increased my asset allocation from 20% to 60% invested in Bursa Malaysia over the last 3 weeks. This strategy was timely given that some of the stocks that I have bought recently have gone up as much as 25% as of Friday's close. I am buying mostly growth stocks again as I feel it has more upside going forward with a possible recession averted and investor sentiment improving. 

Among the stocks that I like include Frontken Bhd, Scope Bhd, Nextgreen Global Bhd and Rex Bhd. I will continue to accumulate these stocks on any pullbacks as I believe buying the dips in the current market is the right strategy going forward.

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