Wednesday, May 09, 2007

Stock Market Update 09 May 2007

No updates for the past month + as the world's stock markets have gone as per plan and performed very well. Those invested in equities in the EK provident fund have done very well over the past months.

As can be seen on the 1 year daily chart below, following the fall in late Feb/07 a bullish buy signal was triggered in the third week of March. Since then the markets have been very strong and the trend continues to be up.

HOWEVER, the markets are overbought at this point and due for either a consolidation or a pullback. BUT, until a trend reversal occurs on the charts it still looks good for equities (click chart to enlarge).

The PNF 1 box chart I use to narrow down buy/sell signals shows the situation well. A sell signal was generated in Feb as the price fell through 274 and a buy signal was generated on a price rise through 279. Note to current chart projects a target of 356 (55 points above current prices) though these numbers should never be taken at face value. They are however good at giving an indication of the strength of the chart structure which for now looks good.

As I discussed previous, I am currently holding a 75% stocks/25% cash position. The reason why I have not gone to 100% equities is because:

1) I hate to chase fast rising markets. Better to wait for a consolidation or slight drop before committing further funds, and

2) My cash position has been in Euros which have performed extremely well vs. the USD over the past few months so I haven't been hurt by any missed opportunity associated with not being fully invested in Equities.

Going forward, the market is overbought and due for consolidation/correction. It is also the end of the seasonal cycle in the markets so the chance that a "correction" could become something more severe is greater. Having said that, the seasonality the markets normally exhibit has been somewhat lacking over the past year. Could be a fluke or something bigger but need to keep in mind the chances of a major pullback are higher between now and Oct than they were for the past 6 months.

Any significant change that occurs and you'll be the first to know!



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