Wednesday, January 09, 2008

Stock Market Update 09 January 2008

Just got back from Osaka but thought I'd update before going to bed.

A couple of small moves on the markets over the past 2 days have made a big difference in the technical picture.

On the day before yesterday's move (07 Jan closing price), the PNF charts turned negative. As per my previous post, this triggered a further repositioning in my provident fund account.

I switched a further 25% out of equities and into the Fidelity International Bond Fund. I will go into my rational for this move in my next blog but the key point is I have reduced my equities exposure to 25%. I was unable to blog this move on Jan 8th (blog site issues), therefore I am announcing it 1 day late. However, I made the switch in the provident fund on Jan 08.

First chart is the daily line chart (click charts to enlarge):

The change of significance in this chart is the swing low @ 292.17 has been broken. This confirms the downtrending channel drawn on the chart. The chart is confirmed bearish.

Next chart is the 1-box PNF:

It printed a price below 292 and has gone short term bearish. Currently it projects a 275 price objective.

Next is the PNF Traditional chart:

This chart too turned bearish on a price break below 292 and is projecting a 272 price objective.

The key thing to note here is this chart last turned positive in Oct/2004 on a price break through 192. That is over 3 years of "bullish" price projections and this is the first sell signal since then. When a consistant signal over many years reverses direction you take it at face value. Bearish, bearish, bearish!

Last chart is our weekly line chart. The 13/34 ma cross has not occured yet...........hence I am still 25% equities. Another few days of this sort of price action and this chart could turn negative. But until it does I stick to my 25% equity position.

Bottom Line:

I reduced my equity exposure on Jan 08 to:

-25% equities
-25% Euro cash
-25% USD cash
-25% Fidelity International bond fund

The market is extremely oversold at this point and I do expect some sort of bounce. However, the overall picture is one of bearish price action and I am comfortable my equity exposure has been reduced.

When this market reverses course (and it will at some point) I will scale back into equities but for now I believe based upon both the technicals and the fundamentals that minimal equity exposure is the prudent course of action.


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