Following yesterday’s decline, the KSE index plunged 3.64% today, the largest one day fall in the past 9 month. It seems that most of the time analysts try to justify the market’s behavior instead of actually predicting it. A few weeks ago everything seemed fine and every analyst I was talking to was bullish on the market, however, it only took a 2 day fall for them all to change their minds and rationalize the fall as an “expected outcome.”
Many of the justifications might be reasonable, but the fall in oil prices doesn’t convince me that much. On April the 19th oil prices were at $50.33 and the index was 7,528; and on May 10th oil prices were at $58.6 and the index was 7,775; on May 24th oil prices were at $61.6 and the index was 7,859. Is it justifiable that the oil prices are $63 and the index is 7,664? I’m not saying that we are not effected by oil prices but all I’m saying is that the index was at a higher level with lower oil prices.
I hope last year’s scenario doesn’t reoccur this summer because many talk suggests that we will have a ‘W’ shaped recovery i.e. we might test the bottom again.
As for my own beaten up portfolio, I wanted to sell a couple of weeks ago but I didn’t. Although I think its a good time to sell and realize whatever profits we have, I’m still in denial and hoping that this fall is only a small correction and the market will shoot up again.
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Crude oil is the King of Commodities. The world economy is incredibly dependent on this King of Commodities, as you all probably know. That’s the main reason crude oil CAN be a great indicator or signal of things to come in the world markets.
Having said that, it all depends on context.
The technology bubble of the late nineties, and the general US bull market up to 2000 occurred during obscenely low crude prices.
Stock market players would do well not to oversimplify intermarket relationships, sometimes. Right now, it seems as though that certain intermarket correlation dynamics might be readjusted on a more long-term basis, like USD up GOLD down, for example.
For a while until Lehman, the Yen looked like it ruled the markets but nowadays it seems like its on the sidelines, comparatively. Comparatively, because currency pairs like AUD YEN, EUR YEN, CHF YEN are still good indicators of risk aversion.
A great factor in deciding the bigger picture for stock markets in general is liquidity, and the fact is credit and liquidity levels are WAY below what most investors and market participants have been used to over the past 15 years.
Repricing of all kinds of assets must continue (on the downside) until people perceive “good value” or even below that, and when that finally ends, possibly late next year, stock markets may begin look attractive.
Obviously I don’t see hyperinflation coming any time soon…
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The specific intermarket relationship mentioned above must be clarified.
We’ve seen Gold move with the currencies against the Dollar.
It could be that Gold will begin moving against the currencies, i.e. WITH the Dollar in a coming phase. So, should the Dollar gain against Euro and others, GOLD/EURO, GOLD/YEN, etc. will exhibit a different kind of behavior in the coming phase.
Same with crude. The point is not to be open to new dynamics.
Stock markets are generally overvalued. I don’t like doing the analysis, but when I think of the market caps and generally think of my own crude estimations of GNPs, especially in the Gulf, companies look overvalued. Very overvalued.
We all should know what secular bear markets do. They take you to the other extreme, which has not been reached yet. Still far from that.
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