Price

Fund Flow

Monday, 6 April 2020

Has The Financial Markets Bottom?

In this Topic, i would like to discuss have we seen the bottom for the financial markets after a carnage rout of selloff from equities to commodities.

In times of crisis there is a mad rush to US dollar as a safe haven which i notice is unsustainable

1) Fundamental Anaylsis - Bearish due to Federal Reserve are cutting interest to Zero and unleash a round of unlimited asset purchases on 23 March 2020

2) Technical Analysis -  Bearish

3) Fund Flow Analysis - Bearish

i notice that worldwide financial market indices has rebound from the low, admist by many global central bankers undertake an easing monetary policy to cut interest rate, and fiscal policy is passed to stimulate the ailing economy impacted by covid19 outbreak.

By fund flow analysis, the financial market is not position for a total meltdown (a full blown recession) with 50% (1st wave) capitulation follow by a (2nd wave) capitulation of 50% in asset prices.

The recent global financial market indices drop between the range of 25% to 40% should seen a bottom and poised for V shape or U shape reovery. I triangulate with the following observations with technical analysis of Violatility Index (Vix fiutures), Baltic Dry Index (BDI), Copper and Crude Oil WTI analysis.

The following Baltic Dry Index which measures the seafreight activities across the globe, Copper a precious commodity used in good conductor of heat and electricity, and Crude oil a fossil fuel used to power vehicles, generators and power plants a source for energy, its performance of late are greatly affected by covid19 stroke less demand with cities shutdown or lockdown limiting social and economic activities. Crude oil Wti price drop was due to a failed negotiation of OPEC plus to cut production engaging in price wars couple with China lockdown of citites due to covid 19 stroke less demand from the 2nd largest economies that dampen globlal economic growth. China is unique which is a global value supply chain supplier and a multiplier of domestic consumption of aggregate demand.

1) Violatility Index has break all time high set in year 2008-2009 subprime mortgage crisis of above 70 price level to reach a new high of 80 with the covid19 outbreak,














2) Baltic Dry Index has reach recent low of 415 on 7 Feb 2020 but had not broke all time low register at 291 in 12 February 2016.
























3) Crude Oil Wti an unusual meltdown, global demand lesser impact by Covid 19 and engage in price war result in failed OPEC plus production cut aim to cripple American Shale Oil industry. my personal view is at price level 20 would be supported and found a floor to establish a bottom, reason being American Shale Oil industry has plunge almost 90% in value like Diamondback Energy Inc (FANG) is one very clear example of deep Crude Oil WTi  price rout casualty in intensive care unit (ICU). There are 4 possibility scenario pan out to see crude oil reverse into a bullish trend, firstly, president trump intervene into the production cut dispute arising between Saudi Arabia & Russia which he has act as the intermediary causing crude oil to spike 45% to price level 29 last friday 3 April 2020 into end of trading hours. secondly President Trump may remove economic sanction on Russia which will accomodate production cut, thirdly will US enter into a militarily conflict with Iran which of late Iran has launch an offensive on US military base in iraq occuring multiple attempts frequency. fourth with covid 19 situation in China is improving seeing less or no new cases reported, and there are reports that China cities are lifting the lockdown on 8 April 2020, clearly China factories have resuming their manufacturing activity and capability working 24/7 producing N95 masks, ventilators and supplying other medical supplies at alarming speed. In the process China being the second largest economies of the world are in a unique position now where others parts of the world are in a lockdown stage limiting social and economic activity and shutting down factories stop producing, whereas China has lift lockdown therefore consuming more demand of fossil fuel and renewable energy to power up generators, vehicles and power plants  as the factories are resuming work 24/7 a day to keep up with the global demand. Will China leads the global economies out of the woods again as it did in year 2008 - 2009 great financial crisis into a spectacular V shape recovery.















Diamondback Energy chart















4) Copper which is a commodity widely use in industrial demand and is a good conductor of heat and electricity also know as Dr. Copper as the demand increases in a recovering and growing economies. Technical Analysis shows Copper futures are in a sweet spot for a double bottom formation, and price is expected to recover in a big rectangle range with upper band blue color line as resistance and lower band blue color line as support.















Major global indices have plunge 25% to 40% from its recent high or all time high for instance

1) Dow Jones 29568 (all time high) has corrected more than 38.40% to recent low 18213 level (-11355 points). it is way oversold and undervalue as it enter into an extremely oversold technical correction of over 20%. First Target 25000 point level, Second Target 28000 points level and Third Target 31000 points level.














2) S&P 500 3393 (all time high) has corrected more than 35.42% to recent low 2191 level (-1202 points). it is way oversold and undervalue as it enter into an extremely oversold technical correction of over 20%. First Target 3000 points level, Second Target 3300 points level, Third Target 3600 points level.














3) Nasdaq 9838 (all time high) has corrected more than 32.59% to recent low 6631 level (-3207 points). it is way oversold and undervalue as it enter into an extremely oversold technical correction of over 20%. First Target 8200 points level , Second Target 9000 points level and Third Target 10000 points level.














4) Straits Time Index (STI) June 2018 high 3641 has corrected more than 39.35% to recent low 2208 level (-1433 points). It is way oversold and undervalue as it enter into an extremely oversold technical correction of over 20%. First Target 3000 points level, Second Target 3300 points level, Third Target 3600 points level and finally 4050 points level to break all time high set in year 2007 at 3906 points level.














5) Shanghai Composite Index Jan 2018 high 3587 has corrected more than 26.23% to recent low 2646 (-947 points), it is undervalue as it enter into an oversold technical correction of over 20% somemore it is at the epicentre of the covid19 outbreak and has since situation fast improving and recovering. First Target 3000 points level, Second Target 3300 points level, Third Target 3600 points level, Fourth Target 3900 points level, Fifth Target is 5000 points level and beyond.














6) Hang Seng Jan 2018 high 33484 has corrected more than 36.86% to recent low 21139 (-12345 points), it is way oversold and undervalue as it enter into an extremely oversold technical correction of over 20%, First Target 25000 points level, Second Target 30000 points level, Third Target 35000 points level














7) FTSE 100 May 2018 high 7903 has corrected more than 38.02% to recent low 4898 (-3005 points), it is way oversold and undervalue as it enter into an extremely oversold technical correction of over 20%, First Target 5700 points level, Second Target 6700 points level, Third Target 8000 points level and Fourth Target is 10000 points level















In conclusion, financial markets is always the forward leading indicator not a lagging indicator which the financial market is the window, engine front cabin of a train to the actual economy performance whether it is growing or contracting. if the financial markets has found a bottom and it should mean the global economy should be recovering from the worst situation of the crisis.



Disclaimer: All news, information and charts shared is purely by my research and personal views only. This is not a trading recommendation or advice but on the basis of sharing information and educating the investment community. Different traders and investors adopt different trading strategies and risk management approach hence if in doubt please approach or seek clarifications with your Financial Adviser, Broker and Banker.