Starting the week >>> 23 Mar 2009

Heavy US Economic Reports to induce Dow volatility

The last two weeks have been happy weeks for global equities markets as world markets rallied to the recovery of US financial stocks and to compensate for oversold levels of key global markets. The Dow rallied 14.3% while Hang Seng rallied 15.7% from their bottoms before undergoing technical corrections by the end of last week. This week, a string of critical US Economic Reports will be released, which might possibly induce a fair amount of volatility in the Dow Jones.

Dow Jones : Heavy Economic Week for the US
Tonight will be the release of the US Existing Home Sales Report while Tuesday night will be the release of the US Durable Goods Report. Economists’ expectations are generally mixed as they expect Feb09 Existing Home Sales (Forecast -0.9% vs Prior -5.3%) and Feb09

Durable Goods (Forecast -2.4% vs Prior -5.2%) to show slowing declines compared to previous data. The main event would be the release of the 4Q08 Final GDP data for the US this Thursday. This piece of data might cause some amount of volatility and anxiety in the markets as economists expect deteriorating GDP data (Forecast -6.6% vs Prior 6.2%)

In last week’s report, we called for a brief 1-2 correction in the Dow and key global markets. Now that two days of correction have passed, we expect the Dow to continually move upwards, albeit in a volatile manner due to its marginally overbought levels and Thursday’s GDP data.

Although the Dow did move below its short term MAV line last Friday, it was not a true break and we expect the short term MAV line to continually support the Dow’s uptrend. The Dow still remains marginally overbought, but we deem a two day correction would be sufficient rest for the bulls as we expect retail global demand for Dow Jones Stocks to buoy the Dow upwards.

The KLCI has so far underperformed key global markets and is only drifting 2.8% from its October closing bottom and 6.8% from its October intraday low bottom. Its laggard performance suggests that the KLCI will play catch-up with key global markets in the short term. We peg a target of 880 for the KLCI in the short term. We think that it is safe now for KLCI investors to halt selling activities in the mean time in the hopes of getting better prices in a few weeks. Traders can also engage in short-term and capped trades of selected KLCI quality stocks.