Wednesday, 11 February 2009
Correction in the offing for Reits?
The Straits Times Index (STI) has been trading sideways on thin volumes over the past one week and we do not expect the market lethargy to improve anytime soon. Judging by the constant stream of profit warnings, there is high probability that markets will remain in this comatose state for some time.
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Correction in the offing for Reits?
10 February 2009
The Straits Times Index (STI) has been trading sideways on thin volumes over the past one week and we do not expect the market lethargy to improve anytime soon. Judging by the constant stream of profit warnings, there is high probability that markets will remain in this comatose state for some time.
The collective $3.1 billion rights issue exercise by CapitaLand and CapitaMall Trust is also likely to soak up more liquidity from this cash-strapped market.
Despite positive price action in US indices, we believe this global economic crisis has not bottomed; investors are also likely keep their powder dry over the coming months. We surmise that the 500-point rebound in the Dow Jones Industrial Average towards the end of last week was primarily predicated on pure hope that the Senate approval of the US$780 billion rescue plan will do the trick.
Indeed, some optimists have even suggested that the combined prescription of lower interest rates and massive stimulus packages will spare us from a prolonged and deep recession and lead the world to a quick recovery.
However, it is worth noting that if such fiscal and monetary bailouts were an easy solution, then Japan would have emerged from its economic slump a long time ago.
Also, massive spending in the 1930s by then US president Roosevelt did not lift the US or the world out of the Great Depression.
As the dictum goes: A picture tells a thousand words and charts usually reflect the mood of the market. The recent market spikes in anticipation of good news coupled with light volumes provide the perfect recipe for a bull trap to occur.
For the mid-term, the STI has penetrated the base of its rising wedge pattern, pointing towards more downside risk. Reits are forming head-and-shoulder structures, suggesting that an impending correction is about to take place; investors can use KE CFDs to short the sector.
By KEN TAI
Senior Technical Strategist
KELIVE RESEARCH
(Part of the Kim Eng Group)
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