WEEK 35 25TH AUG 2019: GOLD, DJI, & BOND YIELD & CHINA UPDATE

Further to our post on 8th Jun, below are the latest market updates and a review on our past analysis vs current market prices.

Disclaimer: This is solely for learning purpose and not a buy/sell call.

 

Mr. Market continued to be highly volatile and volatility is good for trading when you are able to take the correct action at the right time.

  1. Trade war between China & US has escalated. However, Trump seems to have tone down during the G7 Summit meeting with Boris Johnson. We should keep a close lookout for any further potential ques on the latest progress. (Updated 26 Aug: White house seemed to be providing mixed signals to Trump’s intention. Anything that is unclear will cause market panic and we are seeing large global sell off on Monday morning).
  2. Fed have reduced interest rate by 25 basis points for the first time. This is a sign of impending potential recession. As expected for any interest rate cuts, Gold would be the biggest winner (mentioned below).
  3. UK: Boris Johnson has taken over from Theresa May. He is having “a very optimistic” view of completing Brexit by 31st Oct. Personally I feel that this is highly challenging and we should monitor the progress closely.
  4. Interest yield curve inverted further (mentioned below)

 

Updates on DJI (Dow Jones):

  1. View on 8th Jun: Corrective wave going on and further downside expected.
  2. Actual movement, corrective wave happened and market downside seen.
  3. DJI on 7th Jun 25,980. DJI on 23rd Aug 25,638. % movement during the period 1.32%. Annualized % gain on view 6.15% gain.
  4. View on 23rd Aug: Generally Further downside expected (Note: next week could have a deep wig-saw event happening due to Trump softening his stance on Trade war with China) Large technical rounding top seen on 1H chart.

 

 

 

Updates on Gold:

  1. View on 8th Jun: Break out happened for gold. Bullish Gold and Gold mining stocks
  2. Actual movement, Gold has rocketed up as expected and cleared the resistance level of 1,370 very strongly.
  3. Gold on 7th Jun 1,340. Gold on 23rd Aug 1,527. % movement during the period 13.96%. Annualized % gain on view 65.25% gain.
  4. CNMC on 7th Jun 0.20. CNMC on 23rd Aug 0.285. % movement during the period 42.5%. Annualized % gain on view 198.70%
  5. View on 23rd Aug: Long term uptrend, Immediate healthy correction expected at range of 1,568 range (due to Fibonacci resistance). Given the strong momentum, further break out expected post the retracement.

 

 

Updates on Bond Yield:

  1. Yield continue to trend lower with the expectation of further rate cuts.
  2. When cost of borrowing is lower, it will spur up cheap money and create a bubble (usually property)
  3. It will however lead to a big bubble and when burst, it will be extremely ugly.
  4. Please do stay safe and do not over leverage on your properties! This comment itself would help you a lot.

 

China’s leverage on trade war: (no change from earlier view)

There have been many articles on how talks on how China can activate the button of selling US Treasuries. In fact, we can see that China has sold 20 Bn of US Treasuries in Mar 19.

Should China sell off the US 1 Trillion Treasuries, we believe the below may happen:

  1. Selling Treasuries would mean China would have a lot of USD.
  2. As they would not need all the USD, they would likely to dispose off the USD by buying other currencies such as JPY,AUD,EUR,GBP etc, or Gold, or something else
  3. In any case, the market would be flooded by more USD where it would push USD Index further down (USD is currently going up. Do watch out for this space).
  4. Commodities that are predominantly denominated in USD would appreciate
  5. Interest in US would rise due to the fall in price of US Treasuries due to the dumping
  6. Companies that are taking loan would face higher borrowing cost and that could result in global financial crisis.

Latest update on China:

  1. After being at the back seat for few months, China has finally taken a shot on US on 23rd Aug to retaliate tariffs.
  2. We can see that China has timed the release of news in a timely manner (Fed discussion in Jackson Hole & G7 meeting over the weekend)
  3. I can see strong application of Sun Tzu art of war here 🙂
  4. It will be volatile ahead but we believe that in the long run, pendulum of financial & wealth would be swinging back to Asia. Do keep a close eye on good value stocks for long term investments.

 

P.s. I have newly started a Telegram group for InvestWhizz readers to help to disseminate/share information in a faster manner.

Should you have any queries on the above posting, do feel free to post in the Telegram group as well.

Link to join Telegram group: http://t.me/Investwhizz

 

People have been asking me which broker am I using, I am currently using IG due to their offering of Guaranteed stop loss (this is VERY IMPORTANT feature in my opinion). Do refer to this link for Referral. You will get SGD 100 from IG for free for opening & trading the account.

 

Do stay current, take calculated risks & enjoy the process of trading!

 

Regards,

Ernest Koh