Week ending 19 Feb 2016 – A bounce. Will it continue?

The start of the Year of the Fire Monkey has seen a decent bounce in the indices from an oversold condition. Will the indices continue its bounce upward for the coming week?

We are near the tail end of earning season and so far it has not been too encouraging for the market. The S&P 500 is posting negative 8% earnings “growth” in Q1. This is the fourth consecutive quarter of YoY declnes. Downward revisions are now common for many companies and also the buyback has abated. The multinational companies are starting to provide cautionary warning on warnings ahead as the world economy is in trouble. Markets outside the US are already in bear market territory.

Dow Transportation and Russell 2000 continue to be in bear market territory at 21.7% and 22% below its peak respectively. Dow Industrial, Nasdaq 100 and S&P 500 continue to be in correction territories at 10.6%, 12.1% and 10.1% respectively.

Crude oil may have bottomed and that has helped the market gained some stability for the past week. It is now trading above US$30 a barrel and closed at US$31.96 and has helped to stem the panic that was seen in the market lately. OPEC, Russia and a few countries have agreed to stop further increase in production. Gold has seen some heavy buying and is seen as a flight to safety. The upward trajectory has slowed down but will pick up when the market turns back down again.

The Bank of Japan announcement of negative interest rates did only manage to boost the Nikkei 225 for only a couple of days before the massive sell-off began. The same happened to the Yen. Rather than the Yen depreciating against the USD, USD/JPY went into free fall and since then has had a little bounce. The problem is that there are trillions of dollars sloshing around the financial market looking forward for a decent home and just about every economy is in some kind of trouble. Of late, the beneficiary has been Gold and money poured into it as a safe haven.

Bonds (TLT) has continues to do well. Junk bonds (HYG) tells us that the credit market is in trouble when the yield continues upward as it has been sold down.

The Week Ahead.
There is nothing too significant in the calendar for the next week. We will have to watch the action on the oil market and also currencies such as the USD/JPY and also EUR/USD. Those will be the major issues impacting the market in the week ahead.

To Your Wealth