2 weeks ago when the U.S stock market started a mini-rally (27 May 2022), I suspected it was a bear-market rally driven by profitable short-sellers covering their shorts. After 7 down weeks, short-sellers would be looking for an excuse to take profit. S&P500 suffered a mini-crash this week dropping 5.05% and it was the worst week of the year since January. This market action showed that it was indeed a bear-market rally.
Take a look at the U.S stock indices in the table below.
Take a look at the internal market statistics of the U.S market.
Take a look at the internal market statistics of individual U.S sectors.
Only the energy sector looks healthy.
The U.S stock market looks terrible at the moment. I will be avoiding the U.S market until it shows enough signs of recovery. Fortunately, elsewhere in China and Hong Kong, the market action is telling a different story.
Take a look at China and Hong Kong stock indices in the table below.
Take a look at China's and Hong Kong's internal market statistics in the table below.
The numbers for China's and Hong Kong's stock markets look better but not really that fantastic. Nevertheless, it shows enough signs of recovery. It is good enough for me to resume buying China and Hong Kong stocks, but not aggressively yet.
Last year (2021), the U.S stock market enjoyed a bull market. While the bull charged ahead, a bear was mauling China's and Hong Kong's stock market. Therefore, it is reasonable to bet that the reverse case may happen this year. Mean reversion at work. The bear market in China last year was largely man-made, caused by the government's strict regulatory crackdown on the technology and education sectors. China's government has recently relaxed its tough stance and Mr Market has been responding positively. From past experience with China's stock market, government intervention plays a huge role in influencing the market. More so than in other markets.
Despite my positive feelings about China/HK markets at the moment, there is always the possibility that these markets will slip back to correction. This has happened to me several times in the past after I became bullish and it will continue to happen in future. I remind myself never to neglect risk management to survive through bear markets.
USD has been showing an inverse relationship with the U.S stock market this year (2022). When the U.S stock market is weak, USD will be strong and vice versa. Look at USDSGD and USDCNH this week. 5 strong daily up bars throughout the week. Just by looking at forex pairs, I can tell how the U.S stock indices are performing without looking at them. If one is to go into cash, the best cash to be in will be USD.
The strength of USD complicates my investments in China stocks. Losses from bad stock-picking will be compounded by a weak currency. Due to the strength of the USD, I will convert my USD holdings to CNH only when necessary. If the market weakens and forces me to raise my cash levels, I will convert most of it into a safe-haven currency like USD.
Crypto-currency market action has been really bad. 2 weeks ago when U.S stocks were up, crypto-currencies crashed. This week when U.S stocks went down, crypto-currencies crashed along with it.
The crypto-currency market is so awful that I think some investors even avoid looking at their crypto portfolio to avoid pain.
Look at this table ranking the major crypto-currencies this year. The top performer Tron(TRX) is 35.55% down from its 52-week high. If the best is so bad, what else can I say?
The commodities market paints a worrisome picture of our rising cost of living.
The top-performing commodities that rose the most this year are related to energy and food. They are the main drivers behind our rising cost of living this year. On another worrisome note, industrial metals such as copper, aluminium, lead, and tin are among the poorer performing commodities. These are signs of a weakening global economy. Is a recession coming?
The cure for high oil prices is higher oil prices because they encourage commodity producers to raise supply. Unfortunately, oil prices are not high enough to motivate the producers to produce more due to soaring input costs. It seems to me only a recession can pull down oil prices now.
No wonder the U.S stock market made a tantrum this week. Mr Market is expecting central banks to raise interest rates to cause a recession in order to kill inflation.
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