Tuesday, June 8, 2010

TAIEX Outlook - Week of June 6th

Apologies for not getting this out on the Sunday as I originally planned. So, without further adieu:

First off, let's check how the markets unfolded after my last update:
Looking at the $SSEC that has already begun a bounce off the lows, it would make sense that the TAIEX follow similarly. Targets for a bounce are a 50% retracement from recent highs to lows at around 7400, which also coincides with a gap fill. Above that, the 200DMA could be within reach at the 7600 price level.
I specifically noted the 7400 level as an area to watch for the first signs of distribution. While the TAIEX did not quite hit 7400, it came mighty close to that level, at 7373.98. Good enough for me! Now here comes the tricky part - where do we go from here. Here's a current chart of the TAIEX:

I'm afraid this week I'm actually at quite a loss for where it might be headed. The chart certainly looks a bit more volatile, with gap downs and gap ups a-plenty over the past couple weeks. At the least, I would be looking at a range-bound market between 7000-7400. Until the Taiwanese markets decide to break out of this range, I foresee more choppy prices.

Lastly, what does the trusty Shanghai Composite forebode for the TAIEX?

What we see here is orderly selling, something that is not indicative of a bottom. Short term and intermediate term bottoms usually occur on climatic selling. Accordingly, I would not be surprised if there was more downside for the Shanghai Composite in the near future.

The interesting thing is that most experts including your local investment adviser at your bank will likely tell you that this sell-off is just part of a normal correction that happens all the time in bull markets, and that they foresee higher prices. While I certainly don't know what the future may hold, neither do they. All I know is that the economy is worse than everyone thinks, and as such you should trade the markets accordingly.

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