It is a Bulls eat Bears world in the stock market, for now.
US stock market put on a good show in August. The S&P 500 index that represents the US
stock market failed to test 2,000 in July and slid to touch 1,900 in the first
week of August. That is a 5% correction
and got the bears very excited. The
bears have been saying the US stock market was too strong for too long and the
bubble has to burst. The Tapering
measure means less money is pumped to the system every month and the bears are
convinced that gravitational force should apply to US stock market. The bears had their best week in watching the
market fall since January when the S&P500 corrected from 1850 level to 1750
level.
The 100 moving average, which is the average number
of the past 100 trading days closing prices of the index, turned out to be a
magical number. As S&P500 touched
1,900 level at the time when it was also the 100 days moving average, magic
happened and the market rebound all the way to 1,994.76 on 21 August. Considering S&P500 was at 1,627.47 on 28
August, 2013 which is also the lowest print in the past year, US investors have
done well with 22.6% return in USD in just under a year.
The technology sector in US is harder to read
although there are probably more people reading their Apple iPhone screens than
reading the Oxford Dictionary. Nasdaq
Composite Index which represents the high tech stocks in US has had an awesome
run in the past year. Its low point in
the past year was 3,573.6 on 27 August, 2013 and the high point was 4,534.1 on
21 August, 2014. This means a 26.9%
return in USD in under a year. This is
impressive. If we consider there are
more ups and downs in Nasdaq and the tech sector is more fashionable than the
boarder index like S&P500, S&P500 index fund is perhaps a more stable
investment target than Nasdaq index fund.
What is more significant for the Nasdaq Composite Index is that it has
captured the 4,500 level and new high in 14 years. For those who participated in the Tech Bubble
in year2000, they would remember Nasdaq Composite index shot up from 3,000 at
the end of 1999 to 5,132.5 on 31 March, 2000 and dived to almost touch 3,000
again. Then rebounded to reconquered
4,000 level before heading south all the way to 2,000. In short, Nasdaq at 4,500 level is a very
high and happy level for investors if one removed the spike in year 2000.
There are some amazing performers in the tech
sector. We all know Tesla, ran by Elon
Musk the Iron Man in real life. Tesla is
up 69% year to date as of 21 August. Sandisk
(maker of memory cards) and Facebook are up 38% and 36% respectively. Mighty Amazon.com is down 16.5% year to date. These high tech counters could swing widely and
buy and hold strategy could give you a roller coaster ride.
The European stock market has done a bungee jump in
August. Eurostoxx 50 Index, started near
3200 level in August, dropped through 3,000 level and bounced back to 3,124.6
on 22 August. UK stock market had
similar fate. FTSE100 started at 6,800
level in August and was slammed to below 6,550 level and rebounded to 6,780
level on 22 August. The dropped in
European and UK stock markets in the first week of August was scary. Combined with weak economic data and the
tension in Ukraine, the bears really thought they could have the last
laugh. However, the market believes weak
economy means potentially more money printing exercise hence asset
appreciation. The bears win again.
The British Pound dropped like a rock against the
USD in August, erasing all the gain since April. The drop started in mid-July after a high
print of GBP 1 to USD 1.719 on 15 July and fell to 1.657 on 22 August. That is a 3.6% drop in over a month. The scary thing is that the GBP movement is
like a whole month of landslide without much rebound. GBP against the USD dropped though 50 days
moving average at 1.69 level near the end of July, then the 100 days moving
average at 1.68 in the first week of August and 200 days moving average at 1.67
after mid-August. The momentum and
magnitude of the movement has not been seen for a year. GBP has broken many technical support and
hopefully, 1.65 level could give Sterling a breathing space. The EUR is falling against the USD even
faster than GBP. EUR has fallen 5% since
May from EUR 1 to USD 1.399 to 1.328 on 22 August. EUR is not far from its one year low at 1.311
on 6 September, 2013.
