What’s Next On The Horizon?
It was supposed to receive extensive media coverage since the event is definitely set to affect the world’s destiny for at least the next four years, but the US Presidential election failed to live up to expectations – at least where media coverage is concerned.

What is expected was Barack Obama’s victory, which ended months of lingering uncertainty over who the next US President is going to be.

For past months and even the past fortnight, the media was more concerned about economic issues ranging from stock market plunges and rebounds, possible tough times in 2009 as well as potential job cuts that are on the horizon. The US Presidential election came into spotlight only a couple of days before November 4, which is clearly justified since topsy-turvy markets and the economic downturn are headline issues that investors and man-on-the-street worried about.

Global markets rallied for a week before election day having realized that Barack Obama should walk into White House. But, as soon as news of his victory was announced, global stock markets started to pare gains as investors locked in profits.

Was it “sell on news” or was it a case of a lack of confidence in Barack Obama? Some say that a Democrat President is bad for the economy but Bill Clinton was a good example of a Democrat who excelled in the economic arena while he was US President.

How Much Did Global Markets Rally?
Just for the records, global markets rallied strongly after hitting multi-year lows at the end of November.

The Dow Jones Industrial Average (DJIA) surged some 1,500 points from a low of 8,143 to a high of 9,653, translating to a percentage gain of some 18%. The Nasdaq Composite, too, made hefty gains of more than 21%.

Closer to home, the Nikkei chalked up solid gains of 35.7% from trough to its recent peak while Hong Kong’s Hang Seng jumped 44.5%! The Straits Times Index (STI) did not fare too badly, recovering from a low of 1,473 to a high of 1,933 or gains of 31.2%.

Several reasons could be attributed to the rise, but the most important must be the gradual thawing of the global credit market. With so much liquidity pumped into the financial system, the credit markets continued to remain frozen until the US Federal Reserve started lending to businesses directly. Slowly but surely, indicators of the unfreezing of the credit markets started to appear and this gave investors some much-needed confidence.

Secondly, with global markets already badly battered – so much so that individual indices gave up a quarter of its value in the month of October – there surely must be a time where the markets must rebound. And the rebound came on October 28, as oversold indicators soon started showing bullish signs.

At best, this is only a technical rebound – albeit a strong one – amid more economic uncertainties, but we will never know because when Asian economies and stock markets were battered in 1997, a strong Bull Run occurred the following year in 1998 that lasted two years.

Lastly, the US Presidential election gave investors something to look forward to but, as mentioned earlier, markets started showing cracks after Obama was confirmed as the new President. Without anything meaningful to look forward to, investors begin to refocus on the poor economic outlook.

Are We Going Down Again?
The answer is both a yes and a no.

Yes, because the stock market must correct after making hefty gains. No, because we have probably found the stock market bottom for this year unless something spectacular happens again.

The stock market will probably correct itself starting from 6 November for a couple of days, or even shorter, before staging another rally. For the STI, we should find support at 1,750-1,800 and the next rally, if it happens, should take us beyond 2,000.

A longer-term support for the STI is at its recent-low of 1,473 while the ultimate resistance lies at 2,300.

As for the DJIA, it is hoped that the index will stay above 9,000 for the market to consolidate so that it can make the next move higher. Resistance in the near-term lies at 10,000 while support levels can be found at 9,000 and 8,400.

― Gabriel Gan
gabrielgan@amfraser.com.sg