Why did the markets jump 4%?

Look at the meteoric rise of the stock markets worldwide this week. Just yesterday, Dow Jones, S&P500 and Nasdaq all rose more than 4%. KLCI is already up by 27 points this morning, looking set to cross the 1500 line.

S&P 500 Daily Chart as at 30-Nov-2011

Source: Stockcharts.com

DJIA Daily Chart as at 30-Nov-2011

Source: Stockcharts.com

KLCI Daily Chart as at 1-Dec-2011

Source: Tradesignum.com\chart

Looking at these fantastic charts alone, I would have thought that EU leaders have finally found a grand solution to the Euro crisis and the US is out of recession risk. Not even close! What caused the uprise then?

#1 Coordinated action by six central banks to provide cheaper access to U.S. dollar funding
http://www.cnbc.com//id/45492184
http://www.businessinsider.com/fed-ecb-boj-boe-snb-bank-of-canada-announce-coordinated-intervention-2011-11

#2 China Cuts Reserve Ratio
http://www.bloomberg.com/news/2011-12-01/asian-stocks-advance-after-central-banks-ease-dollar-funding.html

What does the Lending Cost Cut and and Reserve Ratio Cut indicate?
#1 These arrangements should indicate just how frightened governments around the world are about the European financial crisis
http://online.wsj.com/article/SB10001424052970204012004577069960192509068.html?mod=asia_home

#2 China Reserve-Ratio Cut May Signal Slowdown
http://www.bloomberg.com/news/2011-11-30/china-cuts-reserve-requirement-for-banks-as-europe-crisis-threatens-growth.html

Does anyone care about the fall of PMI in China?
China Factory Sector Shrinks First Time in Nearly 3 Years
http://www.cnbc.com/id/45501162
China Manufacturing Falls for First Time Since 2009
http://www.bloomberg.com/news/2011-12-01/china-s-manufacturing-shrinks-for-first-time-since-2009-on-europe-impact.html

Or the Unsustainable yield that Italy has to pay for its government bond?
http://www.bloomberg.com/apps/quote?ticker=GBTPGR10:IND

Or that the Leading Indicators still points to recession risk in the US?
http://www.oecd.org/department/0,3355,en_2649_34349_1_1_1_1_1,00.html

Investors craves so much for a Santa rally that they put on rose tinted glasses while reading the news, picking only the good side of a report and brushing aside the rest.

When the reality that none of the crises have been resolved slaps them in the face, investors will go into another bout of panic selling. It's bound to happen isn't it?

KLSE FTSE Bursa Malaysia P/E on 30-Nov-2011

At Closing on 30-Nov-2011
KLCI Index : 1472.1
P/E Ratio     : 16.0779

Guinness Anchor Bhd, GAB – Technical Analysis

The third and final piece of my 3-part analysis of Guinness Anchor Berhad, which is also likely the most flawed. I’ve just begun my study of technical analysis (TA) and my analysis using TA will morph from time to time as I discover better ways. 

Long Term trend

GAB is trending upwards in the long term.

In this 5-year graph, I can also see that the 2008 global financial crisis didn’t have a severe impact on its stock price.

Simple Moving Average (SMA) & MACD

GAB is above its 20-day, 50-day and 200-day moving averages. Still bullish. But MACD tells a different story. MACD crosses below signal line and is hooking down. 

Support & Resistance

GAB is trading at the resistance of RM11. Immediately support is 10.60. Next level of support is the psychological price of RM10. Breaching this, it may retrace to 9.16

In Summary

At current price of near RM11, GAB is trading at resistance. Further upside is limited as GAB is deemed fully valued at PE of 17.7.

Read Part 1 and Part 2 of GAB Analysis here:

Guinness Anchor Berhad, GAB - The Story

Guinness Anchor Berhad, GAB - Fundamental Analysis

KLSE FTSE Bursa Malaysia P/E on 29-Nov-2011

At Closing on 29-Nov-2011
KLCI Index : 1444.72
P/E Ratio  :    15.7672

10-Year Historical Chart of FBM KLCI P/E Multiple

The daily KLCI updates I provide on this blog may not be too useful if one isn't aware of the historical value of the market PE.
More on historical KLCI PE info.

I'd so like to plot my own graph but I can't get my hands on KLCI PE 10 year data. Darn, I can't even get the past 1 year data! Doesn't seem to be published anywhere. Anyway, the chart provided by Public Mutual is quite accurate. Here is the latest available KLCI PE Multiple chart from Public Mutual.

Source: Public Mutual

On 18-Nov-2011, the PE ratio stated on the chart is 15.7x. A check with my own post on 18-Nov KLCI PE shows a multiple of 15.7986.

I've always been skeptical with mutual funds as they paint very rosy pictures of market conditions and investment returns. Reports and market data churnned out from mutual fund houses are likely to be sugar-coated and carefully selected to promote sales. I always check if the figures have been twisted to their benefit. Forward PE is one of them. I've heard enough of the market being extremely 'cheap' based to forward PE. Alright, back to the graph, the P/E on 2011 seem to aptly reflect the PE of the underlined date. Just forget about the P/E on 2012 earnings; now that is forward PE.

I will be making weekly posting on FTSE Bursa Malaysia KLCI Market P/E chart.

KLSE Bursa Malaysia KLCI P/E Multiple

KLSE Bursa Malaysia closed on 28-Nov-2011 to observe Awal Muharram.

KLSE Bursa FBM KLCI P/E Ratio

At Closing on 25-November-2011
KLCI Index : 1431.55
P/E Ratio  :    15.6234