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Morgan Stanley: India – Heading for the Worst Growth Since the Credit Crisis

Following the credit crisis, India, like many other developed and emerging economies, resorted to fiscal and monetary stimulus to push growth back to its pre-crisis trend immediately.

This easy approach of loose fiscal and monetary policy did boost growth strongly – but the low productivity dynamic accompanying it meant that the country faced challenges of inflation, the current account deficit and tight inter-bank liquidity.

Investment spending: We do not have good real-time indicators for investment trends, but it appears that investment spending is also beginning to slow, based on the quarterly results of a select few engineering and construction companies for the quarter ending June 2011, and the steel production trend.

Government spending: While state government spending data are not available, the monthly central government spending data indicate that government spending has declined on a year-on-year basis in May and June 2011.

Auctioning of coal blocks: The government has been working on an amendment to the Mines and Minerals (Development and Regulation) Act to allow allocation of coal mining rights on a competitive-bidding basis.

Land acquisition bill: Land acquisition has emerged as a prominent political issue, with farmers complaining about poor compensation and the loss of livelihood subsequent to the land acquisition.

We expect the sum of food, fertilizer and fuel subsidies to be 2.1% of GDP in F2012, up from 1.8% in F2008 (including off-budget expenditure).

Morgan Stanley – Global Economic Forum.

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Asia stocks slide as economy fears rattle markets

Completion of a last-gasp deal to avoid a U.S. default failed to bring any relief, as investors focused instead on how tighter fiscal policy could constrict U.S. growth and Europe’s debt crisis was still worsening.

U.S. consumer spending fell in June for the first time in nearly two years and incomes barely rose, signs that the economy lacked momentum as the second quarter drew to a close, data on Tuesday showed.

Taiwan, where about half of the equity market cap is in the technology sector, has been the biggest target of downward EPS revisions in Asia Pacific, according to Thomson Reuters StarMine SmartEstimates, which gives a greater weighting to the more accurate forecasters.

Asia stocks slide as economy fears rattle markets | Reuters.

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Bank of Korea buys gold for first time since ’97-’98 crisis

The Bank of Korea said in a statement on Tuesday it bought 25 tons of gold over the past two months, raising its gold holding to 39.4 tons, or 0.4% of its total reserves.

China, which ranks 6th globally, the biggest among Asian banks with 1,054.1 tons, equivalent to 1.6% of its entire reserves.

Japan, No. 9 globally, has 765.2 tons of gold, or 3.3% of its total reserves, and 11th-ranked India has 557.7 tons, or 8.7%.

Bank of Korea buys gold for first time since ’97-’98 crisis | Reuters.

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The Psychology of Technical Analysis: Ch. 16

PTAThe greatest constraint on taking the right action in any market is doubt.

Indicators of investor behaviour

 

Volume and Open Interest

Volume is a direct measure of the amount of activity taking place in the market. Open interest is a cumulative measure of the unclosed bull positions in a particular futures market.

The level of Volume: The level of volume is indicative of people’s willingness to trade and reflects their attitudes to the market. A low level of volume indicates an unwillingness to open new positions and close old ones and reflects uncertainty about the future direction of the market. On the other hand, a high level of volume indicates a high degree of confidence in the future direction of the market.

The level of Open Interest: The level of OI is indicative of the liquidity of the market. if OI is low, then there are very few profits to be taken or bad positions to be closed. At low levels of OI, the market is illiquid and a new trade is likely to move the market.

Sudden changes in Volume and Open Interest: A sudden change in volume or OI is indicative of a change in the price-sentiment relationship.

Direction of change in Volume and Open Interest: Rising volume suggest a growing awareness of a higher-level trend and rising OI indicates a growing commitment to that trend. Falling volume indicates the unwillingness to pursue the immediate trend and falling OI suggests some reversal of sentiment.

Re-tests

A re-test is considered successful if prices move into new territory. If volume and OI do not rise into high ground, then a non-confirmation takes place and an important trend reversal is about to emerge (doubly true if OI falls as well). If both volume and OI fall as prices move into new territory, then the following price reversal could be quite dramatic. Falling OI, especially with higher volume, portends a sharp reversal in prices.

Momentum

A momentum index is a measure of the speed of change of the market. It can be a

  1. simple percentage rate of change,
  2. a deviation from a moving average, or
  3. the relative strength index (RSI)

The biggest draw-back of momentum indices is that non-confirmation only generates a signal when prices themselves actually start to reverse.

The Advance-Decline Index

The A/D index is a simple ratio of the number of stocks that have advanced to the number of stocks that have declined. It acts as a proxy for the internal strength of the market. Hence, if a market price index moves into new ground but the A/D doesn’t follow suit, then the life expectancy of the movement may be limited and a severe setback may ensue.

This is one of a series of posts reviewing The Psychology of Technical Analysis by Tony Plummer.

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