All the disruptions....and is Asean in trouble?

There has been quite a lot of disruption this week., and it all started with Covid-19. 

My wife was the first to contract the virus, she started feeling uncomfortable by Monday. but even on Wednesday, her self-test showed negative in the morning. Only when she visited the doctor at 10AM that the ART test showed positive, she ended with MC for 7 days, technically more than a week.

As a result, both my kids were sent to my mother-in-law's place.  I became the bridge to transport whatever necessary between the 2 locations. The need to bring things around is certainly  a tiresome thing to do.

Came Saturday and my son came down with a slight fever, he did a self-test and it was positive. So by afternoon time, I sent to fetch him to prevent as much as possible any spread at my mother-in-law's place. 

So now I am living with 2 positive on Covid-19, still need to transport necessities in between, which explain why I only managed to start my blog at this time of the weekend. I amtired and my eyes are half closed.....

There were a few things that I wanted to type in, including up-dates on Dow, Nikkei and Hang Seng ( apparently Nikkei and Dos has reversed up-ward due to the interest rate hike ), and an afterthought on HKD ( more on China because the continuous bad news on its economy on the ground does not  align with the government's reporting ). 

Nevertheless, I want an entry on Asean. Just few days ago, I came across this travel documentary that interestingly mentioned Thai Baht was on free fall.

Video 1. Thai Baht Situation 

Then yesterday another video talked about the falling of Malaysian Ringgit.

Video 2. Malaysian Ringgit falling

This led me to wonder what happened.

In earlier blogs entry of mine What is USD doing? , GBP and EUR continue with their downslides , What's with USDJPY and where is theading?  and Revisiting USDSGD , I mentioned a general strengthening of USD against other currencies. I wandered if the "weakening of IDR and MYR is due to the same reason.

To check if it is the USD phenomenon, I have to compare them with a different currency, and I have decided to use SGD, currency which country is part of Asean.

I have already mentioned USD strengthening against SGD, if the same applies to IDR and MYR, then we should see side trend for these 2 currencies.

Let's first look at SGDMYR, since Malaysia is my country of origin.

Fig 1 SGDMYR weekly Chart

Straight away, I can say it does not look good on MYR. First of all, a huge hammer formation on 15th May 2022gave an indication of its direction, the correction that followed did not help, forming a flag with support at 21-week moving average. It is going to climb further.

Using Fibonacci projection here, I would say the next level of resistance is MYR3.25474 to MYR 3.32340.

Its local economy has high dependence on foreign imports of raw material, the weakening of MYR made production very costly since transactions are in USD.

Chicken is the most prominent news of Malaysia recently. The chicken farmers whose feeds depend on imports are pressured to increase the price of chicken. To make the voters happy, the government put a price ceiling on chickens. So the chicken farmers tried to increase export to Singapore to manage their margin. This further reduced the number of chicken supply locally. The smart-ass government then banned chicken exports to force chicken farmers to sell their chickens locally.

The moves led to closing down of chicken farms and some owners even said that they are going to drive Grab instead.

It also led to a price hike in chicken in Singapore, the chicken cost up by 30% to 50%. Not only that, it re-directed the Singapore government to buy chicken from Indonesia. If this works out, it will kill all the chicken farmers in Malaysia.

The political situation in the country is not helping, incompetence leadership and weak opposition with focus on power struggle. The people will be the one suffering. 

Let's move on to Thailand. 

Fig 2. SGDTHB Weekly Chart

While Thai Baht is more gentle, just like its culture. Even so, Thai Baht is also weakening. I believe there are 2 major sources of income for Thailand, agriculture and tourism. Tourism might be more important to Thailand than its agriculture products, which many comprise of rice.

It is quite desperate to re-open its country for tourists as the country's economy is really in a bad shape. Recent stability in politics does not help as they might not be competent in improving the economic condition. They used to have a prime minister Taksin who was capable, but his policies eroded the vested interest of the upper class and it is rumored that his popularity over-shadowed the King. They have him removed and destroyed his family.

Again, if I use Fibonacci projection for measurement, Thai Baht will see resistance at THB25.37315 to THB26.3238.

If these 2 countries are on deterioration. Is there any member did not do as bad?

Fig 3. SGDIDR Weekly Chart

The SGDIDR chart is an indication of a pair that is on side trend. For the time being, I do not see weakening of IDR, if any, it might actually be doing much better than others. For some reason, I feel that it will strength against SGD in the short future.

For the moment, I am reluctant to perform any measurement on this pairing due to its side trend behavior. 

My understanding here is that Indonesia has been having 2 succession of good president, focusing on improving the country's wellbeing.

The HSI monthly chart

My last post took me a day and a half to complete. It is the longest I have ever taken to complete a single entry. Not to mention the need to re-write the whole article to improve the flow of the content.

By right, I should be resting by now, so why this entry?

While working on the previous entry, I up-loaded the HSI monthly chart as a reference. When I glanced through the chart, I found something interesting., however, due to the purpose of the chart then, this part was omitted.

Fig 1. Hang Seng Monthly Chart

There are in fact a few things that I noticed about this chart, first, steep decline between 2007 to 2008. This followed by a gentle climb until 2018. Further to that, each wave maintained a 3-wave formation, signals to me that it is in the in process of counter wave. 

Lastly, the latest bar (in circle), while incomplete, is presently indicating its intention to continue on the down trend. At present moment, the alignment of the moving averages support this trend.

Using Fibonacci projection, its 100% objective is 18,838, which it has achieved by March this year. If I utilize expansion, is with support only at 13,510 (61.8%) to 8,794 (100%), coinciding with the double top objective. 

If this is true, Hong Kong is going to go through a hard time.

The complexity of Hong Kong Dollars (HKD) - personal thought

 I want to write about Hong Kong Dollars (HKD) this week. This is mainly because of the recent hype about this currency in some videos dealing with China and Hong Kong economy. 

Before I begin, I have to note here that this is my second attempt on this article, my first attempt was quite a disaster. I was looking into the fundamental of this currency and there are too many factors EVERY WHERE. In the end, I found that I was going nowhere when I wanted to include as many things into the article as possible. I have to scrap the original article, so this is my second time writing this since yesterday, entering fundamental analysis.

It started with this person Kyle Bass who twitted that he may borrow HKD to short since interest rate in US makes it more expensive for borrowing while interest rate in Hong Kong has barely changed. Kyle Bass has been bearish over China for some time and ever shorted HKD, with disastrous result.

This followed by a recent interview with Simon Lee which counter the argument from Kyle Bass. ( (10) 🔥🔥利世民：鱷魚頭巴斯狙擊 睇死港幣！警告8月玩完？ 港幣係唔係會被兌爆？脫鉤！劣幣驅逐良幣前奏跡象係咩？若爆金融銀行危機港府有冇錢救市？大陸機構在港借錢會唔會出蠱惑 答下面6條觀眾問題 - YouTube ). It argued that the Hong Kong government has sufficient funds and mechanism to prevent the unpeg of HKD from USD, including the increase of interest rate, increasing cost of shorting HKD, going against HKD is a mistake.

Before I proceed, the follow has to be established. HKD is pegged to USD with a range bound value between USD1 = HKD7.75 - 7.80. Hong Kong Monetary Authority will maintain an exchange reserve in USD to ensure every single HKD is backed by an equivalent amount of USD.  

Should there be a market sell on HKD, the government will sell USD to buy back HKD, thus avoiding further depreciation of the currency. In case of HKD becoming stronger, the government will sell off HKD and accumulate USD. To determine if it is possible to unpeg HKD, one important factor have to be considered is the size of Hong Kong Forex reserve.

Table 1. Money Supply of Hong Kong

Fig 1. Hong Kong Forex reserve

Information above was extracted from Hong Kong Foreign Exchange Reserves - June 2022 Data - 1993-2021 Historical (tradingeconomics.com) 

The Forex reserve in USD when convert to HKD is of similar amount of its Money Supply M1, which is the Commercial Bank Reserves. Does it mean that Kyle Bass has to deplete USD450Bil to break HKD? 

It is also interesting to note that the forex reserve has already fallen to USD450Bil from its peak of USD500Bil. I am not sure the reason for this drop and can only speculate that it is due to an increased number of businesses withdrawing from Hong Kong, in addition to the Hong Kongers migration outward due to its political instability. This is a drop of around 10% of its total reserve.

What is more concerning recently is an agreement struck between China and Hong Kong to currency swap to increase from HKD590Bil to HKD940Bil. while it may be normal for adjustment of currency swap due to business fluctuation. This is a staggering increase of close to 100%! I am pretty sure this is not a Hong Kong initiative since the government has just changed hands.

Table 2. China Monetary Status

Fig 2. China Forex Reserve Status

The information above is obtained from China Foreign Exchange Reserves - June 2022 Data - 1980-2021 Historical (tradingeconomics.com).

Like HKD, CNY is also pegged to USD with a narrow range of fluctuation, it is ranked 8th in trading currency due to the internationalization of the currency. Their forex reserve is in fact around 6 times that of Hong Kong. 

The only problem is that unlike Hong Kong's reserve which has just fell off their peak, China lost close to 25% of their reserve since 2014, of reason I do not know. Worse still, China has not been able to recover this gap since. Would it be because of the One-Road-One Belt initiative launched in 2013 leading to the need of spending USD?

If charting can be used on this graph, I would say that it does not look good on this reserve as it is only halfway down and has just start its second part of its journey.

There is another concern. This has to do with the personality of Chinese Communist Party with low self- esteem leading to the need to a huge ego. As such failure within the party is certainly disallowed and it has to look good externally, therefore it is crucial the number only reflect a glorious result of its leadership. 

 I tend not to trust its numbers, instead depends more on its action to determine its status.

So why the swap? I am really not sure, I have some theories myself but they are all speculation:

1) China need USD:

This was my first speculation since the only value of HKD is its USD reserve. What happened in recent years including the trade war, Covid-19 lock downs and the failure of One-Road-One-Belt is depleting China coffer and China in need of USD.

It is also known that the China economy is certainly not doing well for years with market stagnation. In recent years cracks started to show with Evergrande failure to repay its debt. Other developers have recently started to follow the same path leading to revelation of abandoned projects.

This development caused a monetary vacuum in China banks. With most of the money are transferred to housing developers (under the instruction of the local governments), banks have no money to give the people when they attempt to withdraw their money.

While the table on the money supply looks rosy, what happening in China now seems to show otherwise, it seems to in desperate need of monetary injection.

Nevertheless, even when the numbers from China may not be that trustworthy, there should still be sizeable reserve for forex, the reserve from Hong Kong will not help much due to the huge size difference. 

2) A mean to prevent currency attack:

We saw Soros and hedge funds speculate attack in 1997 caused the Asian Currency crisis. They focused their attack on Hong Kong with attempt to unpeg the HKD, they failed. 

HKD is again at its weakest point in recent months and Kyle Bass' opinion is not without justification. The swap may be a mean to defend the HKD.

While there maintain a threat of speculative attack, it may not result in the unpegging of HKD, these funds may not have sufficient ammunition to do so, unless the depreciation is of the will of the market and they are just joining in for the ride. 

3) Increase China's influence on Hong Kong:

It is a known fact that China is with intention to assimilate Hong Kong for years. They have been systematic depriving Hong Kong of its own identity, attempting to merge Hong Kong and Macao (another foreign colony returned to China in the 90s) to be part of a newly defined Greater Bay Area. 

People of whole of China can identify the city they come from, except Hong Kongers, any attempt to do so will be criticized and silenced, they can only claim that they are from China.

Removal of HKD is certainly an important step to further assimilation. Increase in CNY supply in Hong Kong can further normalize the use of this currency in Hong Kong. It is certainly not logical to have 2 different currencies when Hong Kong become part of China.

In his interview, Simon Lee mentioned that one possibility is to make CNY and HKD interchangeable, this seems to show similarity with this hypothesis, except that he fell short of the next phase, which is to make HKD irrelevant.

For the time being, based on my understanding of China, I believe control is their priority. As such (3) may be the most viable choice. 

Anyway, enough of the fundamentals, there are more than enough complexities that burn my brain cells. Let's look at what the HKD chart is showing.

Fig3. HKD Weekly Chart

I have retrieved the chart from https://finance.yahoo.com, my trading platform does not include HKD as a trading currency.

The first look on HKD shows a cyclical pattern with HKD fluctuates within a band since 2009, but instead of   HKD7.80, its upper range is around HKD7.855. The last attempt to test its limit happened in 2018, which since retreated.

HKD re-initiated its fall since beginning of 2021 and accelerated by beginning of 2022, only coming to a pause by May 2022. It went side way since then, supported by its 8-week moving average. The recent congestion while small does seem to be forming an ascending triangle. 

What does this mean to me? 

First, the steep climb in 2021 indicates momentum in direction of a weaker HKD. After stopping at HKD7.85, it stopped short of a correction, instead, going side way. As such, it is possible for HKD to be weakened further. 

I am speaking in terms of technical analysis ignoring the possibility of government intervention. Using Bollinger band as a reference, I would see the next resistance level be at HKD7.8613.  If I am to use Fibonacci projection and expansion, I am seeing a ressistance at HKD7.90. Are these levels possible, in view that there is a possible intervention at this limit?

The historical low of HKD is HKD7.8627, dated February 2006. At this moment, I am not seeing reversal and that all moving averages are in alignment in their direction. We might not see the end of HKD downward spiral.

Fig 4. HSI Monthly Chart (from Https://financial.yaoo.com)

Hong Kong has withstood a round of speculative attack from Goerge Soros in 1997. However, based on the yearly chart in Fig 4, it followed by the beginning of its economical decline. 1998 was a terrible year for all of us who been through that period of time.

The difference now is that Hong Kong was at market top at the time. It is on a down slide at the present moment. Furthermore, the erosion of the forex reserve is not due to speculation attacks but withdrawal of foreign investments. These are people who deposit HKD earlier on and now making their withdrawals. They do not need to borrow HKD to short, therefore interest rate increase will not help the exodus of USD. Moreover, it will further burden the failing property market which depends a lot on low interest rate. 

At this point, I can't help but to think, is maintain the exchange rate of HKD that important as this time?

Hong Kong has failing economy, with business heavily disrupted by the Covid-19 policies. It is the very factor driving investment away. What Hong Kong need to do is to re-open the city and devalue its currency. Holding on to a strong currency to me will do more harm than good to the city. 

Yet, after the disastrous leadership of Carrie Lam, not only that situation not improved with the new Chief Executive Officer who carried on with propaganda policies to silence and suppressed descendants, turning Hong Kong into a police state.

So far, there has been no visible action by the new administration to stimulate the economy, instead we witness appointment of officials through relationship instead of capability, maintaining focus on carrying out orders laid down by the Chinese Communist Party to turn Hoong Kong red.

In conclusion, will any attack on Hong Kong currency lead to unpeg of HKD? It will not, it may however cause a spike due to a reactive behavior. The decision to unpeg can only be made by the government itself, by itself, I am referring to China. If it considers the process of assimilation of highest priority, then we will see the unpegging process realized much sooner.

Crude oil up-date 16/7/2022

 I have told myself to maintain one entry per week, and just a while ago, I up-loaded an entry on A &P 500 and Dow Jones 30 comparison, so it is a little strange that I have a second entry today addressing Crude Oil.

Well, my original intention as an entry on crude oil, the S & P read was actually the distraction. I did an entry on Crude oil on 26th June 2022 and there has been some development since. While it went the direction that I have predicted, I am concern with the bar formation.

Fig.1 Crude oil weekly chart

On both weeks since 25ht June 2022, Crude Oil fell in the beginning of the week, only to recover back to mid-point by the end of the week, leading to formation of long tail.

While the closing for week of 3rd July 2022 was due to the 21-week moving average and closing for week of 10th July 2022 due to re-bounce from the 55-week moving average. Long tails are showing for both weeks.

What does this mean to me?

I believe it is coming close to a support level, leading to its consistent reaction every time it trends downward. However, it does not translate to a reversal yet. 

I mentioned the neckline at 92 on my last entry. Crude Oil has broken and tested this level this week, and the general direction is still down with momentum, what we might experience from this counter is a correction or congestion.

Until this point, the support level of 86.11 as recorded last round is still valid.

No matter what, when I pump gas for my car today, I am happier, the price at the station has just been adjusted downward. It is certainly more wonderful that oil can go down further.

 

The similar fate of S & P 500 and Dow Jones 30

 While going through my social media recently, I came across training & coaching advertisers' videos talking about S & P 500 is officially into bear market. I very seldom look at other US indices other than Dow Jones, but the comment made me feel curious about S & P, and how the advertiser justifies S & P 500in bear market.

As I open up different charts, the similarity of Dow and S & P caught my eyes. The similarity is to close that I first thought I have opened the wrong chart. Only upon close inspection that I noted the difference between the 2. I have attached both charts for reference here. 

Fig. 1 Dow Jones weekly chart
Fig.2 S & P 500 weekly chart

Considering the close resemblance between the 2, can I safely say that I am also covering S & P5 00 when I analyze Dow Jones?

Looking at the charts, both counters have gapped down, recovered and congested, supported by 144-week moving average. There is slight difference between the 2 though: S & P 500 has broken the 100% projection support while Dow have not. 

The question now is where will they be heading, up or down?

My ast post on Dow, I did not feel positive about the counter and I am more bearish. That post was done on 3rd July 2022. 

While it indeed continued to have lower lows and highs since then, there seems to be some support in this congestion. For the last 2 weeks, the bars contain small bodies with relatively long tails. 

If I ignore the tail and focus on the body, I can say that the formation looks a little like a flag, and flag flies half pole. 

It is highly possible for the counter to head north in the coming week to meet the 21 and 89-week moving averages, coincidentally the 100% projection resistance mark at 32,485.

As for S & P 500, the projection resistance is between 100% (4,014) to 127% (4,093). 127% mark coincides with 21 and 89-week moving averages. 

Nevertheless, I will still maintain that Dow Jones is still heading south for the time being, as trend has stronger momentum. Same goes for S & P 500.

For S & P 500, I may see support at 3,391, coincidentally both 100% projection support and resistance turn support.

The inflationary indicator, Gold.

 

When I first got in contact with technical analysis, my teacher at the time mentioned the property of gold.

He maintained that it is an inflationary commodity, meaning that it will rise ahead of inflation. 

Things have not been great lately with all the warning of inflation. Malaysia for instance has the price of its chicken so un-affordable that it introduces restriction to chicken export. and price ceiling to chicken. 

Its decision of removing subsidies to cooking oil is not helping neither, causing the price of cooking oil to shoot up.

Things are not really getting better in Singapore neither, with price of daily necessities inflated. Coffee for instance increased by at least 10%, belly pork at a hypermart up fromSGD12:98 to 14.98, an increase of 15%. Not to mention chicken, which is affected by the Malaysian policy, up a whopping 35%.

So I figure that it is good to take a look at gold to see how bad the inflation is going to be.

Fig. 1 Gold weekly chart

For this study, I am using the chart I obtained from https://finance.yahoo.com. 

The chart on gold looks very interesting once it is revealed to me, because it looks to me like a top formation. It is also interesting to note that gold has been climbing since 2019 and yet it is only lately that we sense the effect of inflation. 

Jul 2020 was the peak of the gold before it began its descent. Even though the trend reversed at the beginning of 2021, its climb towards its second peak is more gradual and only ended a year later in beginning of 2022. 

I drew a trendline stretch from near July 2022 and noted that the trendline is prudent since it was tested 3 times before it was officially broken in July 2021. 

It looks as if gold is in process of a double top formation. To be frank, the formation is incomplete. It really depends on how gold will react when it touches the neckline, will it break or rebound when it touches the neckline at 1,674?

Since it started to descend at the beginning of this year, the gradient of its descent is steep as compared to prior trend, indicating momentum moving in this direction. I gather that it is highly possible that gold is going downward.

Using Fibonacci calculation, the most immediate support level is its projection support between 1,579 to 1,685. If it manages to break through this line of defense, the next line of defense is the expansion support between 1,289 to 1,436. 1,289 coincides with the double top objective. 

Dow Jones, Nikkei & Hang seng Up-date 3/7/2022

When we set a goal, we will usually find life throwing barriers after barriers at us. 

I determined to have at least 1 entry per week, I went back to Malaysia for a week, breaking my patterns for 2 weeks. I penalized myself for the break to my blog last week, my mother-in-law's domestic help on-leave for 3 weeks starting this week and my mum-in-law staying at my place during the weekend, loading my workload at home, thereby risking another off-course on my blog.

Nevertheless, I managed to find some time in the morning for this, lucky me!

So what am I going to type iin this week?

While I did an entry on Dow Jones, Nikkei and Hang Seng last week, I did not really work much on the measurements. I have decided to work out how much they are going to move.

Fig 1. Dow Jones weekly chart

I am starting with Dow Jones here. I did not have a good feel on this counter last week. This week, it went up a the beginning for the week, only to retreat after resisted by the 8-week moving average. By the end of the week, it closed below the 144-week moving average.

Above that, the bodies of the bars overlapping while trying to climb. It is certainly tough for Dow to gain momentum.

Conducting a projection measurement, Dow Jones just bounced from its 100% projection support. Based on what I was taught, this would be a point when I should load a long order as it indicates a reversal. 

However, the last few times I did this, I found the reversal was weak and almost immediately went against my expectation. 

 I must therefore maintain a short position as a result. So where are the support level for Dow? 

More immediate, I should see support at 29,564 and if fail, between 27,160 to 28,514, The target for the present set up would be 26,999 to 28,049.

Fig 2. Nikkei weekly chart

Let's move on to Nikkei, I was more positive on this counter as the descend was more gradual. I anticipated the possibility of reversal. However, it failed after its test on up-side and stopped below both its 61.8% projection resistance, 89 and 21-week moving averages. 

In addition, the bars are overlapping, the momentum is weak.

The chance of further downslide is high.

What are the supports for Nikkei then?

The most immediate support is between 24,994 to 25,278. However, I am sensing something move serious, a double top formed between dec2020 to Feb 2022. The minimum objective for this formation is 23,085.  

Fig 3. Hang Seng weekly chart

WE finally come to Hang Seng, while affected by other indices, it managed to climb higher and closed positive above 21-week moving average, even though we are seeing a shooting star, the set-up is giving me more confidence that it is still on the up-climb.

The only concern I have is the reduction in its momentum. The gradient of its latest climb is less than that of its descent. 

Anyway, assuming it continue in its climb, I should see resistance at 23,418 to 23,759, that is if it is able to break through its present resistance of 22,039.  

If it unfortunately fails and reversed, I should see immediate support between 18,548 to 20,390. 

Fig 4. Hang Seng monthly chart

I am rather curious about Hang Seng's behavior. Is Hang Seng truly going up indicating an improvement on Hong Kong and China's situation?

I zoomed out It is really not looking good. I am not too sure how big a scale can technical analysis can go, the deterioration since January 2018 may have formed a double top. Question is: Can a top formation take 5 years to form?

Based on the 100% expansion measurement, Hang Seng is going to hit at low of 8,500, close to a quarter of its peak at 33,279.

Is this possible? Well, if we adopt Marvel Dr Strange multi-verse ideology, this is one of the possibilities. 

For the moment, though, the more immediate influence is the projection objective based on January 2018, March 2020 and February 2021, Hang Seng actually bounced back from its 100% projection by March 2022, there is a possibility that it might be in the process of bottom formation, time will tell.