Morning Dew - 1 July 2013

Key Points

• Following Ben Bernanke's 'hint' on the unwinding of Fed's stimulus, June was a turbulent month for JCI as well as for global stock indexes. JCI hit the low of 4,373 before it bounced back to as high as 4,818 last Friday. Unlike last month, Bernanke's hint was not the single negative catalyst, but added with the fear of China slowdown, fuel price hike in the domestic front as well as Europe's monetary policy which is likely to be steady with no more added stimulus visible. Markets also concern about the political situation in Greece although this should be slowly neutralized as the parties find resolve.
• Essentially, the ball is at the Fed's court. Regardless of the noises swirling around the market, the Fed has set out the course for a reduction of stimulus, possibly as soon as September; afterwards we may see the stimulus fully removed sometime next year, and finally a rise in rates in 2015. The reference numbers are also clear as the Fed set the conditional unemployment rate at 6.5% and the inflation at 2.5% (half percent above the FOMC's long-term inflation target).
• If May was a busy month, June was an even busier month. Unfortunately, it did not end happily as five recommendations ended with losses and just two with gains. Still the net stayed positive. MPPA and AKRA gained 75% and 11.21%, respectively; while APLN, BKSL and BIPI lost 9.58%, 17.54%, and 12.05%, respectively while MDLN and WIIM ended losing 16.82% and 11.58%, respectively. Overall, the final tally was a gain of 18.85%.
• China's PMI for manufacturing and non-manufacturing sectors will kickstart the coming week. The market has been increasingly concerned over the outlook of Chinese economy recently. Meanwhile, key US data will be the nonfarm payrolls and unemployment rate. These two are crucial for the Fed in deciding how soon they will start reducing the stimulus.
• Technically speaking, the first corrective wave has been completed at 4373 in a five-wave structure. The current bounce is considered as the second leg of the correction or wave B. Resistance comes at 4880, the end of wave 4 of the first leg down, and a successful break of this level is likely to push the JCI to the next crucial resistance at 5072, the end of wave 1 of the first leg down. We have yet seen any meaningful pullback since the index bounced off the low at 4373 and given the downtick of the Dow, we may see the JCI to pull back a bit as well. Still, the MACD has turned positive, coupled with classic bullish divergence of both MACD and RSI (which is also accompanied by a failure swing). This could mean any setback should be temporary and the rally may continue to aim at 5072. Keep in mind that as the rally is still considered as wave B, we are NOT out of the woods yet.

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