Market reaction at supports of $64 for Brent and $62 for Nymex could provide clearer picture of how equities might respond ANANT TANTUVANICH The Dow has already fallen below a major long-term support, as discussed earlier. And, in this update, if the Brent spot price falls below $64 a barrel, it would add to the warning for global equities. The reason is that the weak oil price would signal that the pessimism over the global economic outlook will continue. On that note, there are inconsistent quotes on the Brent oil price among the various websites many people use as references. What we are referring to is the Brent spot price as updated in Bisnews. To track that, the symbol is Brt or Brtd in Bisnews. Despite the sharp rebound of oil prices last Friday, the Brent price already fell below the 10-year support last week. That is a major warning that the downside may be far from finished. The nearly four months of declines in oil prices since the peak in late June may extend into many more months. The key observation points, in terms of gauging whether the long-term warning will come true, are at the $64 support for the Brent spot price and at the $62 for the Nymex oil futures. If both supports are taken out, the warning will have a strong chance to come true. And, in such a case, the Brent spot price may also fall below the next support at around $50 toward $36. To track that, the symbol for the Nymex oil futures, is Clcon in Bisnews. Turning to global equities, an indicator to watch this week is the Nikkei, which is at a high-risk, and high-return support as shown in chart F. In a nutshell, if the Nikkei can rebound from the support to close above 9,547, along with the Dow closing above 9,388, global equities may be resilient for a week or two, despite the bearish odds mentioned in this analysis. But if the Nikkei falls below the support, which is at 8,000-7,800 for this week, be very careful with the global trend. In sum, the long-term outlook is still negative. But if the SET can go above 508, that may extend into a short-term rebound that may bring the index up further to 560-565. We doubt, however, that even if the SET could go up to 560-565, it would reverse the long-term negative signs, and this will have to be updated. At this point, the long-term warning that the SET may go down to 370, or the SET50 down to 260, is not cancelled. More likely than going above 508, the SET may test and go below 460, if the Asia Pacific markets are not looking strong this morning. If the SET falls below 460, the downside could be 420 or lower this week. Aside from watching the 508 resistance and 460 support for the SET this week, also apply caution if the SET bank index falls below 154, or if the energy index falls below 10,557 intraday. The situation will also be updated in the daily Market Timing, http://www.kasikornsecurities.com. Let us now go to the charts behind some of the above scenarios. Chart A shows the Brent oil price decline at a very major long-term support, which signals a likely steep decline ahead. The signal will be stronger if the Brent spot price also falls below the backup support at $64, in chart B, especially if the Nymex oil futures also fall below a similar support at $62. That means that we should be prepared that the pessimism over the global economic outlook may be far from over, and will continue to put pressure on global equities. A very direct negative impact of falling oil prices on the SET can be seen based on the correlation between the Brent spot price and PTTEP in chart C. Given that PTTEP is an important pointer for the SET, apply caution if PTTEP falls below the major long-term support at around 88-94 baht on the weekly closing. In another part of the big picture, gold prices appear to be peaking at the long-term mega resistance in chart D, which adds to the likelihood that oil prices will go lower. As the chart shows, the last time the gold price visited this resistance was back at the historical peak of the 20th century, in January 1980. The downsides for gold, oil and global equities may not finish until the US dollar index halts at the major resistance at 92.63 in chart E, or at a higher level. That is because funds are shifting out of gold, oil,and equities and into speculating on the US dollar. The situation will be updated. Historically, oftentimes the US dollar index is an inverted image of gold and oil prices. Note also that in this analysis we give more weight to the global trend, instead of the news of war, or politics. In chart G, at the war zones highlighted in the chart, the SET went up and down with the global trend, not with the news of conflict between Thailand and Vietnam, or between Thailand and Cambodia. The analysis is prepared weekly by the Kasikorn Securities Research Department, http://www.kasikornsecurities.com

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