Archive for August, 2015

At this point we need to be really wary.

The entire US rally is sustained just from 5 mega-caps (Google, Apple, Netflix, Facebook and Amazon) and all these are internet sector.

Their combined gains makes up for more of the gain of the rest of the S&P500.

Before the US summer it was tech, healthcare and media.

So it is really a tiny part of the SP500…decreasing everyday.

Unless financials come to the rescue, the rally is not sustainable

US credit sounds alerts+

Posted: August 15, 2015 in Uncategorized

The US credit traders have an uncann6 ability to understand dangers way before stock trader as they play in the insto market and real research data…not the retail ‘rubbish’. Credit lost over 2% (loss=outflows) since January and in August there has been the biggest sell off since 2013, over usd 1.3 billion.
If it the US auto loan market (similar to pre 2008 conditions) or other I do not know.

But listen!

Markets: Fire all weapons!

Posted: August 13, 2015 in markets, stock market

What an interesting August!

The share market is where retail and wholesale investors are playing their fortunes, winning and losing

The bond markets is where the institutional investors are playing their fortune, wining and losing

The currency markets is where where the government playing their fortune, winning and losing.

The currency war has been silently going on for over a year, but China entry put it in the frontpage.

It is difficult to explain the importance of the Chinese entry in the small amount of time I have to write this blog.

Just try to think with logic…China on 2014 represented 41.5% of world trade (Font Worldbank).

But it is more than that as Asian countries at large and a lot of emerging markets such as Brasil, Indonesia, South Africa  have relations with China much higher than that.

And the real battle is the US Dollar as global reserve currency. And it is a really important battle…no empire in history survived the fall of its own currency (Roman Empire, Imperial Spain and UK are easy example)..

Media says that China devalued the yuan as a consequences of the bad export data….and they are wrong.

If there is something certain about the Chinese is that they do not take decision in a hurry.

This was planned well before, it is part of their transition to a market set exchange rate (part of the condition of the acceptability of the yuan as a reserve currency in the IMF currency basket joining USD, Euro, UK GBP and Yen).

Unnoticed to most, now the Yuan is set also with the agreement of the 5 major Chinese banks (Government owned, but you see the direction

Nicely, it killed other two birds…boosted export and burned potential international short seller on the A share market.

——

It is too long to list the consequences…you can google it. But one main one that the Federal Reserve now will re evaluate if increasing rates in September is really wise. And this is the clincher for the market.

In all this confusion …what technical analysis says?

Quite too technical to go in detail, but….broadly

The sell off has been too violent so there could be easily a “jump in rally” that could bring back the US SP500 to 2,130-2,160 quite soon (end of August).

But be wary as it will be a non – sustainable rally as the volumes are too thin and there is a clear unfilled gap on the Volatility Index at 16.

September to early October could be a short, but brutal Sell Off with target SPX 1,970 (main supports are 2,063 and 2,044). Probably due to the FED and some USD surprise movement.

If you take technical analysis literally and the behaviour of gold (rising sharply) it would mean the Fed does not lift interest rates and USD falls (burning everybody.,..as everybody is long dollar).

But this is akin looking into a crystal ball.

As usual, these are not trading recommendation as there is much more to it. It is just the best thriller of the year!

SP 500 death cross and Apple

Posted: August 12, 2015 in Uncategorized

In March Apple has been introduced to the Dow Jones 30 and now it it is major responsible of an ominous trading signal called the Death Cross (50 Moving Average crosses crosses 200 days Moving Average) which, if not negated, will drive the Dow Jones down to its summer bottom.

Apple got hit by the triple whammy. On one side the Yuan devaluation made its products dearer in its best market (China),

the US phone carriers decided to stop subsidizing the cost phone (so in a phone plan you will need to buy the phone outright…I can just imagine lots of customers sticking with the old phone as now updates are really incremental) and also the new pretty good Chinese mobile phones will be even cheaper.

And this is valid for all companies similar to Apple – so the most part of technology companies…one of the few sectors that was driving this very selective rally.

The Yuan is pegged to the US Dollar within a band.

As the US Dollar gains strenght and Chinese competitiveness declines – it was just a matter of time that China intervened on its currency.

And naturally it has done that with a bang…the over the counter USDCNY plunged the most since Lehman crash!

The devaluation has been approx -1.9% (April 2013).

These has two meaning ….the Chinese are forecasting a FED rate increase in September (and further USD strengthening) and also that Chinese issues are much bigger than the world thinks.

There are also quite a lot of consequences from internal (Chinese deflation and Chinese corporate debt being the largest) and external (how the other regional reserve banks, mainly Bank of Japan and Bank of Korea).

Another extremely complex piece of the puzzle to take into considerations.

Update.

What a splash.

All luxury brand (BMW etc ), airlines,  which came to rely on the Chinese consumer got it really badly.

Practically everything imported became more expensive for Chinese and this will hit particularly hard all Asia including Australia.

The major beneficiaries are naturally Chinese exporters, specially in the technology sector

China malaise

Posted: August 11, 2015 in Uncategorized

The Chinese malaise run deeply in its own power.

The same power that can avoid a market crash in reality hinders via corruption and fake data the growth of a really strong China.

China GDP growth is stated at 7%. Real research houses like Lombard Street Research, Capital Economics and others estimated the real GDP to be somewhere between 3.8% and 4.9%.

Much more in line with the real data (railway freight -9.9% yoy and electricity consumption -2.2% yoy).

The Politburo decided the easy step and do the same as the Western countries. Massive market intervention to make feel the consumer happy and spur consumption.

The issue is that only 9% of Chinese invests in the market.

What they should have done is to tackle healthcare/ superannuation. Chinese are savers not because they like it, but because there is no Government assistance in these sectors…so they need to save for rainy days.

Still China has enough cash reserves and a strong enough security apparatus to survive (and a 3.8% growth is not bad at all). Only just forget the old days.

The biggest issue is actually the China dependent countries like Australia – which do not have the great cash reserves they have  or smart and all powerful (select which you prefer) politicians.

Latest Rally bounce

Posted: August 11, 2015 in Uncategorized

yesterday we had a nice rally on the US.

No one can say if it is a bottom or not.

What one can say that yesterday it was an oversold rally, specially strong because on Friday the US markets reached what in technical analysis is called a “death cross” (you can imagine what it is) – after 6 days of decline.

So just do not read too much into it.

But a bottom is likely to form between August and September.

markets and asset allocation

Posted: August 6, 2015 in Uncategorized

Markets

I can confirm that Bollinger band are quite tight and VIX is almost at an historical minimum.

These conditions are probe to a sharp “snapback” in ANY direction.

But for August any snapback should be just a “look an admire” fluctuation. Why? volumes are really low and it is just a “dirty dozen” of shares that move the market. So any move will not have the strength to  stay there (whereever it is) for long.

I am quite wary of September as early indications suggests that the FED could really make a move in September. This could spark a sell off in Government bond that could affect any market. Current analysis indicate a max sell off of 15% by late Q3 –  early Q4.

Asset Allocation

Underweight bond – too many uncertainty. Specially in a panic the Bond ETF could spark a massacre as they are easy to sell and there is no volume.

Shares Developed Market – if you are an investor you can stay there. US is expensive on a PE basis and with strong US Dollar. Historically in early rising interest rate US underperformed the other DM Markets. Europe and Japan are my favourite, but currency needs hedging. Australian share are not as bad as deemed. They can be better than US Shares. Specially the offshore earner and dividend. But the major banks have run their race. Change horse!

Shares Emerging Market…waiting a bit but China A share 3,000- 3,500 is a good long term buying opportunity between now and October.

Gold waiting for a basing around 1,050

Oil currently basing

markets and bollinger bands

Posted: August 5, 2015 in Uncategorized

A bit in a rush today – but some friends made me notice that the Bollinger Bands on SP500 are very tight (as tight as 1993, last time).

Usually this is a breakout signal (not directional). But since the FED could rise interest in September, Apple just crashed on really heavy volumes (strange for August) and various “not nice” signals – the breakout could be on the downside.

I found two interesting researches on Australian real estate.

A research done from Goldman Sachs on impact on energy prices and economies in Canada, Australia and Norway (oil exporters) shows that when oil plummeted in 1985 the real estate market underperformed the market in the following years with a lag of 1 to 2 years.

Yes it could be different as there was no Chinese investors at that time. I find it funny (false) that a lot of media are citing the Chinese market crash as the start a new wave of Chinese investors in Australia seeking refuge for their money – when the Government and various agency say that the residential Chinese national demand is residual and of low effect in the Australian market. But as negative Australian houses were not 20% overvalued in the 1980s by international standards.

Also the new APRA rules (increase of lending rates for investors) spurred a survey from Mortgage Choice.

1000 first time real investors got interviewed and 54% said they would proceed with the investment (or if you want to be negative 46% changed their mind). In NSW this data is 50%.

What is the take home result?

Not a crash, but real estate probably will under perform other sectors in the following years.

And if real estate underperforms, also Australian Banks will underperform and have to go through capital raisings (specially ANZ)