Archive for the ‘markets’ Category

The reporting season has passed and it has been quite good superficially. The big difference from August 2015 is that the miners did the heavy lifting, while financial and rest was a big laggard.

The mid cap usually was the exception with some good results.

The big issue for the future is that most of the companies were focused on capital management, cost cutting and increased dividend payout (“search for yield”) which is now (on average!) 80%.

This paints an overall bleak picture for the future as really few companies are investing for growth. It shows that in the future the share selection will be more important than ever.

Also the commodities surge that helped the miners is also starting to end – the US  dollar strenght and the recent hard run will see to that (Citi new iron ore forecast is USD38/40.

The oil run is also over – most of the demand was due to a strategic reserve replenishment by China. No one knows if it is ended, but it looks close to finish.

So – no escape for this market? Not at all – opportunity abounds…not in plain sight – the strategy of Big Bankers, Big Miners and the Big Retailers (or plain ETF) has ended.


Stock Market

The market recovered a lot and there is still an upside bias, but everything can turn on a dime.

The issues are several. Technically, the market can resume an uptrend only if the SP 500 goes 2,100.

SP500 2,100 is quite far away considering all the tremors in the market (including Brexit now). So the chance that this is nothing else that the last moment to exit are quite high.

Also last week big rally has seen very low participation (volumes were -13% in respect the normal 2016 average, including a rise in the Goldman Sachs Short Most Shorted Shares and increase of Short Interest Cover -Font Bloomberg.


Also in the real economy we just see OK data, . The G20 was as usual inconclusive (expected since President Obama is now in a “lame duck” situation) and the Reserve Banks interventions are following a pattern of diminishing returns.

So apart some short term up bias – not much good news. Sorry!

Most people buy an index or a regional managed fund  because they want an exposure to a geographic market.

With the global market one should more looking into the revenue streams of the companies.

An example – you buy an ETF US SP500.

You think you are buying “the US” market….instead you are actually buying

67% US, 5% mainland China, 3% Japan and 3% Canada, 2% UK, Germany, France (each), 1% Brasil and 15% rest of the world.

A broad Europe ETF is similar 55% Europe, 24% Americas, 16% Asia, 5% Africa and Middle East.

So you should pay attention to what you are really buying. I think very few thought that buying a US ETF they were actually buying almost 15% of Emerging Markets!

Specially because looking in a 10 year span, on the SP500, Europe and Japan contributions are declining while China and Brazil are increasing.

Same happens at Sector level (even if some sectors like Healthcare tend to be more local and others like Tech more international).

Font: GeoRev, FactSet

After the full on falls, the markets seems to have calmed down. Is it finished yet?

Unfortunately probably not…yet. There is still some pain to go, but not much.

Why I say so?

The pattern we had since start of January has the classic pattern of the Machines attack (which is algorithmic trades software that trades 1000 positions per minute).

This January was particularly vulnerable as the FED was out and see the reaction to its interest rate move, in the US there were no Buy Backs planned plus most people were on holidays. In a market with so low volumes the Machines can reign supreme.

A bit like Terminator…when the Machines attack with such low volume the only choice is run.

Usually the Machines have a 3 days attack pattern (considering holidays they respected it…first attack 30-31 December and the 4 January – then 6-7-11 January) until they push the index in deep oversold and the stop. Now we are in a stop zone – so we need to be careful on what happen next.*

My November target  was a low under the previous of 1,867…so I would stay out.

Unfortunately, on a technical view, until this happens the SP500 is likely to be trapped between 1,850 and 2,130 (the technical low is 1782 in January 2014)

Please do not even try to short the market. As I said in a previous post “in 2015 any crowded trade (so where the mass thinks is going to happen) did not work, and it will not work in 2016”. Now the crowded trade is “doom and gloom” so there is quite a potential for a savage snap back (rally) fueled by people (and Machines) that need to cover their positions.

All in all, the idea is being calm and do not listen to the noise. Unless there is an event (US High Yield bond crisis, Iran attacking Saudi Arabia or something similar) on top of this situation this is a normal correction.


*For the people that do not believe it, please read an article from 2014

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., 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!

Markets – short update

Posted: July 22, 2015 in markets

The US technical continue to deteriorate

The number of shares that posted new lows  wildly increased in the last 5 days 46, 109, 131,200, 307.

Chitpole (similar to Mcdonald), Yahoo, Microsoft, Apple, GPro…all missed estimates.

And as I said before, July sell off did not reached July target – so prepare for a wobbly August!