Paraphrasing the famous sentence of Game of Thrones seems correct this year.
These are difficult times for the markets
If your adviser does not understand it (or if the institution that advises you has a care towards shareholders, not client) you are a lamb brought to the slaughterhouse.
If instead you understand it…there are really interesting occasions.
Make your choices correct, or ask me if you are in doubt.
As previously written, this year volatility will reign!
This post is republished…because it was posted the 3rd February and the 9 February happened exactly hat I told you…wait and see if the media catch up the issue energy junk bond and bank! They did it!
And now oil has a target between $20/$25…good luck!
Well, after the Bank of Japan intervention it seems the Bear are reassessing themselves. What now?
In effect I already posted that the BoJ could only delay the inevitable.
What I do see. I see that 2016 is great opportunity for smart managers.
The low of January has a pattern that does not look like holding and we are going to re test it.
Unless another panic event comes along, the natural end of this correction (please read correction, not crisis) would end up somewhere between 1,820 and 1,720.
When? Between February and March (which is the seasonal oil lows…between $20 and $26). Then there will be a recovery into April and a zig zag trend until October.
More technical updates later as this is what I keep on posting from a while now – but readers keep on asking me about updates.
Well I wrote of a more volatile 2016 and “do not index” this year…but the start has been worst than expected.
And the there is a old adage in Wall Street (about which I was talking yesterday) which is scary ….so goes January so goes the year.
Also some stock market specialist are quite fixated on the number 7 (this is the 7 year of the post GFC rally). Silly thing, I know…until you see the track record of those gurus.
Yesterday fall has all the hallmarks of a panic attack – Stock Markets collapsing, AUD falling and gold rising.
Tomorrow (and next week) is very important …the SP 500 is defending the all important 2,000 level.
A breach of it would signal a confirmation of the 1,820 target*.
*The last low 1,867 has the characteristics of false low as per my December post. I was quite surprised that was not breached to get a confirmation low in the 1820/1840 area.
Apart China, the data for the US also do not look good.
There is the lowest EPS guidance for US Consumer Discretionary in the last five years.
US Manufacturing (December) looks like contracted the most since 2009.
So it is not the end of the world…but this is a seriously scary year.
ASX200 : Flat or negative (-5% to +3%) – banks and materials under pressure
SP500 Slightly up (0/5%)
AUD 0.68/0.70 US cents (later i the year, now there is a USD weakness)
Bond – Stable /positive (only 2 Fed hikes)
RBA no move for most of the year, maybe up towards the end
Oil: Once a low is in (USD25/34) a counter rally to USD60
Iron Ore: USD 40 (stable)
Gold: once a low is in around $950/$1,000 a rally to $1,300/1,400
China to continue its slow “rotation to consumer economy path.
Yuan to 7.5 (depreciation towards dollar of about 15%)
Preferred markets: Japan, selectively Europe, Vietnam, selectively South America
Space to watch for potential crisis.
– Turkey/Russia/Iran
– High Yield Bond (energy, US auto loans)
-Italian banking crisis
-terrorist attacks
-China/ Emerging Markets (currencies)
Merry Xmas!
Well by now you should know that, in this period, I am against indexing (both for 2015 and 2016).
My friends at Market Vectors saved me some research and it clarifies what I mean
The ASX performed +1.76% year to 30 Nov 2015.
The top 10 shares which represents over 60% of the ASX and are the core of 80% of the SMSF managed by institutionally aligned advisers and private individuals…performed dismally
Look at the price movement (dividend is not included)
CBA -5.04%
BHP -31.68%
WBC -0.57%
ANZ-13.4%
Telstra -8.04%
NAB -9.9%
WOW -20.18%
WES -6.59%
Scentre (Westfield spin off) +18.29%
WPL -18.94%
So it is better to take an active approach.
What is in store for 2016…let’s see
Major Banks….they have pretty much arrived to full valuation – between rising capital requiring and slowing of real estate you will be happy if they do not more
Mining – Iron Ore, apart monthly swings – will not do anything major. China is transforming into a consumer economy or slowing down. Anyway steel consumption will not increase, so there is a cap there
Energy – this could be more positive once a low is settled in as Middle East is ripe for a major accident.
There are other bright spots but not enough to influence the index. So keep away from indexing.
In a post of few days ago I told you to pay attention as this rally has been sustained by just 5 stocks.
Yesterday Netflix got killed (-7.8%) and a few weeks ago Apple got seriously injured. Like a Game of Throne…they are falling (like apples!).
The big start is China and Emerging Markets in general and people are starting to recall the Asian Tiger Crisis.
Some other development.
Tsipras (Greek PM) resigned and called for snap election as early as 20 September.
Market response was muted. This was the end game of Merkel, so to elect a more pro European Government.
The vote has been called so fast in order not to let the Syriza party rebels or golden Dawn to organize themselves.
It is too early to call on anything – but reading Vouruvakis blog you can understand that the July Greek referendum did not go according to plan. It is now clear that the referendum should have said YES to Europe for an easy way out to Tsipras.
It did not work.
Around the globe there has been a rockets exchange between North and South Korea and Israel/ Syria…but that is “quite normal”.
The big headline battle is on China and to see if the Government can hold the A -Shares at 3,500 (my projections…not. the target is 3,000/3,150 in an extremely fast move).
The other more subtle, but more dangerous battle is in the US Corporate Bond. US Corporate Bond have seen massive losses augmented by the easy tradable ETFs.
The issues are two and quite complex.
US Corporate junk bond (eg energy bond) are required to demand the highest premium…but are held back by the fact that the FED has still the rates set at the lowest levels*
A big part of this stock rally has been the share buybacks. Most of the US companies used these “buybacks” to create high yield (junk) bond. And now we have an issue on some of those bonds.
The behaviour of the market is consistent with the De Mark signal I gave in October 2014. In essence The De Mark signals happened 3 times in history and the market got busted or went sideways for several years (my main theory – range SP500 1,800 -2,200)
*This scarily reflects a problem that I highlighted in a post in November 2014, that this was one of the risk of Yellen as Chairman nominee. That she would hold off rising interest rates for too long.
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!
Definitely there is a lot of complacency in the market, mostly due to our propaganda filled media.
– PM Tsiparas is doing a ballet…saying to the Eurocreditors (Euro Group) that he will be more lenient and accepting their requests and play the hard core rebel with the Greek voters
– The media push amazing YES vote in polls….and if you look into the polls the sample is just 1,000 persons in Athens and the difference between Yes and No is irrelevant (5% within statistical error)
-The Eurogroup is playing hard core no deal before referendum (which has been already threatened in its legality as the Greek Constitutions forbids referendum on fiscal matters).
– On the other side Europe decided not to cut the emergency assistance.
As a primary consequence it look like PM Tsiparas is in a corner and could lose government majority even if a NO wins, with more confusion ensuing.
On the stock market we are having a nice rally, but looks like more an oversold rally to me.
The key point is SP500 2,072/2,067. But the deteriorating pattern in DJ Transportation and DJ Utilities indicates that is more a matter of time before the breach occurs.
China – after the PBOC intervention we saw another wipeout caused by the shadow margin lending. In my view this is a basing pattern and it will be volatile for a while. But a crash is something that the Chinese Government does not want (also it did not want a mega rally as before as it is unsustainable)
So we can still expect a weak July and then a volatile recovery pattern in August.
investorpolitico 