Posts Tagged ‘stock market’

I examined long term the relationship between oil and stock market.

The correlation is there, but sometime it is “in range” instead of directional.

Let me explain

The markets really likes oil being between $75 and $112.

It has a positive bias until $40.

Under $40 or over $112 is incrementally negative.

The current status of the market so is negative and if oil goes to $20 or even $10….a bloodbath would ensue.

What is the consesus on oil from the oil traders and commodities futures?

A bottom in late February/March around $25/$20 and then a recovery around $50/$47 by October and December around $40.

So we can extrapolate for the market an overall weakness for the whole of 2016.

A crash would occur late February/ early March taking out the current low, which would be a perfect moment to buy.


All this reflects a Chinese market bottom around 2,500/2,400


Well this year not much worked

Year to date (27 Dec)

Australian ASX200 -3.8%


SP500 +2.19%

Bonds (US T Bond 30) -2.04%

US 3 M Cash Bills 0.11%

Commodities -23.42%

Australian Real Estate (average -5%)

Australians did better than this due of the fall of the Australian Dollar.

In practice the classic  asset allocation did not work this year.

The conditions for next year are even more difficult. The main returns were driven by the fall of the Australian Dollar.

One thing that one should have at least learned from 2015 is that crowded trade (where most of the analyst say “do this”) did not work in this market.

A weaker Australian Dollar is the current crowded trade for the next 6 month….so pay attention – it could not work (statistically the first rate hike in US produce a fall in the USD – as the interest rate hike has been anticipated for 18 months).

How did I do this year? About 13% with a quite simple strategy of corporate Australian bond (circa 6%) and the classic sell in May buy in October. And definitely avoiding indexing.

Next year we will see what is the game….but I think more difficult.

I really do not like how this September/ October (more precisely mid September) is shaping up.

September is usually a positive market, so things could be kept together till mid September.

On a technical analysis (SP500) we have a support at 2,063 – 2,040 and 1,970. If 1,970 goes…the first real support is around 1,820(!!).

The things that could make this happen are quite too many to mention. The first that come into my mind are Fed rising (or not rising if the market is in a bad mood), the MDA 200 on the SP200 has been crossed (Death Cross), oil can wreak havoc on oil nation- emerging market – energy high yield US bond market), USD strength could spark another 1997 Asian Tiger crisis.

On the geopolitical side there is the great unknown China, a Greek Government failure, a re heating up of Ukraine tensions (by the way, not in the media, but they started again using heavy weapons) or something unseen (Saudi Arabia, North Korea).

In all it should be a nasty short healthy correction – so as an investor you should not worry too much as it set up the market for a great rally into end of year!

I do not think that the FED will commit the same mega error of 1937*

*In 1937 hiked to early the rates sending the US markets and world economy in a secondary recession after the 29. And this was one of economic causes that created the perfect conditions for the start of the Second World War.

Today I received an UNCONFIRMED Demark signal .

It is difficult to explain, but essentially it happened 6 times in history.

3 times marked major crash (also May 2008)

1 time a 20% drop and 16 years of “going no where market”

2 times a 10% drop and a 1.5 year of going nowhere market.

It is UNCONFIRMED and can be disproved.

On the other side we have the VIX at 16.29 – High Danger Area (over 17.98 is big trouble with target 28)

And October, statistically, is 17% more volatile than September.

Let’s say …it does not look good.

The Fed this week intervened heavily, but succeeded just not to make the Dow Jones and SP 500 not crash. But all other indexes sustained damages.

House Majority Leader Eric Cantor will step down 31 July. And there will be a fight to step in his place and most likely will be an extreme right kind of guy.

For the markets is bad news as we will go back to the in fight to the death between Democrats and Republicans and it will be even worse as the moderate Republicans have been utterly defeated….so now they will all flock to the extreme right.

The gridlock in the US Congress will reappear and it will be more severe than before (one of the mantra of Brat is no rising of the debt ceiling for 5 years…or death).

The Immigration reforms planned by President Obama are dead.


For how much I personally can’t understand the Tea Party people, you need to admire the democracy in the US (at least at this level) where an unknown professor with no budget and just $40,000 in the bank (these data are public in the US) and $200,000 campaign budget defeated a multi millionaire “superpower” guy like Cantor with a campaign budget of $5,500,000 millions and backing from Goldman Sachs, Blackrock, Oracle, Verizon.

Brat is anti Wall Street, anti big business. He has support not because is mad, but because this Federal Reserve sponsored recovery made the rich richer and the poor poorer.

In 2013 an Associated Press “real America” survey showed that 80% of American are struggling to make end meets. And that is why the Tea Party is rising again (similar to the Euro Skeptic party, religion apart). Unfortunately all Western countries are actually heading that way (yes also Australia, with rising costs and the new Budget).

We should all respect the US for that. With all its faults.

At the moment the market is rallying, but there is no volume. It is all about Fed money and algos “hot money” (the millisecond trade in and out).

Fisher (one of Federal Reserve  presidents) expressed concern at almost no volatility in markets.

The Bundesbank (Germany Federal Reserve) warned “we see risks – despite the fact that markets are calm,” and perhaps incredibly suggested investors “flatten all risks now to avoid the herd behavior.”

The last time volatility was so low it was in 2007. Well, this time you can’t say I have not been warned.

I am not panicking, but alert. And you should be.

Hard ball for the FED

Posted: March 20, 2014 in Uncategorized

Now we are actually in the usual position (seen the last time in October) of the market vs Federal Reserve.

The markets want to go down and the FED is fighting hard to keep the market from crashing.

(the theory is always do what they do, not what they say – in the US market on the 17th -when the markets rallied hard – there has been a lot of option buying in pre market …a size that indicate market manipulation).

Differently from October, this time the FED is dealing with events outside its control (in October was a mere US political affair) that could mean a no win situation.

– China slowdown

– Russia / Ukraine

and, unnoticed for now by the media, an escalation of tension between Syria and Israel (an Israel military unit has been hit in the Golan region and the Israeli Air Force and Artillery attacked Syrian (not Hezbollah or rebel) outposts.

Definitely a scary market, but not one that you can short in tranquillity as the Fed is very powerful.

I like what he says as he has direct connections with Central bankers.

In a short summery.

The exodus from EM is not finished. Going towards US Bond, US Tech and healthcare stocks, but temporary.

Talked to FED and they are not worried about EM market – not because it does not worry them, but because it fits their purposes…it makes bond go up (yield down), improve lending condition and mitigate asset bubble.

THERE IS CONTAGION RISK Foreign Debt outflow (Hungary, Philippines, Indonesia, Poland, Turkey and Mexico) and Stock outflow (Hungary, Taiwan, Korea, Brazil and Thailand). It will persist over the year.

VIX around 19 signal Bearish undertone. (14.5 rally over 21 massacre).

Summary: lot of technical damage, but he thinks there could be a last leg up (under the recent top) before the end of the rally started March 2009. Pretty dangerous condition.

The US Senate Democrat changed a rule that requested to have 60 Senators to end a roadblock to a US Presidential nomination..

Practically if President Obama wanted to elect a judicial or executive representative (except US Supreme Court), unless he had 60 Senators, the nomination could be blocked by a small minority (read Tea Party). It has been a symbol of the US Congress gridlock and survived dozens of attacks, but not today.

This is just a small insight on what is happening in the Congress in trying to decrease the gridlocks caused by the Tea Party and in preparation for the new showdown in January.

If this pattern continuous and its ramifications get pick up by investors we could see an early start of the Stock Christmas rally.


At first look there is nothing to signal…alignment with the upper crescent tunnel.

But the Bollinger movement spooked me – so I started digging.

In the next 5 days there is the end of the triangular pattern that I shown on an earlier on the NYSE.

At this point the institutional investors (that have been watching by the sidelines the market the last 10 days) will have to re align their portfolio starting a rally or bring the market down selling.

One of the “what if” day is Thursday (NYC time).

Tomorrow there is the official confirmation of the next Fed Chairman Yellen and in her speech the market will try to gauge her intention about QE (the market now thinks March 2014) or a potential move from Tea Party Senator Paul to delay her nomination (as he wants a vote on auditing the Fed balance in exchange).

Plus there is an issue on the 10 and 30 years T Bond which are pushing yields (2.73% and 3.83% respectively with long term resistance at 3.4/3.5% and 4.1% / 4.2%). A breach of these long term resistances would make all the major research houses decrease the growth projection for the US.

I still think there is a while to go before we are in real danger on the yield sise (January/March) and I am still positive as a bias