Monthly Archives: September 2012

Can the head and shoulders pattern fail?

Although the head and shoulders provides a very high probability of trend reversal and a significant fall in price, investors need to be careful because unless the support at the neckline is broken, the pattern may fail and the trend may continue up. Consider the following example.

 I have been watching the development of the head and shoulders pattern on the chart of The Reject Shop (TRS).  This chart is particularly interesting because the strong head and shoulders pattern developed over a long time frame and suggested the probability of a significant price fall from point A on the neckline. However the chart shows that the neckline provided support at about $8.90 and TRS price increased by some 37% from point A. 

The question does remain as to whether this head and shoulders pattern on TRS has failed or if this is a brief respite.  There… Continue reading

Gloomy outlook for Australian market

There is now little optimism in the Australian market and this is unlikely to change over at least the next month.   The RSI divergence on the S&P500 below, suggests that markets will have a high probability of falling further in October.

There is little positive news from any major economic region at the moment.  But it is all about the EU with even the so called “fiscal cliff” in the US not rating more than a passing mention.  Recent protests in Greece and Spain are not going to make in any easier for their respective governments to implement the austerity measures needed to obtain more bailout funds.  It makes the Greek default look imminent.  But Spain is a much bigger economy and with 25% unemployed austerity is not popular.  Spain has deferred application to the ECB for assistance but that will need to… Continue reading

No cause for market optimism

I am afraid that there is not much to be optimistic about with the current market. The Australian market is unlikely to do much now until we have a resolution of the EU situation. China continues to look shaky and this will not change until their change of leadership next month reveals what economic changes are likely.

The World economy is really all about the Europe now since even a massive quantitative easing from the US apparently has had little more than a short term impact on the markets.

The EU is China’s biggest trading partner and it is now very much in recession with unemployment continuing to grow. In Asia it is not simply a matter of China slowing, with most other Asian nations now showing a significant slowing. We wait for outcomes in Europe to determine which way the markets will go. The ECB has given… Continue reading

Australians lack financial literacy

The education system does not equip Australians to become financially literate. As a result most Australians are uncertain about how to invest and many find it intimidating.

The finance industry spends large sums to promote the complexity of investing and seems to have successfully convinced the average Australian that investing is too difficult and that only finance professionals can be successful investors.   This is despite the evidence to the contrary, that most fund managers underperform the index and in some instances their long term performances can only be described as a dismal failure.  http://aust-investor.com/2012/07/18/incompetence-of-fund-managers/ .

The big concern is that future generations of Australians will not have access to a government pension unless they are in very poor circumstances.  So it is essential that Australians be educated in the ways of saving and investing

This is a prime objective of the independent investor.  It… Continue reading

Could 1200 be the low for the ASX200?

We have been in a secular bear market in Australia since late 2007 and out of sync with the American markets due to our heavy weighting of resource stocks.   Over this period Elliot wave theory has accurately described the movement of the ASX200 .

From the ASX200 top in November 2007 there was a five wave market decline to March 2009. This 5 wave pattern confirmed that this was not the bear market low in March but was only the end of the A wave correction. The severity of this 5 wave correction suggested that there would be a significant bear market rally. The ASX200 did rally strongly to about 5022 in April 2010 and this level was very close to the expected correction at the 50% Fibonacci level. I have taken this as the end of the B wave (see the weekly ASX200 chart… Continue reading

Is the S&P500 due for a fall?

The  S&P500 is a leading world economic index.   World markets have been generally positive since mid June with the S&P500 rising by some 16%, albeit on low volume.  This was mainly due to the anticipation of easing of monetary policy in the EU and USA.  Now that the Fed has provided QE3, the ebullience has been short lived and movement on the chart of S&P500 suggests that the “bull market” is over.  The RSI divergence on the monthly chart of the S&P500 below, suggests that a significant pull back in this leading index is likely.

In Australia markets are generally focused on China and the extent of the slowdown in that economy is becoming evident even without the potential for conflict with Japan.   With the Shanghai Composite in a long term confirmed downtrend and the potential for a significant fall in the… Continue reading

BDI index suggests there will be no world economic recovery

 The Baltic Dry Index (BDI), tracks the worldwide value of international shipping prices (in US$) of various dry bulk cargoes. The index measures the demand for shipping capacity versus the supply of dry bulk carriers. Since the demand for shipping is correlated with the amount of cargo that is being traded, the BDI provides a direct measure of world trade through this supply and demand. Hence the Baltic Dry is a leading economic indicator because it predicts future economic activity.

Unlike stock and bond markets, the BDI is a reflection of the real value of trade and not speculative anticipation of price, since the index is a real measure of raw materials which represent future economic activity and growth. So it is not surprising that economists look at the BDI as a leading indicator for the major share markets.

The chart shows the BDI and the CRB index.… Continue reading

Quantitative easing effects may be short lived!

The US Fed and the ECB may have given stimulus to world markets but how long will it last?   The Australian markets are now very strongly influenced by China but what happens in the US is critical to world events. So what effects will the current round of quantitative easing have?

The US economy has some significant problems, with unemployment, real estate prices and debt at all levels being the most important.  The recent QE3 may have been a useful stimulus to the stock markets but will it stimulate the economy?  American business needs fiscal certainty.  What is now needed so badly in the US is business confidence before unemployment can fall and this cannot happen while a congressional impasse remains and prevents any fiscal reform from happening.

The US Fed seems to be the only hope for recovery in the US but with… Continue reading

Quantitative easing and the Australian market

With markets buoyant over the past month, one must ask if the latest quantitative easing has been successful?  There is little doubt that markets had anticipated the quantitative easing from both the US and the EU with the American markets rising some 15% since June but this has been on low volumes and the response on the Australian market has been weak by comparison.  But given the huge amount of liquidity added to the world system, is the market response that we have seen adequate, will it continue and will it have the desired effect of stimulating a poor world economy?

Where to now?  Technically there is little room for optimism about the markets.  The S&P500 (below) now shows a potential head and shoulders pattern which is a very reliable reversal pattern.  These can of course fail and the test for the veracity of a… Continue reading

Australian market continues to languish

Where are the markets going?  Little has changed over the past year.  Are we any closer to a resolution of world events which are an impediment to a bull market?  

The EU situation drags on with the inevitable default by Greece looming closer. But Spain is now a more critical case and the Italians could put Berlusconi back into the top job at which time the Italian crisis will deepen. The illusions of a socialist solution to France’s woes have been exposed and Hollande is facing the realities of an economy which is in trouble and banks which have a big exposure to southern European debt.

The more recent news is that China is slowing although it is not clear by how much. This leaves the United States with a slowing economy, a dysfunctional administration and a huge debt. In the US markets the NASDAQ is… Continue reading

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