Monthly Archives: April 2013
While not an investor in American stocks, I watched with interest the fall of Apple share price from its high of about $700 down to about $400, a fall of about 42% in six months. As a technical analyst I was curious to see in retrospect if on technical grounds there was any indication in October 2013 of the huge potential fall that was about to occur in the share price of Apple Inc.
Apple a hugely successful company with a very large cash reserve is now under pressure in a highly competitive market. Given the fundamentals of Apple a dramatic fall in price was not expected. The following weekly chart shows that by using the oscillator RSI, the fall in price of Apple shares was a high probability in early October and this was the time for investors to sell shares in Apple.
The RSI divergence signal was very… Continue reading
As an investor who uses both fundamental analysis and technical analysis, I find that there are sometimes situations where both techniques can fail if they are used in isolation.
The following is one such example where fundamental analysis failed to provide information to the buyer, of an impending fall in share price. Consider the stock NRW holdings. In late February 2013 NRW Holdings was trading at $2.20 and had the following fundamentals. It had a return on equity of 20%, a rising plane of earnings and dividend payments, a very low debt to equity ratio and a yield of 12%. So on fundamentals NRW was very attractive. But one month later the share price of NRW was $1.20, so the investor who bought this stock in mid March based only on the fundamentals faced a substantial loss of about 40%.
The daily chart of NRW holdings is shown below. At… Continue reading
One of the surprising aspects of the current bull market in Australia has been extraordinary demand for high dividend paying stocks and the apparent disregard for many small stocks which have excellent fundamentals and pay high to very high dividends.
What is the basis of this phenomenon? Maybe this is a reflection of the conservative investor who has been forces into equities because of low yields in fixed interest securities. These investors particularly the self managed super funds are looking not only for low risk but also for higher yield and stocks such as Telstra and the banks satisfy these needs at the moment. It was interesting to see that during the recent time of volatility on the market where many stocks showed falls of 5% or more, stocks such as Telstra and the banks actually increased in price. With such strong demand for these large cap, high yielding stocks… Continue reading
I have been watching this index paradox for some time and it continues to evolve. There are now several examples where there is little correlation between the economic performance of a country and its underlying stock index.
For example consider the chart below of the Dow Jones index which has recently reached an all time high. The US economy while having recovered from the 2008 recession and a real estate crash is far from booming. It has a very large and increasing sovereign debt and a huge debt for unfunded pension and medical liabilities, compounded by a sometimes dysfunctional government. In the final quarter of 2012 GDP declined and several economists suggest that the GDP for 2013 may be less than 1%. GDP growth is necessary for a bull market and this is just not happening. The bull market chart of the Dow does not match the realities of the… Continue reading
The Australian economy is now strongly reliant on the Chinese economy, so we should watch it carefully. The chart of the Shanghai Composite index below is not the sort of chart one expects from a dynamic and rapidly growing economy. On the contrary it is the chart of an economy with some significant underlying problems. At its current level the Shanghai Composite is about 65% below its high of 2007. By contrast the indices in the USA are at an all time high and this is an economy with falling GDP and some formidable underlying debt issues. Clearly there some issues we need to understand.
I noted from the latest Economist that China has just received the first downgrade of its sovereign debt since 1999. Fitch cut its rating on China’s local currency debt by one notch. The reason given is that China now has unsustainable levels of debt on… Continue reading
This was a recent statement made on Bloomberg television by a US fund manager. Could he be correct? My logic argues against it. To have a sustainable bull market we need GDP growth. Where is that growth? Certainly not in Europe and in the United States there has been a significant slowing with some economist predicting that growth will fall below 1%. Maybe China will continue its spectacular growth phase but if China is really growing so spectacularly why is the Shanghai Composite in a continuing downtrend? Logic would argue that growth in China must slow if its major trading partners have little or no growth which must equate to lower demand for consumer goods.
There are bearish indications in many markets. While there is technically no immediate suggestion that the bull market in Australia and the US is near its end, technical analysis can only make use of past… Continue reading
Quantitative easing continues to spur most world equity markets. The markets are now ignoring some of the very significant events that are now occurring in the EU where the fundamental issues continue to deteriorate. In Cyprus there are problems which continue to deepen with an estimated $28 billion required to bail out this tiny economy and now in Italy there are serious issues with the political deadlock.
In Greece the underlying unemployment rate has now risen to 27 per cent. But perhaps it is with France that we should have the most concerns. If president Hollande does understand the economic issues in France, he has completely failed to convince the electorate of the urgent need to implement reforms and stimulate the French economy. There is now a strong likelihood that the French economy provides the next economic crisis in the EU and because it is the second largest EU economy… Continue reading
Recently we have seen an extraordinary diversity of views on the markets. On one hand a commentator on Bloomberg made the statement but we are now at the start of a four year bull market. By contrast a newsletter from HS dent states confidently that the DOW will fall to 6000 and possibly 3000.
American markets remain positive despite disappointing employment figures and with the continuation of quantitative easing there is reason to believe that the markets could go higher. Fundamental data from the EU are not positive and it was surprising that the crisis in Cyprus did not further destabilise the EU. From a technical analysis viewpoint there is considerable cause for pessimism, with a triple top on the S&P 500 and on the DAX and most other markets now closed near all-time highs? The exception to this is the Shanghai composite which after a spectacular rise from early… Continue reading