Monthly Archives: May 2013

Elliot Wave and the world economic environment

Elliot Wave patterns usually provide an accurate assessment of the underlying market. So what are current Elliot Wave relationships to world economic conditions? While Elliot wave patterns must conform to specific rules, the patterns are always open to interpretation. Currently I see two alternative interpretations of the prevailing Elliot Wave patterns of the ASX200.

The first alternative is that this current bull market is in fact a bear market rally. This latter view is consistent with the following chart of the ASX200 where corrective wave A from the bull market high in November 2007, was completed in March 2009. The B wave is far from perfect but perhaps the recent high in May 2013 was the end of a complex B wave. If so then this would set the scene for the start of the C wave and a fall to a bear market low of possibly 1400 points on… Continue reading

The end of the bull market or a buying opportunity

Over the past three years there have been three significant market corrections and in each case these were related to issues of sovereign debt and recession in the European Union. The minor correction to the American markets last week was the result of concerns that the Fed might modify its quantitative easing policy.

At the same time the correction in the Australian market was more severe and influenced largely by different factors. While our market followed Wall Street with their concerns related to quantitative easing, there were also the issues of the closure of the Ford Plant and weak PMI figures from China but there were other influences on our market too.

Quantitative easing particularly from Japan has brought an increased inflow of cash into our equity market over the past few months. But foreign investors had two concerns during the past week because they lost money as a result… Continue reading

Has the 12 month bull market ended?

We now have the expected correction to this bull market but is this the end of the move? The weekly chart of the ASX200 below shows a classic five wave Elliot wave pattern and suggests that the bull market is now completed.
XJO ew
But maybe this is merely the end of the first section (wave 1) of the bull market and not the end of the bull? The following technical approach might resolve this question. The world-wide bull market is based on central bank monetary easing and not on GDP growth. The quantitative easing has come not only from the United States but also from the EU and more recently from Japan. Despite US market response to news released from the Fed today there is no reason to believe that quantitative easing will change in the short term. This being the case it is likely that the current correction is not… Continue reading

Managed funds need to be regulated

Managed funds are a preferred option of many investors. According to the ABS, Australian managed funds, including superannuation funds and unit trusts, now control assets of more than $2 trillion. While some funds have performed well, most managed funds have a poor long term performance when compared with the All Ordinaries Accumulation Index and have not served investors well at all.

The following table shows the performance of the five largest and best performing Australian managed funds to August 2012. It can be seen that over a five year period the average loss of these funds was about 3% per annum but when inflation is taken into account investors in these funds have lost 6% per year in real terms, every year over the last five years.
Big funds
This performance is totally unacceptable on two fronts. The first and most obvious one is that fund managers have destroyed their investor’s assets… Continue reading

Technical analysis and investing

As a scientist I have always been intrigued by persons/organisations that ignore concepts or information which might give them a better understanding of the way they live and work and think. One reason for ignoring new ideas is that it takes effort to study new concepts and some people simply are unable or unwilling to make the effort.

I contribute to several trader/investor forums and it is surprising that there are still persons on these forums who make unsupported derogatory claims about technical analysis. To me these are in the same category as those who still believe that the earth is flat or that the earth is the centre of the solar system, despite the evidence to the contrary. While any forum is an opportunity for all to express their views, when views related to technical analysis or any other subject are made based on ignorance and/or misinformation then readers… Continue reading

Baby-boomers, financial scams and education

Investment scams are commonplace and despite regulation will undoubtedly continue. Recently REST Industry Super, a large Australian industry super fund commissioned a study of Australian baby-boomers. The study showed that there are between four and five million baby-boomers who are now starting to retire and this creates a serious issue for future Australian governments since only 14 per cent of Australian Baby Boomers feel financially prepared for retirement with 35 per cent saying they are completely unprepared.

When potential retirees become aware of their lack of preparation they will often try to find investments with higher returns without considering the higher risks that come with such investments which almost inevitably end badly. Many of these high return investments are outright scams. Investor vulnerability to scams is not confined to the poorly prepared retiree. A recent example of this was the Madoff Ponzi scheme in the United States where an estimated… Continue reading

Sell in May and go away

This old adage, sell in May and go away is based on strong historical data. John Mauldin’s latest newsletter reminded me of this old adage and included in his newsletter are some convincing statistics that show that the months November to April have very significantly higher market returns than the months May to October.

The data referred to by Mauldin show that “If you had invested $10,000 in the Dow in 1950 and only kept the money in stocks from November through April, you would have had $684,073 as of the end of 2011. If you reversed the strategy and invested for the May-October period, you would have lost $1,024 over the same 61-year period”. These analyses have been applied to a range of markets where they show a similar high correlation. The following graphic taken from the above reference shows the data for the DOW Jones index.
Sell in May
After 6… Continue reading

How high can the Telstra share price go?

Telstra share price has had a wonderful run. Over the past two years it has gone from a low of about $2.50 to more than $5.00. Aside from the great capital gain, it has paid a high fully franked dividend during this period. In an environment of falling interest rates, high yielding stocks such as Telstra have been very appealing and over this recent period Telstra has shown more of the characteristics of a bond than a stock. But can this continue?

The following monthly chart of Telstra probably provides the answer. The blue line on this chart shows the region of strong resistance that emerged in 2007 and 2008. Telstra has just passed this strong area of resistance. The question now is whether TLS can continue its great bull run or whether it will now fall in price.
TLS May
From the monthly chart, the RSI divergence shown by the blue… Continue reading

Bank influence implies a vulnerable market?

The ASX200 is heavily influenced by two sectors, the financials which comprise about 33% of the index and materials with about 25%. Over the past two years resource stocks have generally been in decline so we now have an index which is dominated by financials and of these the banks are most significant and comprise about 25% of the index. Telstra is a minor contributor with about 3% of the index as is Woolworths with about 4% of the index. In a market which is so heavily influenced by the banks the Australian market is at an interesting and potentially vulnerable stage.

With resource stocks in decline and low cap stocks including many with excellent fundamentals also in decline from their market highs, money continues to pour into the banks which means that the future of the index in the hands of just a few stocks from one sector.
XJO May
The… Continue reading

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