Monthly Archives: August 2013

US bond markets, Stocks and QE tapering

World stock markets continue to be unsettled pending action by the United States central bank to ease the monetary stimulus. This could come “by the end of the year”, which means that it could happen as early as the September Federal Reserve meeting. This has been widely anticipated by markets and has caused a slow decline in stocks over the past month.

The Fed has an unenviable and difficult job. It could simply taper the quantitative easing or it could take the more drastic action and tighten. If it tightens and slows the economy there is the risk of throwing the economy into recession so it is more likely the fed will taper.

If there is no alternative to the tapering process then there will be an impact on both the equities market and the bond market. Data show that foreign investors are continuing to sell both US bonds and… Continue reading

Is the Coppock indicator effective on short term charts?

The Coppock indicator is a popular and effective indicator for finding the start of a new bull market. It was developed by Edwin Coppock to find the start of the bull market on the Dow Jones index. The Coppock has been widely used on other indices and has effectively provided an entry signal for every bull market on the Australian All Ordinaries index over the past 30 years. The following chart shows the Coppock indicator on a monthly chart of the ASX200 where it gave very good signals for entry to all three bull markets over the last 10 years.
Coppock mthly
This indicator is now widely applied to any index and can also be used effectively on the monthly chart of any stock as long as that stock has very high liquidity. The Coppock indicator was developed only for use with monthly charts and the question is whether it can also… Continue reading

The United States is unlikely to provide the lead for sustainable global growth!

The global economy is gaining momentum but it is only in America that economic growth is likely to be sustained. In the rest of the world there are continuing issues which threaten an economic recovery.

The European Union has failed to remedy the problems with its banks or to write down debts which cannot be repaid. After six quarters of recession, the European Union economy has begun to grow again but this growth is weak and due mainly to Germany while in France and the Mediterranean nations continuing economic reform is needed. There are now significant issues with unstable governments in most southern nations and this complicates the recovery process.

In China, recent indicators show an improvement in trade and industrial output, suggesting that the world’s second-biggest economy may avoid a slump. But there is little reason to expect faster growth because China has yet to make the transition from… Continue reading

The dangers of investing in high dividend shares

The recent RBA rate cut to 2.5% has put pressure on investors, particularly retirees and SMSF trustees. The yield from investing in term deposits is now very poor with the after inflation return now less than 2%. As a result most retirees are looking for an alternative but because they are unaware of alternative investments such as corporate bonds (which still return as much as 7% for highly rated senior debt), the share market remains the logical option.

With advisors and brokers promoting the high yields from shares, many investors are entering the share market and buying high yielding stocks without regard to the risks. While some of the conservative blue chip stocks which are core holdings in most investment portfolios are returning high yields, these are not without risk and this is not a good time for new investors to enter the market which is now overvalued. Notoriously the… Continue reading

A market reversal seems imminent

Despite the reliance of the Australian economy on China, the main short term influence on our markets still comes from the United States. The American markets have had a wonderful run particularly over the past 12 months. At the end of last week there were two negative days on Wall Street. Is this the start of a significant correction which will flow to our market?

There is little doubt that the major trigger for a US market reversal will be an announcement from Mr. Bernanke that tapering will commence. But it may be too late to get out of the market once the reversal starts as the correction could be fast and very significant. This is where technical analysis can provide some insights into a probable market reversal.

Consider the following weekly chart of the S&P500. There has been an RSI divergence developing on this chart over the past 5… Continue reading

The German elections and the European Union crisis

Why is it that European central bankers and politicians seem to be revelling in self-congratulations rather acknowledging the fragile state of the European Union economy? Perhaps the upcoming German elections may explain why the European Union predicament is being set to one side. Certainly the German electorate has become increasing intolerant of the further bailouts of their Mediterranean neighbours, particularly Greece, and Angela Merkel no doubt sees this as a serious barrier to her re-election.

Consider the major issues. Greece has received more than €200 billion in bailouts and despite a haircut on its debt and some measure of austerity there is almost certain to be another haircut because Greece simply does not have the capacity to repay its debts. But even if the latent Greek crisis and the very high unemployment rates across most of the European Union are ignored, the economy and political situations in many Eurozone countries… Continue reading

The European Union crisis is not over!

Why are commentators so positive about a European Union recovery? While there is an increasing body of data suggesting that the worst is over for the European Union, this is based very much on positive figures coming out of Germany and there is a need to consider the economic plight of the other major European Union nations.

In France the second largest European Union nation, the socialist government seems totally unable to solve its economic woes. Recent downgrades by Fitch cut France’s credit rating by one notch to AA-plus came after it had already lost its AAA ratings with S&P and Moody’s last year due to a deteriorating debt outlook and an uncertain economic environment. The concerns noted by the rating agencies included a weaker economic output, a rise in the French unemployment rate, budget deficits and subdued external demand. Mr. Hollande needs to heed the warnings as a matter… Continue reading

Is this a sign of the end of this bull market?

It is often said that once the mum and dad investors start to show interest in shares then the bull market is getting close to an end.

On Bloomberg this week one commentator made the statement that in the United States, the inexperienced investors are starting to move into the market. So have we now entered the distribution phase in this market where the experienced and professional investors are selling their stocks to the less experienced newcomers?

Despite an improvement in business conditions in the US, this is not a normal bull market based on economic growth. It is a creation of the central bankers. What central bankers have created by encouraging leverage stimulated by easy credit is a market bubble and all that is needed now is a decision by the US Federal Reserve chairman to taper off the quantitative easing and the ingredients are there for a rapid… Continue reading

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