Monthly Archives: March 2014

Is Commonwealth bank over valued?

I have just received a newsletter from my provider of fundamental data.  Their data and commentary are valued and they have a good record of identifying stocks with value which are potentially profitable.  Their latest newsletter includes an item on the value of Commonwealth Bank.  Their view is that “Commonwealth Bank of Australia (ASX: CBA) is a play on household and business conditions in Australia. Given that, we like some of the signs coming out of the major bank after its first-half results, including a relatively upbeat outlook from management and positive signs for credit growth.”

Despite its strong performance investors need to note that CBA is strongly linked to the Australian economy and in particular to the housing market.  With provisioning for bad debts at an historic low, should unemployment increase rapidly CBA could come under significant pressure with resultant capital losses for investors.… Continue reading

Telstra share price under pressure

After a stellar run since November 2010 the share price of Telstra is now under pressure.   Although from fundamentals there is no indication of threats to the business or that earnings and dividends will decline, technical analysis suggests a different picture.  Since going ex-dividend on Feb 24 the price has continued to decline.

Telstra has come off a double top and RSI analysis shown in the monthly chart below suggests that the share price could now undergoe a significant correction.  Telstra is showing a long term RSI divergence and the RSI trend line has now been broken.  It is important to note the similarity of current signal with that on the pattern in 2007 when there was a 53% decline in the Telstra share price.   tls

RSI is a powerful tool on charts of all time frames but is particularly significant on monthly… Continue reading

An Elliot Wave perspective on the ASX200 secular bear market

November 2007 was the start of a secular bear market on the ASX200 which continues to unfold. While shorter term technical analysis provides a probability of trend development and market movement, Elliot Wave analysis can provide the investor with a longer term perspective of the market. 

In November 2007 the ASX200 reached a high of 6851 at the end of a five wave motive move and the ABC correction started as the first stage of the secular bear market.  The first section of the bear market (wave A), was complete in March 2009 and most analysts saw this as the end of the bear market. In fact it was only the first wave of the correction and it was very clear from Elliot Wave analysis that March 2009 could not be the end of the bear market since a five wave move against the trend can never be… Continue reading

The ASX200 correction in perspective

A recent post drew attention to the high probability of a significant equity market correction. The chart of the ASX200 below shows the RSI analytical approach used and reveals the high probability of a significant market correction, with a similar correction noted for nearly all world equity markets.

 ASX March

This position of the market based on RSI analysis needs to be placed into context of market moves over the last few years and consider likely future moves of the Australian market which can best be accomplished using Elliot Wave analysis.

The following weekly chart of the ASX200 correction shows the developing Elliot Wave pattern on this index from the start of the 2008 bear market.  Unlike most major markets the Australian index has failed to make new highs since 2007 and has moved in a sideways pattern for a number of years. The high of November 2007 was… Continue reading

Technical analysis suggests a high probability of a bear market

There has been a recovery of investor confidence with most major indices at all-time highs and the VIX volatility index at a very low level.  However, technical analysis suggests that there is now a high probability that a significant market correction will occur in coming months.

The relative strength index (RSI) is one of the best technical indicators and is one of the few which provides a coincident or leading view of the market. Applying my modification of the RSI (published in Daryl Guppy’s newsletter in October 2011) takes the utility of the RSI a step further.  This application of RSI uses divergence and the RSI trend line to estimate with high probability the actual time of the trend reversal.  This application can be used over all time frames but when a change of trend signal is evident on monthly charts it has a very… Continue reading

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