Monthly Archives: June 2014

If it’s a bubble when will it burst?

 The S&P500 is leading most other world equity markets to highs and in many cases to all time record highs.  The chart below shows the monthly chart of the SP500 which in my view should now be considered a bull market bubble. spsps

But this is not a “typical” bull market, driven by high economic productivity and increasing national GDP levels.   This is a bull market where asset prices have been inflated by continued quantitative easing from central banks coupled with very low interest rates. The consequence is that investors who are seeking a reasonable yield in this very low interest rate environment see little alternative but to invest in the equity market.

This is a market which is increasingly dangerous for the investor who is retired or close to retirement.  These investors are looking for higher yield than the cash rate and are attracted… Continue reading

High frequency trading

High frequency trading is a controversial subject for traders and investors but after reading the book Flash Boys by Michael Lewis, I find that there is very real cause for concern.

 High Frequency Trading (HFT) uses powerful, high speed computers to transact large numbers of orders at speeds as low as nanoseconds.   The traders with the fastest execution speeds are the most profitable and Lewis estimates that by 2009 more than half of stock exchange volumes in the USA came from orders based on high-frequency trading. Is this likely to be different in Australia?  The big difference between the Australian market and the United States markets that Lewis writes about, is that there Australia has just two exchanges compared to 13 in the USA. 

The stock market exists to enable businesses to efficiently raise capital and provide the investor with a secondary market. As such,… Continue reading

A technical assessment of the ASX200

Most world equity markets are going to new highs but are showing strong oscillator divergences on monthly charts, suggesting the high probability of a market reversal.   Interestingly three major markets indices, the Shanghai composite, the Nikkei and the Australian ASX200 show quite different patterns and remain significantly below their highs.  Australian investors should also note that our two major trading partners China and Japan who take 27% and 17% of our exports respectively have national stock indices which along with Australia are lagging on world equity markets!

The following is a technical overview and assessment of the Australian index, the ASX200.

The ASX200 has been in an uptrend since mid-2012.  The first weekly chart below shows that after the early recovery from the 2008 bear market the index met strong resistance at the 50% Fibonacci level.  After taking four years to move through the 50%… Continue reading

Asset allocation in an uncertain market

Asset allocation is an ongoing process and is particularly important in times of market uncertainty.  I continue to evaluate the market with a view to understanding the position of the market and always ask the question, “how will any change in the market affect my assets and my income”

This question is very significant now at a time when all major world markets are showing bearish divergences suggesting that there the probability of a significant market correction.  With the risk of market volatility and potential capital loss, an investor must ask “what proportion of my assets should be in equities and how much in more defensive securities?”

Given my assessment of current market risk, I have reduced my exposure to stocks to about 15% with the remainder in “fixed interest” securities.  With the interest rates in Australia now very low, corporate bonds are attractive with yields… Continue reading

Is high exposure to equities risky at this time?

When one considers the obvious bearish divergences on most equity markets there is technically a high probability that a significant correction to world markets will occur soon.  When comparing technical signals, the current divergences we now see in most world markets are very similar to those divergence patterns which immediately preceded the bear market of 2008.

Given the very strong bull markets on most world markets over recent years a correction is very likely which would suggest that over the next year the returns from equities will be poor.  Are investors considering the risks of being heavily exposed to equities at this time? 

Investors in equities are chasing a yield of about 5% but not considering the probability of capital loss in a market correction.  This is a dangerous investment strategy particular for investors who are retired or who are approaching retirement. 

It… Continue reading

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