Monthly Archives: February 2016

Telstra share price could fall significantly.

Telstra has been the darling of investors for 5 years but it may well be about to lose its attraction if the technical pattern evident in the chart of Telstra is any indication.

Technical analysis is a very useful analytical tool and some patterns and indicators offer a high probability in predicting price movements. Take the flag pattern for example. The flag pattern is a continuation pattern that is characterised by a sideways movement forming a channel within a trend. The trend leading up to the flag is termed the flag pole and the length of this flag pole can then be used to project a minimum target for the pattern.

Consider the weekly chart of the Commonwealth Bank below. In October 2008 at a public meeting of investors I noted that the bearish flag pattern on the CBA chart was very well developed and that it projected a future… Continue reading

Is this a buyers’ market?

This has been a challenging market for investors but when the equities market falls significantly it is always tempting to look for bargains. The question is, should we be buying stocks on this market?

The average yield on the ASX200 is about 5%, a return that has not been seen since the end of the bear market in 2009. The yield on many blue chip stocks is looking very attractive with some of the banks getting close to 10% yield with franking credits.

The problem at this point in the market is that investors see the bargains but they also see the potential for risk of capital loss. So investors are very cautious. But this perception could change and there will be a rush to buy stocks. Such a change could occur when the RBA lowers the interest rate. In this situation there will be a panic by retirees who… Continue reading

Lack of control by the Central banks?

Actions by central banks were effective in reducing the fallout from the GFC. Now central banks are so concerned at the problem of deflation that they have continued to lower interest rates and/or continue quantitative easing in an effort to stimulate their economies. As a result we now have inflated asset values in a very low interest rate environment with increasing sovereign debt. Central banks now have few remaining options but to continue quantitative easing or further decrease the interest rate.

Fed chief Janet Yellen took a huge risk in raising US rates in December. It now seems that further Fed rate rises this year are unlikely to occur because of the damage this will cause to the global economy at a time when the United States economy also continues to weaken. Further rate hikes in the US would depress equity markets and it seems more likely that the FED… Continue reading

The Australian secular bear market.

With the ASX200 index now falling below the 2800 level, Australia now is technically in a bear market. With significant challenging economic concerns in the United States and China as well as the continued falling price of oil there is little likelihood of respite from a continuing bear market in the near future.

In the present economic circumstances this should be of little surprise to experienced investors because November 2007 was the start of a secular bear market in Australia. This current secular bear market is now in its eighth year and is still incomplete. Secular bear markets are periods of falling valuations and can be expected to be protracted by the effects of deflation and low economic growth. Both are evident in the current economic environment where markets will be driven lower by falling corporate profits and returns from equities for perhaps the next few years.

The… Continue reading

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