bear market

Brexit and the bear market

Brexit

So, the UK will leave the European Union!   The issues were very complex and there were merits on both sides of the argument   But in the end, voters obsessed over a frustration with their political leaders, neglected to look at the big picture and evaluate the real economic and political issues.

What lies ahead for the UK is economic uncertainty. By contrast the future for the European Union is much more certain because that organisation is now very unlikely to remain politically and economically stable. It is likely that other members will leave the European Union resulting in a union which is economically and politically feeble. Such political instability is at a time when Europe is under pressure from refugees and the political aspirations of Putin. Will NATO now be strong enough to deter Putin from picking off the Baltic States?

The world is really… Continue reading

A bear or the start of a bull market?

When economic views are very negative then this is often the time for a new bull market to start. Current sentiment is very negative so can we expect a bull market to soon?

Consider the economic and political negatives.
• Falling world growth and falling inflation.
• The inability of central banks to control very slow economic conditions.
• Historically high levels of sovereign debt
• A coming crisis for the European Union, in part due to refugees
• An unknown impact of a changing Chinese economy
• Japan continuing a multi decade recession with little hope of change
• A weakening United States economy.

Of immediate interest is the UK vote to leave the European Union. Should the UK vote to leave the European Union, then it will be weakened economically and there is the likelihood that Scotland would then leave the UK.

 
The European Union is at… Continue reading

Uncertain Times

These are uncertain times in the markets and there is no way to know where this bear market may end. Could this be a repeat of 2008 where the market lost 50% of its value? In fact, Elliot Wave analysis suggests that this current bear market is only in its early stages and there are many signs from the world economy to support this. The world economy continues to slow, equity markets are falling, economies are stagnating and consumer confidence continues to fall. The important factors behind the continued weakening of the world economy include:

 
• Lack of confidence in China’s financial system, its high levels of debt and the Yuan.
• Continuing destabilization in the Arabian Peninsula
• The continued action of central banks leading to high sovereign debt situations and surplus credit
• Issues within the European Union including the refugee crisis
• The very weak prices… 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

Is there a probability of a bear market?

World equity markets have made a very negative start to the New Year. Consider the Australia market which has been more negative than other major indices over the past year.   On the weekly chart below, the ASX200 is clearly in a down trend. After a recent positive move at the end of 2015, the index was unable to break the down trend and the 30 period eMA (red line) remains very negative. Support at around the 5000 level for the ASX200 has held on several occasions in recent months and is very significant since this level is based on the 50% retracement of the 2008 bear market. It will now be very important that the 5000 support level holds.XJO jan bear

Further insight into the Australia market can be gained by looking more broadly at the world equity markets. The monthly chart of the S&P500 below, includes the previous bear… Continue reading

Bear markets and bull markets

The ASX200 is clearly in a down trend with yesterday’s price action breaching the 5000 level which is very important support based on the 50% retracement of the 2008 bear market. While there is some support around the 4600 level the next support is now at around 4000.

This ASX200 chart below, is clearly bearish and is not an environment that would attract an investor to buy stocks regardless of how attractive they appear. BHP for example is very much discounted. But it could continue to fall lower despite the fact that many of the big funds ostensibly are showing in interest in it. xjo  tuesday

This market could well go lower and it is difficult to contemplate a bull market in a world where growth continues to slow. There is of course a case to be made for accumulating the dividend payers such as Telstra and the banks. But an… Continue reading

Australian share market – to buy or not to buy?

There is wide diversity of views on future market moves, ranging from very bearish to very bullish. The Australian market has been much weaker than overseas markets but is it now gaining strength? In the light of many uncertainties, including low interest rates, low inflation and low world growth, should investors be buying stocks now? Technical analysis provides some insights into market action and may answer these questions.

The following analysis is applied to the weekly chart of the ASX200 over approximately the last 8 years. The dominant feature of this chart is the bear market of 2008 and here Fibonacci analysis has been applied to this bear market. The 50% Fibonacci level has in the past been a very useful predictor of future support and resistance for the Australian market. In the ASX200 chart below the 50% Fibonacci retracement of the 2008 bear market at 5000 (the horizontal… Continue reading

The psychological syndrome and markets

Most investors are susceptible to psychological pressures. If bullish, they tend only to take note of positive news and if bearish, they only take note of negative news. There is a bias against any news which does not fit their thinking and it tends to be ignored. With a market perspective biased by psychology, often the news that is noted as being important may merely be of a transient nature and of no long term significance. This is particularly true of the current market where investors really have no alternative but to invest in equities in this extraordinary low interest environment and as a result have a bullish bias. In this context it is worth considering the pros and cons of the current world economic situation.

On the positive side

• News that in China the Shenzhen and Hong Kong markets will be linked suggesting further opening of the Chinese… Continue reading

Uncertainty before a market fall?

Volatility has been the norm for equity markets over the past several months. This will continue given a number of events which are unfolding in this global low growth environment. Uncertainty continues over the Chinese economy. A more recent issue is the uncertainty over effects that mass immigration of refugees will have on the weakening European Union economy. John Mauldin in his recent newsletter underlines the political and economic problems that the refugee crisis brings to Europe and indeed the threats it poses to the future of the European Union. Russia’s intrusion into the Syrian war only heightens fear that Middle East conflicts will escalate and further exacerbate the refugee situation in the European Union.

The economic uncertainties are mirrored in the daily chart of the ASX200 below, which shows a symmetrical triangle which is a pattern of uncertainty. This uncertainty will likely be resolved this week given the very… Continue reading

World markets are likely to fall but China is the key.

Although the decision of the Fed not to raise interest rates has at least temporarily removed a variable from the markets, volatility in world equity markets can be expected to continue. Of the several remaining very significant unknowns which contribute to this volatility the most important one is China.

China has recently had four interest rate cuts and reduced the reserve-ratio requirement. These measures and others which in effect reduce financing costs for local government authorities, have created conditions that exacerbate the debt situation and potentially increase the risks of instability in the Chinese financial system.

Easy money conditions were a major contributor to the Chinese stock market boom and as a result retail investors are now the biggest contributors to the national debt. The Chinese debt is now about US$25 trillion and is estimated to be close to 250% of GDP. In fact the rate of growth of debt… Continue reading

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