The equity market is now looking expensive but it could well continue to go higher. With interest rates continuing to fall, investors in desperation are looking to the equities market. And yet a lot of money is not committed and remains on the sidelines. Will this money now flow in and fuel an already overheated market? It does seem to be a risky time to commit new funds to the market at a time when the policies of central banks have pushed asset values to very high levels and world growth continues to slow.
There will be the tendency for some investors to think that they are missing out and try to chase this market. However, September, a time when there is a higher probability of a market correction is fast approaching and there are emerging issues which could provide the ingredients for a market panic.
With the world political… Continue reading
The ASX200 index has now convincingly taken out resistance at 5427. From its low in mid-February of this year, there have been a series of higher highs and higher lows (see chart below), so this move no longer has the feel or appearance of a bear market rally and has the potential to continue. It is now becoming difficult to rationalise the market move over the past few weeks with my Elliot wave model of a continuing bear market! There has been some support from the financial sector and the gold sector has been particularly strong with increasing support from resources stocks many of which are showing interesting up-moves from based patterns.
Despite these promising developments investors should be concerned about a number of world events which could potentially impact on the Australian market. These include the on-going effects of Brexit on the world economy, the alarming state of Italian… Continue reading
It is interesting that the Dow Jones Index and other American markets have gone to new highs. The Australian market is also very buoyant although in our case we are still in a confirmed downtrend so it could be argued that we are seeing a bear market rally rather than a new bull market. If the high of 5428 on the ASX200 is taken out, then this gives some support for a strong uptrend.
It remains to be seen whether this move on the Dow Jones Index is really a bull market move or merely a false breakout. The fact that the Dow Jones Transports Index lags considerably behind the Dow Jones Index suggests that it could be a false breakout.
Investors are desperate for yield and this is the main driver for this market since in the light of historically low bank rates there is just nowhere else to… Continue reading
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 Peoples Bank of China has cut interest rates again (for the sixth time this year) in an attempt to stimulate their economy. With the Chinese interest rate now down to 4.35% there is no doubt that growth in China continues to slow but the actual rate of growth remains unknown. Elsewhere Russia and Brazil are in deep recession while Turkey and South Africa have had a dramatic slowdown. Canada is now in recession so can Australia be far behind?
It is clear that world trade has slowed significantly with falling commodity prices, falling BDI and now the largest container shipping company Maersk cutting its profit estimates significantly. It is hardly surprising that the IMF has yet again downgraded their forecast of world growth to 3.1%.
In these circumstance how can US Fed chair, Yellen, raise US rates, which will make the USD stronger and risk a slowdown in the… Continue reading
It is hard to remember a time when there was so much uncertainty about the markets. There has been real confusion as to market direction and as a result many investors remain on the sidelines with cash. It is interesting that there are many investors who are very bullish on the market and probably an equal number who are adamantly bearish. The market action of last week now favours the bulls, with many major international indices now closing above the 30 EMA on a weekly chart. See for example the DAX index below. Does this suggest that it is time to put more cash into the market?
Economic conditions are such that there seems no chance that the Fed will raise interest rates this year. With very low or negative interest rates, central banks now have no ammunition left and little alternative but to use further quantitative easing to… Continue reading
From a technically bullish chart in early May the Australian index has had a disappointing performance during the month almost entirely due to the fall in the bank sector. In the USA the S&P500 continues on its upward path and the very low level of the VIX volatility index gives investors some assurance of low risks that we associate with a continuing bull market. On fundamental grounds there is still uncertainty about the effects of interest rate rises in the United States although it is certain that the Fed will raise rates: but when? It is likely that the effects of an interest rate rise are well and truly factored into the market now and of course with such low interest rates investors have little alternative but the equities market.
In Europe the indices are very positive and while the threat of deflation is still apparent there have been some… Continue reading
This time of the year is always one of uncertainty for investors in the stock market and May has often been a month where a market decline has started, hence the adage, “Sell in May and go away”. From a strong uptrend over the past couple of years, the Australian market has now been in a sideways pattern for the past few months. So the questions is, whether we will enter a corrective phase or whether the bull market will continue?
Technical analysis can use patterns to provide insights into probable future market movements. One very useful pattern is the double bottom in a rising market. When this pattern occurs in a rising market it provides a high probability that the market over the coming few weeks or even months will continue to move upwards.
Consider the following weekly chart of the ASX200 index which has been in… Continue reading
“Sell in May and go away” is a Wall Street adage based on strong historical data. There is persuasive evidence from the United States markets showing that the months of November to April offer significantly higher returns than the months of May to October. For example data from John Mauldin’s newsletter show that “if you had invested $10,000 in the Dow in 1950 and only kept the money in stocks from November through April, you would have had $684,073 as of the end of 2011. If you reversed the strategy and invested for the May-October period, you would have lost $1,024 over the same 61-year period”. When this analysis is applied to a range of markets there is a similar high correlation.
In the light of strong historical evidence for selling or reducing the portfolio in May, how relevant is this to the current market? As a result… Continue reading
With a stock market correction now underway the question arises: is this the end of the bull market? The question is examined in brief using fundamental and technical approaches.
The world economy shows some very real concerns with very high sovereign debt, falling GDP and very high unemployment in many countries. The American economy is one of the few bright spots. In Europe the equity market is now quite positive with the start of quantitative easing. China continues to slow and this will impact on world growth while Japan whose economy is in desperate straits has embarked on a massive quantitative easing program.
The Australian economy is weakening, exacerbated by poor leadership from governments over a number of years and this comes at a time when commodity prices are falling and the economies of our export partners are weakening. Business confidence is falling and unemployment is rising.… Continue reading