United States

A significant market correction or just a pull back?

The Australian equities market has now broken the long term trend line as shown on the weekly chart below. This correction has been anticipated from negative technical indicators such as oscillators such as RSI, wedges and others. But is this the expected very significant correction? asx sept

While I am very bearish on this market I suspect that we will see yet another rally in the Australian market before a serious correction. The reason for saying this is that when one looks at overseas markets the uptrend in the United States, Indian and Chinese markets remains very strong. This continued trend at least in the short term seems secure, after Fed chair Yelland’s comments that there will be no interest rate rises in the United States economy in the near term. Certainly the United States economy is improved but remains fragile despite longer term quantitative easing, so a rate rise would… Continue reading

Reflections on the world economy

We are witnessing a world asset bubble stimulated by very low interest rates and continued quantitative easing by central banks.  The United States economy is critical to world economic growth but despite a surging equities market, its economy is only making weak progress when one considers the huge levels of quantitative easing delivered from its central bank.   New house construction, a driver of the economy is weak and disappointing and despite very low interest rates Americans seem reluctant to apply for mortgages even though mortgage rates are at historic lows. One assumes that this is mainly due to the demographic problem of… Continue reading

Market volatility ahead of the debt ceiling decision!

The failure of Bernanke to announce a tapering of quantitative easing last week was effectively a warning from the Fed that the United States economy is still not robust enough to remove monetary stimulus without causing economic damage.  The market responded to Bernanke’s statement with a one day buying spree but it should have been a warning to investors to treat this market with caution.  Since the exuberance of the market on the announcement day there have been three down days on the American market which have now wiped out the gains which accompanied Bernanke’s announcement.

It seems that the market can only focus on one thing at a time and tapering is only one of a number of issues which can strongly influence the markets.  What about the debt debate?  Investors seem to forget that between 22 July and 8 August 2011, the market… Continue reading

The Bernanke bubble and a correction is due.

World equity markets are in a bull market phase which is based upon monetary easing by central banks and not on economic growth. The world markets are now at the bubble stage. There is little question that markets are overdue for a correction and Mr. Bernanke is creating the conditions for a significant market reversal.

Mr. Bernanke’s recent announcements show just how deeply dependent the financial markets have become on monetary easing. Even the suggestion that that the Fed might taper off quantitative easing was sufficient to cause an immediate 5% correction. What we saw was a glimpse of how financial markets will react to a world without quantitative easing: and it is not pretty.

It has now come to the point where what the Federal Reserve does or fails to do is the only thing that matters for stock market investors. The recent market response to a mere suggestion… Continue reading

Sell in May and go away

This old adage, sell in May and go away is based on strong historical data. John Mauldin’s latest newsletter reminded me of this old adage and included in his newsletter are some convincing statistics that show that the months November to April have very significantly higher market returns than the months May to October.

The data referred to by Mauldin 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”. These analyses have been applied to a range of markets where they show a similar high correlation. The following graphic taken from the above reference shows the data for the DOW Jones index.
Sell in May
After 6… Continue reading

Equities or fixed interest?

There is little doubt that equities are the place to be at the moment. This market is being driven by liquidity, low interest rates and complacency provoked by the illusion that the U.S. fiscal cliff situation has been solved.

Retirees in particular will be driven to the equities market as they find that rolling over their term deposits will provide a depressingly smaller income.

But how long will this bull market run and how far can it go.

The how long is probably the end of March when the next public display of congregational dysfunctionality we’ll be provoked by the debt ceiling issue.

The how far is possibly the 5000 resistance level on the ASX 200. Technically the monthly chart of the Dow Jones index below  with the RSI divergence signal provides the warning.

Dow 13

This is the time to be in equities but it is not a time for… Continue reading

A technical appraisal of the market January 2013.

The share market at the start of 2013 is very bullish. While the fundamentals in the United States and China give cause for optimism, do they really have the potential to support a bull market? A strong bull market can only be driven by strong growth and in most markets and particularly in the United States fore casted GDP growth is too low to support a bull market. The current “bull” market is being supported by high liquidity and very low interest rates and not by growth. In my view this is not sustainable.

While the charts of the indices for major markets, including Europe and China are quite positive, by contrast the charts of the U.S. indices are very negative. Take for example the monthly chart of the Dow Jones index below.
Dow 13
In this chart the RSI analysis provides a comparison between the current market and the period in… Continue reading

Risk and Return

Despite our strong linkage to China, Australian investors are still very much influenced by the world economy.  With the economic situation in Europe in a desperate state, all hope has been that American growth will solve the problems of the world economy.  Unfortunately this is very unlikely.  Last night US Fed chairman Ben Bernanke publicly announced that unless Washington came to grips with the fiscal dilemmas of taxes and expenditure then in the future the US may “not be able to pay its bills”.

The USD and US treasury bonds are seen as safe havens.   But investor attitudes to the security of America may change unless congress can address the problem and because of the US elections changes are unlikely until early next year. 

Investors are now very risk adverse with safely of capital now imperative.  It was interesting that Germany has now… Continue reading

What US recovery?

We continue to hear about the US recovery and how it is going to lead the world out of economic recession.  I am sorry but I just cannot accept this.  

The US investor who is faced with zero bank interest rates and Treasury bond rates that are significantly less than the rate of inflation has no alternative but to invest in equities.  As a result any news that is seen as slightly positive by the US investor provides a stimulus to the US markets. 

The US data suggest that there is a small but significant rise in the rate of home sales.  There is no knowing how real these figures are because a large amount of  distressed real-estate now in the hands of the banks  has been withheld from the market to try to avoid depressing it even further.  To me… Continue reading

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