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Charlie Aitken

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How Watching Market Psychology Can Help You Time the Market

Elliott wave patterns in price charts reflect the struggle between the bulls and bears
By Elliott Wave International

 

Two economic reports hit the newswires Thursday morning (March 6). Both were important, yet each one had the opposite implication for the trend. The market chose one report over the other, and the question is, why — and what can we learn from that? Read more.

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Investment Markets Overview — W/E 17th October 2014

It was a big week for “Inflation Updates,” at least the nonsense compositions that make up “official CPI numbers,” as opposed to money supply, velocity of money readings and good old credit growth numbers, all far better measures of inflation. Either way, whereas there was a time when Central Bankers’ allegedly had sleepless nights over high inflation, today they are desperate to stoke inflation in any way they can, whether legal or nor. This week’s release of CPI and/or PPI for the US, the UK, the Euro-Zone and from Japan should have given the CBs nightmares, albeit that Japanese PPI for September came in as expected, still negative at -0.1% versus the -0.2% seen in August. UK CPI and PPI for the same month hit a 5-year low, the former at 0% month on month and 1.4% year on year, with PPI at a respective -0.5% & -6.7% annualised, so not much change there for Charmer Carney for the £375BN wasted. Meanwhile, with over half of the Euro-Zone already in deflation, a not so cool expansion of the Fed’s balance sheet, by a massive $US3.5 trillion, has failed to stimulate any price inflation in anything other than financial assets, but perhaps that was their intention all along? For the record, US PPI final demand came in at -0.2% in September versus 0% in August.

17 Oct 14

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Additional Commentaries:
•US economic data . . .
•Euro-Zone . . .
•The UK . . .
•Out East . . .
•The $US index . . .
•Within the commodities complex . . .
•Economic data due next week includes . . .

Returning to those “inflation numbers,” or at least the US wholesale figure, aka PPI, no sooner was the ink dry on the data release…..

Charts:
1.Indices Weekly
2.US PPI V US Retail Sales
3.UK Unemployment V UK Average Wages
4.China PPI V China GDP
5.Commodity 1 Week Moves

Table:

13 Indices, 11 columns of detailed information, for accurate analysis

Insanity: doing the same thing over and over again and expecting different results

Click Here to view Details of the full version of this Newsletter which includes full text and detailed Charts for each section

China Connection

It’s a big week for “Inflation Updates,” at least the nonsense compositions that make up “official CPI numbers,” as opposed to money supply, velocity of money readings and good old credit growth numbers, all far better measures of inflation. Either way, this week sees the release of CPI and/or PPI for the US, the UK, the Euro-Zone and for Japan on which we will be commenting in next Monday’s “Investment markets Overview.”

The World’s “leading central bankers” have committed their respective electorates, oops they are unelected, to a further $US 30,000,000,000,000 ( yes, it looks more daunting than $US30 Trillion and it is) of debt, by way of QE and other stimulus measures to re-flate their respective economies, and have failed miserably, just as we said they would.

We can also include China, that extremely important number two economy in the world, who this week announced that factory-gate prices fell in September for a record 31st month, whilst its CPI reading for September came in at a below consensus 1.7% forecast, at 1.6% annualised, versus the 2% registered in August. One glance at Chinese CPI and GDP shows a falling trend for both, despite the massive stimulus attempt by China in 2009.

15 Oct 14 Blog 1

Meanwhile, China’s M2 money-supply eased to 12.8% annualised in August and it’s worth a comparison of this against the main Chinese stock index. The stand-out, aside of the money-supply trending lower for four years now, is just how muted the stock market response was in 2009 to that massive stimulus attempt.

15 Oct 14 Blog 2.

Like their counterparts in the West, the Chinese authorities appear to “fudge” their official statistics, allegedly, so you are on your own in respect of working out exactly what’s going on.

We try not to fudge but “connect the dots,” where many seem to fail and the CPI connection with China is very real, it’s called “exporting de-flation.”

 

Investment Markets Overview — 10th October 2014

As if there isn’t enough war in the world, this week regulators in the US and the UK announced a planned “banking war-game,” to “test crisis defences,” or in plain English, to simulate the failure of a major cross-border bank, like Lehman Bros, to test their systems against a repeat of 2008, when Lehman went spectacularly bust and tax-payers from the two countries were committed to $/£ Billions to bail-out the banking sector. The exercise, involving the Fed’s Chair Yellen and the Bank of England Governor Carney, will take place on Oct. 13 in Washington, with the US Treasury Secretary Lew and the UK Chancellor George Osborne tagging along for good measure, as will the heads of a host of financial regulatory outfits from both sides of the pond. Osborne told reporters, “We need to make sure that taxpayers are not on the hook for future bank failures,” whilst the Financial Stability Board, also headed by Carney, maintains a list of global systemically important banks, currently numbering 29 banks and identifying HSBC and JPMorgan Chase & Co. as the banks whose failure would do the most damage to the global economy. Quite why this exercise is required beggars belief as one look at the Office of the Comptroller of the Currency’s US banking system derivatives report (available online) reveals that the aforementioned banks, together with a hand-full of others, hold derivatives exposure of up to 800% of their worth. QED.

10 Oct 14

Subscribe to the Full Investment Markets Overview Newsletter which contains the following:-

Additional Commentaries:
•US economic data . . .
•Euro-Zone . . .
•The UK . . .
•Out East . . .
•The $US index . . .
•Within the commodities complex . . .
•Economic data due next week includes . . .

In our “week-ending” 11th October 2013 we wrote, “The IMF revised lower its forecasts for global growth, its second downward revision this year …..

Charts:
1.Indices Weekly
2.US Revolving V Non-Revolving Credit
3.German Exports M on M V German Exports Y on Y
4.China M2 MS V Shanghai Comp Index
5.Commodity 1 Week Moves

Table:

13 Indices, 11 columns of detailed information, for accurate analysis

Leverage lurks unrecognised and unappreciated

Click Here to view Details of the full version of this Newsletter which includes full text and detailed Charts for each section

Buyback Bubble?

Share buy-backs is the term used when a company buys back its own shares from either its free cash-flow or from borrowings, effectively stating that the company cannot find any better use for growing the business or reducing debt.

Whilst this has some merit during a period following a debt-induced financial bust, due to the over-capacity created during the prior boom and the low interest rate response to the bust, a cynic would observe that the shorter term earnings enhancing benefit from a buyback sits very well with management’s bonus conditions but not necessarily with the shareholder over the longer term.

The Bloomberg S&P 500 Buyback Index measures the performance of the top 100 stocks with the highest buy-back ratio, defined by “cash paid for common shares buyback in the last four quarters divided by the SPX total market capitalisation.”

8 Oct 14 Blog 1

As can be seen within the chart above, there has been a close correlation between the S&P 500 index and the buyback index, as stock repurchases totalled almost $US2 trillion since March 2009. The correlation has become even tighter since the 2011 correction low, as witnessed below.

8 Oct 14 Blog 2

However, this form of “financial engineering,” may have gone too far, as share buybacks now account for more than 30 percent of cash flow, almost double that seen in 2002, according to a Bloomberg report, whilst the portion used for capital spending has fallen to 40% from more than 50%, leaving companies with an average age for fixed assets at 22 years, the oldest plant and equipment in almost 60 years.

Of particular concern, however, is that buybacks and dividends have exceeded profits in Q114 and look likely to in Q314, according to the same report, noting that the last time this situation existed was in 2007.

Now what was it that occurred in 2007?

Investment Markets Overview — 3rd October 2014

Polarisation resurfaced in Hong Kong this week as thousands of pro-demo crazy  cracy protesters staged a peaceful sit-in on the streets within the financial district and three other areas of this Special Administrative Region of the People’s Republic of China. And there is the rub, as following the 155-year British rule a deal was done with China, handing the colony over in 1997, but based on Hong Kong Law, a constitutional document drafted by the Chinese which stipulates that Hong Kong shall have a high degree of autonomy in all matters except foreign relations and military defence. Fast forward to 2014 and one sees growing tensions between the people in the streets who are “asking for the right to nominate” candidates for the 2017 elections, whereas Beijing interpret the constitution as saying, “ you can have one person, one vote, but only from a severely restricted list of candidates, chosen by China.” Meanwhile, there was a split at Pimco, the largest bond investor in the world, as its founder and CIO, Bill Gross, decided to leave without saying boo to his bosses at Allianz SE, on which more comment follows.

3 Oct 14

Subscribe to the Full Investment Markets Overview Newsletter which contains the following:-

Additional Commentaries:
•US economic data . . .
•Euro-Zone . . .
•The UK . . .
•Out East . . .
•The $US index . . .
•Within the commodities complex . . .
•Economic data due next week includes . . .

Bill Gross, aged 70, who helped found Pacific Investment Management Co, or PIMCO, 43-years ago and, with an outstanding investment track record …..

Charts:
1.Indices Weekly
2.US House Prices V Consumer Confidence
3.UK GDP V M4 Money Supply
4.Japan House Starts V Mortgages
5.Commodity 1 Week Moves

Table:

13 Indices, 11 columns of detailed information, for accurate analysis

Too Big to Manage Gained a Whole New Meaning This Week

Click Here to view Details of the full version of this Newsletter which includes full text and detailed Charts for each section

Investment Markets Overview – 26th September 2014

Welcome back after a two-week travel break and what a fortnight it’s been. The United Kingdom remains united (in name if little else) as the “NO Vote” on self-rule won by a 55%/45% majority on a massive electoral turn-out of 85%. Meanwhile, the US major stock-indices hit all-time highs as Alibaba Group, a Chinese e-commerce company, became the largest IPO in history, offering $21.8 BN of its shares at $68 per share and valuing the company at $168BN, the 36th largest in the world. The share price rocketed by 47% within the first 10 minutes of trading before closing the day up by 38%, and “valued” at $231BN, second in size within the S&P 500 index, behind Apple. There is more on Alibaba and the wider market below, but returning to the “Scottish vote,” a Socionomist isn’t so much interested in the result per se, but more by the “why now? Long term subscribers’ and clients’ alike will be aware of our observations, both market-wise and outside of the markets, where the collective social mood of society, as identified by a country’s major stock-index, provides an element of predictability on matters such as a society’s tendency towards inclusionism or polarisation. The trend towards polarisation have been gathering strength of late, as witnessed by the aforementioned, the results of the EU elections held in May of this year and the intention of Catalonia to vote on a break from Spain in November 2014.

26 Sept 14

Subscribe to the Full Investment Markets Overview Newsletter which contains the following:-

Additional Commentaries:
•US economic data . . .
•Euro-Zone . . .
•The UK . . .
•Out East . . .
•The $US index . . .
•Within the commodities complex . . .
•Economic data due next week includes . . .

Returning to the largest IPO in history, we were reminded this week by the good folk at Elliott Wave international of the folk-tale “Ali Baba and the 40 Thieves,” …..

Charts:
1.Indices Weekly
2.US Durable Goods Orders
3.E-Z Bank Lending to the Private Sector
4.China 1st and 2nd Tier Property Prices
5.Commodity 1 Week Moves

Table:

13 Indices, 11 columns of detailed information, for accurate analysis

History Never Repeats Exactly, but it Sure Does Rhyme

Click Here to view Details of the full version of this Newsletter which includes full text and detailed Charts for each section

Every Little Helps, but £250m?

Every little helps is the “strap line” currently used by Tesco PLC, a major retail giant listed within the UK’s FTSE 100 stock-index, the bluest of blue-chip companies. The rationale of the strap line is to state that Tesco’s competitive pricing policy helps all house-hold budgets, particularly in these more austere times, albeit that a cynic realist would observe that it’s been more to do with the growth of online retailing and the entry of the discount retailers such as LIDL and ALDI, whose increased presence has decimated the profit margins of Tesco and the other major retailers.

Every Little Helps,” took on a whole new meaning this week, as Tesco revealed it had overstated its half-year profits by £250m, no small amount.

As the share price collapsed by 12%, the group chief executive, Dave Lewis, held a conference call for investors, stating that Tesco has contacted the financial regulator, who will investigate the matter, along with Tesco itself.

The purpose of this blog isn’t to cast an opinion on how or why the company overstated profits, that’s the job of the respective investigations. It is to analyse the history of Tesco’s share price, by way of technical analysis, to see IF there were any clues to an expected share price collapse, regardless of the perceived eventual news catalyst blamed for the fall.

23 Sept blog 1

Fist up is the chart above of Tesco’s share price, showing weekly data going back 4+ years to March 2010. Overlaid on it is a trading indicator that we use, which shows up as a three-coloured panel, green for buy, pink for sell and white for a neutral stance. As can be seen, Tesco’s share price has been falling for over four years now, not just the past couple of days, and is now lower by 50% from early 2010. There have been a couple of rallies’ which have been well-flagged by our trading indicator, usually ahead of any market news on profits warnings, new appointments etc.

We like to combine a shorter term observation with a long-term chart, on which we also include a proprietary tool which shows the real value of the security being measured, in this instance Tesco PLC.

Excuse this looking like a map of the London Underground, but it’s actually quite easy to follow it through.

23 Sept blog 2

The black line shows Tesco’s share price since it was floated back in December 1988 at 40 pence a share, through to yesterday’s closing price of 203 pence as monthly data points, with the blue line representing the 200-day moving average, which acted as “support” to the share price until early 2012 since when it has become “resistance.” The two lower lines are momentum indicators which assist on judging when a share price is becoming over-valued, by rising above their upper horizontal line, or over-sold when under the lower horizontal line.

The red line is a measure of Tesco’s real share price which, at its simplest shows the price history if debt within the company and indeed the wider economy is stripped-out. You may note that whilst the nominal share price peaked at 494 pence in November 2007, its real price actually peaked in 1999 and has fallen by 85% since that date, to 72 pence per share.

Whilst 72p is our current target for Tesco’s nominal share price, or about 65% lower from where it currently resides, its nominal price is currently over-sold, as witnessed by the two lower momentum indicators and the distance the share price is from the 200-day moving average. Furthermore, we have added a Fibonacci retracement guide, shown as the multi-coloured horizontal lines within the main body of the chart. One can observe that the share price has “re-traced” 61.8% of the whole gain from 1988 through to November 2007, a typical support point.

The “bottom line” may not be very good for Tesco at the moment, but an opportunity appears to be shaping up for a decent bounce in its share-price, perhaps back towards the 265 to 300 pence range. Personally though, I would prefer to await a change in the panel indicator to green, or at least to neutral before buying.

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