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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 24th March 2017

Italy……the birthplace of the “Treaties of Rome,” which ushered in the European Economic Community, also labelled as the “Common Market,” is a fitting place for the great and the good of the now “European Bureaucratic Monster” to celebrate its 60th anniversary this weekend. Originally attended in Rome on the 25th March 1957 by representatives from Belgium, France, Italy, Luxembourg, the Netherlands and West Germany, its initial objectives were to integrate trade and strengthen economies, but its main underlying political objective was for a political union of the member states, ruled by the unelected bureaucracy with the subservient parliaments and institutions kow-towing to it, only they forgot to tell its citizens of this political objective. They actually managed to achieve great strides towards their political plan, expanding from six to 28 member states along the way, partially due to deceit, bribes and lies about the true objectives, but more to do with the positive collective social mood which coincided with the huge member expansion and introduction of the €uro in the late 1990s. Unfortunately for the master-planners, the collective social mood turned negative in early 2000, as evidenced by the “blocs” Eurostoxx stock-index, since when tensions have risen between north and south and more latterly between east and west. The leaders will put on a united front at the celebrations, despite the deep divisions among many EU member states including the host country which is struggling under a huge debt load.

Market-wise it was an uncertain week for financial assets, as the closely watched S&P 500 stock-index ended a 110-day streak of ultra low volatility of no losses exceeding 1%. The financial media “talking-heads” blamed it on the Obamacare reversal vote and/or the London terror attack whilst in reality it was nothing to do with these as our mid-week knowledge-share article explained. Follow the link to read, it’s free and is informative:

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 . . .

 The EU elite may have allowed themselves a few brief days of relief following the Dutch elections but that will have ended this week as the anti-EU and anti-€uro Marine Le Pen  ……

Charts:
1.  Indices Weekly
2. US New Home Sales V US Existing Home Sales
3. UK House Price Index V UK House Price Annualised % Perf
4. OZ House Prices Y on Y V OZ House Prices Q on Q
5. Commodities Weekly

Table:

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

                     “Uncertainty, the Bain of the markets” 

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

 

Inflation Rocks, but Where and Why?

Shock and horror” this week as UK CPI inflation breeched the Bank of England’s target rate of 2% pa, a target that the bank has hardly ever met over the past couple of decades, whilst across “the pond” the financial media talking heads are seeing the current 2.7% annualised rate for US CPI as a major reason for the FOMC’s “guidance” towards three rate increases this year.

It all sounds so logical doesn’t it? The Bank of England blames the Brexit effect on the £Sterling and the price of Oil, which of course is dollar-priced, whist Auntie Janet at the Fed deludes herself and anyone else who cares to listen that it’s down to a strengthening US economy, despite the fact that US GDP has been trending lower for over two-years now, despite the efforts of the Fed to inflate it.

The first of two charts shows UK CPI inflation annualised since 2001, with the Oil price overlaid in red and the £/$US exchange rate as the black dashed-line. The £/$ rate has been used as the Sterling index on the Bloomberg system has a relatively short history and either way it is closely correlated with the £/$ rate:

Whilst the Oil price did have a decent correlation with UK CPI until 2012, it’s broken down since then so sorry Mr Carney but that excuse doesn’t stack up now. As for the weaker £Sterling, the history shows the “opposite,” strong £ = higher CPI or vice-versa, until the current nil-correlation that is!

 The second chart, just for a bit of fun, compares 110-years of US CPI inflation, as a percentage return, against the Dow Jones Industrial Average, or Dow, the most watched stock-index in the world:

It was intended to show a 100-year chart but that would have omitted most of World-War 1 and as you can see, wars are inflationary. But again either way, drum roll:

110-year return for US CPI = 168% V 110-year return for the Dow = 25,735%

Wow! Who would have thought it, but there it is. However, they say that context is everything and that’s the great thing with long-term charts.

Kindly note that the Dow effectively flat-lined, until the 1970s that is, a fact that this commentator has barked on about on numerous occasions and will again next week when the subject is revisited.

In the meantime, there appears to be an element of surprise in respect of yesterday’s market swoon. As such you may wish to read or re-read our “Yen, A Desire to Watch Closely,” article of late February, which explained the importance of watching the $US/¥ cross-rate and its implication for various asst classes whilst “Countdown to the showdown” of early March discussed the post Trump election rally for differing assets before warning of an approaching period of important dates, including the 21st March.

So there we have it, the warnings have been there to see…and FREE of charge come to that, for those who aren’t bewitched with the media talking-heads or the “smoke and mirrors” from the central banks.

Oh, you may also wish to take a look at last year’s “The Madness of Crowds” knowledge share, which would have removed any surprise from the impending bond yield surge.

 

 

 

 

 

 

 

 

 

Investment Markets Overview — W/E 17th March 2017

Optimates……is defined as the “nobility or aristocracy” who held power back in the Roman Empire times, aka patrician politicians, whereas the “Populares” were the  people or the people’s party who favoured the cause of the plebeians (plebs or commoners) and in particularly the urban poor. The latter were in effect an opposition party which has morphed into today’s Democrats or Labour parties, albeit that the modern day Optimates, the Republican and Conservatives would claim that they represent all parts of society. Either way, popular politics waxes and wanes dependent on the collective social mood, in particular rising during periods of negative social mood such as the mid-1800s, during the 1930s, and off and on since the early 2000s. It is no coincidence that they go hand-in-hand with the financial stress which follows a financial crisis, the aftermath of which tends to expose corruption among the establishment and political elites and a back-lash against cartels. The change doesn’t happen in a straight line, however, but is patterned akin the life’s “two steps forward and one back.” After the two great strides of last year, Brexit and Trump, this week saw a step-back for populism as a high turn-out Dutch electorate chose the incumbent Prime Minister Mark Rutte’s Liberals over the euro sceptic Freedom Party of Geert Wilders, who ran on a ticket of anti-immigration and to take the Netherlands out of the euro area and the EU. Wilder’s party did come second out of the 28 parties that competed and added five seats, whilst Rutte’s Liberals lost 8 seats from 2012 and it now has to enter into complex horse-trading to form a coalition government.

Market-wise it was a game of two halves as the pre-FOMC decision on Wednesday saw stocks and commodities lower with bond yields and the $US higher, only to all reverse trend after “official” interest rates were raised in the US and China. For an expansion on the rate increases plus other economic data released, all supported with interesting charts, read on:

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 . . .

 The G20, an international forum for the governments and central bank governors from 20 major economies, which collectively accounts for 85% of gross world product, two-thirds of the world population and 80% of world trade, held its annual finance ministers’   ……

Charts:
1.  Indices Weekly
2. US Average Wages V US Retail Sales
3. UK Average Wages V UK Unemployment
4. B of J Official Rate V Japan Market Rates
5. Commodities Weekly

Table:

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

                     “Because it’s the status quo doesn’t mean that it’s correct” 

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

 

Hogging It

Hogging has a variety of definitions, including ones of a nature that wouldn’t be included within this column, but “Hogging It,” as in “taking or keeping too much for yourself and not sharing” is ideal.

Not sharing took on a whole new meaning of late within the hallowed halls of the “Bank of England,” the 324-year old central bank and financial regulator, better known as the “old lady,” whose main objectives are stated as stable prices and confidence in the currency.

The “bank,” particularly via its current Governor, Mark Carney, consistently advocates the importance of “transparency” and “integrity” and on both counts it appears to have failed miserably as the bank’s deputy governor, Charlotte Hogg, resigned this week after the discovery that she did not declare “conflicts of interest.”

In brief, she failed to declare that her brother, Quintin Hogg, is a director of group strategy at Barclays, which the Bank of England regulates. She not only failed to mention it when she was hired as the chief operating officer in 2013, nor during yearly compliance checks since, even though she helped to write the code of conduct rules, and did not declare it when she applied for the recent vacancy as the No 2 at the bank. Once could be construed as an oversight but this looks to be a major insult to the word “transparency.” It only came to light after her appointment in a questionnaire that she completed for the Treasury Committee.

Of equal concern is the question on whether the “Court of Directors,” who overseas the old lady, or Carney himself, must have known of Hogg’s due diligence answers and of who Quintin Hogg is, hardly difficult as the family is a pillar of the British establishment, with both parents holding a peerage.

It took all of five minutes to Google on the Honourable Charlotte Hogg to learn that aside of her being regarded as bright and capable with a career in finance seen as impressive, the rather sad note that her father, the third Viscount Hailsham who served in John Major’s government, saw his career as an MP end during the MP’s expenses scandal, when it was found that the cleaning of the family seat’s moat had been charged to expenses. So maybe it’s in the family DNA?

Either way, following the resignation, instead of negating this embarrassment from happening in the first place, by not turning a “blind eye,” the court chair said, “while Charlotte’s decision by any measure exceeds the standard that would be expected in the private sector or would be required under statute, it is understandable in the circumstances and she has taken it with the best interests of the Bank at heart,” whilst the governor added, “while I fully respect her decision taken in accordance with her view of what was the best for this institution, I deeply regret that Charlotte Hogg has chosen to resign from the Bank of England,” hardly a condemnation of Hogg’s blatant “one rule for her and one for everyone else.”

OR perhaps the obvious really wasn’t shared with these “pillars of financial integrity?

 

Ps: We last wrote about the Bank of England in the November 2016 knowledge-share, “Let the Car-nage Begin,” which reminded that central banks’ “re-act” to market interest rates not make any pro-active decisions.

Since then the Federal Reserve has raised interest rates twice, with the promise of a further two to come this year, despite the then “delusion” of only one rise expected over the next 2-3 years! In effect it has followed market rates over which they have no control.

Later today the Bank of England’s MPC decide on UK monetary policy and by the look of the market 3-month and 2-year rates, its base-rate will remain unchanged:

There is no excuse for delusion when the fact are there to check

 

 

 

 

Investment Markets Overview — W/E 10th March 2017

Old Mother Hubbard……went to the cupboard, to fetch her poor dog a bone, and when she arrived there, the cupboard was bare, and so the poor dog had none! Now replace cupboard with “Exchequer or Treasury and dog with “the populations of ALL G7 nations,” and you will start to understand the real dilemma of today. For decades, politicians of all stripes have deluded themselves and their electorates into believing that “social security and services” are either free and/or will be fully funded, conveniently remaining mute that this can only be via higher taxes or by debt loaded onto the electorate. The UK budget presented this week suggests the use of other metaphors’, such as “behind the curtain,” and “the emperor has no clothes,” as British Chancellor Philip Hammond effectively admitted that not only is the cupboard bare but there is an awful lot of debt, to the tune of £260,000 per UK citizen, that needs to be both serviced and ideally repaid, hence his controversial stealth tax loaded onto the self-employed by way of National Insurance contributions. Furthermore, it heightens the mis-trust of politicians, already at record levels, and in this case the political party who advocate entrepreneurship.

Our “knowledge share” of earlier this week, “Countdown to the Showdown,” is a particularly timely observation, as “the Dow has romped higher since last summer despite an 80% surge in the 10-year Treasury Bond Yield,” with the 80% surge having moved ever higher this week:

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 . . .

 Talking of big weeks, the next one includes the “Ides of March,” a day on the Roman calendar that corresponds to the 15th March, or mid-month which coincides with a full moon in  ……

Charts:
1.  Indices Weekly
2. US and Other Debt to the penny
3. EZ Q416 GDP Breakdown
4. China Exports V China Imports
5. Commodities Weekly

Table:

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

                     “We live in Interesting times” 

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

 

Countdown to the Showdown

Our Investment Market Overview for the week ending 3rd March included the following comment on the Dow Jones Industrial Average, the “Dow”:

A mass of anecdotal market evidence that scream “overvalued,” such as excessive valuations; extreme bullish sentiment readings; historic lows of cash held within stock mutual-funds and excessive use of leverage, has been phenomenal, a 3285 point Dow surge since the 4th November, which has taken out the 20,000 Dow round number only to see 21,000 hit just 22-trading days later.

Plus:

“The Dow was saved by the Queen Bee of the Federal Reserve, Janet Yellen as she singled out the danger of the central bank being too slow in boosting interest rates. She all but confirmed that the Federal Open Market Committee would increase rates for the first time this year at its March 14-15th meeting, also suggesting that it would not be the last increase in 2017, which followed similar inferences by no less than three other Fed colleagues over this week. Despite the fact that stock-markets tend to prefer falling interest rates, the Dow has romped higher since last summer regardless of an 80% surge in the 10-year Treasury Bond Yield, with the “market,” better known as the punters who are either buying or selling, either oblivious to the rate increase already achieved OR, duped by the soothing “con-fidence” alluded too by the Central Bankers,’ “that the economy is strong and that they actually control interest rates.”

So Why the Reminder?

Well, aside of presenting a single chart that belies the Fed mantra alluded to above, it also provides an “antidote” to the herds’ “triumph of reflation over deflation,” quote used by a well respected industry figure this morning, who just happens to be one of my LinkedIn connections, albeit a connection of a differing view:

 

At its simplest the chart shows four variables post the November “Trump rally,” with the black-dashed –line showing a break for each variable:

  • The break higher for the 2-year “market yield confirms once again that neither the Federal Reserve, or any other central bank come to that, control interest rates, they “re-act” to market rates.
  • Oil, Copper and a global gold-mining index are traditional “bell-whethers’” of inflationary trends, with the first two also “proxies” for economic growth prospects. Aside of the recent break lower, they have been falling substantially for the past few years, also rather telling.

So Why the title?

There are some rather important dates and events due shortly, so you may wish about them in this week’s “Investment Markets Overview,” before the showdown expected.

 

 

 

 

 

 

 

 

 

Investment Markets Overview — W/E 3rd March 2017

“SNAP back”…. Was the chosen title of this week’s “knowledge share,” article, chosen to coincide with the debut of the latest tech-darling’s initial public offering, whilst “subtlety” trying to join up the dots in respect of identifying market bubbles, including possible tops. The pace of the labelled “Trump rally,” co-incidental that it is to the already mass of anecdotal market evidence that scream “overvalued,” such as excessive valuations; extreme bullish sentiment readings; historic lows of cash held within stock mutual-funds and excessive use of leverage, has been phenomenal, a 3285 point Dow surge since the 4th November, which has taken out the 20,000 Dow round number only to see 21,000 hit just 22-trading days later. This market analyst actually expected a market turn to accompany “the Donald’s” first speech to the US Congress on Wednesday evening, but the master-presenter managed to tone down his usual rhetoric and tell both houses what they wanted to hear, such as the campaign commitments to a $1,000,000,000,000 of infrastructure spend, without quite saying just how it will be funded. So another day and a further 300 Dow points later along came SNAP. Whilst one down day doesn’t mean that much, it will be interesting to see if the Dow points disappear just as quickly as snapchat pics!

There was plenty of news this week for both economic and debt growth, plus more on housing and inflation data. To read the full article on this and the other main economic and market events of the week, together with supporting charts, read on:

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 . . .

 The Dow looked set to record a consecutive two–day fall on Friday, its first since the end of January as it fell by 95 points in the futures market, but then along came Janet ……

Charts:
1.  Indices Weekly
2. US GDP V  US 20-City House price Index
3. UK GDP V UK Consumer Credit
4. Japan Consumer Confidence V Japan Sm Business Confidence
5. Commodities Weekly

Table:

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

                   “Confidence as in Reassuring OR as in Trickster?” 

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