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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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Socionomically Thinking

The excellent Bloomberg “daily brief overviews,” posed a question this week within its Asia edition, asking the question, “why are South Koreans more pessimistic about their economy than say the Japanese and China,” despite South Korea having avoided a recession during the global financial crisis and growing faster than many advanced nations.

The article goes on to quote from a Pew Research Centre report which states that only 21% of South Koreans are expecting an improvement in the economy over the next 12 months, compared with 24% in Japan and 84% in China, leaving Bloomberg to pose a further question, “are the South Koreans just generally gloomy?

A student of Socionomics, which states that social mood is patterned according to the Wave Principle, would look at a nation’s stock-index as a barometer of that nations social mood, recognising also that the stock-market leads economic activity, hence the index gives you not only a clue the general mood of society but also to the likely trend of economic data.

So let’s have a look at the three stock-indices

31 July Blog

QED I think, albeit that the end point of the chart is mid-June, just as the Shanghai Composite peaked, followed by a 35% crash over a very shot few weeks, which suggests that Chinese social mood is set to get a little gloomier, perhaps even vying with the South Koreans.

 Readers may wish to visit our end March post, called Shanghai Socionomicswhich made other interesting observations, including a warning on Chinese stocks.

 

Investment Markets Overview — W/E 24th July 2015

Japan’s largest financial news publisher, Nikkei Inc, founded in 1876 and still a privately owned company, has purchased the Financial Times in an agreed deal that saw the pink business daily’s owner, Pearson Plc, trouser a hefty premium with a sale price of £840m. The attraction for Nikkei, which rakes in four-times the FT group sales and allegedly has about 3m subscribers for Japan’s leading business daily, mainly domestic and of which 430,000 are digital subscribers, is the international presence of the FT, which operates in over fifty countries, including 500,000 digital subscribers predominantly achieved by a core tech-savvy team who optimise the online business growth. Despite a one-day jump for the Pearson share price, the price then sold-off suggesting that the sale-price may have been too low. Meanwhile, online operator extraordinaire, Amazon Inc, surprised analysts by announcing a Q215 profit and was rewarded with a 20% jump in its share-price which made the company the world’s largest retailer by market value, albeit that Wal-Mart Stores Inc remains the largest by revenues

24 July 2015

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 . . .

  As the UK and US markets rewarded the private sector, by way of the FT’s acquisition and Amazon’s stunning 20-year growth story  ……

Charts:
1.  Indices Weekly
2. US Exsisting Home Price V US New Home Prie
3. UK Asking Home Price V UK Average Home Pice
4. Global Commodities V China GDP
5. Commodity YTD  Moves

Table:

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

“Size Isn’t Always Good.

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

Making the Right-Move could be Wrong

According to a released survey last week by Rightmove Plc, the UK listed online real estate portal which is rumoured to list over 90% of the UK Estate Agencies inventory, first time buyers are increasingly squeezed out of the London residential property, as prices soar while demand shows no sign of abating. This is a concern, as first-time buyers are the lifeblood of the housing market, playing an important role in the wider market by helping to complete chains, enabling those that already own a property to move.

With the average London house price now at over 8 times average London gross incomes and at 4.6 times average earnings nationally, one could understand the comment, if it was correct.

The UK’s two largest lenders, the Halifax and the Nationwide, whose house price data stretches back to a respective 30+ and 60+ years, have both confirmed that first-time buyers are at a 7-year high, spurred on by cheap mortgage rates and government schemes like Help to Buy, which require smaller deposits.

The Halifax reports that first time buyers jumped by 22% in 2014, following a 23% increase in 2013, whilst the Nationwide, reported in May that first – time buyers accounted for 48% of house purchase activity in March, a record high well above the long run average of 38%, kindly providing a chart to show this, courtesy of the Council of Mortgage Lenders:

23 July 2015 Blog 1

The Rightmove survey goes on to report that a typical first-time home surged by 1.1 percent in July and nationally by 0.2 percent, going on to say that demand remains strong for properties in the two-bedrooms-or-fewer sector, typical for first-timers.

A re-read of the survey confirmed that the Rightmove data relates to asking prices and “Asking Prices” are not necessarily what you get. Furthermore, we note that asking prices follow actual prices received, as can be observed within the next chart:

23 July 2015 Blog 2

Like changing down through the gears of a car, when the car loses momentum before coming to a stop and then possibly going into reverse, asking and actual prices received have been slowing down for over a year now, and certainly not surging.

If one adds into the mix that a full 40% of UK houses bought last year went to “investors,” with an increasing percentage of the buy-to-let army made up of the elderly, suckered in and often with a mortgage as they can no longer stand the low bank deposit rates on offer, the car may shortly be in reverse at speed.

 

Investment Markets Overview — W/E 17th July 2015

Greek Prime Minister Alexis Tsipras got everything that he didn’t want from the final meeting with the Troika, which included continued IMF involvement in Greek affairs which he specificity didn’t want, punitive austerity measures now worse than the ones leading up to the referendum, and a more divided nation than ever as much of Greece’s sovereignty is ceded to unelected bureaucrats’ at the Troika for the “extra 30 pieces of silver.” The trade-off appeared to be a further € 80BN facility as long as he could drive through the Greek parliament the new terms within a three day window allowed until Wednesday, which he managed to achieve with a large majority and which allows the Euro to stagger on for a while further yet. Just when you thought that recent events couldn’t provide any more drama and confusion, the IMF popped up at the 11th hour stating that it cannot agree with the Troika terms thrust on Greece last Sunday, of which the IMF was presumably instrumental, saying that the lion’s share of Greek debt is unsustainable and should be written off. The real irony here is that, aside of the fact that the Greek people were never given a vote on adopting the Euro in the first place, these draconian measures are being driven by an unelected IMF, an unelected ECB and an unelected head of the EU.

17 July 2015

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 . . .

 Amongst the tell-tale signs of China’s burgeoning stock-market bubble were the huge increase in retail “investors,”   ……

Charts:
1.  Indices Weekly
2. US CPI V US PPI
3. UK Money-Suppy V UK PPI
4. Singapore Stocks and Property V GDP
5. Commodity YTD  Moves

Table:

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

“Whereas Leverage Fuels the Bubble, It Also Fuels the Bust.

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

Singapore Sling

A Singapore Sling is a delightful cocktail, allegedly first concocted at the world famous long bar at the Raffles Hotel, Singapore.

2015 marks the 50th anniversary of the City State’s independence plus the centenary of the Singapore Sling’s founding, hence celebrations have been planned around the city and at Raffles, including the long bar, the only place in Singapore where “littering” is permitted by throwing monkey-nut shells on the floor.

Any chance to celebrate for investors’ in Singapore would be a welcome break from the escalating bad news of late, albeit that much of it can be pinned down to the over-enthusiastic market meddling by policy-makers ( central bank, regulators and politicians) who just cannot seem to help themselves in their belief in that they know best.

Singapore’s economy contracted by 4.6% annualised during Q215, underscoring the slowing global growth, which is particularly hurting Asia as global trade continues to weaken. At the heart of this has been the mindless growth of global credit, which has jumped by 40% since the onset of the 2007 financial crisis, creating massive over-capacity just as the global consumer is battening down the hatches, with the exception of punting stocks and real-estate, on full margin of course, deluded in the belief that interest rates are controlled by central-bankers and that policy-makers will not let financial assets fall in price.

Aside of the obvious which is now unravelling in China, there were clues in Singapore also, which we can observe from the following chart:

17 July 2015 Blog 1

Contrary to text-book “financial education,” which suggests that earnings and economic growth drive stocks, economic growth, aka GDP, is actually a lagging indicator to stocks, as can be seen above. Furthermore, although not shown on this chart, its credit growth that drives financial assets, such as stocks and property, followed by earnings.

Talking of property, notice also the close correlation between Singapore residential housing to the stock-market, where the latter tends to lag stocks.

As with many other countries, Singapore’s policy-makers were happy to encourage investors, both domestic and foreign, into their property market following the 2007 rout, only then to introduce punitive restrictions after they had presided over a bubble.

Whereas stocks peaked back in 2007, residential property enjoyed a second-wind through to 2013, no doubt buoyed by the perception that “property doesn’t fall in value, a view bolstered by that illusion that central bankers wont let interest rates rise.”

Well, home prices have fallen for seven straight quarters now, the longest losing streak since 2002, as home sales slumped by 42 percent in June to the lowest number this year.

With stock and property headed lower perhaps it is time to head for the long bar, or time to sling your hook elsewhere.

 

 

 

 

 

Investment Markets Overview — W/E 10th July 2015

This Greek tragedy approaches its final act this weekend, as Prime Minister Alexis Tsipras submitted his latest proposals to the Troika ahead of a late Sunday meeting of the EU leaders to either agree or disagree. In sum, it would appear that the proposals include an agreement to tax-hikes and further pension reform, two of the main austerity measures that the Greek electorate voted against at last Sunday’s referendum. As a trade-off, the Syriza led coalition requires an additional 60BN bail-out plus revised terms on its existing debt load. These negations have long been political rather than economical and with the Germans having the most to lose, both politically and economically, of an exit for Greece, Frau Merkal will have her work cut-out to marshal support to an agreement, as the perception of her rhetoric has inferred just the opposite. Meanwhile, following a 3-week free-fall for the main stock-indices of China and Hong-Kong, forewarned incidentally within our “Twin Peaks” blog ahead of the rout, the indices saw back-to-back rally days as we approached the weekend. We have more to say on this within our ending paragraph.

10 July 2015

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 . . .

 Following the respective 32% and 20% three-week slide for the Shanghai Composite and the Hang Seng stock-indices, ……

Charts:
1.  Indices Weekly
2. US Initial Jobs Claims V US Jobs Openings
3. Greek GDP Contraction V Other PIIGS
4. Japan Money-Supply V Japan PPI
5. Commodity YTD  Moves

Table:

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

“After a Bureaucracy Grows too Large, It Collapses.

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

State Signals

China’s benchmark stock index, the Shanghai Composite, slid by a further 5.9% today, bringing its fall of the past 16 trading days to an eye-watering 32%, a bit like 5000+ Dow points being wiped-out in less than three weeks. For added context, the late 1990’s tech-bubble-bust saw America’s Nasdaq Composite Index vaporise about $US5,000,000,000,000 of market “wealth,” over a two-year period, whereas China’s SH Comp has already seen a $US2 trillion wipe-out within a fortnight.

Just as the organs of state, including the financial regulatory bodies whose mandate should be to ensure financial stability, presided over a reckless expansion of credit via a now very difficult to control “shadow banking system,” they are intervening once again in a futile effort to stop the rout.

The state has cut interest rates, halted initial public offerings, forced institutions to buy shares and watched the suspension in trading of 1300 companies shares, representing $US2.6 Trillion and locking up about 40% of China’s market capitalisation.

Will it work?

Whilst the rate of decline of the index may slow shorter term, of even reverse for a few days bounce, it will not be down to state intervention, whose measures, both pre and post market bust, have guaranteed a sizable rout.

The index is now showing the classic bust following the one year boom, with it led by leverage, aka margin debt, growing five-fold, which has fuelled the surge, as can be seen below:

8 July 2015 Blog

The unwinding of margin calls are now fuelling the bust, compounded by the out-lawing of short selling by the major players, thus eliminating future buyers as and when they need to cover their shorts.

History is littered with examples of market damage due to state intervention and this one is unlikely to be any different.

Watching the what, where and when state intervenes, not just in China but all governments’ and their conduits, can offer great market signals, China is just the latest example, albeit that it is likely to have far wider ramifications than just in China.

 

 

 

 

 

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