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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 21st April 2017

“7th May 2020”…… was to be the date of the UK’s next General Election, in line with the fixed-term Parliaments Act 2011. However, the British Prime Minister, Teresa May, called for an 8th June 2017 snap election this week and was backed by the two-thirds majority required from the 650 MPs in the House of Commons. In fact the vote to support the election decision was a unanimous 522 to 13. The early polls and media speculation predict a land-slide win for May and the Conservative party, although my “May’s Mixed Messages” Socionomist view suggests that caution is warranted. Either way it is the first snap election for the UK since 1974 when Ted Heath, ironically the conservative leader who took Britain into the EU, reached out to the electorate following an impasse with the National Union of Mineworkers over their strike intentions and the unstable political position following the 1973 EU referendum. In the event the gamble was lost due to the Ulster Unionists distancing themselves from the Tories and the Liberals, under Jeremy Thorpe, declining Heath’s offer to form a coalition government. Heath wasn’t helped by dire economic news at the time, which had followed a 30% decline in the FTA All-Share Stock-index, or the resignation during the campaign by the outspoken Conservative MP Enoch Powell, who had already announced that he could not stand for re-election on the Conservative manifesto, urging people to vote against Heath, because of the latter’s policy toward the European Economic Community. In a speech in Birmingham on 23 February 1974, Powell claimed the main issue in the campaign was whether Britain was to “remain a democratic nation … or whether it will become one province in a new Europe super-state“; he said it was people’s “national duty” to oppose those who had deprived Parliament of “its sole right to make the laws and impose the taxes of the country.” Fast forward to this week’s snap election call and it’s of interest to note that former conservative Chancellor, George “3-jobs” Osborne announced his intention not to stand.

It was another 4-day trading week for Europe, OZ and Hong Kong but not so for Wall St which led an increase in volatility for global markets. The trend for stocks was lower until options expiration Thursday when the bears took it on the Mnu-chin as the new Treasury Secretary turned up with comments on tax-breaks for companies and individuals, subsequently confirmed by “the Donald” and to be announced next 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 . . .

 This Sunday sees the first round of the French general election against a backdrop of yet another violent attack on the streets of Paris. The polls reflect considerable uncertainty with four very diverse candidates, Le Pen, Macron, Jean-Luc Mélenchon and François Fillon as front-runners  ……

Charts:
1.  Indices Weekly
2. US Housing Starts V US Existing Home Sales
3. E-Z Household Consumption V E-Z Consumer Confidence
4. China Retail SalesV China GDP
5. Commodities Weekly

Table:

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

                     “History may not repeat exactly, but it sure does rhyme” 

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

 

May’s Mixed Messages

Just nine months after British Prime Minister David Cameron resigned, following his failed “gamble” on calling a referendum on EU membership, his successor Teresa May announced a snap election decision this week, to be held on the 8th June 2017, mercifully only 7 short-weeks from today and despite her denying any plans for an early election before 2020.

So what’s changed her mind?

She says that if left towards the 2020 deadline it would weaken the UK’s bargaining position with the EU over Brexit and there may be some truth in this. However, it’s far more likely that TM is giving and receiving mixed messages that the timing is perfect, including a huge advantage in the opinion polls against the Labour party, put at 48% V 24%, with the chance of increasing the Conservatives majority in parliament; Economic growth revised higher than any other country in the IMF’s latest projections released this week and a perception that the country is behind her stance over Brexit.

All of this is pure conjecture of course, as the polls have been anything but accurate over the past few years, the IMF is notoriously bad at any forecasting other than telling you what happened yesterday whilst one should remember that aside of the fact that 48% of the Brexit referendum voters voted to remain, the leavers and the remainers are battle fatigued from last June’s lead-up to it and the tortuous path to Article 50 since.

A reminder of the Socionomic messages

You may wish to re-read the February/March 2016 overviews, “Brexit, Socionomically Thinking,” and “Trump Card” which were both pretty good guides to the outcome of those two events. A common denominator within them was the following observation:

 “The collective social mood will decide on the UK referendum and on the US Presidential election, as indicated by the respective country’s stock-index being the best “barometer” of the country’s collective social mood and that  mood governs events not the other way round.”

A look at the 3-year weekly data chart of the FTSE 100 index, the UK’s largest and finest companies, provides two clear messages:

 

  • The UK social mood “Barometer” had already changed course, from up to down, a full two-weeks before the PM’s announcement.

 

  • A Fibonacci re-tracement guide, based on the post February 2016 rise, suggests corrective target levels of 6699 and 6239 for the FTSE, a further fall of between 6% and 13% from yesterday’s 7114 closing level.

 

Whilst a lot can happen between now and early June of course the current “collective social mood” message is suggesting a mixed result for May, perhaps a “Hung Government?”

 

 

 

 

 

 

 

 

 

 

 

 

Investment Markets Overview — W/E 14th April 2017

 

“Liquidity”…… is defined as a measure or extent to which a person or organisation has cash to meet immediate and short-term obligations, or assets that can be quickly converted to cash to do this. Put another way, it’s the life-blood of the markets without which they cease-up. There are numerous clues to assist in identifying early warning signs of impending liquidity problems, such as the amount of cash held within mutual funds and/or looking for “carry-trade” excess. A carry trade is when investors borrow in a low-yielding currency, such as the yen or the euro, to fund investments in higher-yielding assets elsewhere. A weakening currency is central to the carry trade since it means that investors have less to repay when they cash out of the trade and the problem of late is that whilst the Yen carry-trade is showing excess, the yen has been strengthening thereby ill-liquidity and capital loss if unwound. Our latest “knowledge share, Yen’s Up” expands on this, with the implications for various asset classes. Meanwhile it is interesting to note that cash levels held within US stock-market funds have recently hit a historical low of 3.1%.

It was a 4-day trading week for the majority of markets so this week’s overview will be brief, returning to the usual service next week:

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

 

 

Increased geo-political tension between the United States and the North Korea – China alliance plus the US led push against the Russia-Syria arrangement unsettled stocks.

Meanwhile, the $US index was unchanged at 100.5, with risers including the Yen and the Russian Ruble, higher by 2.3% and 1.6%, whilst losers included the South Korean Won and the Colombian Peso, lower by a respective 0.5% and 0.3%. Sovereign bond yields were lower in general as Japan’s JGB 10-year yield turned negative, at -0.005%, the UK 10 year yield gave up 10bps, at 1.04% whilst the German yield fell by 0.14bps, at 0.18%. Spain’s 10-year yield rose by 3bps, at 1.67% with Italy’s unchanged at 2.3%, whilst the Irish 10-year yield moved lower by 7bps at 0.9%. Portugal’s 10-year ended lower by 8bps at 3.85% whilst the Greek yield was lower by 30bps at 6.5%. US 5 and 10-year yields fell to 5-month lows, with the 5 at 1.76% and the ten at 2.2%.

Commodities were higher in the main, as the Oil price added 2.9% to $53.2 a barrel, the CRB rose by 0.5% whilst the economic sensitive Copper price fell by 3.3%. The precious metals saw $Gold higher by 2.8% at $1289, $Silver by 1.5% to $18.5oz, whilst in the paper market, the North American XAU gold-share index gained 3.6%.

Economic data due for release next week includes more on housing for the US, the UK and for Japan, plus the latest on trade for Japan and the Euro-Zone. The Euro-Zone also updates on CPI and new car registrations, whilst Japan and the UK release their latest on retail sales. It’s a very quite week for US data but does include a peek at manufacturing.

                           “Complacency, a feeling of quiet pleasure or security” 

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

 

¥en’s Up

In the late February overview, ¥en, a Desire to Watch Closely,” the message was “if ever there is a time to keep a very close eye on the ¥en, or more importantly the $US/¥ cross-rate, it’s now.”

At the time the cross rate was 112.5 with four charts outlining the close correlation of the $US/¥ against the Nikkei Dow & S&P 500 stock-indices, the US 10-year Treasury Bond Yield and the $Gold price, with the latter inverted to better show the relationship, going on to conclude the following:-

Stronger ¥en, say to $US/Yen 110 or below = higher $gold price, lower treasury yield and lower US and Japanese stock indices.

Weaker ¥en, say to $US/Yen 114 or above = lower $gold price, higher treasury yield and higher US and Japanese stock indices.

So, six trading weeks later, what’s the score?

  • The $US/Yen has strengthened from 112.5 to 109.
  • The Nikkei Dow is lower by 4.5%.
  • The S&P 500 has fallen by a more modest 0.8%.
  • The 10-year US Treasury Yield is lower by 1.3%.
  • $Gold is higher by $30 or 2.4%, at $1285oz.

So that’s a “royal flush” in that all four correlations are holding up, very satisfying to a market technician.

However, there are wider implications to the ¥en strength or otherwise, particularly in respect of market liquidity, which will be discussed within a future “knowledge share.”

In the meantime you may wish to look closer at our $/¥ currency-timing service, as it could be important to you wealth.

 

 

 

 

 

 

 

Investment Markets Overview — W/E 31st March 2017

“Rock On”…… is a song written by British singer/songwriter David Essex and recorded in 1973 shortly before a UK referendum took the nation into the European Union. In the week when “Article 50,” the process by which member states may withdraw from the EU, was triggered by the British Prime Minister,  “Rock,” hit the news once again, in the guise of Gibraltar and says much about the likely discord to expect as the protracted divorce evolves. Despite both parties providing assurances that expatriates living across the union would not be used as “bargaining chips,” documents were published by the European council within two-days of article 50 stating that decisions affecting Gibraltar, the small territory of 30,000 in southern Spain and which has been British for more than 300 years, would be referred to the Spanish government.

Meanwhile, an interesting article by Sarah Marley at Select Statistical Services shines a light on how EU migrants are represented across the UK workforce, observing that 6.8% of the 31.5m people aged 16 or over in employment within the UK are EU nationals from across the continent. Whilst that may not sound much, the percentage has grown from 1.7% over the past 20-years and makes up a dis-proportionate bias towards the UK public sector, particularly the National Health Service, the largest employer by headcount across the EU and the fifth largest in the world according to a mid-2015 Forbes report.

Market-wise the closely watched S&P 500 stock-index enjoyed a decent first quarter, albeit that March’s 0% change removed some of the shine, whilst the cost of debt, by way of the 10-year treasury yield, was also virtually unchanged over Q1 thanks to the second half of March. For the main economic data of the week, supported by informative charts, please 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 European civil service, aka the European Commission, allegedly employs about 25,000 individuals’ plus “approximately” a further 10,000 “external staff” who are employees on time-limited contracts, but   ……

Charts:
1.  Indices Weekly
2. US Personal Incomes V US Personal Spending
3. UK Consumer Credit V UK GDP
4. Japan Housing Starts V Japan CPI
5. Commodities Weekly

Table:

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

                     “Dick Turpin was a Paragon of Virtue versus the EC” 

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

 

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.