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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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Shanghai Socionomics

It’s about a month ago in “Oiling the Wheels for China” that we expressed some short term concerns in respect of China’s main stock-index, the Shanghai Composite, commenting that whilst the index remained above the moving average (s) shown, which is bullish, it was looking somewhat stretched against the 200-day, at 20% above it. We also observed an interesting negative-correlation between the SH Comp and the Oil price, better observed by showing the crude oil price inverted, going onto to suggest that if the oil price was ready for a bounce, it would likely be accompanied by a correction for the SH Comp.

Fast forward to date and the oil price has eased by a further $3, to $50 a barrel, whilst the SH Comp has added a further 10%, stretching it to 32% above its 200-day MA.

We still have concerns

27 March 2015 Blog 1

Although the Shanghai stock-index has continued its good run of late, if we compare it to new share accounts opened, as seen above, a surge in accounts appears to accompany a temporary peak for the index. Either way, of perhaps more interest is the Socionomic observation that investors’ do not buy low and sell high, as per the popular myth, but subconsciously herd, selling as prices fall and buying as prices rise.

Perhaps a useful contrarian indicator?

 

Investment Markets Overview — W/E 20th March 2015

It was always going to be a volatile week for the financial markets, as aside of the omnipresent backdrop of Greece and Ukraine, there was the Fed statement following the two-day FOMC meeting, quadruple witching for futures and options on Friday plus the Vernal equinox, the point when the Sun crosses directly over the Earth’s equator, as well as a total solar eclipse. In the event there was little news on Greece or Ukraine, Aunty Janet at the Fed replaced the word “patient” with the words “reasonably confident,” Fed-speak for “there will be no rate hike until inflation moves back over the 2% level,” a phenomena unlikely anytime soon with US CPI having just gone negative. The word change was sufficient to reverse a 150-point loss for the Dow at the announcement time, to a 400-point jump prior to the day’s close. This and the quadruple witching powered global stocks to their best weekly gain in nearly two years and was also a week providing trend reversals within the currency, bond and commodity markets. As for the solar activity, there is further comment below.

20 March 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 . . .

On the solar front it was a great week for sky-watchers, as the Vernal equinox ……

Charts:
1.  Indices Weekly
2. US Housing Starts V US Housebuilder Confidence
3. UK Unemployment V UK PSBR
4. China Stocks V New China Stock Accounts
5. Commodity YTD  Moves

Table:

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

“Cycles are ideal vehicles to Ride.

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

Pearls of Wisdom?

As the investment world and his dog await any change in language from Auntie Janet at the Fed’s FOMC monetary summary later today, there has been a chorus of comment and warnings about any US interest rate hike.

 First up is the perma-tanned somehow $US500K pa tax-free remunerated head of the IMF, Ms Lagarde, who aside of continuing to insist that the Greeks must pay their taxes, said, “volatility may increase if the Fed surprises investors.” Excellent value for money here then.

 Whilst on the subject of Greece, a presentation to UK law-makers yesterday by Bank of England official Alex Brazier included another pearl, “A bad outcome in these negotiations could trigger a broader reassessment of risk in financial markets,” which is nearly as useful as this 14-year “old lady veteran’s” academic paper of August 2006 which was full of economic clap-trap, including reference to a period of “Great Stability” and the benefits of the bank’s “Inflation Modelling,” a target that they have consistently failed to manage in the near decade of financial instability since.

So who are we to listen to?

Certainly not officialdom, whether it is political or an organ of it, such as Central Bankers or the IMF. They have a different agenda than most of us.

A good place to start is in the charts, as they don’t lie!

Our recent “Watching the No 2’s” reminded that it’s the market that decides on interest rate changes, not Janet, Alex or any other Central Banker, whilst a recent observation below reminds of the unintended consequences that can result from consistent market intervention/ manipulation, in this case by the ECB:

18 March 2015 Blog 1

An anomaly has appeared within the peripheral bond convergence of late and in particular the disparity evident between the 10-year bond yields of Portugal V Greece. Portugal, with total Debt to GDP of 359%, enjoys a yield of 1.6% pa, whereas the Greek debt to GDP is at 307% yet they have a penal rate of 10.6%.

Rather than “Pearls of Wisdom” the phrase “Reversion to the mean,” with guidance from the charts, appears to be far wiser.

 

Investment Markets Overview — W/E 13th March 2015

The bears came out of hibernation this week, despite disappointing US retail sales data being greeted as good news ref US interest rate delays. The bears were fed by tasty morsels from Euro-land and from China. As Greece was awarded a modest financial breathing space by way of a €550m lifeline from the Hellenic Financial Stability Fund, which no doubt would have had to be agreed by Germany, Greek Prime Minister Tsipras was busy upsetting the Germans. Commentating on the allegedly unpaid German WWII reparations he said, “After the reunification of Germany in 1990, the legal and political conditions were created for this issue to be solved, but since then German governments chose silence, legal tricks and delay.“ He went onto say, “there is a lot of talk at the European level these days about moral issues. Is this stance moral?” Tsipras added that “despite the crimes of the Third Reich and Hitler’s hordes, the German debt was written off” observing that Greece is now seeking to recoup the reparations which may amount to as much as 80% of Greek GDP, or €160BN! Meanwhile, China reported that property sales fell in the two months of 2015 by the most in three years amid a glut of housing supply. Aside of this sector of the Chinese economy having a major effect on domestic consumption, it has also been used to leverage real estate purchases the world over.

13 March 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 . . .

This weekend, on the 14th March to be precise, maths nerds’ celebrate Pi day……

Charts:
1.  Indices Weekly
2. US Wholesale Sales  V US Wholesale inventories
3. Portugal 10-Yr Yield V Greece 10-Yr Yield
4. Japan Consumer Confidence V Japan PPI
5. Commodity YTD  Moves

Table:

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

“Measure the distance between your feet and your belly-button as a % of your height .

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

Busy Going Nowhere?

If we step back a little from the day to day gyrations of the main stock-indices, one can observe that, aside of Japan’s Nikkei, they have been busy going nowhere for the past six months or so. Furthermore, whilst the Nikkei looks good in local currency terms, that is more to do with the Japanese authorities debasing the YEN, with the return over this period in Dollar terms similar to that of the S&P 500, more like 4%.

12 March 2015 Blog 1

The main factor behind the heady rise of the past few years hasn’t been so much about corporate profits, but been more to do with financial engineering such as share-buy-backs and leveraged balance sheets, just as we saw in the lead up to the 2007 bust and that of Japan way back in 1989. Our October 2014  Buy-Back Bubble expanded on this for the US, which is still the most important economy and stock-market in the world.

The clues to the ongoing slow-down of economic growth, aside of the lead given by the markets in real-terms, have been the growing DE-flationary forces, which are winning, despite the $US30,000,000,000,000 effort by the world’s main central banks to RE-flate the global economy. One glance at the commodities complex confirms this:

12 March 2015 Blog 2

Whilst the media has commented on the slump of the Oil price of late, there has been scant comment on the other bellwethers as to the strength or otherwise of global economic growth, Copper and Silver.

 This has fed through to ever lower “official” inflation readings, aka CPI, within all of the major economies,where the US has now entered into “negative CPI,” as have 23 of the 28 EU member states, with the UK and China perilously close to it.

 This means of course that the cost of servicing the aforementioned increased massive debt loads, be they Government, corporate or personal, are increasing in real terms and due to the interest rate cycle which has turned higher, despite what central banks and forecasters would have you believe:

12 March 2015 Blog 3

Euro-Zone rates had a one-week reprieve as ECB boss Draghi announced his long awaited QE plan (to no effect.)

So there we have it, far larger debt loads than pre-2007, encouraged by policy-makers who frankly should know better, with de-flation and higher interest rates compounding the real cost in servicing these debts.

Financial assets are in fact “busy going somewhere,” but it’s a place that very few can imagine.

Investment Markets Overview — W/E 6th March 2015

China’s National People’s Congress was held this week where a set of key economic targets were announced. 2015 GDP growth was lowered to 7% from 2014’s 7.5%, the lowest target in 15-years, whilst investment and retail sales growth targets were downgraded which is hardly surprising given the recent trends for both. Premier Li Keqiang also outlined a CPI target of 3%, the creation of 10m new jobs to ensure that unemployment does not exceed 4.5% and a projected budget deficit of 2.3% of GDP for this year. With the Global economy grinding ever slower it is understandable that China is trying to encourage a consumption-driven economy as its exports suffer, but this only appears to work with an ever increasing take up in credit use. The private sector has done a sterling job here, increasing its international debt by 800% since early 2009, but with the Dollar and dollar interest rates now on the move higher, Premier Li’s ambitions may be thwarted.

6 March 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 . . .

The ECB Governing Council held their monetary policy meeting in Cyprus this week where……

Charts:
1. Indices Weekly
2. US Personal Incomes  V US Personal Spending
3. Euro-Zone Non-Performing Loans
4. HK Retail Sales V HK Visitor Arrivals from Mainland China
5.Commodity Moves

Table:

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

“Insanity: doing the same thing over and over again and expecting a different result”

Albert Einstein

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

Watching the No 2’s

It’s six-years to the day since the Bank of England “monetary policy committee” cut the bank’s base rate to a record low of 0.5%, the longest period of keeping rates on hold since the 1950s. The stated intention of the MPC, alongside of their counterparts at the Fed, the ECB, Japan and China, of maintaining historic interest rate lows, alongside of massive credit stimulus measures such as QE, has been to re-flate their respective economies, post the 2007 debt-induced financial crisis and to encourage an increase in global debt in some half-baked idea that the world could borrow itself to prosperity.

5 March 2015 Blog 1

Apologies if the first chart looks a little like a map of the London underground network but it’s actually a simple pictorial view of the UK base-rate, UK CPI and the UK 2-year Government Bond Yield.

 Aside of the initial boost to inflation, as measured by UK CPI, which actually had nothing to do with the MPC policy decision but more to do with the lag from the unsustainable credit growth that preceded 2007, the Bank’s objective of “re-flating” has patently failed, as the UK’s CPI rate is fast approaching de-flation, or negative CPI, as is the US, joining the 23 of 28 EU member states already in Deflation.

 Note also that central banks’, as evidenced by the UK’s MPC in this case, have never made a pro-active decision in their lives, only re-active. The Bank of England base- rate has followed the trend of the 2-year Gilt yield, not the other way round.

So forget the myth that central banks control interest rates, the market does this job and sometimes with a vengeance, particularly when the market ends a long-term trend.

 The 2-year market interest rate for the UK and the US, which we’ll refer to as “No 2s,”  a take on the rhyming slang for doing a poo, actually bottomed (excuse the pun) in mid-2012, since when they have been trending higher. The Euro-Zone No 2 diverged over the past year, however, as the market either believed in the ECB’s Drahgi “I’ll do whatever it takes,” to avoid deflation promise OR the market still thinks of sovereign debt as the safest on the planet, despite repeated “short, back and sides” over recent years.

 The second chart shows the 2-year Government Bond Yield for the UK, the US and for the Euro-Zone, which are now all singing in tune, albeit that in the Euro-Zone’s case it’s an increase from -25% to -10% pa.

5 March 2015 Blog 2

The UK and US No 2s have jumped by a respective 72% and 46% over the past month or so and we suspect that the trend increase will surprise on the upside, ending the MPC’s six-year run and placing many of the increased debtors,’ that they have encouraged, to be well and truly in the poo, governments included.

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