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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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Safe as Houses

 Speculation is alive and well within the UK housing market, despite the “buy-to-let” sector taking a hit last year by way of tax-increases. With cash deposit returns residing at near 200-year lows and investors fearful of stock-market volatility, one can understand the attraction of residential property as a “safe investment.” In fact, the attraction of the UK housing stock in the private rented sector has grown to £1.29 trillion.

However, before you rush out to join the growing crowd, the term “as safe as houses,” is something of a misnomer.

As can be witnessed within a chart of average UK house prices, using the Nationwide data due to it having the longest history, note a close correlation between it and the FTSE All-Share Stock-Index. A glance at this 65-year period of history shows two periods of sizeable corrections for UK house prices, the early 1990s -35% experience and the 22% fall during the 2007 financial crisis :

16-feb-2017

Added for good measure is the lower chart in blue, which is a “rate of change” momentum indicator, here as an annualised rate of return, noting that the rate-of-descent has steepened post crisis. This matters if debt has been used to purchase the property and in the UK’s case 31% of the private rented sector is subject to a buy-to-let mortgage.

 And it particularly matters IF the interest-rate cycle has turned, which for the UK it has:

16-feb-2017-2

Forget the posturing of the Bank of England and the sheople who actually believe that it has any real control over interest rates. Who do you know who borrows at 0.25% pa, the Bank of England’s “base-rate.” You and most other mere mortals, when borrowing for UK residential property purchase, are dependent on “market-rates,” and in particular the 10-year government borrowing rate, albeit that you may find a discounted initial period.

As can be seen within second chart, the 10-year interest rate has rocketed by 150% over the past 6-months and is “testing” the red-dashed trend line and the 38.2% Fibonacci re-tracement level, a typical test level. If and when this is breeched, which is likely, the interest rate is headed for the 2% mark and possibly far higher thereafter.

So, less volatile than stocks residential property may be, but “safe” from loss, NO!

If you have found this overview of interest you may wish to read the most recent “Investment Markets Overview,” which also includes comment with supporting charts for the Luxury end of Manhattan and the world’s most expensive housing market, Hong Kong.

You can access details here under Limited Editions

 

 

 

 

 

 

 

 

Investment Markets Overview — W/E 10th February 2017

“65 years”…. Is currently the official retirement age for the UK, despite many of the fairer gender understandably feeling they were mugged by law-makers as to just when they can expect their state pension entitlement, due to a phased change to an equalisation age with men. It is also the new record set by the Queen, who this week became the first British monarch to reach a Blue Sapphire Jubilee, 65 years since she ascended the throne. A marvellous accomplishment indeed, albeit that on a global basis there is more work to do, when noting that Louis XIV of France reigned for 72 years and King Bhumipol of Thailand, who died last year after a 70-year reign, are among other monarchs’ who reached Platinum Jubilees. 1952 is also the year when the “Nationwide,” Britain’s largest building society, a financial institution owned by its members as a mutual organisation and which offer banking and other financial services, especially savings and mortgage lending, commenced the monthly recording of average UK house prices. For the record, the average price at the year-end 1952 was £1891 versus the year-end 2016 £205,240, with the “average” having a fairly wide range with London as the most expensive, at £473,000, with the lowest being within the North of England, at £124,300.

Global house prices, including the UK, the rentals commanded for them and affordability of either buying or renting them, were in the news this week, hence the inclusion of comment, observations and interesting charts on this subject within this overview:

10-feb-2017

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 . . .

  Continuing with this week’s housing theme, the UK government unveiled a white paper, entitled “Fixing our broken housing market”, admitting that England’s housing market is broken and promised  ……

Charts:
1.  Indices Weekly
2. Manhattan Luxury House Sale Price V  Manhattan Luxury Rental Price
3. UK Ave House Price V UK FTSE All Share Stock index
4. HK House Price Index V HK Credit Growth
5. Commodities Weekly

Table:

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

                   “And Then There Is China” 

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

 

Investment Markets Overview — W/E 3rd February 2017

“20”…. Is an interesting number, the maximum number of moves to solve a Rubik’s Cube, the starting number for the ancient Mayan numeral system and, according to “Symbolic Studies,” it’s a universal number that encompasses all the energies of the planets and the cosmos. It is also recognised as the attributes of the number 2 and 0, but regardless of whether any of these facts are important, it is certainly of relevance to the financial markets of late. The 20,000 Dow Jones Industrial Average “round number” was breached on the 26th January, held above it for 3-trading days but has struggled to surmount it until this week’s Friday session, whilst Snap, the company formerly known as Snapchat, announced its IPO intention which, if all goes to plan, will net the company some £20BN. €20BN is also the “margin of error”  of the €40BN to €60BN range muted by the UK’s former UK ambassador to the EU, Sir Ivan Rogers, as the exit charge demanded by the EU as the “bill to leave the EU.” The range says much about the appalling lack of attention to financial detail by institutions charged with spending “other peoples money,” perhaps none more so than the EU and explains why it’s bankrupt, in more ways than one. Meanwhile, three of the major Central Banks were on parade this week, the Fed, the Bank of England and the Bank of Japan, all of whom have long-held CPI inflation targets of 2% pa, that attribute of the number 20. Despite Trillions of $US, £GBP and ¥ of additional debt stimulus (other peoples liability) attempting to regain these targets, all have failed miserably, with the latest CPI rates stated at a respective 2.1% (debateable given the prior 3-month’s data averaging 1.6%) 1.6% and 0.3%. Even the ECB, who didn’t meet this week and is now holding 40% of all EU sovereign debt can only garner a 1.1% annualised CPI rate, despite a “negative-interest rate policy,” another “tool” deemed necessary to stoke inflation.

US stocks were busy going nowhere for most of the week, whipsawed by the slew of executive orders issued by President Trump, with the major indices saved from losses by the finance sector, buoyed by the re-examination of the Dodd-Frank rule and proposed regulatory reduction on banks:

3-feb-2017

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 . . .

  “Herding” was alive and well this week as demonstrated by a US “gallop poll” showing that 60% of those polled opposed President Trump’s ordering the construction of the US-Mexico border wall,  despite it being a central theme  ……

Charts:
1.  Indices Weekly
2. US Non-Farm Payrolls V US Personal Incomes
3. E-Z GDP V E-Z Retail Sales
4. Japan Monetary Base V Japan Business and Consumer Confidence
5. Commodities Weekly

Table:

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

                   “Herding Provides Insightful Clues” 

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

 

Special Relationship Is Different this Time?

 As the world and their dog talk of the new “special relationship,” between the US and the UK, “The Donald & Teresa Show,” looks markedly different from the “Maggie & Ronnie Show” of 1981.

Personality’s aside, it’s unfortunate for both leaders that the economic and geo-political backdrop is so radically different now than 36-years ago and totally beyond the control of both leaders and politicians in general to change it. That is, until the collective social mood of both countries change once more and politicians’ follow it.

Socionomics, the study of social mood which is best identified by the stock-market barometer of a Nation, observes the fact that mood governs events, not the widely perceived reverse, hence the increased polarisation within the US and UK societies as their collective social mood has changed from one of optimism to one of increased pessimism and concern, sufficient enough to vote for big changes, in the guise of “the Donald” and “Brexit.”

Robert Prechter, the father of Socionomics, long ago identified that the popularity or otherwise of political leaders, isn’t much to do with their policies but more to do with their luck in the timing of “their time” in the hot-seat as governed by the barometer. In Reagan and Thatcher’s case it commence at the end of a 16-year secular bear market and lasted through the largest bull market in history, whereas for D and T the respective markets have been completing a massive “topping process,” not conducive for high popularity scores.

Alongside of the above there has been much talk of “Trumponomics” versus “Reaganomics,” in respect of tax cuts and infrastructure spending, the “hope” of which has spurred stocks higher since Trump’s election victory.

However, in order to make valid assumptions on the potential impact of the tax cut on the economy, earnings and the markets, we need to review the differences between the Reagan and Trump eras (Chart and comment courtesy of Lance Roberts at Real Investment Advice.) The tailwinds provided by initial deregulation, consumer leveraging and declining interest rates and inflation (since the early 1980s) provided huge tailwinds for corporate profitability growth, but they are now headwinds:

1-feb-2017-blog

With a focus on the debt levels noted within the table above, we remind that interest rates, at least the ones that you and I are effected by, called market rates, have finished their 35-year decline from a near 20%pa level of 1981 and have been basing (moving sideways) since mid 2012 (a bit like moving down the gears in a car before going into reverse) and have now commenced their climb higher from July 2016, since when the US & UK 10-year rate have jumped by 100% and 200% respectively (not a typo but fact.)

In conclusion, the economic and market backdrop couldn’t be more different now than in 1981 and will have far differing implications for the “special relationship” now and going forward.

The “Investment market Overview” for the week ending 27th January highlighted those most dangerous four words, “It’s different this time” in respect of the auto sector. You can now relate that to the “hope over reality,” suggested by the markets and their participants, in respect of the new top dogs.

 

 

 

 

 

 

 

Investment Markets Overview — W/E 27th January 2017

“It’s different this time”…. Is one of the most dangerous four words used within the investment industry. It usually appears when market analysts’ try to justify crazy over-valuations, such as the TMT bubble of the late 1990s, the mortgage bubble of the mid-2000s and possibly house prices now. In fact, the four short words are so famous that a book was published in 2008 showing examples from over 800-years and yet the majority of investors’ still fall for its allure. The phrase appeared once more this week, within a Bloomberg report on the US auto industry and on this occasion I agree with the context of its use! The report was on a topic covered within this column recently, “Big Ticket items,” the auto-sector, with a particular focus on the sheer number of “leased vehicles” that are being returned over the next year or so and which follows the 33% surge of 2016. The fallout from the glut has already started with Ford Motor Co. slashing $US300m from its financial-services arm’s profit forecast for this year. It’s playing havoc with used vehicle prices as well, which has seriously dented the residual values expected with knock-on effects to used car dealerships and hire companies alike. Where those four little words come in is that originally leases were a tool used by luxury automakers, where the likes of BMW and Mercedes relied on leasing for 70% of sales. Its different this time as leasing today has become the auto-sector’s main-stay for mass-market cars and trucks.

 Uncertainly and volatility dominated the markets this week as binned US trade deals and the UK supreme court decision on Brexit led the concerns. Sentiment was further undermined by British Telecom PLC whose share price plunged on accounting irregularities within its Italian arm. Followers of this analyst shouldn’t have been caught out as the 1st December 2016 commentaryBT Blues,gave an emphatic warning as to the likely direction of the companies share price. Despite all of this, the Dow 20,000 hats were donned, dragging global stocks higher….and with them interest rates:

27-jan-2017

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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 . . .

 The polarisation within societies took a new turn this week and not only by the increasing coverage of the impending Dutch, French and German elections. California ……

Charts:
1.  Indices Weekly
2. US Existing Home Sales V US Good Time to Sell Survey
3. UK GDP V UK Service Sector Growth
4. Japan Trade Balance V Japan Imports and Exports
5. Commodities Weekly

Table:

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

       “State Largesse Knows No Bounds” 

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

 

BT Blues Turns Red

    The 1st December 2016 overview, entitled “BT Blues,” highlighted the dire performance of the UK’s 20th largest quoted company by market capitalisation, British Telecom, aka BT Group PLC.

Aside of questioning its ability and commitment to roll–out ultra fast broadband to UK PLC, despite it being handed even more tax-payer money, the article reminded that BT was a company weighed down by debt of £14BN on a market cap of £35BN and a stated NAV of just £10BN, not forgetting the worst pension deficit within corporate UK. It concluded that BT would leave its customers’, competitors’ and share-holders alike feeling decidedly blue.

Share-holders will be forgiven this week if they see red as opposed to just feeling blue, when the company announced that an internal investigation of accounting practices in its Italian business could mean a hit of £530m, not the expected write-down of £145m it suggested only last October. Furthermore, BT expects its free cash flow to fall by £500m this year due to the costs involved in unwinding these “inappropriate transactions,” going on to issue a full-scale profit warning due to lower levels of spending by the UK public sector and international corporate customers.

Its share price promptly crashed by 20%, a huge 1-day move for a blue-chip stock (please excuse the pun.)

So is the stock a buy, hold or a sell?

Broker consensus has been suggesting that it’s a “strong hold” supported by a P/E of about 11, with a prospective yield of around 4.9%. However, aside of the negative facts stated above, BT’s pension deficit has ballooned to £9.5bn as of September 2016 and faces a triennial pension valuation this June. As such, cash-flow reductions and possible additional deficit reduction payments following the pension valuation may threaten the dividend plans.

Either way, the guidance is in the charts hence an update from last December is as follows:

26-jan-2017-blog

Whilst the very short-term may see a modest bounce, our colour-coded indicator remains as the pink panel, a Sell signal triggered yet again before the dire news of this week.

In conclusion there is no reason to see blue or red, you only need to be concerned with pink, neutral and green.

 

 

 

 

 

 

 

 

 

Investment Markets Overview — W/E 20th January 2017

“World Economic Forum”…. Is a Swiss non-profit foundation set up in 1971 by Klaus Schwab, a German engineer and economist, and whose motto is, “Committed to improving the state of the world.”  The WEF, held annually at Davos, has morphed into big business as corporate membership stands at $595,000, plus revenue from “partnerships,” the corporations and consulting firms that take centre-stage, was allegedly up by 25% this year according to a Bloomberg report. It’s become a “must be at” event for large corporate bosses to network, a conduit for politicians to express their outlook and plans and for mere “onlookers” an opportunity to feel the collective social mood of the global elite. One shouldn’t be too surprised to identify the level of uncertainty at this year’s event with the recent geo-political events, nor to the reluctance of the elite to give predictions, when in the main they were so spectacularly wrong on Brexit and Trump last year. British input, in the guise of PM May and Chancellor Hammond, were among the stand-out keynote speeches, at last offering more clarity on their plans ex-EU, whilst China, with the largest delegation present, used the opportunity to show a more human side to the international perception of many, reminding that they are part of the global village, they wish for a harmonious relationship with their neighbours and wish to trade globally. It is worth reminding that whilst China is “technically” a communist state, it is no longer a communist ideology. As private industry and personal wealth has exploded, China is now capitalist in nature and desire, with the added benefit that they “think cyclically” rather than the West’s “linear thinking” trait.

 Politics certainly dominated the markets this week, with un-certainty being the key word over-shadowing them, the wider world including Davos:

20-jan-2017

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 Donald” stepped into the hot-seat as the 45th President of the United States of America, he confirmed his acknowledgement that the states are anything but “united,” using his brief ……

Charts:
1.  Indices Weekly
2. US CPI V US Real Average Wages
3. E-Z  CPI levels
4. China GDP V China Retail Sales
5. Commodities Weekly

Table:

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

       “Crowds are interesting, as they tell you a lot”

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