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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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After the Bounce

The carnage witnessed within global stock-markets over the past few months has dissipated, allowing for a reasonable bounce, albeit with continued high volatility.

So is that it, is the correction over?

As always we look to the charts for guidance and being as most market “experts” have blamed it all on China, let us start with a daily chart of the Shanghai Composite, China’s flagship stock-index, since the  June 2013 low to date.

 27 August 15 blog

Bear markets are always quicker than their bull counterpart, as can be seen here, with the index taking a mere 3-month to wipe out 18-months of gains.

Using a Fibonacci retracement, not shown, we should see a bounce towards the 3600-3800 level for the SH Comp, which coincides with the 200 MA and 50 MA. This would be a decent 15% to 25% bounce expected.

But before looking at possible targets after the bounce, let us negate the myth that this is all about China by a look at the second chart:

27 August 15 blog 2

China only represents about 8% of the World Stock Index, with the lion’s share dominated by America, and as can be noted above, the world index peaked in May 2015, a full month ahead of the SH Comp.

Furthermore, its 50 MA has crossed below the 200 MA, known as a “death cross,” which usually signals a change in a long term trend, in this case from up to down.

The Fibonacci retracement numbers have been included here and compared with China it suggests a more modest 5% to 10% bounce.

After that, unless the respective stock-indices can regain their MAs, with the 50 above the 200, the trip lower will continue.

As to those lower targets, you may wish to subscribe to our very modestly priced investmentimer service.

 

Investment Markets Overview — W/E 21st August 2015

A couple of weeks ago we commented on a new meaning for “Grexit” as investors who had been trapped within the Athens stock-exchange for 5-weeks since it was closed, all headed for the exit together. This week appeared to see the start of a mass squeeze through the exit door of Global stock markets. You can take your pick on the “catalyst” that triggered the charge, China, Japan’s disappointing GDP, commodities, currency crashes or maybe the FOMC minutes released on Wednesday, but a “Socionomist” would point to a “change in collective social mood,” from positive, perhaps even fearless, to the beginnings of negative tone, with fear of loss rising. We also suggested, two weeks ago, the importance of the 3500 level in respect the Shanghai stock-index, the SH Comp. It closed on Friday at 3507, so we may see a literal scrum in respect of the exit doors in China next week. Adding to the mix was a bomb attack in Bangkok and an exchange of fire between North and South Korea.

21 August 15

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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 . . .

 It is an understatement to say that society, perhaps the world over, have become dis-enchanted with the traditional banking community, opening a gap for new players  ……

Charts:
1.  Indices Weekly
2. US Manufacturing V CPI & $US Spot
3. UK Inflation V UK Retail Sales
4. Japan GDP V Japan Exports
5. Commodity YTD  Moves

Table:

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

“Do as we say, not what we do.

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Currency Conun-drum

The Chinese authorities move to devalue the Yuan last week was a futile effort to reverse the credit implosion of late and to “stimulate” exports in a further effort to kick start economic growth which has halved from over 12% annualised at Q106 to 7% at Q215,

We warned that history is littered with examples of market damage due to state intervention, within the early July 2015 posting, “State Signals,” which related to the folly of the Chinese authoritie’s endeavours to reverse a debt-induced stock-market bubble.

A look at Australia’s attempt to devalue its currency, to stoke exports, provides one of many examples that “you may not get what you seek.” Despite a 33% devaluation of its currency over the past few year, the trade deficit has widened as exports have continued to fall.

 20 August 15

 China’s currency move is not really a Conundrum, it’s actually quite straight forward, debt-bubble = rising stocks and real-estate but slowing GDP…and then the debt-bubble deflates with predictable results

Talking of predictability, the April 2015 “Twin Peaks,” gave some further clues, which readers may be wish to revisit.

 

 

Investment Markets Overview — W/E 14th August 2015

In the summer of 2007 concerns mounted over the value of sub-prime mortgage loans, where defaults were rising and led to the bankruptcy of Bear Stearns investment bank in March 2008, an institution founded in 1923. BS was heavily involved in the securitisation of mortgage-backed assets and was central to the 2007 sub-prime mortgage crisis and while the Federal reserve failed in its attempt to save the bank via an emergency loan, it was keen to re-assure the markets that the problems were contained to the sub-prime market, not the prime AAA rated sector. Within months this it was very much a prime problem as AIG, Fannie, Freddie and a rafter of other AAA rated companies were either bailed out or went into bankruptcy. Fast forward 6-years and we now have a sub-prime auto bubble which appears ready to burst where hundreds of billions of junk debt is backed by under-qualified buyers and rising default rates and have been bid ever-higher by yield hungry investors’. We should expect to hear those reassuring voices any time now, saying that the growing problems are contained and will not affect the wider markets.

14 August 15

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 . . .

 Returning to the subject of Junk debt, the credit markets have been signalling trouble brewing for months now, as evidenced ……

Charts:
1.  Indices Weekly
2. US Wholesale Inventories V Sales
3. E-Z GDP V Greece GDP
4. $OZ Spot V OZ Trade Balance
5. Commodity YTD  Moves

Table:

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

“Don’t just Listen, Watch.

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Investment Markets Overview — W/E 7th August 2015

Grexit” took on a whole new meaning this week, as investors who have been trapped within the Athens stock-exchange for 5-weeks since it was closed, as part of the capital controls imposed, all headed for the exit together on the re-opening. Predictably, the Greek flag-ship stock-index crashed, with the ASE initially slumping by 23%, led by the banking sector, but ended the week with a 1% gain, albeit 15% lower than the pre-closure level of the 26th June. Liquidity remains low and capital controls remain in place ensuring that volatility is set to continue following the traumatic 87% collapse witnessed since its December 2007 high. Meanwhile in China, reports suggest that the government (tax-payer) has already spent about $150BN attempting to prop-up shares. It managed a 2.2% gain on the week, ending it at 3744, but support at the 3500 level is key.

7 August 15

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 . . .

 Aside of the worrying signs emanating out of Greece and China, plus the little matter of Puerto Rico announcing it’s bankruptcy, there ……

Charts:
1.  Indices Weekly
2. US Trade Deficit V $US
3. E-Z Retail Sales V E-Z PPI
4. OZ Unemployment V OZ Retail Sales
5. Commodity YTD  Moves

Table:

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

“History Don’t Repeat, But it sure do Rhyme.

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Revisiting the No 2’s

In March of this year the “watching the No 2s” stated that it was 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. After yesterday’s MPC meeting, it’s now 78 consecutive months at 0.5%. “Charmer” Carney, the Bank of England Governor, and his counterpart, Auntie Janet over at the Fed, have been in full flow recently in respect of their respective interest rates, without really giving anything away about when they will rise.

It is patently clear that Mr. C and his merry band of 1000+ economists at the B of E have little clue as to what is driving markets as he flip-flops once again, stating “there may be a month or two more of deflation whilst only a month or so ago saying that inflation is about to pick-up strongly due to wage and economic growth.”

We repeat the observation 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.

The first exhibit is an update of a chart shown in March, comparing the UK base-rate, UK CPI and the UK 2-year Government Bond Yield. Whilst the “official” base rate hasn’t changed, at 0.5%, UK CPI has fallen to 0% whilst the 2-year “market” rate has inched higher to 0.61% from the 0.6% reading of March.

 7 August 15 Blog 1

Deflation is alive and well in the UK and clinging on at 0.1% in the US.

As such, a base rate hike in both countries is very close now, despite the “clap-trap” metered out at the Charmer & Janet “dog & pony show” to the herding economists’ and financial experts from the media and mega investment houses.

The second chart shows the 2-year Government Bond Yield for the UK and the US, which we labeled the “No 2s.” Although the rate of change has eased slightly of late, the “market-rate” for two year debt has surged by a respective 63% for the UK and by 53% for the US in a short six-month period.

7 August 15 Blog 2

The UK and US No 2s have jumped not just because of the gathering deflation storm, but due to the growing fear on debt default, aka the recent Greek tragedy act 3, Puerto Rico and Chinese margin calls with  the likely knock-on effects from them.

In plain English, a far higher level of compensation is being demanded by lenders, as the risks are rising exponentially across the board.

The 2s should be re-visited often, for there are the clues.

Investment Markets Overview — W/E 31th July 2015

We can close it and re-open it later,” said Deng Xiaoping, China’s great reformer, when alluding to the volatile Chinese stock-market in 1992, after it advanced by 275% in one quarter only to collapse by 73% over the next couple and ending the period effectively unchanged. Fast-forward by 23-years and the current authorities are trying to pull the same stunt after the Shanghai composite, the nation’s flag-ship stock-index soared by 180% over the two-years to mid-June 2015, before losing half of the gain in a short few trading weeks. Thus far the Chinese authorities have banned share sales by large shareholders; suspended IPOs; stopped trading in over 1400 shares and forced financial institutions to buy shares, whilst threatening to buy shares themselves (on behalf of the Chinese tax-payer of course as the government doesn’t have any of its own.) The government actually initiated a $483BN margin-buying programme and to date has committed about $800BN worth of public and private money in its effort to halt the crisis, substantially more than the $590BN stimulus package announced in 2008 and which equates to about 10% of last year’s China GDP.

31 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 UK Chancellor George Osborne’s announcement in June, that he plans to sell the The Royal Bank of Scotland back to private investors ……

Charts:
1.  Indices Weekly
2. US Emplyment Cost Index V US GDP
3. UK Consumer Credit V UK GDP
4. Japan CPI V Japan Retail Sales
5. Commodity YTD  Moves

Table:

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

“One Rule for One and One Rule….

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

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