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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 13th January 2017

“Big Mac Index”…. Is a measure of purchasing power parity between two currencies, published by The Economist magazine, which in theory tests an exchange rate based on the price of a “big mac hamburger,” sold across different countries. It was introduced in 1986 and is obtained by dividing the price of a Big Mac in one country (in its currency) by the price of a Big Mac in another country (in its currency). This value is then compared with the actual exchange rate; if it is lower, then the first currency is under-valued (according to PPP theory) compared with the second, and conversely, if it is higher, then the first currency is over-valued. As an example, a big mac in America was priced at $5.06 this week, according to the magazine, whilst in the UK it was $3.73, giving an exchange rate of $1.36 rounded versus the spot rate of about 1.22. Thus in theory the Dollar is overvalued, or the British pound is undervalued OR maybe it’s a bit of both? Either way, there will be a lot more comment on currencies this year, as it is there and within the bond markets that the credit fault lines are growing and is why www.currencytiming.com has been introduced.

 There was certainly some clarity on just what “the Donald” thinks of the press and the intelligence services, or should one say parts of it, plus a far more transparent attitude towards geo-political affairs, trade and for business in general. For students of the markets, last week it was autos and this week big pharma:

13-january-17

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 “Big Mac Theme,” whilst Burgernomics was never intended as a precise gauge of currency exchange rates, due to factors such as labour costs in each country, the McDonalds restaurant chain can provide  ……

Charts:
1.  Indices Weekly
2. US Consumer Credit V US Business and Consumer Confidence
3. UK  Retail Sales V UK Ave Wage Growth
4. China GDP V China Copper Consumption & Copper Price
5. Commodities Weekly

Table:

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

       “Trump is proud of his Scots ancestry, so perhaps we should call him the Big Mc”

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Investment Markets Overview — W/E 6th January 2017

“Big ticket item”…. Is a term used to describe an item of high value such as houses, automobiles and certain durable goods like furniture. Within the financial world it’s the former two that receive special attention, particularly housing which perhaps should be re-classified as a “huge ticket item,” as price-to-earnings multiples have sky-rocketed globally. There will be plenty to discuss on real estate over this year but this week belongs to vehicle sales, as the latest numbers were released for the US, Japan and for the UK. At first glance the numbers look great, but aside of the grey-area of just what percentage are registered versus dealer stored, they are not quite as good as the headlines suggest. American “domestic” sales totaled 14.2m units in December, tantalisingly close to the pre-financial crisis level of June 2005 but still a long way short of the mid-1986 all-time high of 16.6m, particularly when population adjusted. Japan’s 265K shifted for the same month is a fair drop from the 481,000 of March 2014 and only a third of the 831K all-time high of March 1997. Meanwhile, the UK’s 178,000 tallied for December is tame compared to June’s all-time high of 522K, but it was sufficient to make 2016 the highest year ever for UK registrations, at 2.69m. With 80% of UK purchases completed on the “never-never,” better known as personal contract plans, 2016 may go down as the year the auto-bubble peaked, as interest rates march higher for one of the highest personal debt to GDP nations on the planet.

It was an interesting first trading week of the year, with the added impetus of an increased political market interference from the “new boys on the block,” the Trump and May show.

6-jan-17

 

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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 . . .

 With just two weeks to go until “the Donald’s” inauguration as the 45th President of the United States he shows little sign of reversing his ability to ……

Charts:
1.  Indices Weekly
2. US Unemployment Rate V US NFP
3. UK  Consumer Credit V UK Mortgage growth
4. Japan Labour Cash Earnings V Japan Vehicle Sales
5. Commodities Weekly

Table:

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

                                             “Intervention can cause Uncertainty”

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Investment Markets Overview — W/E 30th December 2016

“Surprise”…. Is defined as an unexpected or astonishing event or fact and they have been in abundance for the year 2016. “Brexit” and “the Donald’s win” are the two major surprises that come to mind and which fooled not only the pollsters’ but also the majority of experts, but others included improved international relations for Cuba whilst those between America and Russia had a distinct cooler climate change. For the markets, surprise was also evident, such as commodities and the companies that mine them being among the best performers of the year, despite muted global CPI inflation; Global debt continued to soar, mainly due to feckless Government and their so called “independent” Central Banks, with the herd still believing that the latter control interest rates despite “market” rates soaring during the second half of the year. A student of socionomics, the study of social mood, would not have been surprised by most of the aforementioned, in fact this student of 14-years maturity, has provided ample hints via this weekly column and blogs in respect of brexit, Trump and perhaps the more important event, rising interest rates.

As a year-end “surprise, present,” this week, our charts’ will “tell” the main stories of the year for the main geographical regions and asset markets covered. May we take this opportunity of wishing all of our readers a healthy, happy and prosperous 2017.

First up is a chart of the 2016 performance of the main stock-indices.

30-dec-2016

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 week’s overview started with “surprises,” and will end with one, in respect of India’s ill-fated “tax-grab” of the 8th November 2016 ……

Charts:
1.  Indices Weekly
2. US S&P 500 V Oil Price V $/Yen Inverted
3. UK  Unemployment V Self-Employed V GDP
4. Largest Exporters to China &  US,UK, E-Z 10-Yr Ylds
5. Commodities Weekly

Table:

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

                                                          “No Surprises Here Then”

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Investment Markets Overview — W/E 16th December 2016

“Sentiment”….like so many nouns has more than one meaning, “I agree with your sentiments regarding him or her,” OR, “a definition of feelings and emotions.” For the purpose of this column, however, it can be a great gauge of crowd psychology, and a very useful guide to market turning-points, particularly when bullish or bearish sentiment extremes are recorded. It has been a week for “record” sentiment readings across most asset classes, including stock, bonds, currencies and within the precious metals space, hence they are shared with subscribers within each section of this week’s overview. For our other readers who have free access to the first paragraph of the weekly market overview and the ad-hoc blogs, here is a sentiment indicator that most Socionomist’ would identify without even blinking. In a week that the FOMC raised interest rates, by effectively following the market increase and the Bank of England left rates on hold, a common denominator from both Central Banks and the crowd of economists’, fund managers’ and various commentators who seek clues from them, is a unanimous conclusion  that CPI inflation is moving ever higher. Meanwhile, one of the best guides to higher inflation (or not,) a basket of North American gold and silver –mining stocks known as the XAU and which is purposely always covered within this weekly column, saw an 8% slide on the week, is 35% lower than its August high with it now at the same price level as seen in 1984, 32-years ago!

For more on sentiment, comment on the main investment areas of the globe, including the main economic news of the week, with interesting supporting charts, enjoy the read. For those still pondering a subscription, which costs less than a weekly pint at the pub and has no contract commitment, you can access it here:

16-dec-2016

 

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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 . . .

 Returning to that “unanimous on higher CPI inflation myth,” Bank of England boss Carney revised his guidance yet again at this week’s monetary policy meeting, despite being consistently  ……

Charts:
1.  Indices Weekly
2. US House-Builders Index V US Housing Starts
3. UK CPI Inflation V UK 10-Year Interest Rates
4. China  Household Debt V China Non – Fin Corp Debt
5. Commodities Weekly

Table:

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

                                                                 “The Devil is in the Detail”

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seasons-greetings

 

Fed Rate Shock?

So here we are, the final FOMC meeting of 2016 with the consensus forecast being for a 0.25% increase in the “fed fund rate.”

Whilst this commentary agrees with the expectation of an increased rate later today, it differs on the reason as to why and poses a thought that the consensus may be under-estimating the scale of the rise.

The rate increase will be nothing to do with Janet and her merry band of Fed colleagues, but more to do with how the market has already voted. On numerous occasions, including the August 2015 overview, “Revisiting the No 2’s,” observations has been made that central banks’ have never made a pro-active decision in their lives, only re-active. The FOMC base- rate, or any other central bank rate come to that, has followed the trend of the 2-year Sovereign yield, not the other way round:

14-dec-16

 The first chart compares the US base-rate, US CPI and the US 2-year Treasury Bond Yield. You can see how the base rate followed the 2-year yield, up or down, over the past decade, and regardless of the annualised CPI inflation rate, which many analysts’ think decisions are made on. As can also be seen, CPI is a “lagging indicator.”

On a monthly data basis 2-year yields have soared by 480% since their August 2011 low of 0.2% to the current 1.16%, whilst there has only been the one fed-funds hike from 0.25% to 0.5%. Although a little difficult to see from the chart, for the FOMC to catch-up with the 2’s, it requires a further 0.5% rise to 1%, not the 0.25% expected.

This of course would be a shock to the market, which brings us to the second chart, this time comparing the 30-year Treasury bond yield, which is of far more importance as it is to this that most US mortgages are aligned. It has been inverted, to better show it correlation to the strong sister of the US stock-indices, the Dow Jones Industrial Average, the Dow.

14-dec-16-2

As can be seen from the chart, there has been a loose fit between the two variables, until just recently that is, where they have diverged with yields spiking higher, along with the Dow, which normally falls as interest rates rise.

So what does this mean?

It’s fair to say that sentiment indicators for increased bond yields are a little ahead of themselves, so there may be a brief retracement before they move higher yet. Likewise with the Dow, where certain sentiment gauges have reached 20-year record bullish extremes, hence the Dow should be set for a decent fall.

If the rate increase is for 0.5% rather than 0.25%, there could be shocks all round.

 

 

 

 

 

 

 

 

 

 

Investment Markets Overview — W/E 9th December 2016

The CIA…were put in their place this week, as their claims that Russia helped Trump win the election, was rebuffed by “the Donald,” who said, “are these the same people who said that Saddam had weapons of mass destruction?” Talking of “WMD” the British Foreign Secretary, Boris Johnson, was slapped-down by his boss, PM Teresa May, for having the honesty of criticising certain mid-east states for their “(ab)use of arms,” sold to them in ever greater numbers by the UK Government and the gang of five which was commented on by this overview last week. Meanwhile, the second female British Prime Minister in history concentrated on more important issues, such as a slanging match over her £1000 leather trousers against the £1000 handbag of sacked ex-minister Nicky Morgan, whilst Boris sensibly turned down a request of ever more millions from the former war-loving PM, Blair, who apparently requires extra tax-payer funded protection as he jets around the middle-east and other trouble spots, making matters worse.

For the markets, stocks had a great week, with Euro-land outperforming and led by the 6% jump for the German Dax. The Oil price digested its recent gains whilst the Precious Metals found little traction. It was another painful week for bond holders, as sovereign debt yields spiked higher, in the US and UK 10-year case by a respective 3% and 5% and paving the way for a US rate-hike next week and perhaps also for the UK, just as property prices are starting to crack:

9-dec-2016

 

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This is a truncated overview with a return to normal for next week, a week which should be interesting for not just the US and the UK on interest rates, but also for a heavy data week for Japan and China, particularly on the debt front.

……

 

                “Bullish Equity Sentiment Extremes and Rapidly Rising Interest Rate = ?”

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Investment Markets Overview — W/E 2nd December 2016

“The Donald”….commenced a “victory tour” this week, no doubt as a welcome break from the constraints of the New York “Trump Tower” and his nearby golf resort, where he’s been busy assembling his inner circle for cabinet. Contrary to the pre-election perception that he was all about the “blue collar” society and to “draining the swamp,” of DC, he has made key financial appointments of Wall St cronies, in particular from Goldman Sachs, who for far too long have held undue and damaging influence in Washington, and for most of the globe come to that. Furthermore, for his Defence Secretary he has gone for a career warrior, “Mad Dog General James Mattis,” a 66-year old who retired in 2013 after a 41-year career in the US Marines, that took him from a rifleman to a General and who has had extensive combat experience in the Middle-East and Afghanistan along the way. Like Trump, a hawk on Iran, it will be interesting to see how Mattis shapes up versus say the British Defence Secretary, Sir Michael Fallon, a career politician who has never held down a proper job let alone a weapon. Perhaps, and this may be wishful thinking, an ex warrior may actually think twice before putting lives on the line. Returning to “the Donald’s tour,” his first stop was at a manufacturing plant in Indiana, reverting to blue-collar, where he added a “stick” to the “carrot” of a potential reduction in corporate tax from 35% to 15%. The “stick” took the form of a warning that, “companies are not going to leave the United States anymore without consequences,” whilst not specifically stating what the penalties will be.

For the markets, it was all about Oil and OPEC this week, with the Oil price range widening to 6% during the two days ahead of OPEC’s Vienna meeting, followed by a near 16% spike over the two days that followed it. There is a lot more on this below plus interesting comment and charts on the other main asset classes for the week:

25-nov-16

 

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 . . .

 Quite how a higher oil price and higher interest rates are perceived to be “bullish” for stocks is beyond this commentator ……

Charts:
1.  Indices Weekly
2. US Consumer Confidence V US GDP V US HPI
3. E-Z  Confidence Readings X 3
4. Japan Sm Business Confidence V Japan Retail Sales
5. Commodities Weekly

Table:

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

                                             “Change can be a Shock but it can be a Positive also”

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