Category Archives: International

Brexit – the scapegoat

Good day all,

Let it be known: Brexit will not bankrupt the world; Brexit will not bankrupt the UK. If anyone says he is a free man, if anyone says he is free to make his decisions, then shame on those who lambaste the British people for bringing financial catastrophe on the world. The British people have voted – against the avalanche of an environment pushing a globalist agenda – and they have decided on taking 100% control of their own country. What crime have they committed? Yes, there is going to be a lot of work to be done by lawmakers, legislators, businessmen, etc; but is there any crime in that?

Since this is a website pertaining to the financial markets, I will keep the scope of this post focused on the financial markets’ side of the issue. Even till this day – 15 days after the referendum – the mainstream media is still raining a deluge of criticism at Brexit voters, and preaching about the impending collapses that will stem from a Brexit. What is worse for me, as a trader, and for all of you out there who have been following the markets for years, is when I hear of how a Brexit will cause the next 2008-style financial collapse. Seriously?

First, we do have at least a week’s worth of trading to see if we are on the cusp of disaster. To that end, we have a definite answer: no. The FTSE is already above levels seen during the referendum week! European indices are off the lows made after the referendum, ditto for Asian indices, and American indices have just about recovered all ground lost after the referendum. If Brexit was as bad as the media portrays, the markets would continue sinking. The Pound, I grant you, is still falling but give it some more time, and it should bounce back. The mainstream media may be fooling everyone else but I hope that we, as financial market followers, will stay calm and know that this is simply a knee-jerk reaction.

A little hindsight analysis while zooming in on the referendum week. It seems to me like the markets moved quite closely in tandem with sentiment portryed by the media. At first, the markets dropped 4 sizeable red (or black) candles 2 weeks before the referendum when polls seemed to indicate that a Brexit was actually in the offing, then in the week leading to the referendum, I remember very well that the Bremain camp seemed to wax stronger and stronger – especially coinciding with the shocking attack and subsequent death of MP Jo Cox. So, with the chart in view, it is very clear that price action was almost dictated as according to the media. Why the FTSE has shot up higher is beyond my comprehension although one thing we can be very sure of: Brexit is not to be the scapegoat for any kind of disaster hereafter.

FTSE

With that said, let us not climb onto the bull so quickly. For quite a long while now, I have been feeling uneasy about the markets in general. The generally huge, “toppish” patterns in many indices globally is certainly cause for concern. Some people in authority – including Brexit poster child Nigel Farage – have indicated that the UK will head into recession regardless of Brexit. According to the charts, this is quite a strong statement to believe in. Markets have been rounding off for some time already. While this can simply be a large breather in a continued bull-run – like in the aftermath of the US credit downgrade (how come the media did not blast Obama for that?) – generally-speaking, it is supposed to herald the stagnation or decline in the economy. So, taking the chart into account, it is a very probable scenario to expect in the coming twelve months. Why should Brexit take the rapping for this? The charts were already turning; the markets were already tanking long before anyone was concerned about Brexit.

In conclusion, I hope we can all bear the big picture in mind: financial markets have been tanking for quite a while now instead of sauntering up in a typically strong uptrend channel. If the UK does enter into recession, it is not because of the Brexit but for other reasons that have already been factored into the financial markets.

FTSE2

All analyses, recommendations, discussions and other information herein are published for general information. Readers should not rely solely on the information published on this blog and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

Advertisements

Dilemma of dynamic patterns

Good day traders,

As the market would have it with me so often, the exact opposite of my sentiment usually happens. Ever since my last post, indices around the world have rallied hard. The sharp devaluation gave long-term players an opportunity to snap up bargains on the market. As we cross over to the latter half of the year, indices are either at or above their 200-day moving averages, and having made higher highs and higher lows after the scare in January. Unsurprisingly, price action over the last few months have developed a bottoming pattern of sorts: specifically, unconfirmed, inverted head-and-shoulders patterns are showing up on many charts. It may be a case of the breakdown from large, upright head-and-shoulders patterns resulting in a consolidation instead of further downside.

With every wek and month of upside, it does dent my confidence of the longer-term decline I am expecting. Being a long-term player is analogous to a huge ship’s maneuverability compared to a small speedboat: I cannot and will not change my outlook until way past the bottom. It is tempting to switch from a bearish to a bullish outlook now but I am still not convinced with the recent rally.The dilemma I face now is because of the presence of dynamic patterns that are suggesting upside to come. I use the term dynamic pattern to mean general price patterns that have a particular shape in recent history – these patterns do not have conventional names like the head and shoulders and others; or they may but with a certain “twist.” I will illustrate what I mean in the charts below.

The first chart is of the CAC 40. The turbulence late in 2014 produced a descending, broadening wedge pattern, which also turned out to be a inverted head and shoulders. Early in 2015, the market took off and the CAC 40 blasted off to new, major highs. Now, steer your eyes to the right half of the chart, and you will see a similar phenomenon. It is not so much the small, topping head and shoulders that matter but the similarity between the two huge, descending, broadening patterns. I have veered away from trading patterns in recent years but it is magnificent to see such huge patterns unfold, and even more important to gauge their sucess rates. Ditto for the STI and Hang Seng Index- albeit making reference to an inverted head and shoulders in 2011-2012.

A1

Moving on, I have the Dax. The dynamic pattern in the Dax starts with a good, long uptrend before a downward-biased contractional period. Then, price moves down in a classical a-b-c Elliot Wave retracement pattern. In this dynamic pattern I am identifying, the Dax then goes up and congests for a little while before flying up and away. Now, look to the right half of the chart, and see if you agree with my judgment of  the same phenomenon brewing. With such beauty in the charts, how can I ignore the case for upside?

The next chart is of the S&P 500. Bear in mind that I have highlighted the presence of a general, large, rounding pattern – a stalling in the long-term, multi-year bull run. Within that large pattern is wht we now see as a clearly-defined head and shoulders with a right shoulder breakout upwards some time in March of this year. Price is currently testing the head region. Take note of the smaller head and shoulders that is also undergoing a head test now. In this case, this dynamic pattern does not indicate anything since the head test is still ongoing.

a2

In the next few charts – FTSE 100, Hang Seng, and Russell 2000, you will see what I mean by the large, rounding, topping patterns strting to give way to what seems like a reversal, inverted head and shoulders. It is certainly not the first time I see such a phenomenon but my experience tells me it is ust about fifty-fifty where the market will head to next. Sometimes it carries on higher and proves the inverted head and shoulders to be correct – rendering the earlier head and shoulders to be invalid, or the market dives lower and proves the inverted head and shoulders (usually the smaller of the two) to be a false reversal indication. Tough call is it not? Such is the market!

a4 a5 a6

All in all, I am still wary of the multi-year bull run that has lost some steam in the last 2 years because the looming, gravely topping pattern is still intact; however, there could be short-term plays to the upside.

All analyses, recommendations, discussions and other information herein are published for general information. Readers should not rely solely on the information published on this blog and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

 

 

Can it really be?

Greetings all,

It is always so much clearer to look at a chart once, wait for a few months, then look at it again. I find enjoyment in looking at how the market unfolds with hindsight; it is always crystal-clear – no fog, no blur, though there lies a possibility of deception in the short-term! Anyway, since my last post, markets rallied a little before making another dive. I have been feeling rather uneasy looking at the charts for the last several months. While we do not trade with our emotions based on empty feelings, my uneasiness stems from the general bearish picture I see on charts of most of the global indices. And with yet another plunge, the picture becomes clearer. I am now warning my friends to be careful in taking long positions on equities; likewise, I do the same here for you all: be wary, look at the charts, and see the general bearishness. Compare recent price action with that of previous major crashes. From my technical analysis point of view, the market is definitely behaving like it is at a major top.

As usual, when stating a belief – or, as unbearable as it is to me to use this term: a prediction – there comes along with it a sense of trepidation, a feeling of doubtfulness. “Can it really be?”, “No, you must be succumbing to the tendency of heralding doomsday prophecies”, are some of my thoughts. Seriously, can it really be? It was only in 2008 that the market collapsed utterly, and the following years saw entire countries, economies trying very hard to recover. Austerity was the often heard and hated word; both country and household had to rein in expenses, bite the bullet, endure hardship, and what have you. Can it really be that we are going to face another economic collapse?

The weakness of my mind then turns to irrational rationalization (if that makes sense): if I can figure out the case of fundamentals supporting a disaster, then it is confirmed! Maybe I went searching in the wrong places but I have not found many doomsday reports yet. At the same time, the Fed finally raises the interest rates in what was dubbed a “historic move”.  Perhaps, the markets are just pricing in the raise in rates, which at the basic economic level, is supposed to be a negative move meant to slow down much that is growing. (This is where I always find it hard to reconcile with basic economic teaching: should a rise in interest rates not be seen as a positive thing? Chances are, rates rise to combat inflation, too much investment, too quick or too much growth, etc. If that is the case, is the economy not doing too well? Is the economy not booming? Should a rise in rates not be evidence of a growing economy – “the good times”.) After some time, I got back on my horse, and remembered that I am a chartist, therefore, I should not fret over the fundamentals when it pertains to trading.

Ultimately, as a chartist, a trader who bases my decisions on charts, I should not worry what the media is saying, or even what specific people are saying. Therefore, with my reputation on the line – as a writer on financial markets, with my money on the line – as a retail trader, and with my internal belief system on the line – for I know what I have believed, I declare the strong probability of a sharper downturn in equities in the year ahead.

Like Gary Neville, who should have retired a season earlier than he did, I should end this post with the earlier paragraph; nevertheless, a few more words need to be said. Time will go by, and the market will leave winners and losers in its wake. The adoption of the trend-following philosophy helps me to understand why I still persist in the game: if my prediction turns out wrong, I can still admit error, and switch. The learning will come after that, when the candles form on the chart, and price action reveals more of the nature of market movement; for that is what chartists ultimately rely on for direction: a chart – price over time.

P.S: What is with the STI?

All analyses, recommendations, discussions and other information herein are published for general information. Readers should not rely solely on the information published on this blog and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

 

 

Battered, concussed, and now, done for?

Hello traders/investors,

It has been a very long time since my last post. Nevertheless, it should not come as a surprise if you have read my last post titled “The conclusion of the matter“. In the space of time between this post and my last, the markets dived sharply – and probably the nastiest one in a very long time. I remember getting ready for a trade on the VIX two weeks before the strong decline; however, as my luck would have it, I did not enter trading parameters because I was too busy attending to life’s other cares, and so, what happens when you miss the biggest trade of your life? You make your computer do what the markets did, and I ended up having to buy a new one in the Comex show.

Anyway, the consensus immediately after the drop had been that it was the perfect time to buy the huge dip and wait for the recovery; after all, Looking at how the markets had sailed along prior to the sharp drop, it seemed like the stock market was just holding the best sale in many years (while stocks last!). As the days and weeks lingered, the other side of the coin emerged: it could be the first warning – the first rung down – before a truly huge economic catastrophe? Sentiment started to balance between the two sides. I was first very bearish – maybe this was because I wanted another bite – or rather, revenge for missing the boat – at the VIX; however, I have since changed my view and am now looking for entries to catch short-term upside.

Most charts of major global indices are painting a largely bearish, rounding, stalling kind of pattern. There is no well-defined formation but a form of the large head-and-shoulders pattern seem to be emerging – not fully formed but a work-in-progress. This is a serious cause of concern for long-term bulls. Most major declines have a large, loose form of a head-and-shoulders that precede the precipitation of markets. Look at the charts below for examples of what I mean by a gathering storm on the charts.

a1 a2 a3

Note that this picture that I am painting is unconfirmed, unfinished, and large in time frame.  Having missed most of the upside in the last several years – especially on american indices – I am poised to take advantage of downside set-ups. One thing we should all remember is that in general, markets take the stairs up, and ride the elevator down. Generally, comparing in a same timespan, downsides are sharper, quicker, and bigger than upsides. Therefore, even though my trading philosophy leans on longer-term plays, I still acknowledge the rewards of the principle of fast downside in times of panic.

In the short-term, I actually see a higher probability of some upside especially in american indices – less so for european and asian stocks in general. Earnings season in the US has not started well, and probably will not end well as a whole too but remember that stock markets are forward-indicators of the economy, so do not let the release of such results sway any immediate set-ups.

 

All analyses, recommendations, discussions and other information herein are published for general information. Readers should not rely solely on the information published on this blog and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

 

 

Flavours for 2015

Evening traders/investors,

Apologies for the inactivity during the last few months. It seems to me that I trade less, and have less to say as a blogger too – probably all due to the more patient and relaxed trend-following approach I have been making a transition to over the last year or so. Belated Christmas and New Year greetings to all of you. As market participants, it is best to wish one another a better year ahead! Every year the word “volatile” is used to sum up the markets but it is inevitable that markets will fluctuate and throw up some surprises somewhere inside a whole calendar year. 2014, however, was not so exciting as compared to other years. The local bourse certainly did not give me that many trend opportunities; so much so that I had to look at some other equity markets for the first time. The USD’s languid state in the first two-thirds of the year did not present any concrete trend set-ups too. There were a few set-ups in certain markets, and those set-ups are still valid over the turn of the year.

The first flavour I have for the new year is the possible divergence between Europe and US. I first discussed this view in this post https://technicalanalysistalk.wordpress.com/2014/11/05/end-of-europes-uptrend-while-america-advances/ . It seemed difficult to envision an inversely proportional divergence between those two markets; so I concluded that it probably means general sideways movement in Europe while American equities continued the charge north. For now, the picture is the same to me: nothing has changed in the broad sense for those two markets.

The local bourse- the STI, still does not look that bullish to me even with a decent 6% showing last year. I think this is because I do not see that many bullish set-ups in the constituent counters. The banks did well for the STI last year, and they look set to hold the gains this year, though this will require analysis in the months ahead. SIA also surged suddenly late last year so I will see what is up with the national carrier. The “Jardines” jumped a little in the second half of last year but do not look to improve much from here on. The “agris” are tanking quite badly, and as a trend-follower, I will look for further downside. (Exclude Olam from this list; Olam is an example of what happens when some people interfere. Of course, I do not know what goes on behind their curtains and that of other places, but the way I see it, Olam was saved from utter embarrassment “unnaturally”.)

Funnily, most if not all of the counters in the STI with the word Singapore in the company name have bearish-looking charts. The general stance I am taking on the local equity market is a bearish one for the blue-chips. However, I think there may be better rish-reward opportunities outside the STI, therefore, I will look at the second- and third-tiers more closely. Judging from the last few months of last year, I do not have many interesting charts to share, hence what I mentioned in the first paragraph, “The local bourse certainly did not give me that many trend opportunities; so much so that I had to look at some other equity markets…”. Oil and gas and shipping sectors are looking quite horrible, and property counters do not look promising too (I would have said outright bearish if not for the performance of one or two big players).

I will continue to watch Gold quite closely. The glittery metal seems to be on the verge of a continuation of a major downtrend. Somewhere last year, I was alerted to a break of major support. Gold managed to hold on after the slight violation of support but time will tell if gold can find favour or if investors will ditch gold for other asset classes.

gold1

 

All analyses, recommendations, discussions and other information herein are published for general information. Readers should not rely solely on the information published on this blog and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

End of Europe’s uptrend while America advances?

Good evening one and all,

While browsing through charts of my workstation, I noticed quite a difference between major European indices and American ones. The general picture of the European indices seems to be that of a high made in the middle of the year, then a collapse, followed by a quick recovery, then another fall, and a small recovery to where the markets stand now. American indices were tested when selling pressure came in a few weeks ago, but buyers came out fast and the indices made V-shaped recoveries. These V-shaped recoveries are quite reliable to be traded on: the buying pressure simply blasts the market back to where it was before the decline. What this all means to me – even as my previous sentences summarized the markets on both sides of the Atlantic. – is that US indices are still considered to be in their tremendously strong uptrends but European indices are looking quite “questionable” now – at least with regards to a long-term uptrend.

I will briefly say how I think the charts may be saying something about the general economic picture: If you consider the strength and shape of the uptrend of the US indices – and basic theory about how markets relate to one another internationally – it is quite obvious that US indices have been pulling the global indices along over the years – generally-speaking, of course; however, with my recent assessment of the charts of European indices, it seems to me like Europe may be facing harder headwinds soon. There are countless factors that can come into play – and I obviously do not want to go into them; not on this site at least –  and only when events come to pass can we look back and see everything play out on the charts. But it is something I will take note. American indices are definitely back on track, and there is no indication to me of any reason why American stocks will not continue higher.

In the first three charts below, I have the Dax, CAC 40, and the Footsie. The general picture is the same: a huge consolidation after a long and strong uptrend. The worrying thing is that the recent retracements cut deep, and the markets were not able to recover back to prior levels. This is very different from American indices that have shown healthy recoveries into the prevailing uptrend. I am not suggesting a crash in European indices – barring a global decline – but when I see such trends stall, it simply means more sideways trading in the months to come. Contrast with advancing US indices, Europe certainly should not be overweight in a portfolio.

Dax   Cac  ft

sp5

All analyses, recommendations, discussions and other information herein are published for general information. Readers should not rely solely on the information published on this blog and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

Local bourse looks dull

While I was on hiatus in the latter months of last year, I still monitored the markets. The general story went like this: US markets soar, European markets take cue, and Asian markets disappoint (“ex-Japan” – as they like to say).

spsti

Singapore counters did not give much reason for cheer. I remember vaguely seeing a potential inverted head and shoulders that should have been on the radar of some chartists. It is not the best-looking of its kind but the general idea is there.

failedihs

The then unconfirmed pattern resulted in a downward breakout. It can be seen as a successful downward breakout actually. But I will not go into it anymore.

For an index like the Straits Times Index – STI, one way of analysing it is to look into the constituent components. After a brief look at all of the charts, my simple view of the local bourse is that many counters are either range-bound or trending lower. Property counters were downright bearish quite a while ago, and the picture does not look very different now; the telcos look like they have finally reached a fair level after years of the market pricing them higher; and, the Agris look either flat or in downtrends. The only sector that may surprise is banking. (Even then, my analysis in future may point in the opposite direction).

In the charts below, you will see a similar story: major support breached, and a clear case of what seems like more than the start of a downtrend.

e5h c31 s63 c07

While western markets resume their upward trajectory, I think the large-cap local stocks will continue to disappoint. Some are even presenting downtrend trading opportunities. However, I do see some of the second-, third-tier counters that look promising. As the weeks and months go by, I will upload some of those charts.

All analyses, recommendations, discussions and other information herein are published for general information. Readers should not rely solely on the information published on this blog and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

US leads, Europe testing highs

Evening all,

Another week of trading sees the S&P 500 dancing in 1700 territory. US markets have been proving to be very strong, and global markets are taking cue. European markets are now very near or at important previous highs. I look at the Dax, CAC 40, and FTSE 100.

The Dax is already trading past all-time highs. (As a side note, this is a classic example of the fundamentals being reflected in the chart. Germany is regarded as the strongest nation in the EU). 8100 is closest support. Whichever time frame you are on, the uptrend is very strong. I also do not see any reason why the Dax should not continue higher. The next few weeks of trading will show if the Dax can remain at such a stratospheric level.

dax

The footsie is also trading at all-time highs – albeit slightly below and not above like for the German bourse. However, I am seeing some room for downside in the Footsie. A V-shaped kind of pattern – different from a V-bottom – depicts recent price action. I am usually cautious of such a formation on the chart as it is usually followed by consolidation in the next few weeks. In the long-run, however, as a trend-follower, I like to see highs being tested.

ft

Next up, we have the CAC 40. Despite performing very badly in 2011 – returning down to test 2008 lows – CAC 40 has managed to recover to post-crash highs at the 4100 region. CAC 40 did run up there earlier in the year before succumbing to the June correction. Like the footsie, I see a V-shaped formation which is not supposed to be a very bullish sign. For now, I have to respect the resistance at the major high; though, if markets continue to move up convincingly, these bourses should take cue.

Cac

All in all, I continue to wave the bull flag because of the clear uptrend in major indices. The smaller European indices like Greece, Italy, and Spain may not paint the same picture as Germany’s; however, most other indices are on the same uptrend path from several years ago. In the short-term, majors highs are being tested, so the next few weeks should tell us if stocks are ready to soar to new heights. If not, this major high will send the market down for another correction like what we had in June.

Convergence in ASX

Evening all,

Short post on the Australian bourse for today. The ASX came off highs at the 5200 region along with global markets. The picture on the chart is a classic double top topping pattern with slightly higher highs for the right-hand side peak. A breakout below the neckline signalled confirmation of the pattern, and the downside target was hit with ease. Now, the ASX is flirting with the 200-day MA, and a possible reversal kind of pattern may be in the making. The ASX made two dives down to make recent lows; the second one crept below the first by a small margin (see two blue arrows). Indicators are doing the opposite of price action by making higher lows in the same time period. This is a simple illustration of a bullish convergence. I strongly believe in divergence and convergence signals from indicators. So, let us see how this pans out.

asx

 

All analyses, recommendations, discussions and other information herein are published for general information. Readers should not rely solely on the information published on this blog and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.

STI erases gains. US indices making it too easy?

Evening all,

It seems like the long-awaited correction in equities has already begun. The last 2 weeks of trading was characterised by more selling pressure than buying pressure. For the local bourse (and Asia in general), the selling was quite intense. Whatever gains the STI made from the start of the year were totally erased in about two weeks of trading. The STI broke key support at 3300, and Friday’s close of 3184 is where the important 200-day MA is at.

First off, I want to reiterate my bullish stance. In my last post on general market sentiment – https://technicalanalysistalk.wordpress.com/2013/03/31/like-it-or-not-the-bulls-in-the-house/ – I said that I was leaning slightly on the bullish side since the short-term rally then was too strong. Now, I see this correction (and probably many other investors too) as a good time to get in. Of course, the present situation for the STI is that of “falling knife”. But, always monitor for the right signals to occur on the chart. Preferably, I am hoping to see a small reversal pattern of some sort. If not, it will be better to look at the constituent counters to trade.

sti

Now, on to comments for US indices. I have charts of the S&P 500 and Nasdaq.

On both charts, I highlight a very obvious continuation pattern. Basically, we have a solid trend in place, then prices decline to a MA – in this case I have a 50-day MA for mid-term trends. What should happen next is renewed buying pressure to push the market off to higher highs. In the Nasdaq, we even have a pattern to work with – a bull flag. Nasdaq’s current correction gives form to a simple small downtrend channel. Indicators are not giving out bearish divergences of any kind, so I do not see any other reason for further significant decline in the market. The set-ups on US indices look too easy to be true, but I do not think it warrants being a contrarian for the sake of it.

s&p

nas

All analyses, recommendations, discussions and other information herein are published for general information. Readers should not rely solely on the information published on this blog and should seek independent financial advice prior to making any investment decision. The publisher accepts no liability for any loss whatsoever arising from any use of the information published herein.