Saturday, October 31, 2015

October 31 : 5 Things to know







1. Today is Halloween Day in the US. Lots of fun where people wear costumes and do pranks on each other. Some people think today the spirits will be released and allowed to roam a day before All Saints Day on November 1.










2. This week the KLCI Index dropped every day from Monday to Friday. Index seems very bearish (yet) the small cap and penny stocks rallied. Small is beautiful they say. Is November going to be like this too ???





3. Oil prices have rallied despite all the oversupply, strong USD, OPEC no action blah blah blah. Oil post first positive week in 3 and gain 4%. Oh because of this, when you go out later, please pump more petrol for your car. You can expect an increase in petrol prices tonight. Ha-ha.





4. The US rate hike story continue again ...this time need to watch the Dec 16-17 Fed meeting. Still a month and half away. There is a 50/50 chance Fed will increase the rate to 0.25%. It means the USD will be strong and RM will remain weak, for now.





5. XOX must be the hottest stock of the month of October. It keep going up despite 2 UMA from KLSE in a month! It look like a strong stock pump and dump to me. Some, not all, criteria, for a pump and dump are there.


GA

Thursday, October 29, 2015

Market Outlook as at October 29, 2015


FBMKLCI has once again dropped below the neckline of the head and shoulders top at 1680. On October 7, we had noted that the index managed to climb back above the neckline (for the chart, go here). That earlier recovery (above the neckline) meant that the prior interpretation of a market that had made a top was in doubt. However, with the index once again trading below the neckline, the interpretation that the market has made a top reassert itself.




Chart 1: FBMKLCI's weekly chart as at October 29, 2015_9.50am (Source: ShareInvestor.com)

For long-term charts on FBMKLCI & FBMEmas, look at Chart 2 & 3.





Chart 2: FBMKLCI's monthly chart as at October 29, 2015_9.50am (Source: ShareInvestor.com)



Chart 3: FBMEmas's monthly chart as at October 29, 2015_9.50am (Source: ShareInvestor.com)

If the two indices do not recover above their respective neckline in the next 1-2 day(s), the negative interpretation would return, i.e. the market has made a top and will likely to continue to drift lower in the weeks and months ahead. Thus, it is important that we watch the market closely and take the necessary corrective action to adjust for the latest market outlook.

Saturday, October 24, 2015

Investing and Profiting from Calamities and Disasters in Malaysia






Every country on the planet have their own unique disasters and calamities. Some countries have more disasters while others less. 

In Malaysia the usual natural calamities we have are the floods, storms, landslides and drought while the man-made calamity is the haze from Indonesia. 

In the past the disasters which occurred were the bird flu virus, avian flu virus, and a tsunami in 2004. New disasters will crop up and this happened on June 5th, 2015 where we had our first 6.0 magnitude earthquake which struck Ranau, Sabah.

New potential calamities in the future could be the eruption of a big volcano in Indonesia or Philippines, a new disease, or a man-made calamity such as a terrorist attack on a city.


How to Make Money In the Stock Market From Natural and Man-Made Disasters in Malaysia.



1. Haze






This is happening right now so I picked this out first. 

At first glance, the haze or smog from Indonesian forest fires seems a big disaster to the stock market. 

People getting sick, airports closed, ships cannot sail, fewer tourists, events cancelled ..etc. So less profits for companies in travel and tourism. 

But there is a silver lining to the haze..

Chickens dying, chicken laying fewer eggs, vegetables dying, fishermen staying home, oil palm trees producing less fruits, rubber trees producing less latex, ...all leading to less supply and higher prices. 

Read this article about how  "Haze choking farms too" and you know what I mean above.

So chicken and egg counters like Lay Hong, LTKM, Teo Seng Capital, and CPO prices go up and you will see what I call a Haze Rally.

Example @LTKM Share price rally


2. Diseases



Diseases such as bird flu, SARS, H1N1, H1N7, etc. appeared in early 2000's and have made comebacks on numerous occasions since. 

If the disease becomes a world-wide or region-wide phenomenon affecting MALAYSIA too then we can expect the local companies producing medical rubber gloves to encounter a big and strong rally.  

Other companies that also see a rally could be pharmacy counters and those producing drugs and vitamins. 

However, expect the opposite effect on chicken and egg companies this time if the disease affect poultry because consumers will avoid eating them.


3. Drought (El Nino?)



The meaning of drought is a period of hot weather with very low rainfall.

In this case, if VERY BAD ...can expect cold and ice drinks producer and supplier like F&N and mineral water companies like Spritzer to make lots of money.

And extreme weather too could cause CPO prices to rally, you can go read article on "El Nino dry weather to lead to rise in the palm oil price"


4. Earthquakes and Tsunami






I grouped them together because earthquakes and tsunami are related.

We got struck by a tsunami in 2004 due to an undersea earthquake in Indonesia and a 6.0 magnitude earthquake happened in Sabah this year.

Not much of an impact because the area affected is usually very focused (small area) and remote unless the earthquake and tsunami struck on a big city causing major damages to properties and infrastructures.

Then construction companies will get big contracts in re-building buildings, homes, roads, bridges, etc.



5. Floods, Storms and Landslides








I also put them together because floods, storms and landslides are related.

Again, I see not much of an impact unless the disaster happen on a large scale causing a big portion of infrastructures to be destroyed or damaged. 

Then construction companies will get big contracts in re-building buildings, homes, roads, bridges, etc.


6. Big Volcano Eruption



This will happen one day as Malaysia is in the area known as the "Ring of Fire" and Indonesia and Philippines are two countries with the largest active volcanoes in the world. 






Anak Krakatoa blowing ashes in 2011






Indonesian and Philippine volcanoes generally do not appear to be a threat due to the small size of the volcanoes and the distance of the volcanoes to Malaysia. However one WILD CARD could be a big volcano named "Anak Krakatoa" in Indonesia, (the site of the Krakatoa volcano eruption in 1883 which engulfed the whole region back then) ... this day this volcano is very active and often seen coughing out smoke, ash and lava.

The dangers with volcanoes isn't the eruptions but the smoke and ash that the strong wind could carry and blow around the region. It's similar to haze but FAR MORE DEADLY because volcanic smoke and ash contains dangerous chemicals and glass particles that can damage the lungs in a short time.

Same like haze ...people getting sick, airports closed, ships cannot sail, fewer tourists, events cancelled ..etc. so less profits for these companies.

But unlike the haze, there is NO silver lining to the volcanic ashes I think ..

Because with chickens dying, vegetables dying, oil palm trees dying, rubber trees dying, ...lead to less supply and higher prices.

But where to find supply if all are dead or dying?

I hope this volcano thing will not happen.


7.Terror Attack







Terrorists have always been in the news since the 2001 Twin Towers attack and lately since ISIS appeared. Quite possible it might happen in Malaysia one day. 

IF this happens expect the whole stock market to crash for a day or more. But this is temporary like in the 2001 America attack. Many cheap sales so good time for bottom fishing.


Conclusion



Some people call this disaster investing or disaster trading. I did not cover wars and nuclear missiles as I think this is very remote. It can be very profitable if you bought at the beginning of the disaster and when prices is at close to the bottom.  However dunno if it's good karma or not to do this since you are essentially trying to make money from other people's losses. 

Thursday, October 22, 2015

The Problem With Oil Prices Is That They Are Not Low Enough




The problem with oil prices is that they are not low enough.

Current oil prices are simply not low enough to stop over-production. Unless external investment capital is curtailed and producers learn to live within cash flow, a production surplus and low oil prices will persist for years.

Energy Is The Economy

GDP (gross domestic product) correlates empirically with oil prices (Figure 1). GDP increases when oil prices are low or falling; GDP is flat when oil prices are high or rising (GDP and oil price in the figure are in August 2015 dollars).



Figure 1. U.S. GDP and WTI oil price. GDP and WTI are in August 2015 dollars. Note: I use WTI prices because Brent pricing did not exist before the 1970s.
Source: U.S. Bureau of Labor Statistics, The World Bank, EIA and Labyrinth Consulting Services, Inc.


This is because global economic output is highly sensitive to the cost and availability of energy resources (it is also sensitive to debt). Liquid fuels-gasoline, diesel and jet fuel-power most worldwide transport of materials, and electricity from coal and natural gas powers most manufacturing. When energy prices are high, profit margins are lower and economic output and growth slows, and vice versa.

Because oil prices were high in the 4 years before September 2014 and the subsequent oil-price collapse, GDP was flat and economic growth was slow. That, along with high government, corporate and household debt loads, is the main reason why the post-2008 recession has been so persistent and difficult to correct through monetary policy.

Why Oil Prices Were High 2010-2014 and Why They Are Low Today

Brent oil prices exceeded $90 per barrel (August 2015 dollars) for 46 months from November 2010 until September 2014 (Figure 2). This was the longest period of high oil prices in history. Prolonged high prices made tight oil, ultra-deep water oil and oil-sand development feasible. Over-investment and subsequent over-production of expensive oil contributed to the global liquids surplus that caused oil prices to collapse beginning in September 2014.

Figure 2. Brent price in 2015 dollars and world liquids production deficit or surplus.
Source: EIA, U.S., U.S. Bureau of Labor Statistics and Labyrinth Consulting Services, Inc.


Oil prices were high during during the 4 years before prices collapsed because world liquids production deficits dominated the oil markets. This was due mostly to ongoing politically-driven supply interruptions in Libya, Iran, and Sudan beginning in 2011. The easing of tensions particularly in Libya after 2013 along with increasing volumes of tight and other expensive oil led to a production surplus by early 2014 (Figure 3). Before January 2014, supply was less than consumption but afterward, supply was greater than consumption.


Figure 3. World liquids supply and consumption, and Brent crude oil price.
Source: EIA and Labyrinth Consulting Services, Inc.


The global production surplus has persisted for 21 months and supply is still 1.2 million barrels per day more than consumption. This is the main cause of low oil prices that began in mid-2014.

Why Over-Production Continues

Actions taken by the U.S. Federal Reserve Bank to stimulate the economy after the Financial Crisis in 2008 were partly responsible for high oil prices and for the over-production of tight oil in the U.S. that eventually caused oil prices to collapse in 2014.

The U.S. central bank lowered the Federal Funds Rate-the interest that it charges for loans to commercial banks-from approximately 5.5% before the 2008 collapse to 0.2% in late 2008 (Figure 4). By mid-2014, the rate had dropped below 0.1%.



Figure 4. U.S. Federal Funds interest rates, M1 money supply and CPI-adjusted WTI crude oil prices.
Source: EIA, U.S. Bureau of Labor Statistics, U.S. Federal Reserve System and Labyrinth Consulting Services, Inc.


At the same time, the Federal Reserve Bank increased the U.S. money supply (Figure 4) from about $1.4 trillion before the 2008 collapse to more than $3 trillion today as part of a policy called Quantitative Easing (QE). QE involved creating money to buy U.S. Treasury bonds. This lowered the yield that these bonds paid and forced investors into riskier investments like the stock market and U.S. exploration and production (E&P) company bonds and secondary share offerings.

There is a negative correlation between the value of the U.S. dollar relative to other currencies and oil prices (Figure 5). When the U.S. dollar is strong, oil prices generally fall and vice versa chiefly because worldwide oil commodity trades are denominated in dollars.



Figure 5. U.S. trade-weighted dollar value and CPI-adjusted Brent crude oil prices.
Source: EIA, U.S. Bureau of Labor Statistics, U.S. Federal Reserve System and Labyrinth Consulting Services, Inc.


Quantitative Easing, the increase in the U.S. money supply and artificially low interest rates resulted in a weaker U.S. dollar that was a contributing factor to higher oil prices after 2008 (an OPEC production cut in early 2009 was another important factor). The end of QE in mid-2014 and a resulting stronger U.S. dollar corresponded with the collapse in world oil prices (Figure 5).

The relationship between interest rates, money supply, the strength of the dollar and oil prices is complicated and I do not mean to over-simplify its complexity. The observed patterns are, nevertheless, interesting and useful for understanding the broad trends of the last several years at least on a high level.

The net effect of all of these monetary policies was to undermine conventional, passive investments-savings accounts, CDs, U.S. Treasury bonds, etc.-because of low yields (1- 2.5%). Investors were driven to the U.S. E&P sector where high-yield ('junk') bonds and secondary share offerings provide yields of 6-10%. These investments are based on a coupon payment or dividend and not on the company's success unless, of course, the company goes bankrupt.

This and other risks are rationalized by the fact that the investments are in the fiscally 'safe' United States, are backed by a hard asset-oil and gas-in the ground, and that even if a company becomes distressed, it will likely be bought and the investment preserved.

More than $61 billion has flowed to North American E&P companies so far in 2015 both as equity and debt (Figure 6). This is more than in any previous year despite low oil prices, plunging stock prices and poor financial performance for most E&P companies.


Figure 6. Private equity capital directed to North American energy companies.
Source: Wall Street Journal (September 3, 2015) and Bloomberg Businessweek (October 15, 2015).


The only expectation from the financial markets is apparently that production and reserves grow or are at least maintained.

A weak global economy, the monetary policies that were used to strengthen it, and world geopolitical events combined to produce a surge in expensive oil production that was made possible by high oil prices and almost infinite access to capital by producers.

Now that oil prices have fallen by half, many expected that production would fall sharply.

That has not happened because capital supply has not fallen with lower prices but has increased. To be sure, U.S. production has declined and will decrease further. EIA's forecast (Figure 7) suggests that it will fall approximately 940,000 bopd from its peak in April 2015.



Figure 7. EIA crude oil production and forecast.
Source: EIA and Labyrinth Consulting Services, Inc.


The U.S., however, is not the world and less than a million barrels per day of lower U.S. oil production will not make much of a difference in the global surplus. Although world production has declined somewhat, it is still 850,000 bpd higher than its 2014 peak and a supply surplus persists (Figure 8).


Figure 8. World liquids production, consumption and production surplus or deficit.
Source: EIA and Labyrinth Consulting Services, Inc.


Global producers are similar to their U.S. counterparts. Most of them must also satisfy investor expectations, have considerable access to capital, must maintain cash flow, even at a loss, to service debt, and have benefited from greatly reduced oil field service costs that accompany lower oil prices.

The Problem With Oil Prices Is That They Are Not Low Enough

Brent international oil prices have averaged more than $55 per barrel ($51 for WTI) in 2015. As long as prices remain in that range, I doubt that production will fall enough to balance the market for several years or more barring a surge in demand or renewed supply interruptions.

Figure 9 shows that the long-term average oil price (1950-2015) is $45 per barrel in August 2015 dollars.



Figure 9. WTI oil prices in August 2015 dollars, January 1950 - August 2015.
Source: EIA, U.S. Bureau of Labor Statistics and Labyrinth Consulting Services, Inc.


Before the Arab Oil Embargo (1973-74) and the beginning of the Iran-Iraq War (1980), the average price was $23 per barrel. In the 1986 to 2003 period after these oil shocks and before the Financial Collapse, prices averaged $34 per barrel.

These prices seem quite low from our sticker-shocked perspective of the early 21st century, yet oil companies made profits when prices were $15 to $25 real dollars per barrel less than they are today. More importantly, those periods of low oil prices were also times of economic growth and prosperity (Figure 1), whereas the intervening periods of higher oil prices were times of low economic growth.

Capital will continue to flow to E&P companies as long as high yields on bonds and secondary share offerings are paid. Sustained oil prices in the $30-40 range would create sufficient distress among high-cost zombie producers to cause defaults on those offerings. This alone will stop the capital enablers-the investment banks-from directing funds to the E&P sector.

Many believe that the upcoming credit re-determinations and year-end reserve write-downs will greatly limit available capital, and that this will lead to oil market balance. I hope that they are right. I suspect, however, that the capital enablers will stay the course despite higher risks simply because they are unable to identify alternative investments that offer a comparable yield.

Some like OPEC and Wood Mackenzie believe that demand growth will balance the oil market. I also hope that they are right. Others, however, like the IEA take a more pessimistic view because of a weak global economy. The IEA's view of the economy seems sound to me and I am, therefore, doubtful that demand growth will balance the market.

Still others are hopeful that OPEC will cut production and that will balance the market. I don't believe that will happen. A production cut would accomplish little except perhaps for a short-term increase in prices that would result in higher cash flows and a rebound in drilling activity-in short, it would compound the problem of over-supply.

The only way to achieve oil market balance is for prices to go low enough for long enough to stop the flow of external capital to the producers and to force them to live within cash flow. The intriguing aspect of this proposition is the possibility of a return to economic growth that has so far eluded the best efforts of central bankers and economists.



Source: http://www.oilvoice.com/n/The-Problem-With-Oil-Prices-Is-That-They-Are-Not-Low-Enough/a42a7c59c41d.aspx

Monday, October 19, 2015

LCTH - Cup and Handle Pattern














LCTH on cup and handle pattern, this morning at 10.45 am just broken out of the 70c resistance ...looking at the pattern ... LCTH "might" go 80c ++ if market is still ok. Trade at own risk.



Sunday, October 18, 2015

ValueCap Share Buy ‘Spree’ Starts November


ImageWan Kamaruzaman says the funds will be released in tranches to ensure good timing and investment climate. (Pic by Muhd Amin Naharul/TMR)

State-owned investor ValueCap Sdn Bhd is expected to start a mopping up spree of underperforming stocks on Bursa Malaysia from November, when its shareholders release the first tranche of its announced RM20 billion fund.

ValueCap’s three shareholders — Khazanah Nasional Bhd, Retirement Fund Inc (KWAP) and Permodalan Nasional Bhd (PNB) — are expected to make available RM8 billion as part of the initiative to strengthen the economy that was announced by the prime minister last month.

KWAP CEO Wan Kamaruzaman Wan Ahmad said the three shareholders will each provide an equal RM6.67 billion to ValueCap’s kitty.

“We were given an aggressive deadline of Oct 15 (to start), but we think it will be difficult due to regulatory steps and approvals as well as the nod from each shareholder’s board.

“We estimate ValueCap to commence with funds available somewhere in the second-half of November,” he told The Malaysian Reserve at the sidelines of the Khazanah Megatrends Forum 2015 yesterday.

He said all three shareholders have finalised respective funding structures and are awaiting to present the plan to their board.

Wan Kamaruzaman said the shareholders, all state-owned investment companies, may go to the bond or debt markets to raise their share of ValueCap’s fund but KWAP will likely use internal funds.

“KWAP will not go to the market. We will utilise our cash balance to fund ValueCap. KWAP usually keeps 5% or RM5 billion in cash.”

Wan Kamaruzaman said the funds will be released in tranches to ensure good timing and investment climate.

“We start with up to 40% in [the] first release. ValueCap can only request for additional drawdown from the shareholders when the time is right,” he said.

He also said that the funding will be released by all three shareholders simultaneously.

ValueCap — which was reactivated last month — was set up to invest prudently and to create value by propping up undervalued stocks in Bursa Malaysia.

During ValueCap’s previous stint from 2002 to 2013, the firm was able to generate an annual average return of 15% and accumulate RM8 billion in profits, higher than the Kuala Lumpur Composite Index’s return of 10% over the same period.

Source:http://themalaysianreserve.com/new/story/valuecap-share-buy-%E2%80%98spree%E2%80%99-starts-november 



Saturday, October 17, 2015

Financial Markets Calm Before the Storm?







BIG PICTURE - Global business activity is slowing down and the majority of the developing nations are experiencing severe economic problems. Over in the developed world, Japan is contracting again, Euro zone is barely growing and even America's leading economic indicators are suggesting trouble ahead. Elsewhere, the CRB Index is trading at a 13-year low and this implosion in the prices of commodities is suggesting that all is not well with the global economy.

The crux of the matter is that the world is severely over-indebted (debt to GDP ratio of 286%, Figure 1) and without fiscal measures, viable reforms and debt restructuring, we will probably remain stuck in this low growth environment for years. Unfortunately, you cannot solve a problem of too much debt by encouraging even more borrowing; yet policymakers are trying to fix this mess by lowering interest rates and injecting liquidity.


Figure 1: Global stock of debt outstanding (US$ trillion)


Source: McKinsey & Company

Make no mistake, the US housing boom and subsequent financial crisis of 2008 were caused by the Federal Reserve's easy monetary policies which were put in place after the TMT bust. By dropping rates to emergency levels and keeping them there for years, Mr. Greenspan spawned the US housing bubble which almost destroyed the world's banking system. So, by keeping its Fed Funds Rate at zero since late 2008, it is ironic that the Federal Reserve is (once again) walking down the same path!

It is notable that even though the Federal Reserve's monetary policy has been extremely accommodative since the global financial crisis; the recovery in the US has been sub-par when compared to the previous economic cycles (Figure 2).

This is due to the fact that despite the carrot of record-low borrowing costs dangling in front of them, American households have refused to take the bait. Instead, they have done the sensible thing and deleveraged their balance-sheets.

Figure 2: US nominal GDP (1948-2014)


Source: Hoisington

Today, the household debt to GDP ratio in the US is 80%, well below the 100% level reached in 2008. This meaningful decline demonstrates that the Federal Reserve's ultra-accommodative monetary policies have done very little in terms of boosting household borrowing and consumption.

Instead, by dropping short-term rates to zero and keeping them there for 7 years, this time around, the Federal Reserve has succeeded in spawning new bubbles in the corporate sector, which pose a serious threat to the economy. Presented below is a list of the obvious corporate bubbles:
US Corporate debt - US$5trillion (+ US$2 trillion since 2007)
High yield (junk) bonds and leveraged loans - US$2.2 trillion (+ US$1.2 trillion since 2007)
Biotechnology - 7-fold increase in NASDAQ Biotech Index; most companies have no earnings

In addition to the above excesses in the corporate world, the Federal Reserve's zero interest rate policy (ZIRP) has also blown the following domestic bubbles:
Student loans - US$1.2 trillion (+ US$0.7 trillion since 2007)
Auto loans - US$1 trillion (+ US$0.4 trillion since 2009)

Last but not least, the Federal Reserve's monetary policy has also inflated these international bubbles:
Commodities boom and subsequent bust
Commodities exporters' boom and bust (Australia, Brazil, Canada and Russia)
Singapore property
Stock markets of Indonesia, Philippines and Thailand
Hong Kong property - HK$1.044 trillion mortgage debt (+ 76% since 2009)

In terms of the Hong Kong property market, although most experts and talking heads on TV remain convinced there is nobubble, research from the Hong Kong Monetary Authority (HKMA) shows that housing has become extremely unaffordable. If you review Figure 3, you will note that the housing price-to-income ratio has now risen to a record high of 15.9 and it is even higher than the 1997 peak of 14.6. Meanwhile, the income-gearing ratio has increased further to 70.7%, well above the long-term average of 50%. According to the HKMA, if the mortgage interest rate returned to a more normal level, say an increase of 300-basis points, the income-gearing ratio would soar to 95%!

Figure 3: Indicators of Hong Kong housing affordability


Source: Hong Kong Monetary Authority

Today, many Wall Street firms, prominent hedge fund managers and academics are putting forward arguments as to why the Federal Reserve should not raise the Fed Funds Rate. In their eyes, the macro-economic conditions are too uncertain to even warrant a 25bps rate hike.

In our view, these folk are dead wrong because unlike Europe and Japan, the US economy does not need ZIRP. If our assessment is correct, the longer the Federal Reserve stays on hold, the bigger will be the eventual bust.

Turning to the stock market, it is our contention that the bull market on Wall Street ended in May and we are now in the early stages of primary downtrend. You will recall that the US stock market fell sharply in mid-August and since then, it has gyrated within a wide trading range. To the casual observer, these wild swings may not make much sense but closer inspection reveals that there is indeed a method to the stock market's madness.

If you review Figure 4, you will note that between late February and early August, the S&P500 Index carved out an enormous rounding top formation; which culminated in the plunge below the key support levels (shaded areas on the chart). Thereafter, in late August, the relief rally faded around the lower support (now resistance) level. The S&P500 Index then spent two weeks in a sideways grind and the next rally attempt also ended at the same overhead resistance. Following this failed rally attempt, the S&P500 Index re-tested its August low and over the past few trading sessions, it has put together another advance.

Figure 4: S&P500 Index (daily chart)


Source: www.stockcharts.com

At this stage, nobody knows when this bounce will end but if we are in a primary downtrend, the rally should fade around overhead resistance level (2000-2040). Under this scenario, the next leg down will probably take out the August-low and trigger a waterfall decline. Currently, we cannot guarantee how low the S&P500 Index might fall; but we see support in the 1,700-1,740 area. So, if our bear market hypothesis is correct, then the ongoing rally will end soon and give way to the next wave of selling.

Look. There are no certainties when dealing with the future, but our work leads us to believe that the bull market is now in the rear view mirror and the odds of new highs over the following months are slim to none. Our bearish prognosis stems from the following data points:

S&P500 Index is below the 50-day and 200-day moving averages which are pointing down
NYSE Advance/Decline Line peaked in April (prior to the stock market peak in May + July)
Our proprietary trend following filter is now flashing 'downtrend'
NYSE Bullish Percent Index has dropped to just 31%
The High yield (junk) bond ETF has taken out the August-low
Only 22% of the NYSE stocks are trading above the 200-day moving average
Biotechnology - The leading sector of the bull-market has topped out (Figure 5)
Russell 2000 Small Cap Index and Russell 2000 Growth Index have taken out the August low
Out of the 35 industries we monitor, just 6 are trading above the 200-day moving average
Leading stocks are declining on good 'news', indicating the best has been discounted
Stocks are declining despite ongoing QE in Europe and Japan
Stocks are declining despite no rate hike and a 'dovish' Federal Reserve
Volume is rising on down days and falling on up days

Bearing in mind the above price and volume data, we are almost certain that the primary trend for equities is now down and global stock markets remain vulnerable to heavy declines.

Figure 5: NASDAQ - Biotechnology Index


Source: www.stockcharts.com

Given the weak technical picture and worsening economic backdrop, we currently have no exposure to risky assets (commodities, high yield debt and stocks). Instead, we have invested our managed capital in the following manner:
Long dated US Treasuries & Zero Coupon Bonds - 40% allocation
Short-term US Treasuries - 35% allocation
Short positions (biotechnology, industrials and technology) - 15% allocation
'Long' US Dollar position - 5% allocation
US Dollar cash - 5% allocation

If our analysis of the situation is even vaguely correct, our managed portfolios will do well in the looming deflation and our strategy should outperform our benchmark (MSCI AC World Index) by a wide margin. Conversely, if stocks continue to rally (unlikely scenario) and our primary trend filter flips to 'uptrend', we will promptly re-position our managed accounts.


Puru Saxena is the CEO of Puru Saxena Wealth Management, his Hong Kong based SFC regulated firm which offers discretionary portfolio management and research services to individual and corporate clients. The firm manages two trend-following strategies – Discretionary Equity Portfolio and Discretionary Fund portfolio. In addition, the firm also manages a Discretionary Blue-chip Portfolio which invests in high-dividend world leading companies. Performance data of these strategies is available from www.purusaxena.com

Puru Saxena also publishes Money Matters, a monthly economic report, which identifies trends and highlights investment opportunities in all major markets. In addition to the monthly report, subscribers of Money Matters also receive “Weekly Updates” covering the recent market action. Money Matters is available by subscription from www.purusaxena.com

Puru Saxena
Website – www.purusaxena.com

Puru Saxena is the founder of Puru Saxena Wealth Management, his Hong Kong based firm which manages investment portfolios for individuals and corporate clients. He is a highly showcased investment manager and a regular guest on CNN, BBC World, CNBC, Bloomberg, NDTV and various radio programs.

Copyright © 2005-2015 Puru Saxena Limited. All rights reserved.

Saturday, October 10, 2015

Jesse Colombo: Deciphering The Dollar's Next Move






For two months, I’ve been watching the U.S. dollar form a consolidation pattern that I believe holds the key to understanding the greenback’s next major move. The dollar has been treading water for most of 2015 after a powerful bull market in 2014. The dollar’s bull market was one of the main triggers of the commodities bust that is still troubling global financial markets, which is why I am paying such close attention to it.

The U.S. Dollar Index is forming a wedge pattern that will likely result in another strong directional move when a breakout occurs. The dollar is still technically in a bull market, so there is a greater probability of a breakout to the upside versus the downside, but all scenarios must be considered. If the index breaks below its major support level at 93, a bearish signal would be given.


Source: Barchart.com

The prospect of even further dollar strength (in the event of a bullish breakout) is quite worrisome because of its implications for commodities prices and emerging markets, which suffer in a strong dollar environment. Many of the original factors that propelled the dollar higher in 2014 (U.S. monetary tightening combined with European and Japanese easing) are still present and may intensify in the near future.

Europe and Japan‘s economies are succumbing to deflationary forces once again, which means that an expansion of the ECB and BoJ’s stimulus programs are practically a done deal. Monetary stimulus programs in Europe and Japan lead to euro and yen weakness, which is bullish for the U.S. dollar in turn. A downside risk for the dollar, however, is one in which U.S. economic data unexpectedly weakens, putting Fed rate hikes on hold.

Source: http://www.forbes.com/sites/jessecolombo/2015/09/30/deciphering-the-dollars-next-move/