May 18th, 2020 – Pre-market Update
The Trump Pump Effect is Starting to Wear Off
The market is currently in a short term 22-day consolidation.
We currently have a double top and considering the futures, we will probably hit a triple top.
What is interesting to note is the recent $3 trillion aid package did not have an extremely positive effect on the market, unlike those previously.
Looking at the advance-decline ratio we see that the Bullish appetite is diminishing, meaning the extremely bullish days are losing their power.
RSI is neutral suggesting a potential turn-around.
Finally, the KST indication is crossing over at the suggesting the market is running out of steam.
At some point, the market participants will realize that there is a serious economic decline ahead.
My guess is a triple top, decline, panic selling, and another bottom.
“You will get business failures on a grand scale.” So declared James Bullard, president of the Federal Reserve Bank of St Louis, on May 12th. Peter Orszag, a former official in Barack Obama’s White House and now with Lazard, an investment bank, warned that the American economy could face “a significant risk of cascading bankruptcies”.
April 29th, 2020 – Pre-Market Update
Ominous Rising Wedge Suggests X=X 1,000 Point Collapse
According to technical analysis theory the rising wedge points in the opposite direction to the breakout.
In this hourly chart of the coronacrash we can clearly see the rising wedge pattern formation.
This pattern also predicts that the length of the move into the wedge “X” is the same distance as the length of the break-out “X”.
Therefore X = X
The downtrend into the wedge was a drop of 1,000 points, ergo the breakout will be a 1,000 point drop.
I have back-tested stock chart patterns and they are not 100% true, but in general, they are better than 60%.
That’s not saying much.
Mostly the direction will be set by the news, especially today with 2 big news items.
- GDP Advance Announcement – Productivity in the Economy
- GDP Spending – very important for the economy and sentiment, spending drives the economy
I expect both of these to be bad numbers, but will it be the start of the resumption of the much-needed downturn in the market?
The “Trump Pump” will be in full effect I am sure with a new announcement of stimulus designed to boost spending and therefore save the stock market.
It will be interesting to see if the technical analysis Rising Wedge is predictive in this case, or will ultimately fail because of government intervention.
I believe the monetary policy is now to encourage healthy inflation above 2% and keep interest rates at close to zero for the next decade, to ensure the debt burden is reduced over time. As Ray Dalio calls it a “Beautiful Deleveraging”.
An interesting day ahead, and be sure, the only thing that can save Trump’s re-election campaign is to ensure the stock market does not collapse, and he will do everything to save it.
April 27th, 2020 – Pre-Market Update
AD Ratio Suggests Birth of a New Bull Market!
AD Ratio Suggests Birth of a New Bull Market!
Or the madness of crowds.
The Advance-Decline Ratio (ADR) is a simple measure of how many stocks increase versus how many decline. A ratio of 1 means 1 company’s stock increases to every 1 that declines. A ratio of 4 means 4 increase to every 1 that declines.
It is a good measure of the bullishness of the market participants. The magic number I am using for this analysis is an ADR of 4, as anything above 4 increases to one typically indicates a turning point in the market.
There are two stories here. You need to decide which one you believe.
- Price – Log Weekly
- AD Ratio – 10 Bar Moving Average + 200 Bar Moving Average
- AD Ratio Red Line = 4 Indicating Extreme Bullishness
Pre 2008 Crash – The Madness of Crowds.
During the Financial Crisis crash from 2007 to 2009 the crowds were simply wrong. Extreme ADR indicated only temporary market bottoms, which were followed by brief rallies then market collapse.
Post-2009 – The Birth of Bull Markets.
Since 2009 the market participants signaled extreme positive sentiment with an AD ratio above 4 on 9 separate occasions which all indicated the end of the bear market and birth of a new bull market.
This suggests one of two things.
- During a major market crash, the crowds are overly optimistic, underestimating the full impact of the economic devastation.
- During a long-term bull market, the crowds are correct, in fact, it is the crowds of course, who power the bull market.
The Key Point.
The Corona Crash has shown us 2 extreme bursts of ADR buying above 7 for the week’s March 9 and April 6.
This means either the birth of a new bull market, or the radical underestimation of the impact of Corona on the economy.
I am not convinced either way.
Part of me thinks that this is the start of the new bull market because in fact, governments have done everything possible to stimulate the economy and save jobs and industry, there is no other choice apart from instant economic devastation. Interest rates will remain close to zero for the next 10 years and in governments stimulate inflation that the debt will eventually reduce by itself (according to the Economist April 24th Edition)
The other part of me thinks that we simply cannot move to a new market high without further market correction to account for the large losses in future earnings.
Do not forget.
This market is driven now by central banks, Trump and Macro-economics. This market will turn on its head with a few massive headlines.
April 16th, 2020 – Market Update
Hourly Price Action Suggests Weakening Market: Analysis SPX, SPY
When analyzing a market or stock on shorter timeframes it is very important to use a mix of indicators that can confirm the price trend, or suggest and underlying weakness in the price move.
Technical analysts call different indicators moving in the same direction “confirmation”. When the indicators are moving in a direction contrary to the price trend it is called “divergence”.
When the oscillators contradict the trend this divergence suggests an underlying weakness in the trend and possible direction change.
Chaikin Money Flow
Created by Marc Chaikin, this indicator attempts to discover future trends by summing the accumulation and distribution days of the stock over the set period. If a stock closes in the upper half of the trading range for the day on higher this increases the count for the day. If it closes in the lower half for the day on higher this decreases the count for the day. This indicator takes into account as well as Price Open, High, Low and Close. This is then multiplied by for the day and divided by the over the selected period.
Relative Strength Index
Wilders , developed by J. Welles Wilder. The premise is that a stock shows strength when it closes on a high and the number of points gained to achieve that high is also important. Also, if the stock closes on a low, that shows weakness in the stock and the number of points lost during the period is also relevant. As we know from charting the Japanese also say that the closing price is very important psychologically and this factor is taken into consideration in .
In the Hourly Chart
The Green Boxes show that the price trend was confirmed by the indicators.
The Red Boxes Show that the indicators are diverging from the price action.
The strength of buying is diminishing at these price levels on decreased demand. It is not visible in the price trend yet, but we would expect it to become apparent over the next few days.
Trump is controlling the narrative and continuing to say and do everything he can to support the stock market. The talk of opening up the USA as the pandemic is nearing its peak is designed to give the market bulls more confidence.
The chart above suggests that confidence is weakening, but this could all change with another Trump speech suggesting everything is fine and the economy will be back in business in 2 weeks.
April 14th, 2020 – Market Update
Learning From 5 Market Cycles & The Crashes That Ended Them
To put into perspective what could happen in the current market climate is always helpful to study historical market behavior.
For this analysis, I am using Gann Boxes a great drawing tool from TradingView.
Although each market cycle is different in duration, boom and bust, they share one common characteristic.
The ability to be unpredictable, erratic and wipe out wealth.
Another trait they all share is the ushering in of a new era of wealth building.
Only the new era that we face may be built on deflation, significantly weakened currencies and potentially a new world order. Additionally, in the west, the distribution of wealth is very seriously skewed toward the super-rich. Things will need to change.
Anatomy of wealth creation and destruction.
- The 60s and 70s ended with an 80% loss of gains accumulated.
- The 80s ended with Black Monday which wipes out 38% of gains (relatively mild)
- The Dotcom Bust wiped out 60% of gains
- The Financial Crisis wiped out 100% + of gains
So far, the Corona Crash has been relatively mild, thanks to massive government intervention, with currently 25% of gains lost.
The question you must ask yourself is:
Is this the end of the crash? Is the retracement of the market commensurate with the actual economic activity & jobs market collapse?
Just be clear all options are on the table, including a retracement to Zero, for the S&P this is close to 700 points.
No one knows the future and we humans are notoriously bad at predictions.
What do you think?
April 9th, 2020 – Market Update
S&P500. Deep Technical Analysis, Mixed Messages + 3 Outcomes
When analyzing daily chart price moves to determine the future direction of a market, it is important to use a good mix of indicators each focused on telling a different story.
In this analysis I will be using a few of my favorite indicators:
- Price – the most important indicator of all
- Volume – the power behind the price trend
- RSI – Price Strength Indicator
- Money Flow – A Price & Volume Indicator
- On Balance Volume – A Price & Volume Indicator
By having a mix of price and price-volume indicators we can see is the indicators agree with price (confirm) or they contradict the price direction (Divergence).
Analyzing Price & Volume
Price Down–Volume Up (PDVU)
In an uptrend, this may indicate a crisis, panic selling or simply when a stock is going out of favor. The pressure is on the sell-side and to sell they have to accept lower prices. A strong negative signal!
Price Up-Volume Down (PUVD)
In an uptrend, this is very bearish as it suggests that although prices are rising, there are fewer participants suggesting people are backing away from the higher prices. This also infers that the trend is weakening. In a downtrend, it suggests a continuation of the downtrend.
- Relative Strength Index – Confirms the current short-term uptrend in price
- Money Flow – Confirms the current short-term uptrend in price
- On Balance Volume – Flat Not Confirming Uptrend
Conclusion & Outcomes
We are seeing mixed technical analysis messages here. Volume says down, RSI & Money Flow say up, OBV is not indicative.
So, what can we hypothesize as the outcome? Well, there are 3 possibilities.
- Price Moves Down from Here (2,800) to the Current Crash Low of 2,00 points
- Price Moves up to psychological level 3,000 and then collapses to 2,000 points
- Price Moves Up to challenge previous highs.
What possibility do I bet on?
I think 2 is most likely, followed by 1, then 3.
Why, because I believe that the full economic devastation wrought by the virus has not yet revealed itself.
The USA is very badly impacted, and this index measures the core base of American Wealth Creating Companies.
My heart goes out to our American friends who are impacted by the 2,000 deaths per day.
April 1st, 2020 – Pre-market Update
When to Get Into Stocks During a Market Crash
Do you feel it? The FOMO.
Fear of missing out is a common phenomenon, and I imagine it is starting to creep in right about now.
The last few days have seen the market begin to claw back some of its losses, so the key question is…
When should I get back into the market?
To answer this question, you have to formulate the risk-reward situation. To do this let us establish a few “facts”.
- The S&P500 is building a trading range between 2140 and 2,700 points
- The Virus Outbreak, especially in Europe and the USA is far from over
- There is real economic damage being incurred
But the FOMO is still there, so let’s consider your options. (See the Chart)
- If you believe the market will rise from here, you have a 19% upside to the next resistance
- The market could, however, move down 17%
- Worst case scenario could be a further decline of 26% to the 2000 and 2007 Market Highs
- The total upside from here is 29%, back to the 2020 all-time high
- The total downside is 43% to the 2007 high
Risk Reward 1.4:1
It would appear for now that the market participants have priced in what they know.
I expect that the S&P500 will trade between 2,100 points and 2,700 points for the foreseeable future.
Potential options to get back into the market.
- Buy towards the bottom of the “New Trading Range”.
- Buy on a breakthrough into target 2, above 2,700 points
- Buy when price moves into the value zone below 2,100
- Start scaling in now and keep on buying into the dip using DCA (dollar cost averaging)
Do you think there is more downside risk that upside risk?
What do you plan on doing?
Let me know in the comments.
March 26th, 2020
S&P 500 – Jostling for Support With a Vicious Bear!
t seems with the huge amount of macro-economic news providing fiscal and monetary stimulus the market might be trading to establish a trading range between 2,100 and 2,600 points.
Very early to say as right now as one bounce does not make a trend.
I am surprised the massive jobless claims news today has not had more of an impact.
A previously mentioned, I set 4 targets for the S&P 500 crash.
Target 1: Break of the 2019 Bull Run Support – Achieved
Target 2: Break of the 2008 Bull Run Support – Achieved
Target 3: Retrace to 2014 Stock Market High at 2140 points – In Progress
Target 4: Deep Value Zone – This is where we move down to the 2000 and 2008 stock market peaks.
Interestingly if we were to evaluate market direction according to Dow Theory it would be.
Long Term – Uptrend
Medium Term – Sideways
Short Term – Downtrend
If this market turned around from here it would be a miracle, I don’t believe in miracles.
Outlook – Full Bear Market – Short.
March 25th, 2020, Pre-market
Is Gold a Good Safe Haven in Stock Market Crashes
Gold is widely perceived as the best safe haven for your capital as the stock market goes through a bear market correction or crash. But is this really true?
For gold to be a good hedge it would need to move in the opposite direction (have a negative correlation) to the broad market index, in this case, the S&P500.
Looking back 15 years we can see this is not the case for Gold (GLD) versus the market.
2005 to 2007
Gold out-performs the S&P500 with 52% gains compared to 25% for the S&P500
2007 to 2009
During the Financial Crisis, Gold provided a good safe haven for 7 months until it lost all of its gains.
2009 to 2020
The S&P 500 goes on a staggering bull run making 481% to January 2020
Gold makes 138% from 2009 to 2012 moving in correlation with the market, then suffers a serious crash wiping out 42% of its value. The crash and stagnation lasts 8 years.
Gold is still 13% lower than its previous all-time high.
- Gold might provide a very temporary solution as a safe haven during the early part of a stock market correction.
- During the Credit Crisis, Gold should have been a perfect store of value because as it seemed the Fiat Currency system was failing gold would have been a great replacement currency along with silver. But that did not work out.
- Gold is only a safe haven is people think it is.
- Since the 2009 market bottom, Gold has increased by 65% and the SP500 232%
Would I use Gold as a safe haven? Personally no.
Not based on this evidence.
But in the short-term, it may provide relief until people stop believing.
What is a good alternative? Holding cash and dollar-cost averaging into the market again as we near the bottom.
March 24th, 2020, Pre Market
Corona Crash, How Much Will We Lose? How Long Will It Last?
With the current stock market collapse, inevitable parallels are drawn with previous stock market crashes.
Each crash is unique in its own way, with different causes and different market and governmental responses.
The Corona Crash is unique in that it is the most violent and volatile crash so far on record. So far it is not the biggest crash, nor of course the longest crash, but the ferocity is unparalleled.
Using the prediction and measurement tools available in TradingView I have mapped the previous crashes for comparison.
Anatomy of Crashes.
- 1929 Great Depressions: Lost 83%, Crash Duration 2010 Days, Full Recovery 24 Years
- 1973/4 Oil Crisis: Lost 35%, Crash Duration 700 Days, Full Recovery 7 Years
- 1987 Black Friday: Lost 35%, Crash Duration 61 Days, Full Recovery 2 Years
- 2000 Dotcom Crash: Lost 49%, Crash Duration 944 Days, Full Recovery 7 Years
- 2007 Credit Crisis: Lost 58%, Crash Duration 485 Days, Full Recovery 7 Years
- 2020 Corona Crash: Lost 33%, Duration So Far 28 Days, Full Recovery???
So, what can we learn from the historical stock market collapses?
The quickest market recovery was 1987 Black Friday which took 2 years. The last two crashes in 2000 and 2007 took 7 years to recover.
The Corona Crash is so far most similar in nature to the 1987 Black Friday Crash. This could mean that if our governments and central banks manage monetary and fiscal policy optimally, we might be out of this disaster in 2 years.
We are heavily dependent on vaccine development and deployment and even the most optimistic estimates of delivery date are November 2020, but realistically we are talking about 12 to 18 months.
This bear market will not go away anytime soon. We may see some stabilization, but bear markets to not disappear overnight. Additionally, typical market recovery, meaning the index reaches and new high (surpassing the pre-crash high) is between 2 years and 7 years.
Stock Market Crash Statistics
- Average Duration 2 Months to 3 Years
- Average Full Recovery 2 to 7 Years
- Average Loss 35% to 58%
Not great news, but I hope this helps to prepare you mentally for what is to come in this Black Swan Event.
March 21st, 2020 Weekly Wrap
Catching a Falling Knife – Trying to Go Long on the SP-500
With our everyday lives being severely restricted, the new reality of a massive economic impact raises its ugly head.
The ferocity of the market collapse makes this different from all other market crashes we have seen before.
We have now entered target 3 and are about to wipe out 12 years of gains on the S&P500.
Breaking down through the 2000 points support will see us enter the value zone.
But what is value to you?
You could re-enter the market under 2,000 points to watch your investments deteriorate by another 25% down to the year 2000 and 2007 stock market highs at 1,500 points.
This market shows NO SIGN of stabilizing as you can see from the long-term weekly chart. The daily chart is equally as horrific.
The new support level has not been found.
I expect a fall through into the value zone and potentially to 1,500, but it all depends on how quickly we emerge from the crisis.
Don’t Try to Catch a falling knife.
NASDAQ 100 – Is the worst yet to come? Probably.
With lockdowns spreading around the world almost a quickly as the virus, the new reality is a severe recession. Seeing China start to theoretically emerge from a state of emergency gives us hope. But I say theoretically because the expulsion of foreign journalists suggests the Chinese government has something to hide.
We have now entered phase 2 of the crash which sees an imminent break of the 4-year support line at NDX 6723 points. Potentially a further break down towards the 10-year support at 5,700 points.
At below 6,000 points, I would see deep value with 10 years of gains being knocked off the market capitalization. That deep value zone stretches a long way down to 4000 points which is below the year 2000 dotcom highs.
Realistic expert estimates suggest our social lifestyle and working practices will be impacted at least through to autumn or even the end of the year.
Government commitment to support our economies are admirable, and we should expect to see a mass devaluing of currencies as more paper is printed.
Here’s hoping that humanity’s response and the response of our pharmaceutical industries are so strong we bounce back quickly.
But we must be realistic.
During this crisis, we are seeing the best and worst of humanity. The best being the bravery of our health care professionals and the acts of kindness we bestow on each other. The worst being people panic buying facemasks and stealing sanitizer from hospitals, depriving our doctors and nurses of critical products.
Some people are even people selling toilet roll and facemasks on eBay for extortionate amounts which is disgusting.
March 17th, 2020 – Pre Market Open Update
NASDAQ Could Lose 20 Years of Gains
The use of technical analysis can be extremely enlightening when trying to evaluate where a new bear market might end.
I am currently in cash, and I am working on understanding where the value zone is for stocks. The value zone is the area where the supply and demand equations shift from fear to greed.
Right now, the market is in freefall and even the Philippines has closed their exchange indefinitely.
Interestingly it took the NASDAQ 100 16 years to recover from the DOTCOM 2000 crisis.
Since then 2008 bottom is has risen an incredible 804%
So, from that meteoric rise, it is a long way down.
The NDX100 has lost 27% so far and has broken through the 2018 support and I am sure will break the 4-year support line soon.
There is a possible 32% further drop back down to the year 2000 high which would wipe out 20 years of gains.
I would see great value when the Nasdaq 100 drops under 6000.
Technical analysis comes with some caveats that many technical analysts will not discuss:
- Government intervention massively impacts the supply and demand equation.
- Drops in Interest rates and a nearly $1 Trillion Emergency fund will change the outlook.
Ultimately the governments need to protect people, protect jobs and ensure the sick are looked after. That is more important than money.
I wish all of you and your families good health and wish you all a happy lockdown as our civil societies go into isolation.
March 16th, 2020 – Pre Market Open Update
Corona Crash – The US Wakes Up to a New Reality
With lockdowns and quarantining spreading across the globe as quickly as COVID 19 there will undoubtedly be a severe economic impact as wealth as an impact on our society. With high profile sports stars, politicians and actors contracting the virus, the new reality is setting in.
I believe this will be the most volatile stock market crash in history. Panic and fear are gripping the globe and certain industries such as travel, leisure, sports, and events will all be severely impacted. Typically tourism and dining contribute to about 5% of GDP according to the Economist Magazine, so this might mean we drift into a technical recession this year, but it will hopefully be short-lived.
There is strong evidence that China is already bouncing back with the CSI 300 only registering a 5% loss in 2020 compared to the other major indices losing at least 20% so far.
The good news is that central banks and governments are reacting economically very well slashing interest rates and creating emergency response budgets to help keep businesses afloat.
The bad news is that the US response to testing and quarantine is too slow and the weaknesses of the US healthcare system are seriously exposed, which will prolong the economic impact of the virus.
This may be the most volatile crash in history, but it may also be the most short-lived and quickest recovery. It depends on the speed to deliver and deploy a vaccine, so we can all resume our normal routines again.
Systemically, we are OK, goods are still flowing, and there are no large job losses announced so far. As long as governments support the businesses and those who are suffering we should hopefully come out the other side relatively unscathed.
A previously mentioned, I set 4 targets for the S&P 500 crash.
- Target 1: Break of the 2019 Bull Run Support – Achieved
- Target 2: Break of the 2008 Bull Run Support – Achieved
- Target 3: Retrace to 2014 Stock Market High at 2140 points – In Progress
- Target 4: Deep Value Zone – This is where we move down to the 2000 and 2008 stock market peaks.
I think we will not break through Target 4 support IF we manage to deploy the vaccine and support our businesses against mass redundancies and bankruptcy.
And that is a big IF!
March 11th, 2020
Corona Market Crash Update – Target 2 Achieved – What Next?
Update from my post on 28th Feb, target 2 is achieved.
The question is how low can it go?
Back to 2015 levels, back to 2008? Probably.
No amount of stimulus is going to make companies profitable again in the short term. The stimulus needs to target consumers, but if they cannot go out and spend it or it cannot be delivered then what?
Depending on your trading or investing style this is a great market or a terrible one.
- Trading Short Side – Brilliant
- Trading Long – Terrible
- Investing Long and still in the market – Terrible
- Pulled all money out of the market (me) – Brilliant
The smart money is waiting for the value zone, that zone will vary for specific stocks, but once COVID 19 is under control we should see a sharp bounce back.
February 28th, 2020
US Stock Market Today: Corona Crash, What to Expect? What to Prepare For?
The Coronavirus is a big macro-economic issue.
The Coronavirus is going to cause a significant dent in global output and trade.
Infection rates are rising across the globe. Countries are taking measures to curb the spread, the next steps will be closing schools and those who can work from home will work from home. But huge swathes of the population who need to go to work might be sent home to stop the spread, this will mean big corp profitability will suffer significantly.
The 11% drop in 6 days on the S&P 500 is a very violent stock market shock.
The financial crisis in 2007 lost the stock market 43% in 18 months.
One should prepare now for at least another 10% drop in the S&P over the next weeks.
A worst-case scenario looks to be an additional drop to the 2007 and 2000 market tops (the long red horizontal line) which would mean a further 38% drop.
This all depends on how we contain the virus. If we contain it well and soon, expect a strong bounce back. If not expect further decline.
Batten down the hatches.