Should you be investing right now? Is the stock market outlook good or bad? Where should I invest for the best returns? Should I buy gold and silver? These questions will be resolved in the Liberated Stock Trader mid year review of the 7 key global indices.
As part of your trading plan is is extremely useful to regularly evaluate the global stock markets to evaluate the state of minds of the global investing community. Are the various markets in an uptrend, downtrend or in sideways consolidation?
Of course there are 3 types of trend:
- Short term trends stretch from days to weeks
- Medium term trends from weeks to months
- Long term trends from months to years
For each of the major indices I will evaluate the state of the trends and share my thoughts on market direction. As always, it is extremely important that you evaluate the direction of markets for yourself. Your opinion is the most important as it gives you the confidence to believe in the timing of your investment activities and choose the right vehicle for your investment according to your market opinion.
For example, if you are feeling negative then shorting stocks, investing in inverse ETF’s or buying option PUTS is probably a suitable strategy. If you believe the market will go up then the opposite is true, using ETF’s, buying stocks long or using option CALLS is the strategy of choice.
U.S. Stock Market – S&P 500 – Long Term Trend UP – Medium Term Trend UP – Short Term Trend SIDEWAYS
The U.S. markets are in full bullish mode reaching an all time high over 1,900 in the S&P-500 and seemingly holding at those levels for now. U.S. economic data shows no short term problems, although the long term debt issues still linger. Home to some of the greatest companies on the globe the long term systemic problems are not at the forefront of the news media and thus the market participants are willing to play down risk. If and when the U.S. market breaks out of the short term sideways consolidation then it will be a good time to renew your bullishness. The Fibonacci Time Indicator suggests a peak coming in the next few weeks to months where we may be subject to some selling and pullback. This would be normal given the excellent 2 year performance and the fact that summer is almost upon us.
Asian Index – Hong Kong Hang Seng – Long Term Trend Sideways – Medium Term Trend Sideways – Short Term Trend UP
Despite the worlds fear of an ever expanding China, the Hang Seng, which is 50% populated by Chinese companies, paints a different picture. Fears over the past 2 years that China’s economy is overheating play a role for the conservative nature of the technical chart here. While 2012 was a good year, 20013 and 20014 have largely shown a conservative sideways consolidation. Expect a breakout of 24,000 on the upside or a break down through 21,000 to indicate the direction for the coming years. Which way the index breaks will be largely down to to the economic fundamentals of Asia and it’s leading light China.
China Index – Shanghai Composite – Long Term Trend Down – Medium Term Trend Sideways – Short Term Trend Sideways
A clearer picture is painted for the growth of the Chinese markets with the Shanghai Composite. The seventh largest index by capitalization, but still only a sixth of the size of the New York Stock Exchange; the Shanghai Composite is forming a solid base at 2,000 with at least a 5 to 10% medium term upside. However, we do see a descending triangle forming as the market participants become less bullish. Triangles are in technical analysis considered continuation patterns, this means that if price continues to consolidate down to the point in the triangle in the future we can expect the trend to resolve itself to the downside. The best action here is to wait and see as technical patterns are never 100% reliable.
Japan Index – Nikkei – Long Term Trend Sideways – Medium Term Trend Sideways – Short Term Trend Sideways
The devaluation of the Japanese currency by the Bank of Japan provided a very strong bullish trend in 2013. This move sought to make Japanese exports more competitive by bringing down exchange rates. It certainly worked, but the surge was always going to peter out. The last 12 months have seen this strong trend slow and the trend has lost steam. There are some signs of upside momentum building in the Money Flow indicator. But the lackluster Japanese outlook is not the best choice right now for above average gains.
India Index – Bombay Sensex – Long Term Trend UP – Medium Term Trend UP – Short Term Trend UP
The picture in India is different. Considered to have a longer term positive outlook, India could become a powerhouse if the leadership in government could find a way to cut red tape and unleash the millions of entrepreneurs and talented young workforce it has at it’s disposal. The 2014 election provides a lot of hope for India as Narenda Modi swept to power promising an open and business friendly atmosphere.
World Gold Index- XGLD – Long Term Trend Down – Medium Term Trend Sideways/Down – Short Term Trend Down
Gold has had a meteoric rise since 2000, but the shine has worn off since mid 2012. Although the 30% pullback has left a sour taste in the in the mouths of all the boom time investors, gold seems to be forming a base at around $1,200 per ounce. Gold is currently $90 above this base and the descending medium and short term trend suggest another test of the base. A good entry point is around $1,200 if you seek to diversify your investments outside of the stock market.
World Silver Index – – Long Term Trend Down – Medium Term Trend Sideways – Short Term Trend Sideways
Gold’s cheaper cousin Silver tells a similar story. The fundamental usage for Silver is not just as jewelry but as a key ingredient in electronics and cosmetics (it is a natural antibacterial agent) this in my mind makes it a better long term investment as the silver supplies are dwindling. Silver has formed an excellent base over the last 12 months and is in a good buying spot. Silver has retraced to the long term 2007 high and should have some positive upside for the future when the sideways trend is resolved to the upside.
Summary – Is it time to invest?
You can see from the evaluations of many of the leading indices that it is certainly not a negative climate out there. However, we do see a slowing of the momentum in world markets that have reached new all time highs. Money is moving into the U.S. and India and out of Gold & Silver and into stocks. We are at a natural pause before the summer break, so I expect further sideways consolidation for the next weeks and months. Silver is in a good position, India is growing strongly, the Shanghai has formed a good base for moving upwards and the U.S. is at an all time high. So it is a mixed bag right now, but certainly not a negative climate.