A Contrarian View - Still A Chance for More Upside?
Weekly Updates is what I promised but this week there are no really new insights into the current short term outlook.
In a talk I gave last Friday, I showed the chart for the STI, complete with the outline of a head and shoulder formation - and the arrow along the side of the right shoulder pointing toward a potentially dramatic downturn into October and November. I have never experienced an entire audience GASP!
This is the graph:
Indeed, it shows the drama that seems to unfold. Head & Shoulders typically are a 'topping formation', indicating that a major top is in.
Some parameters to take note:
This chart almost completely ignores the Indian Summer theme I propagated last week. No wonder the public gasped! The Indian Summer is still very much on the cards though and it could blow the formation asunder in just a few weeks.
If you look at the original path I predicted in the DJIA (see chart at the top), you can see that we are at the juncture where - seemingly - anything could happen.
SCENARIO ONE
Markets could at this point start to go down, gradually at first, more pronounced come September. Such an outcome is supported by several technical indicators which highlight a negative 'trend channel' all the way to November. Financials, tech, energy, oil and gold prices are implicated here. Australia may be the index with the least appetite for a rally, not least of all because of a difficult election outcome.
SCENARIO TWO
However, European and Asian indices, and in particular the Chinese Mainland indices, are not half as bearish. My German colleagues, which focus much of their research on the German DAX still like the bullish signals prevalent in the index.
It reminds me of the period in 2007 after the markets suffered their first crash in August. At that point, China and India stock markets recovered very quickly and posted new highs by October 2007, pulling the global stock markets up with them.
This time, the momentum is not quite as strong, the prospects less dramatic. Then again, the continuing fear and uncertainty in the markets suggests that we may be overestimating or over-emphasising the downside potential. A more positive outcome could create quite a stir in the short term. I still see such a scenario developing starting this week, and it may have legs till mid-September.
Since there are two potential outcomes, what is the best way forward? Remain in the trenches of safety if that is where you retreated recently! Your bonds and fixed income funds will continue to perform well.
This potential gain in stock markets is only for those who are still invested: Pay close attention to the more bearish sectors and gold prices. But small caps, China stocks, and the less beta hungry funds will probably do well.
Since we are in the business of making money, I want to give this market the chance to perform that last leg of the rally. It is not for the fainthearted and the chances of getting out at the targeted top is going to be a challenge.
Just in case you are a reader of this blog AND ARE NOT MY CLIENT, NOT FOLLOWING MY INVESTMENT APPROACH AND NOT FAMILIAR WITH MY INVESTMENT PRINCIPLES, I must stress that you should not follow any advice in this blog, especially not when such high levels ambiguity remains in the capital markets. You would need the full support of a SingCapital advisor, or myself to benefit.
This blog has started to take off, getting hits from Australia to Poland, Israel to Canada. It will be interesting where it takes us. However, this is always only going to be the Menu, not the actual Dish. To get a real taste and nourish your portfolio, you need to seek the help of the author, or any investment advisor of SingCapital.
In a talk I gave last Friday, I showed the chart for the STI, complete with the outline of a head and shoulder formation - and the arrow along the side of the right shoulder pointing toward a potentially dramatic downturn into October and November. I have never experienced an entire audience GASP!
This is the graph:
Indeed, it shows the drama that seems to unfold. Head & Shoulders typically are a 'topping formation', indicating that a major top is in. Some parameters to take note:
- The crucial ceiling for the formation is the 3038 level. Exceeding it would negate the formation altogether.
- The 'right shoulder' triangle is somewhat over-sized: it could indicate that last leg unfolding now may turn into a more complex movement.
- The 'neckline low' of 2660 is crucial, but a correction could go as low as 2570 or about 15% from where we are!
- The time line indicates a low late in October / early November.
- It may well coincide with the 4-year cycle trough in global markets.
This chart almost completely ignores the Indian Summer theme I propagated last week. No wonder the public gasped! The Indian Summer is still very much on the cards though and it could blow the formation asunder in just a few weeks.
DOW JONES INDUSTRIAL AVERAGES - looking forward (end of July) ...
 | ||
DJIA - just 2 weeks later ... the lower targets have been reached. time to turn UP?
If you look at the original path I predicted in the DJIA (see chart at the top), you can see that we are at the juncture where - seemingly - anything could happen.
SCENARIO ONE
Markets could at this point start to go down, gradually at first, more pronounced come September. Such an outcome is supported by several technical indicators which highlight a negative 'trend channel' all the way to November. Financials, tech, energy, oil and gold prices are implicated here. Australia may be the index with the least appetite for a rally, not least of all because of a difficult election outcome.
SCENARIO TWO
However, European and Asian indices, and in particular the Chinese Mainland indices, are not half as bearish. My German colleagues, which focus much of their research on the German DAX still like the bullish signals prevalent in the index.
It reminds me of the period in 2007 after the markets suffered their first crash in August. At that point, China and India stock markets recovered very quickly and posted new highs by October 2007, pulling the global stock markets up with them.
 |
| HANG SENG interim outlook, crucial to the rest of Asia! |
Since there are two potential outcomes, what is the best way forward? Remain in the trenches of safety if that is where you retreated recently! Your bonds and fixed income funds will continue to perform well.
This potential gain in stock markets is only for those who are still invested: Pay close attention to the more bearish sectors and gold prices. But small caps, China stocks, and the less beta hungry funds will probably do well.
Since we are in the business of making money, I want to give this market the chance to perform that last leg of the rally. It is not for the fainthearted and the chances of getting out at the targeted top is going to be a challenge.
Just in case you are a reader of this blog AND ARE NOT MY CLIENT, NOT FOLLOWING MY INVESTMENT APPROACH AND NOT FAMILIAR WITH MY INVESTMENT PRINCIPLES, I must stress that you should not follow any advice in this blog, especially not when such high levels ambiguity remains in the capital markets. You would need the full support of a SingCapital advisor, or myself to benefit.
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