Monday, 13 June 2022 09:09
Doubt becomes clarity
For a few weeks now, I have personally been in serious doubt about the recovery in the stock markets. The whole ascent was, in my opinion, a bit like a Bearmarket rally. In other words, a short and strong uptrend in a major downtrend. Hence my “lots of doubt” columns last week and the week before whether we had really seen the bottom, and last week my doubts were confirmed by higher interest rates and lower prices in the major indices in the US.
Unfortunately, the situation in Ukraine does not seem to be going well, and Putin is becoming more and more aware of what he has in mind for the country, and that is not good news for the country and for the Western world. This ongoing struggle has major effects on commodity / energy prices and thus world inflation. In the United States, despite their own supplies and production, you now pay more than $ 5 per tonne. gallon. One gallon is almost 3.8 liters, so that price we would be happy with. Because we already pay more than 2.50 Euro per liter. Our gas price is also high and then we have a setback in the US due to an accident in an export terminal, the US can export much less gas to Europe.
So there are many big problems in the world, and then people in the Netherlands are worried about something insignificant compared to the other problems: Nitrogen. The war, the economy, the housing problem, the climate problems (and the consequences), plastic in the oceans, etc. But yes, it could be worse, because we can also get angry like the British about lying politicians with the Prime Minister’s parties during lockdown …
Meanwhile in China
Aside from Covid19 and its direct and indirect consequences, there are still major problems in China with the bankruptcy of a few major real estate giants (including Evergrande, etc.). According to some (e.g. Forbes), Lehmann Brothers’ problems are similar. But even that news does not reach this one anymore. However, we also see that tensions between the United States and China are rising further, and here the situation in Taiwan plays an important role.
What does the media get? The short-term messages from the Fed and interest rates suddenly have everyone’s attention.
The interest rate was not a story for a while, and inflation was also temporary, but as mentioned before, the purchasing program has been interrupted due to the rising interest rate, and the Fed is therefore draining from below the market. Now that the Fed has stopped its buyback programs, the ECB can not stay much longer. Aside from the valuation of shares, the fact that there is suddenly an alternative (so TINA is dead), the interest has several effects. The interest rates of central banks lead to currency movements, and these movements can have other major consequences. Take, for example, the Japanese YEN
A Carry Trade is a currency transaction where the strategy is to borrow in a currency with a low interest rate and to borrow this borrowed money in a currency with a higher interest rate. A currency speculator (trader) using this strategy tries to capture the difference between the interest rates (arbitrage). The differences can also be significant, this of course depends on the amount of leverage (eg through derivatives) used. Because interest rates in Japan were much lower than in America for a long time, money was attracted in yen and lent in dollars. The dollar is at an all-time high. So if you now exchange your lent dollars for Yen to close your Carry trade, you will earn extra profit. But looking at the movement, one understands that the exchange rate makes this game very complicated.
Also a highlight in 2007
Since there was a peak in the monthly oil chart in 2007, there is also a peak in the dollar arena in 2007. It is no coincidence that a large movement in one currency is often the start of another movement. So keep a close eye on this highlight.
So the question is, will an increase in oil and the dollar yen again lead to a domino effect? Because in both oil and the dollar yen, we have a similar historical situation …
The ECB is also participating
As a result of ECB comments, European interest rates have also risen again, so you expect the euro to strengthen. But the euro has just received another sell signal in Twindicator and thus the dollar became stronger again. Okay, the dollar is a safe haven if stocks fall, but it’s not safe either. Because if we sell our US stocks in Europe, this offer will give to Dollars and there will be some solidity left.
The German Bund collapsed last week, and thus we also went through a temporary bottom. So interest rates rose and looking at the movement, there seems to be technically more room for higher interest rates again than we seemed to have a few weeks ago.
As mentioned earlier, interest rates are rising in the United States. The 10-year interest rate is 3.1 per cent. The 30-year interest rate there is almost 3.2 per cent.
Take a closer look at the long-term interest rate
A few weeks ago, I also had interest rates in the US on a longer chart because it’s been a while since these interest rates have seen levels in the 30 years. If we look at the weekly chart, we should be able to return to levels from the beginning of 2014.
The Sp500 did a perfect job
Sometimes it’s nice when an indicator works perfectly. For example, in the S&P 500 mini-futures, we had a pull right against the Tw indicator, and after its collision, it fell perfectly.
But what now? How far?
Looking at longer charts, a target (Target) of 3,223 or even 2,162 would not be so crazy (a Head Shoulder?). But that will still be a thing for the optimists, because we are now just below 4,000 (3,906.75) and halves are not normal, right?
Nasdaq had confirmed the image in the S & P500. Because here too we had a short press on the Twindicator and then we had gone down again.
Nasdaq price target?
The long-term goal of the Nasdaq 100 mini futures is something like 6,575 points, if you ask me. One then has in part a repetition of previous movements. But we must not forget that we have seen extreme annual returns over the last twenty years. Of course I’m not a prophet and I also just eat bread for breakfast, so do with it what you think.
Just a little crazy
On Nasdaq’s weekly chart, you see that with a drop to below 7,000, you are just back at the levels of the corona dive in 2020. If you were to make the chart longer, you would see that a drop to that level is not even shocking. is in the long-term picture.
As clown Bassie says, I want to check this out on the inside of my eyes
To see what a mega move we have had since the credit crunch in 2008, it is good to look at the monthly chart of the Wilshire5000 index. In the short term, we had sales by breaking into the Twindicator at: 41,612.65. The very broad Willshire5000 index was still around 7,500 points in 2008. A drop from the current 41,000 to around 22,778 is therefore very serious, but that’s just the level in 2020.
Short-term AEX is always best estimated in terms of probabilities if you divide a chart into retracement levels. When we crossed the 23.6 support last Friday, there was a good chance we would be moving towards the old low just above 650.
The twindicator on the AEX stood at 683.81 on Friday, and the close at 681.91 means we have a renewed sell signal. Looking at the movement on Wall Street on Friday, this will be a good signal that we should certainly not ignore.
Not at all because we have confirmations in the other European indices like Eurostoxx50
But also in the German Dax we again confirm the sell signal. Unfortunately, that removes my doubts, and I think you should quickly take protection in the indices. A put spread on AEX can be a good strategy.
Offer of the day
A few stocks that I have seen after the massive downturn seem to have trouble jumping. Like the American Docusign. This stock fell “just” almost 25 percent last week … It is below the Tw indicator, but not yet below the previous bottom. But that’s not nice.
What do I think of NXP when I look at the chart?
If anyone thinks that NXP, which has gone from around 240 to below 180, has become worth buying, then you have to realize that technically you can also go for 68…. That was also just the level of the dive in 2020.
In the same light
ASML was still below 200 euros in 2020. So the question is whether just below 500 is a purchase level? Yes, we have fallen back from around 800 to the current level, but is this technically and basically a purchase? The answer probably depends on who you ask, but this is my column, and therefore I dare to doubt the current level.
That’s the madness …
Stock splitting is actually insane. That an accounting trick has major positive effects remains bizarre. Tesla, for example, entered a bad stock market last Friday with the news that they are coming up with a stock split. Now, many investors are apparently very stupid. Because after the news that you get 3 for 1 current share, the price shot up 2 percent after the market.
So you now have 1 share of Tesla at about $ 690 and you will receive 3 of about $ 230. Now the investor says they are happy with an optically low price? Why? Today you can already invest in money with many parties, so you would have 690 euros in Tesla and after the split you still have 690 euros in Tesla. The argument that you can buy cheap is of course cool, because again you can just invest $ 1 in Tesla and you get a fraction (partial investment).
But yeah, you look at history and a stock rose after a split so it will happen again, right? Twindicator only returns to a purchase when it closes at $ 709.26
Split and Down
Shares that are already split, such as Nvidia, can fall very hard after the split, because the chart does not change significantly in the end. And making a profit is easier for many investors than taking a loss …
A hobby can cost money
Finally, I see commercials on TV that certain pension funds and insurance companies do not invest in Weapons and Oil, so if you have time I will send a letter to this pension fund or to the insurance company that the ESG hobby and the low-carbon hobby are a good idea, but that it also costs a lot of returns. Because the oil companies have made an excellent investment technically and apart from the performance of the arms manufacturers, it can also be argued that we unfortunately need weapons to protect ourselves. In short, let’s soon reopen the ESG discussion in a column.
RDSA (Shell) has performed well in relation to the Tech companies, which are often seen as very ESG. Looking at the chart, it would now be a better time to say goodbye to these types of companies.
So personally, I’ve become negative again because of the recent movement. My idea is that we can go (quite) lower once more, and my doubts have turned into negativity.
But as I myself used the American saying: When in doubt stay out! Even if you are in doubt about my opinion, you can then stay away from it and take no protection.
The special thing is that Bitcoin did nothing in all the violence of interest and stocks? Not that you need to be positive, but still separated and most likely they will catch up.
This column / blog is written in personal capacity by: Cees Smit and partly in light of his active offensive portfolio (also known as the Guardian strategy) is published on Today’s Group’s website and also appears on other websites.
This absolute return strategy is completely independent of the other portfolios / strategies in Today’s Group and also predicts declines (corrections) if necessary. This strategy is therefore not suitable for every investor. This column is not personal advice, nor is it written as investment advice. Any type of investment involves risks.