Tuesday, July 03, 2012

Stockmarket update 03 July 2012

From my last post dated 15 June 2012:
Holding my current 50% long equity/50% USD positions on the expected bounce.

The Greek elections are on Sunday with a ton of fear in the markets. Greek law does not allow polls to be conducted 2 weeks before the election so there is a lot of speculation as to which way they will vote.

The largest on-line event gambling site (Intrade) shows punters are betting there is a 70% chance New Democracy wins, a 27% chance the Radical Left (Syriza) wins and 0.5% chance Panhellenic Soc Movement (PASOK) wins. I have used this source to game other market outcomes and most times they have an uncanny ability to be right. As such, I believe the pro-Euro vote will win and with it there will be a significant market advance next week. Given this, I am prepared to hold my current positions as stated previous with the intention to move into a 100% cash position when the short term charts again turn bearish. As of today they are still bullish so I will stay with the short term uptrend.
As I predicted, New Democracy won the election and has formed a coalition government.  Since then the market has been on a nice advance further fuelled by the latest "emergency EU summit" results last week which the market appears to believe marks the 1st hint of German capitulation towards aiding the weaker Eurozone countries.

The technical picture of the markets continues to be one of a CYCLICAL Bull Market since March, 2009 within a SECULAR Bear market which began in early 2000.  I plan on doing a very "large picture" overview of this secular bear market soon (as many people are still wondering why their provident fund has gone nowhere for the past 10 years) with some projections on completion dates and equity levels (as a preview; we are looking at another many years before we are out of this secular cycle phase at much lower price levels than current).

Zooming in to the current cyclical bull market, we will start from the monthly charts and work down to the short term charts.  As regular readers are aware, I use the iShares MSCI ACWI Index Fund as my proxy for the Emirates Provident fund equity accounts as it tracks the MSCI World Index (the benchmark utilized in the Provident Fund accounts).

Click on all charts to enlarge:

ACWI Monthly

The monthly chart of ACWI continued to be bearish at the end of June.  Price closed right below the 8 month simple moving average (but had a great monthly bounce in June and came tantalizingly close to a closing price above the 8 mSMA) and did so on very strong bullish volume for the month.  In addition, the RSI(14) remained >50 and continues to be the only long term technical indicator remaining bullish. 

As I have annotated on the chart, following the bottom in March, 2009 we entered a choppy range between 35.67-49.15 and have been stuck in this range for almost 3 years.  Due to the ongoing difficulties in Europe the "world" equity funds have underperformed those that are based on the U.S. markets.  As such a lower high was established at 47.17 in April 2012.  The only way to put a positive spin on the "world" (as defined by the MSCI World Index represented by ACWI) would be for price to break the previous highs set in May, 2011 above 49.15.  A final settlement of the European debacle would probably do this but given the complexity of the problem that appears to be a very small probability.

Overall the monthly chart is BEARISH.

ACWI Weekly

The weekly chart is looking decidedly more bullish than it did last month.  While all of the technical indicators are not in alignment, there are a number that are on bullish indications.  Price found support at the 40.50 level and has since rebounded to the top of the "box".

There is strong overhead resistance above (shown by the yellow shaded area) as well as the declining trend line from the top in May 2011.  Price has yet to close the week above the Bollinger Band midpoint (dotted black line on the chart) which falls exactly in the middle of the resistance.

Overall the weekly chart is BEARISH as all technical indicators are not in alignment but there are signs a medium term advance may be possible should price clear the resistance and the BB midpoint.

ACWI Daily

The daily chart of ACWI is looking solid.  From the "Island Reversal" that occurred in late May price gave a small "head fake" sell signal June 25 which was quickly reversed 2 days later.

All technical indicators remain bullish.  Price has moved above the 50 day simple moving average (blue line) and 200 day simple moving average (green line) so both the "short term" and "intermediate term" have turned bullish.

A key indicator currently (as discussed previous) is the RSI(2) which has been able to break into short term overbought conditions (>95) yet hold above short term oversold conditions (<5) the past month.  This is a great sign the "bounce" I have been looking for is continuing with strength and as long as it remains so the short term trend is up.

Previously discussed resistance is shown in yellow along with the declining trendline.  Also the 61.8% Fibonacci retracement level for the current bounce is shown @ 44.62.  This coincides with the top of the resistance and the declining trend line so I would expect significant trouble breaking this level.  Should it do so it would be a VERY bullish sign.

The daily chart is BULLISH.

ACWI 60 Minute

The short term 60 minute chart is currently bullish as of Monday.  As discussed in my last blog, price had formed an inverse head and shoulders pattern with a projected price target of 45.72 on a break of the neckline.  This break was accomplished June 18 but subsequently broke back below the neckline.  This break was critical as a broken pattern often leads to a significant reversal in the opposite direction.  Should price have broken the right shoulder (shown by the dotted red line @ 41.76) I would have immediately moved to a 100% cash position.  However, price found support just above this level (low 41.93) and since then has been on the rise.

Having dodged a bullet, price now has to clear the overhead resistance (again shown in yellow) as well as the upper boundary of the rising wedge pattern (top blue trend line).  Should it be able to do so the 45.72 target previously mentioned will still be on the table.

The 60 minute chart is BULLISH.

Bottom Line:

I fear like I am beginning to sound like a broken record but my stance remains unchanged.

The long term monthly chart is bearish, the weekly chart is bearish (bordering on bullish), the daily chart is bullish and the 60 minute chart is bullish.  As such, the short term bounce I have been forecasting continues but nothing technically has changed that would allow me to adjust my stance to a more bullish posture.  I remain convinced (based upon the current technical’s) that we are in a short term bounce before a possible significant decline to come.

Having said the above, it is imperative in investing to not let your "personal bias" get in the way of the evidence.  Should the weekly and monthly charts become bullish I would be compelled to change my stance to a more bullish outcome.  If this were to happen, I would increase my equity exposure.  Conversely, should the short term charts again turn bearish (indicating the current bounce is over and the next potential decline may be upon us), I would shift my position into a defensive 100% cash position.

Currently the technical indicators indicate either possibility so my current view is to continue to hold a 50% equity/50% USD cash position.  I will not attempt to second guess which way this whole thing goes but let the charts tell me when to make the move.  Currently they are telling me to stay put.

As of today I remain in a 50% Equity/50% USD Cash position as I indicated in my last post:

-Russell Global 90 Fund: 40%

-Fidelity International Fund: 10%

-Russell USD Liquidity II Fund: 50%

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