Thursday, July 04, 2013

Stockmarket Update 04 July 2013

From my last update 27 May 2013:

Since my last update 11 April 2013 the market has continued to advance at an unbelievable (and very unhealthy) rate.
There are signs a market correction (perhaps of some significance) is due to begin (with a good possibility a market top may have been put in place Wednesday last week). As such, today’s blog will go through various concerns I have.

In fact, the top was indeed put in on Wednesday, 22 May.  Since that time, world markets (as measured by the iShares MSCI ACWI Index Fund) declined 10.49% to a low 24 June.  A decline of 10% or more I define as a "correction" so it appears the correction I was looking for has been made.

Since the bottom June 24 the markets have recovered somewhat (as of yesterdays close we are down 6.93% from the peak 22 May).  The question becomes now when to increase exposure.


CLICK ON ALL CHARTS TO ENLARGE:

ACWI Monthly:



The long term monthly chart of ACWI remains bullish.  The overbought condition indicated on the chart has been alleviated over the past month.  Technical indictors are rolling over but still indicating a bullish long term technical environment.

It is interesting to note the large sell volume that occurred during the June correction.  This is a bit of a concern as this indicates a large number of participants fleeing equities.  It is possible it is just "panic selling" but needs to be monitored over the next month.

An area of important monthly support is shown with the thin yellow band at 48.38-48.67.  A monthly close below this support would be very negative.

The long term outlook is still equity positive.


ACWI Weekly:



The intermediate term weekly chart turned bearish 2 weeks ago.  The majority of the technical indicators are intermediate term bearish.  It is encouraging to note the weekly buy volume last week was quite strong so this could be an indication the correction is over.

A zone of previous consolidation is shown with the blue box.  During this correction price has not been able to close the week below this level.  This is a positive sign.

The intermediate term outlook is negative.


ACWI Daily:



The short term daily chart clearly shows the sell signal 24 May (red vertical line) along with a well defined downward sloping channel.

All technical indicators remain bearish.  It is interesting to note price bounce EXACTLY off the 200 day moving average (green line) on June 24.  This moving average now becomes exceedingly important if there is a further decline.

Alternately, price is currently being held down by the 100 day moving average (red line), the 20 day moving average (black dotted line) and previous support (now turned resistance) at 50.55.  A break above this resistance and the next level would be the 50 day moving average (blue line at 51.38).  Above there it would be reasonable to assume the downtrend/correction is over and we are going much higher.

Alternately a break below the 200 dma and it would be reasonable to assume we are going lower into the summer.


ACWI Weekly Volumetric:



Last week an interesting development was the 1st break of the uptrend line from the 2009 bottom.  Inter-week it penetrated the line yet by the close of the week it was able to get back up above the line.  Note as well the low for the week was right on a strong level of volumetric support near 48.

Any break below this level and the critical 42.50-45.80 zone (shown in red) comes into play.  A break below there would be an indication we have entered a bear market.


ACWI vs. SPX:




This chart clearly shows the US outperforming the rest of the world.  Year to date the US (S&P 500 Index) is up 13.27% while the rest of the world (ACWI) is only up 5.55%.  Clearly Europe and Emerging Markets are creating a drag upon overall returns in global equity accounts.

Unfortunately there is no way to target specific regions in the Provident fund A/B accounts but this shows how being able to do so is a clear advantage.

I continue to believe the US will lead any recovery (or decline) over the next few years.


Bottom Line:

I have been waiting for a correction in the equity markets to increase my equity exposure slightly.  My "top call" in May was obviously correct and we have had our correction.  Whether the correction is over or not remains to be seen.

I still believe we are within the last part of a cyclical bull market (within a secular bear market) and there is some room for additional upside.  My plan is to wait until my daily chart turns bullish at which point I plan on increasing my equity exposure.

Bonds are looking very interesting now that they have had a good correction (not shown today).  I am interested in getting some bond exposure near these levels and will do so as soon as my short term bond charts turn bullish (they are currently bearish).

My plan is to allocate capital into the following percentages within my A/B accounts:

-60% Equities

-30% Bonds

-10% Cash


Until then my current exposure within the A+B accounts remains at a tactical 50% equity/50% USD cash position as follows:


-Russell Global 90 Fund: 40%

-Fidelity International Fund: 10%

-Russell USD Liquidity II Fund: 50%


(Obviously actual percentage allocations will fluctuate based upon daily/weekly/monthly based price movements and ongoing monthly A+B account systematic equity purchases).

I will blog any changes to my accounts as they occur.



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