Hectic. That’s how I would describe my July 2016. Between the 9th and 30th, I did, for the first time ever, three Candlestick & Breakout Patterns Workshops in Singapore, Kuala Lumpur and Penang (below).
We graduated the second batch of Tutelage students on 18th July. This second run was more fulfilling as I was more prepared to anticipate how the students would perform under supervision. The energy levels were also much better this time round.
Apart from work, I finally got my speed back in the water. Still working on losing a couple more kilos from Switzerland (yeah yeah yeah, I don’t know why it’s to hard this time) that should help me push my timing even more. But it’s great to be in the water again and swimming regularly in spite of the weather.
It seems like the markets don’t seem to care about the state of the global economy and its obvious weaknesses amongst the banks and industrials. This ageing bull just keeps on plodding on and on and on. Where is it getting its legs from?
The US markets just keep forcing the highs while the European and Asian markets struggle to get out of a consolidation funk that has plagued them since their Q1 2015 highs. The slowdown in Asia and the impending credit failure in Europe are real global threats that the US seems to ignore as they blast their way to record highs. Is this rally sustainable or is this a last gasp reach for the sky?
The DOW and S&P broke historical highs in July but now seem to be on divergent paths. The DOW weakened into the end of July while the S&P500 maintained its highs. The NASDQ (5,162.13) also made high ground and is just off its 52wk high of 5,218.86 from 20/7/15 as of July 2016’s close.
Earnings have been impressive for Q2’s results so far. Now that we’re halfway through earning season, it seems obvious that this market is destined for higher highs. However, there are dark ominous clouds forming beyond the earnings horizon.
Yields have fallen (abov) all year and are now threatening the lows of 2012. They are also flattening as they fall and the flattening is now pivoting along the belly of the curve.
On a tighter timeframe (below), the curve is pivoting along the 10yr with the shorter maturities rising while the longer maturities fall.
With Inverted Yield Curves occurring at an average of one every seven years, this ageing bull has extended the possibility of an IYC happening.
Now that the cheap money has ended, investors are looking at parking money in safety again and this should bring on an IYC soon. For the record, the last IYC was in January 2007.
The VIX is also showing us a high level of complacency as it tests two-year lows at 12.16.
If you had bought anything in June or July 2012, you’re not making money today. (STI, below)
The Little Red Dot is getting deeper into trouble. Manufacturing has fallen, spending amongst investors, consumers and the government has slowed, easy credit is drying up and the retail sector is seeing more and more closures amongst the small to medium enterprises. Exports resumed its decline after a brief relief and Imports stay unchanged but at three-year lows. Property prices have been falling for 11 straight quarters and are at 5-year lows.
The real worry is that the island state is now 20 months in negative inflation, putting it in serious Deflationary territory given the economics behind its slowdown.
This is now officially the country’s longest period of negative inflation in its 51-year history.
The circumstances behind this phenomenon are similar to those of Japan, South Korea, Hong Kong and Taiwan in the years that followed their massive growths and rise to economic power in the 70s and 80s. It would seem that it is now Singapore’s turn to take that downturn.
Its Households Debt To GDP (above) is just off its historical highs at 60.3% of its GDP in Q4 2015, down from 60.8% the quarter before. The latest figures from Q1 and Q2 2016 are oddly unavailable.
To further hurt the economy, it didn’t help that the nation lost untold millions in educating foreigners who only returned the favor by defaulting on their bonds for which the authorities never pursued to recoup the losses or punish the bond-breakers. The economy was hurt further when it was announced that it lost S$24B of the people’s money in investments. The losses pale in comparison to the 1MDB scandal and are not likely to be recouped easily especially if the region goes into recession.
The troubles are only beginning to mount for the Red Dot as many who have been over-leveraged on debt are steadily and surely defaulting on their debts only to put pressure on the banks who have been fighting tough to cope with these issues. Their earnings in recent weeks were encouraging but certain spots of trouble are starting to blight an otherwise flawless quarter.
August has been the most bearish in the last 28 years with no reliable patterns. It is the first of two consecutive months of bearishness going into September, the most bearish month of the year over the last 80-plus years. Since 1987, August has been the worst month on the DOW, S&P and NASDAQ.
August 2016 is a long month that has 23 full trading sessions and no public holidays.
- August starts in reliably weak fashion
- The first trading day of the month has seen the DOW go down 12 of the last 18 (2015 down)
- The Russell 200 has been up 7 of the last 11 on the first trading day. (2015 down)
- The first nine days of August are the weakest first days of any month.
- The start of the second week continues to be weak
- The Friday of the second week (August 12) is reliably bullish.
- Expiration Week of August is its most bullish week.
- The Monday before August Expiration has been up on the DOW 13 of the last 20. (2015 up)
- August Expiration Friday has been bullish with the DOW up 8 of the last 12. (2015 down)
- The week after Expiration Friday is bullish but not as bullish as week three with the DOW down 6 of the last 10.
- The Monday (22 August) after Expiration Friday is reliably bullish.
- August traditionally ends poorly but has been ending stronger in the last 10 years.
- The second-last trading day of August (Tuesday 30 August) has been down on the S&P 15 of the last 19 including 2015.
Key Economic Dates For August 2016
This is going to be a busy month for Central Banks all over the world. With economies contracting and making hawkish forecasts, expect more volatility in the markets and more job lay offs as companies tighten their belts.
• Manufacturing PMI for US, UK, most of Europe
• Services PMI for US, UK, most of Europe
• US ADP Employment Change
• US ISM Non-Manufacturing PMI
• UK BOE Inflation Report
• Australia RBA Monetary Policy Statement
• UK Official Bank Rate, Monetary Policy Summary
• US Non Farm Payrolls, Unemployment Rate
• China Industrial Production
• Germany GDP q/q
• Europe Flash GDP q/q
• US PPI, Consumer Sentiment
• Japan Prelim GDP q/q
• Australia RBA Monetary Policy Meeting Minutes
• US Empire State Manufacturing Index
• UK CPI
• German ZEW Economic Statement
• US CPI, Building Permits, Industrial Production, Capacity Utilization
• US FOMC Meeting Minutes
• Australia Unemployment Rate
• US Philly Fed Manufacturing Index
• Europe, France, Germany Flash PMI (Services & Manufacturing)
• (Tentative) Jackson Hole Symposium – 25 to 26 August
• UK GDP Second Estimate q/q
• US Prelim GDP q/q
• US Consumer Confidence
• US Chicago PMI, ADP Non-Farm Employment Change
• China Non-Manufacturing PMI, Manufacturing PMI
Oil fell from 46.83p/b to 41.10, Gold rose from 1,338.00 to 1,357.00, Corn and Wheat both collapsed and are lingering at multi-month lows now … commodities across the board whipsawed in July with metals making gains and crops making declines along with crude.
- Crude stays weak till late August
- Nat Gas strengthens
- Gold and Silver usually see gains in August
- Copper stays weak
- Soya and Corn are also weak in August, however, Corn tends to have counter-rallies depending on the weather conditions
- Wheat stays strong
- Cocoa tends to get volatile
- Coffee bottoms in early August and reverses upward by mid month
- Sugar stays weak August.
August and September are the year’s most bearish consecutive months over the last 26 and 86 years respectively. And August’s bearishness is way worse that September’s. Remember August 24th last year?
These are the months that will threaten an economic fall out if ever there was an opportunity to do so. The time is ripe for such an event.
With Italian banks on the brink of failure, Deutsche Bank getting rebuked by the IMF for being the most irresponsible lender, Chinese banks begging for bail outs and American banks looking down the barrel of losses totaling more than half a trillion dollars, we’re looking at a potential financial crisis on the horizon.
I will be watching the warning signs with even more interest in the coming months as most have already manifested themselves to put me on alert. The past 19 months have been on track to meet my 2014 projections and if the patterns persist, we’re looking at a major correction this quarter and I suspect, one that will be heavier than last year’s.
After busting my brains for what to suggest for this month of July, I honestly couldn’t come up with anything usable as July is so volatile and nothing is in season during this month.
So, to save time and grief, I have decided to focus on my favorite picks and watch how they perform in the coming Q2 Earnings Season so get an idea of how to trade them in their coming seasons.
These are my frequently traded stocks and ETF. Each stock is analysed and traded differently according to its characteristics and some have taken huge hits that make them the most tempting investments given the right time and opportunity.
Don’t miss out this unique opportunity to find some of the most intriguing trades you never knew about.
Get your report here: Sector Report 1606 : Conrad’s Favorites 2016
I guess June 2016 will be remembered for the event that never shook the world – Brexit. For all its hype and build-up, the event brought world markets to its knees for only two sessions. Within a week, everything was almost back to where it started. Loads of people lost trillions in the markets while many others stayed out. Institutions, it seems, were the worst hit. The worst may not be over yet. But until the next chapter in Brexit, the world and the markets have already moved on to worry about other things.
I will remember my June 2016 as a glorious dream realised when I vacationed in Switzerland for the first time in my life. It was everything I had imagined and more … much more. I have fallen in love. I must go back again and fill in the rest of what I have missed.
What I love best about cold countries is that I get to deck myself out with black over black and look badass!
The Tutorial Classes in 2016 have been sold out back-to-back-to- back. This hasn’t happened since November 2007 till June 2008. With the August batch two months away, it is already more than 60% filled with a list of KIVs yet to confirm.
In the last weekend of June, I went back to Penang after a long time. It was good to be back.
On 25 June, I did a preview to a crowd of almost 90 people in Penang and immediately filled 80% of the seats with a list of KIVs still yet to confirm the few remaining seats for the August 26th Batch in Penang. The Malaysian batch in K.L. on August 15 is already more than half full.
On Monday 27 June, we kicked off the second batch of the revised Four-Week Post-Graduate Tutelage. This is a full capacity batch with all 30 seats booked long before the Tutelage began.
The following day, Tuesday 28 June, PTT85 started its Tutorial. This is also a full batch with 35 new students. If the first day’s energy was anything to go by, this will be an interesting batch to teach and I relish the opportunity.
There is a dark side to all this busyness … the last time this happened (November 2007 till June 2008), the economy was not in good shape and everything fell apart in 2008.
So if history is anything to go by, it seems things are repeating itself now and a certain sense of Deja-Vu is in the air.
June is known to be the most unpredictable month of the year while July is the most volatile. Given those reasons, I have been very conservative in my trades, never keeping anything for more than two sessions and sticking to mostly scalps on Crude.
The US market lived up to that unpredictable reputation by giving 2016 its most volatile month yet.
June gave us the widest range of any single session this year with more than 590 points to the downside on the DOW, even more than January could muster. In two consecutive sessions after Brexit, DOW lost more than 880 points. However, it all came back within the text four days with the 1st of July (Friday) bringing the DOW back to pre-Brexit levels.
Such events often catch out the Bears who had been short on the market and definitely slaughtered the Bulls who had betted on it. Reports from all over are claiming that it wiped out US$3 trillion from the markets.
The US economy on the whole has been showing resilience by dropping its unemployment rate to 4.7%, its lowest since November 2007. However, growth remains subdued, contracting in the last three quarters to +1.1% from 3.9% three quarters earlier.
Its Manufacturing PMI has been falling but stays above the critical 50.0 mark but its Industrial Production has been negative for nine consecutive months and negative for ten of the last 12 months. Its Services PMI is also at the low end at 51.3.
For now, we hold faith in the American economy but I am keeping a very close eye on its weakening numbers. Most of all, I am watching the yield curve with exceptional interest. The spreads are tightening at an increasingly quicker rate that’s flattening the curve on the shorter maturities.
The spread between the 2/5 is now only 41bps while the 5/10 is 46bps. Thus the 2/10 spread is less than one percentage point at 87bps when it should be 200bps for par.
The behaviour of the bond yields imply that in spite of the positive (albeit weakening) data, investors don’t have faith in risk now and are expecting some sort of slide in the economy and risk markets. I stand amongst those who feel that way and will stay conservative as we go into the worst quarter of the trading calendar.
July is the start of quarter three and is the best month in the worst quarter of the year. Having said that, it is also the most volatile month of the trading year. The three months of Q3 are extremely varied with July reputed to be the most volatile, August being the most bearish in the last 25-plus years with no reliable patterns and September, known famously for having the lowest volumes of any month and the most bearish of the calendar year over the last 85-plus years.
July 2016 has 20 full trading sessions and one public holiday (Monday on 4 July). July is known for its volatility with huge swings either way. It is also the start of the third earnings season of the year when companies are known to pull back on their guidance and become conservative about their outlooks.
- The first trading day of July is the most bullish having been up on the DOW 21 of the last 26
- Monday 4 July 2016 is Independence Day – Markets Closed
- The second trading session immediately becomes volatile/bearish
- The second week is usually bullish but can be volatile as earnings season begins
- Monday of July Expiration Week has been bullish on the DOW 9 of the last 12
- July Expiration Friday is bearish with DOW going down 9 of the last 15 (Last year up)
- The third week is prone to wild swings with DOW up 9 of the last 13 (Last year down)
- The volatility from week three tends to carry into week four and gets worse
- Wednesday 27 July – FOMC Minutes at 2pm EST
- The last day of July is traditionally bullish but down on the NASDAQ 8 of the last 10
Key US Economic Dates
- Wednesday 6 – ISM Manufacturing PMI, FOMC Beige Book Minutes
- Thursday 7 – ADP Non-Farm Employment Change
- Friday 8 – Non-Farm Payrolls Unemployment Rate
- Monday 6 – ISM Non-Manufacturing PMI
- Thursday 14 – PPI
- Friday 15 – CPI, Retails Sales, Consumer Sentiment, Industrial Production, Capacity Utilisation
- Tuesday 19 – Building Permits
- Thursday 21 – Philly Fed Manufacturing Index
- Tuesday 26 – Consumer Confidence, Durable Goods
- Tuesday 26 to Wednesday 27 – FOMC Meeting (2 days)
- Wednesday 27 – FOMC Fed Fund Rate Policy Statement at 2pm EST
- Friday 29 – Advance GDP QonQ
- Crude finds support in late June/early July
- Nat Gas sees strength mid month till mid October
- Gold and Silver also finds strength in July till October
- Soya tends to bottom in July
- Wheat maintains its seasonal strength
- Corn stays weak in July but is known to make sudden rallies depending on the weather
- Cocoa tops out and reverses down towards the end of July
- Coffee stays weak
- Sugar is volatile because of harvests in Brazil and India
Singapore seems to not care about world economics and its own internal frailties as government agencies raised parking rates and utility rates in the last week of June. With that, private parking companies have also seen the need to raise their rates to keep the spread between public and private rates constant. As with all things past, our government has repeated its pattern of raising fees and rates a year after being elected in again. I wouldn’t mind so much if things were status quo and life was great. But it is not great on the streets.
Empty properties are on the rise as commercial real estate demand dries up. Business owners especially among the small to medium retail outlets have found it extremely challenging to keep up with the high rentals while consumers pull back on their spending. With credit also drying up, the end to the flow of cheap money is affecting many who had depended on debt to maintain their way of life. That folly has now caught up with those who did and others are starting to fall victim to their own lavish spending.
This is not surprising given that Singapore’s Households-Debt-To-GDP is amongst the highest in the world at 60.30% of our GDP.
Others are losing their jobs as banks and financial institutions tighten their belts. The shipping, oil and marine related businesses have also tightened up and cut heads. The new influx of fresh grads in Q2 have not been able to secure any job outside of sales and direct marketing.
Our Inflation Rate continues to be the foremost concern (although our central bank seems to ignore it). For the nineteenth consecutive month, the island state has registered negative inflation (Deflation) with the most recent read being the lowest and the sharpest decline since August 1986 at -1.60%.
What’s making it worse and threatening to turn this into a full blown Deflation is the slowing of consumer spending, government spending and investor spending. Property prices have tumbled precipitously, catching many unsuspecting property investors out this year. High-end investors have been reported in the mainstream media as dumping or fire-selling their multi-million dollar homes. Foreigners who used to scoop up Singapore properties like candies in a discount store are now looking to off-load their souring investments in a hurry.
Finally, although I have no numbers to prove this, the numbers of high-performance European Marquis have diminished rather starkly compared to a year ago when almost one in every 20 cars I passed was a Marquis. Even at the parking lot at my training center that used to have lots of such fine machines are now seeing less and less of them as the months go by. I used to drool at these magnificent cars when there were so many of them. These days, there are hardly any of them to drool over anymore.
After April’s and May’s madness, it was good and timely to get a two week break to re-energise. The second half of the year has already started for me last week. I have resumed trading, albeit at a very conservative rate, and it has been profitable so far … difficult, but still profitable.
I am also back to swimming and working out to fight off the extra 4.5kgs I put on while vacationing. Put in 80 laps (4km) on Thursday 29 June and completed it in 01:46:00 for an average of 13 minutes per 10 laps (500m) including four quick stops to adjust my equipment. Still have a bit more to cut down but it’s good to be feeling fitter and faster.
It’s also good to be on the move and working again. I feel blessed and thankful that I can.
I’d like to wish all my Muslim Brothers & Sisters a Selamat Hari Raya Aidilfitri.
The last time we featured companies in the Sin businesses was 2013 and the portfolio was rather profitable as was back in 2011 when we first featured it.
Tobacco and Alcohol are two perennial consumer “staples” that never go out of style, especially when the economy tends to stress people out … as it has been doing since last year.
Thus, we think it’s a good time to revisit the world of Sin & Vice again.
Get your copy here: Sector Report 1605 : Tobacco & Alcohol 2016
I am posting this early because I am leaving for my mid-year vacation this weekend. It has been a very busy and hectic first five months of the year and I really need this break. Besides the classes, there meetings after meetings regarding business, ventures, personal issues (theirs, not mine), one-to-one coaching, counselling, medical appointments (for both Lucy and me) … if I thought I had a day free, something would come up and busy me like car issues, medical stuff, the kids’ issues, administrative things … bah, you name it.
In spite of the busy busy busy, I still managed time to trade and I must say that May 2016 was merciful to my account. I also managed time to swim, work out and get back to fitness again. That meant the world to me. Since December last year, I was plagued with a neck injury that pinched a nerve in my left arm and caused a lot of muscle loss. I also sprained my right ankle in December. That brought on a gouty attack that cause the calf to lose most of its muscle mass because I couldn’t use that leg for a month. I have had to work really hard to put things back to normal since after Chinese New Year. My right leg is back, although lacking a little power compared to my left leg. My left arm is also almost back but the loss of my tricep is visibly obvious and it is a struggle to make 20 pushups. But I am getting there … bit by bit, effort by effort.
On Tuesday 24 May, I managed 50 laps (2.5km) in 65 minutes. That works out to more than a minute over my average 500m timing from last year. (No, its the the video above) In fact, around this time last year, I was doing a lot better than this.
On the whole, May has been a great month with new friends, more opportunities and definitely better trading.
On the weekends of May 6 to 8 and 13 to 15, PTT84 got their Pattern Trader Bootcamp (Weekend Tutorial) and it was a mind-busting bootcamp! Plenty of senior graduates, mostly from more than four years ago, returned to get hit with a wall of information. Not this bunch of highly energetic enthusiasts are going to get hit with another four walls of assignments over the nest two months! Happy Hunting you lot!
As the Tutorial evolves into its next phase of growth, I look forward to the challenges that the digital world will pose for me. As with everything, I intend to take each challenge on with the mindset of overcoming and bettering everything I do. I am coming back from my vacation recharged and ready to take on the last seven months of 2016!
However, as of writing this, Brent closed 4 cents lower than WTI on Tuesday 24 May and was trading 7 cents lower during the close session. This sort of “inversion” between Brent and WTI tends to bring major price swings as was the case in January this year when crude reversed from its deadly downtrend.
Crude traditionally tops out in May and consolidates in June.
Whether this inversion between /BZ and /CL is a signal of an impending downward reversal remains to be seen. But from experience, this inversion has rarely failed to bring a reversal in the trend.
The DOW and S&P may be holding above its year’s open but NASDAQ is still down for the year and flirting with its 200DSMA. The Transports are also down for the year and below its 200DSMA, implying that any joy for the DOW and S&P may be dragged by this working class index.
America’s economic fundamentals look like they’re holding up well and they are still showing to be gainfully employed with the unemployment rate at a seven-year low at 5%. If there are any chinks in its seemingly impenetrable armour, it would be be its Government Debt to GDP to 104.17%, its highest since WWII. This has broadly been the result of Ben Bernanke’s easing policies that brought 4,000,000,000,000.00 American Dollars into the system to keep it from failing.
What can’t be denied are the technicals behind the market’s weakness. When looking at the 10 and 20 month moving averages, it is obvious that the two long-term averages don’t cross for nothing. Every time these averages inverted, the economy went into a serious recession.
Looking at the DOW’s status on the monthly MACD, using the Russian Financial Crisis of 1998 as a benchmark, it is also obvious that the monthly MACD histograms don’t turn red for nothing.
Thus, something is brewing beyond our eyesight that is causing the 10 and 20 month averages to cross over on the DOW, S&P500 and the NASDAQ and for the MACD to be showing such a negative warning. One of the things I am keeping a close eye out for is the ever-tightening spreads on the yield curve.
As of the close of 24 May, the spread between the 5 and 10 year yields have closed to within 45 basis points. At this rate of closure, we might be looking at an inverted yield curve between the 5 and 10 by July this year.
Now that the close of May looms, it would be apparent that May 2016 did have a sell-off even if it does close to the upside. This is good news for 2017 only if the yield curve doesn’t invert.
June is the last month of Quarter Two and can be a rather bearish month. Traditionally, this is more so if May had sold off. June 2016 has 22 trading sessions. There are no public or trading holidays in June.
- June starts out well with the first two days of the month being rather bullish
- The first day of June has been up on the DOW 20 of the last 27 … however …
- … in 2008/2010 the first day was down -1.1% and 2011/2012 was down -2.2%
- The first week of June ends bearishly
- The second week is the exact opposite of the first – it starts bearish and ends very bullishly
- The Friday (10 June) before expiration week is the most bullish day in June
- The Monday of Expiration Week has seen the DOW go down 10 of the last 18
- 14 and 15 June 2016 is FOMC Policy Day (Wed 15 June, 14:00 EST)
- June Triple Witching Day (Expiration Friday) tends to be bearish but in recent years, it seems to have turned things around – DOW has been up 10 of the last 16
- The week after June Expiration has been down on the DOW 22 of the last 25
- Watch for Portfolio Pumping in the last week of Quarter 2 as fund managers illegally jack up the prices of their portfolio’s underperforming securities
- The last day of June has been bearish with the DOW going down 17 of the last 24 and down on NASDAQ for 6 of the last 10
- Crude consolidates in June
- Nat Gas moves lower
- Gold stays weak
- Silver bottoms out
- Copper sees strength
- Soya tops out
- Corn continues to decline
- Wheat bottoms and reverses in mid June
- Cocoa starts an uptrend
- Coffee continues its weakness
- Sugar finds a low and bounces into July
Just like that and we’re into the final month of the first half of the year. Time flies when you’re having fun.
I’d be mindful of Singapore’s economy more than the U.S. The island state is in a dreadful financial state as it battles a Government Debt to GDP ratio of 60.8% which is the highest level of household debt in its history …
… plus 18 consecutive months in negative inflation that has even caught the eye of the IMF.
Interesting times, these.
It has been too many years since we last featured this sector. Although now may not be the time to invest in this sector (seeing how everything is already overbought), I believe we can get a couple of nice cyclical trades out of them.
You’re not going to find a sector with this many fair-valued stocks (with PEs below 15) now so if the economy goes into a major correction, this may just represent some of the best-valued long-term investments that will be worth considering.
This month, we revisit the Homebuilders to see what opportunities this massive sector has in store for us come May and June this year.
Get your copy here: Sector Report, 1602: Homebuilders 2016
April 2016 was my busiest month of the year yet and if history is anything to go by, the back-to-back sold out batches may be indicating that the state of the economies of Singapore and Malaysia are getting worse. And these new Pattern Trader inclusions may just be the smarts ones who took action early.
The last time I was this busy with back-to-back sold out classes was in late 2007 and early 2008. If you signed up in December of 2007, you had to wait will May or June 2008 for your class. These days, the classes are more long drawn and the intake-per-batch is a little more than in 2008. So the wait is about three to four months at worst. I know I can do more by expanding the class size but that is not what the Pattern Trader Tutorial is about. A class with a limited intake of between 30 to 35 students allows for more interaction and quality time. The remaining space of around 15 seats are reserved for past graduates returning to re-sit.
PTTMY32 had their Tutorial over the weekends of 08 – 11 April and 16 – 17 April. This was such a memorable and eventful batch that I was left feeling very empty and lonely on the Monday morning of April 18. It’s a good thing to have friends who drop last-minute invites to have breakfast! Thanks MY32 for a great two weekends and thanks, Yap MG for a great Monday morning breakfast!
After that Monday’s awesome curry mee, on Friday 22 April, PTT83 completed their nine Tutorials in more than eight weeks. This was the third sold-out batch in a row since last year. Now they face the heavy-duty task of completing the Post Graduate Assignments that will hit them over the next four weeks. Good luck y’all, and thanks for keeping me on my toes!
The Pattern Trader Tutorial got its first taste of the all-new Post-Graduate Tutelage (replacing the 5-year old Coaching Tutelage). The traders were made to work together to research and plan various trades and investments on the many sectors, industries and securities that we could break down during this four-session (weekly) Tutelage. It was great fun and I am sure we’re going to make this better and better with each passing batch. Congrats to the first lot of Tutelage Traders!
The Dow Jones and S&P500 were a picture of health for April 2016. The Dow gained 0.50% for the month and is up 2.00% year-to-date. The S&P500 added +0.27% for the month to be up +1.05% for the year. NASDAQ, on the other hand, suffered a hit as a result of AAPL, GOOG, MSFT and TWTR headlining a disappointing quarter. The tech-heavy index dropped -1.94% for the month and closed down -4.63% YTD.
Things don’t look that much better when you consider the indices aren’t higher than a year ago. Dow is down -1.40%, the S&P lost -2.13% and NASDAQ is losing a whopping -4.94% from a year ago.
Earnings have been a mixed bag of hard-hitting losses and conservative beats while guidance has been mostly hawkish. This is not usual for Q1 earnings in a normal market. The main players have been largely disappointing (again) and most are pointing to a weaker future over the next couple of quarters.
As far as its economy and its corporate businesses are concerned, the picture doesn’t get any better.
The US economy expanded an annualized 0.5 percent on quarter in the first three months of 2016, lower than a 1.4 percent expansion in the previous period, and below market expectations of 0.7 percent growth, according to the advanced estimate released by the Bureau of Economic Analysis. It is the weakest performance since the first quarter of 2014 when the economy contracted 0.9 percent as consumer spending slowed, the drag from trade and business inventories worsened and business investment fell for the third straight quarter.
On the Central Banking front, the FOMC Statement on the 27th of April, contained no hints of a possible rate hike while the Bank of Japan followed the Fed on the 28th. The BOJ made no changes to its interest rate, but announced a JPY300 billion, 0%, lending facility for companies affected by the Kumamoto earthquake. That news rallied the Yen and send the currency markets into a frenzy.
Consecutive drawdowns on inventory levels saw WTI gain 20% for the month. On Friday 29 April, WTI hit $46.78pb before retreating to close at $45.99pb. WTI has not been at these levels since November last year. With May having a habitual tendency to force crude prices down, I am advising caution if you thought this might be the oil recovery that goes back to $70pb. I’d wait a while for that yet.
Asian markets after the close on Friday 29 April;
- Japan closed down in April -0.55% and -12.44% year-to-date.
- China finished April -2.18% and is down -16.98% YTD.
- South Korea ended the month -0.08% but is up +1.67% for the year.
- Australia bucked the trend in April by closing up +3.33% but is down -0.82% YTD
- Malaysia ended April -2.61% and down -1.17% for the year.
- Singapore ended a rock-and-roll month -0.08% and is down -1.53% YTD.
For a full perspective on Singapore’s economy and economic outlook, please read Debt & The Next Great Economic Collapse.
May 2016 has 21 trading sessions and one public holiday. May is notorious for having the year’s most fearsome correction. Some Mays in years past (most recently in 2012) are known to wipe out the whole year’s gain in a single month. May starts well but almost immediately goes into one of the most bearish weeks on the trading calendar.
However, if May doesn’t sell off, it is often seen as an omen for the following year which tends to be flat, volatile and/or negative. Such was the case when May 2014 didn’t sell off which resulted in 2015 ending flat after a very flat first eight months and three following months of extreme volatility. Similar occurrences were noted in 2003-2004, 2007-2008, 2009-2010.
For your information, May 2015 didn’t sell off either.
- The first trading day of May has been up on the DOW 13 out of the last 18
- The first two days of May are the month’s most bullish days
- The next three days are the most bearish
- The Friday (6 May) before Mother’s Day (Sunday 8 May) has been up on the DOW 14 of the last 21
- The second week of May tends to be uneventful with a little bullishness midweek
- The Monday (9 May) after Mother’s Day has been up on the DOW 15 of the last 21
- Expiration week tends to be a little bullish
- Monday (16 May) before May Expiration has seen the DOW gain 21 of the last 28
- May Expiration Friday (20 May) has been down on the DOW 14 of the last 26
- The week after Expiration Friday tends to be bearish
- Friday (27 May) before Memorial Day (Monday 30 May) has seen the DOW go down 8 of the last 15
- Monday 30 May is Memorial Day – Markets are closed
- The day after Memorial Day (Tuesday 31 May) has been up on the DOW 21 of the last 29
- May tends to end well but has been down on the DOW 11 of the last 19
- Oil tops out in May and begins a downtrend
- Nat Gas also tops out but tends to consolidate in May
- Gold sees weakness
- Silver tends to peak and reverse in Mid May
- Copper normally corrects in the middle of the month
- Soya peaks and starts declining
- Wheat continues its weakness
- Corn consolidates in a sideways fashion
- Cocoa also consolidates
- Coffee weakens
- Sugar consolidates at the lows
Seriously, since August last year, at all my talks, previews and classes, I have been urging traders to move into commodities rather than get stuck in equities or currencies. That’s where the money has been in the last nine months.
Since then, commodities have been going through their normal annual cycles with metals rallying from November into April (they stall out in May and sometimes even correct), agri-related issues did their usual run in August (although wheat and corn kinda stalled out midway), energy issues returned to their normal cycle of running up between November into May (they too, like the metals, stall and even correct in May and June) and every commodity counter fulfilled their annual obligation of running to higher highs in April.
Of course, it’s just a cycle and as with all cycles, they always come to an end. The question now begs if this “end” could trigger the next round of panic in the financial markets come May. Bonds have been seeing a fresh round of selling in April as yields rose across the board. The longer term maturities saw their yield rise as much as 16bps while the selling on the 2yr was limited to a 10bps gain. All in all, the yield continues to flatten way below par values signalling a move in the big money towards risk in April. However, with volumes in the equity space not improving by much, one can only guess where these monies have gone. Come May, we’ll see if the flight to safety returns as investors and traders brace for what could be a fierce sell-off in the equities space.
Apart from the bearish January this year, everything in the equity and commodities markets seem normal. The economic health of almost every major country however, is in trouble.
For those of you who haven’t yet read my report on Debt & The Next Great Economic Collapse should get to reading it this weekend to know the difference between a market driven recession and an economically drive one.
In 2013 and 2014, I did a series of public talks where I mentioned that the economies of the world may be sliding into a three-year decline as growth shrinks and revenues fall all over the world. This brought on queries as to why I thought that the economy would decline because stock valuations weren’t that high in 2013 and the market was certainly far from bubble levels compared to past market crashes.
My simple reply was that what I saw wasn’t in the market but in the economy. The market isn’t the economy and the economy certainly is not the market. Markets can rise even when the economy is obviously not doing well while the economy can be healthy even as the market makes a 30% correction. The two are not the same thing and there are comparable events to separate the two.
In my talks, I mentioned that the years between 2014 and 2018 could go into an economy-driven decline (recession) rather than a market-driven decline. Economically-driven declines last longer and hurt more than market-driven declines which are usually quick to fall and quick to recover like the ones we had in 2008, 1997 and 1987. Market-driven declines are noisy and spectacular while economy-driven declines are like a slow bleed that kills silently as were the ones between 2000 to 2003 and 1974 to 1985.
Between 2008 and 2012, America’s “recovery” and eventual “growth” was driven by more than US$4,000,000,000,000 that Ben Bernanke printed and pumped into the banks.
From that, along with the many other economies that followed suit, the world benefitted from this massive flow of new money. With the end of America’s cheap money in 2014 comes the reality of the pain it had been masking since 2008.
True to form, the markets that had become so addicted to cheap money, started to wane and falter, most noticeably, China. China then went all the way with its own money printing spree when it desperately tried to keep its markets from falling since 2014. This made us addicted to Chinese new money. Evidently, most of the Chinese spenders have retreated in the last couple of years … somewhat.
So now that the cheap money waterfall is drying up, the true colour of these economies are showing themselves to the world and its not a pretty economic picture.
The fall of crude hasn’t helped. Countries that have been using crude as a reserve have fallen into consecutive negative contractions; Brazil (6 out of 7 quarterly contractions), Venezuela (-7.1%), Russia (5 consecutive contractions), Iraq (-2.2% YonY), Norway (-1.2%), to name a few.
To date, four nations desperate for liquidity have adopted negative interest rates policies; Switzerland (-0.75%), Denmark (-0.65%), Sweden(-0.5%) and Japan(-0.1%). It is rumoured that more European nations are planning to take this route to flush out liquidity. Some have already gone to zero on their interest rates.
Twelve economies that are on zero interest rates include; Eurozone, Germany, France, Italy, Spain, Netherlands, Belgium, Austria, Finland, Ireland, Greece and Portugal.
Ten countries are in consecutive months of negative inflation-rate/deflation; Greece (37 months), Switzerland (19 months), Poland (21 months), Spain (19 of the last 21 months including the last 8 straight months), Israel (19 months), Singapore (17 months), Thailand (15 months), Ireland (2 months), Italy (2 months) and France (2 months).
Deflation is a general decline in prices, often caused by a reduction in the supply of money or credit. Deflation can also be caused by a decrease in government, personal or investment spending. In the current case of Singapore, it’s the latter because the CPI is still near record highs. It is generally accepted that deflation is a problem of the modern economy because it increases the real value of debt and may aggravate recessions that lead to a deflationary cycle. The CPI and the Inflation Rate should never be confused as being the same thing.
This negative inflation/deflationary situation is clearly seen in our extraordinarily high prices (CPI) of almost everything. On the 10th of March this year, the Economist Intelligence Unit (EIU) declared Singapore the world’s most expensive city for 3rd year running. Knowing that we have the most expensive cars in the world and amongst the most expensive housing prices, the report’s ranking of the island state was based largely on the prices of food, toiletries, clothing, domestic help, transport and utility bills.
Personally, I wonder why all our food products and consumer goods are so damn expensive considering every commodity price had fallen between 2013 and 2015 and many are still at their multi-year lows. Nevertheless, the CPI is just below its record highs.
And that is in spite of falling housing prices since Q4 of 2013.
It is quite mind boggling as to where all this extra spending (to drive prices so high) has come from considering our stock market hasn’t made higher returns now when compared to four years ago. Salaries, by and large, haven’t risen considerably in that time either. Businesses haven’t been faring well in the last three years as their earnings would attest.
Thus it doesn’t surprise me when I see borrowings at its highest in the country’s history. The greatest increase in these borrowing have also been over the last seven years.
This has made the island state one of the highest personal-debt-laden countries in the world. Singapore’s current Household Debt to GDP is at 60.80% of its GDP …
… and its GDP is now at Zero.
The current “negative inflation” situation has truly been turning up the heat on those who have been over-leveraged on debt. In the months to come, we’re going to see more of such cases surfacing as they default and begin fire-selling. The smart ones already bailed out of their super-expensive homes and dumped their exotic sports cars before this all came to pass. Others will follow as sure as more jobs are lost.
The job market on the Little Red Dot has gotten tight. Companies are chopping and hacking while others are adopting a hiring freeze and engaging contract workers only.
On 08 April, Singapore’s Trade Minister, Mr Lim Hng Kiang put out a hawkish note that was featured in the Business Times on the country’s future three to five years down the line;
Noting that the International Monetary Fund has been downgrading its global growth forecast almost every year since the Global Financial Crisis, Mr Lim said Singapore is now in a “paradigm of slower growth“. “Meanwhile, there are significant global rebalancing forces that must work themselves out over the next three to five years,” he said.
“The government is watching the situation very closely, and we are prepared to take further action, if necessary,” he added. Uncertainty over global oil prices will destabilise the global economy in the coming years, said Mr Lim.
This is due to too much investment in oil, which has resulted in an oversupply. As a result, global oil supply and prices will continue to adjust. China’s economic transition is another issue that will be a drag on Singapore’s growth, noted Mr Lim, while Singapore’s demographic challenges will see the economy having to adjust to a tighter supply of labour.
Now that the Trade Minister’s outlook matches my outlook from 2013/2014, the question is what kind of direction will the market take?
Between 2000 and 2003, the Dow Jones made a three-year decline (green line) that was extremely painful for investors, especially those who jumped in on every dip in those three years.
In 1966 (blue line), the Dow collapsed and seemingly recovered by 1969 only to get hit by the Nixon Shock (1972) and the Oil Shock (1974) and continued its sideways and volatile trend till 1985. For most of that period, the U.S. was in Stagflation.
Whether the market goes sideways, downward or swing wildly, one thing is for certain – it’s not going up without more pain and pressure even if the economies break out the printing presses once more. No amount of masking is going to work this time and it is apparent that the central banks of the world are out of ideas and out of ammunition.
There’s another thing I mentioned in those talks – this could be the precipice of a global monetary change. Money as we know it, may go through another evolution as it did in 1933, 1945, 1972 and the mid 1980s. But that’s a posting for another day.
For now, if my three-year forecast still holds water, we’re halfway there with 2015 having gone nowhere and Q1 of 2016 looking no better. Thus, if Negative Inflation/Deflation magnifies the level of debt, (and there is so much of it out there now) then this may just be the straw that breaks the camel’s back. With things in the economy as they are and if they don’t improve, I am expecting the drop in Q3 and Q4 and a possible bottom in 2017. Whether the market takes the same route is something the market will decide. I am only bearish on the economy for now.
During one of my Facebook Ad Campaigns, a reader asked if anyone had attended the Pattern Trader Tutorial to give some information about whether it was “useful” or not. To that query, several past graduates and a few current ones responded …
To which, another graduate responded …
And this from a student who needed that little bit more to get going …
It’s stuff like these that keeps me going. It is the best feeling ever to be appreciated.
So thanks to all of you for the appreciation!
Nine years after the launch of the Original Candlestick Patterns Quick Reference Cards along with a 5-hour workshop, I am proud to announce that the much-loved Candlestick Cards and Workshop are now available as an app!
Introducing The Pattern Trader Tutorial’s Candlestick Patterns Mobile App!
The app comes complete with all 72 patterns in its original Quick Reference tutorial as well as Hi-Res Videos of the Candlestick Patterns Workshop. Each pattern is well indexed and numbered so that making Quick References is now easier and faster than ever!