July 2016 In Review, August Preview

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).

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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.

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PGT02

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.

MARKET MATTERS

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?

UNITED STATES

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.

INDU

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.

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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.

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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.

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SINGAPORE

If you had bought anything in June or July 2012, you’re not making money today. (STI, below)

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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.

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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.

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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 Preview

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 Trivia

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.

Monday 1
• Manufacturing PMI for US, UK, most of Europe

Wednesday 3
• Services PMI for US, UK, most of Europe
• US ADP Employment Change
• US ISM Non-Manufacturing PMI

Thursday 4
• UK BOE Inflation Report
• Australia RBA Monetary Policy Statement
• UK Official Bank Rate, Monetary Policy Summary

Friday 5
• US Non Farm Payrolls, Unemployment Rate

Thursday 11
• China Industrial Production

Friday 12
• Germany GDP q/q
• Europe Flash GDP q/q
• US PPI, Consumer Sentiment

Sunday 14
• Japan Prelim GDP q/q

Monday 15
• Australia RBA Monetary Policy Meeting Minutes
• US Empire State Manufacturing Index

Tuesday 16
• UK CPI
• German ZEW Economic Statement
• US CPI, Building Permits, Industrial Production, Capacity Utilization

Wednesday 17
• US FOMC Meeting Minutes
• Australia Unemployment Rate

Thursday 18
• US Philly Fed Manufacturing Index

Monday 24
• Europe, France, Germany Flash PMI (Services & Manufacturing)

Thursday 25
• (Tentative) Jackson Hole Symposium – 25 to 26 August

Friday 26
• UK GDP Second Estimate q/q
• US Prelim GDP q/q

Tuesday 30
• US Consumer Confidence

Wednesday 31
• US Chicago PMI, ADP Non-Farm Employment Change
• China Non-Manufacturing PMI, Manufacturing PMI

Commodities

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.

SUMMARY

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?

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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.

Happy Hunting!

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