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Archive for May, 2013

Nikkei down 7%, but don’t panic!

Thu, 23rd May 2013 Leave a comment

Chart of FTSE-100 at 22nd May 2013Yesterday evening, the US Federal Reserve chairman Ben Bernanke said that he could start to wind down QE within a few months if the recovery continues, though not stop it completely. This was enough to swing the Dow from positive to negative territory on the day, and overnight, the Nikkei index fell over 7% in Japan. I don’t think it is time to panic yet though; the Nikkei has nearly doubled in the last year so such corrections are to be expected and I imagine that if the Dow continues to fall the Fed will take appropriate action to reassure investors. A booming stock market is viewed as a necessary condition for the “recovery” to continue as it encourages US private investors (of whom there are many more than in the UK) to keep spending.

Looking at the chart, I think a drop in the FTSE (which is just above 6700 at the time of writing) to support around 6500 would be reasonable, before the bull run continues.

We’re in a bubble…

Wed, 15th May 2013 Leave a comment

Chart of FTSE-100 at 14th May 2013… so how high can the markets go? Personally, I wouldn’t be surprised to see the FTSE hit 10,000 within two or three years. All the quantitative easing from the Fed, the Japanese central bank and maybe even soon the ECB is fuelling a bubble in shares. The banks have to do something with this new money and they are buying shares and other assets. We haven’t reached the mania stage yet where no one expects the markets to fall – they are still climbing their “wall of worry” – so there is quite a way to go before the bubble bursts. (The AAII sentiment survey is still showing bullish sentiment below the historical average). On the Price/Earnings ratio measure, stock markets are not overvalued, and could comfortably rise 50% before reaching the sort of valuations seen in the dot.com boom. As long as the US maintains positive economic growth, there will be talk of “recovery” which will be used to justify the rise in stock markets, but I cannot see the debt crisis doing anything other than getting worse. That means that the economy will not really heal as people will continue to feel squeezed by austerity measures. At some point the market will start to worry about major governments defaulting on their debts, which would wipe out banks’ reserves, and there will be a crash. The longer it takes, the bigger it will be.

No crash yet then!

Sat, 4th May 2013 Leave a comment

Chart of FTSE-100 at 3rd May 2013Well, I got yesterday’s call completely wrong; the job numbers in the US were better than expected and the Dow briefly broke the 15,000 barrier, dragging the FTSE above 6500. The decline from the March peak is over now and a new bull run is to be expected, though it could start quite slowly. The Dow may consolidate for a while around 15,000 and I suspect the FTSE will go essentially sideways for a few weeks.

It all seems quite irrational to me given the unsustainable amount of debt that Western governments have, but, as the saying goes, the market can stay irrational longer than you can stay solvent.

Categories: Stock Market

Another dip is in order

Fri, 3rd May 2013 Leave a comment

Chart of FTSE-100 at 2nd May 2013After a good surge, there is pattern that looks like a local maximum: a horizontal series of three small peaks each slightly higher than the last. I am expecting a dip below the 20 day moving average (the green line) for a day or two, before the rally continues. How high the rally goes is a good question; I am not sure whether the decline after my March peak has finished or not. I am hoping not and that the index will not go above 6500, but we’ll have to wait and see. Again, it is not following the pattern of the chart on my last post as well as I’d like for me to be confident of another crash.

Categories: Stock Market