Markets have been interesting (at last… it’s been dead dull for a year+ now). Over the pond in “Europe” (that somehow seems to exclude anyone in Europe who doesn’t agree to be punished by the E.U. Club) folks are running around hair on fire screaming bloody murder just because most of the population of the U.K. realized that were getting shafted and voted to get the hell out of an abusive relationship and leave “the club” (or the application of the club…)
Now markets are down, and to listen to the talking heads on the Progressive Mainly Slime Media it is the end of the world as we know it and everyone in the U.K. is now going to be punished by God (or Angela… but they repeat themselves) for such audacity.
But what’s the truth? What do markets really look like in context? First off, remember that a move of 3% in a single day is absolutely common. Not worth noting at all, really. A 6% move ought to be investigated to find out why, but almost always the answer is “it was too high and short sellers saw a chance to profit”. How can you tell? A market at the top of a run up compared to the long term trend. (Bottoms and time to buy are spikes down away from the long term trend). Both happen with Great Regularity. It is the one thing reliable about markets. They are characterized by waves and rolling prices.
Here’s a 2 year chart of EU stocks in a basket (ETF Exchange Traded Fund) named EZU
vs other ‘by country’ ETFs:
EWG Germany, EWQ France, EWU Great Britain
SPY S&P 500 USA , TLT long term US Govt Bonds, FXB The £, GLD Gold fund
This chart is from Bigcharts.marketwatch.com
First thing to notice is that TLT US Bonds is rising and has been the whole time (with the inevitable rolling aspect).
That is because The Fed has been keeping money near zero and our economy isn’t completely dead yet. Especially compared with the R.O.W. (Rest Of World). When things are hell in Venezuela, sloppy in China, and on edge in the EU, money runs to US Bonds. (Much of it Arab Oil Money… so trouble in the Middle East causes it too…)
Next, notice that the S&P 500 has been dead flat over the same period (with obligatory roll). Yes, at the end it was up 5%, but that’s just the top of a roll. Now it’s rolling back down. This is a surprise? Had it not been Brexit, it would have been ISIL, or a flood in Virginia, or a news report about China, or… They Talking Heads just pick the news of the day and assign causality. That it was “top of the roll” is why it went down.
Next, look at that stray line that breaks away from the pack about February. That’s gold. THE trade right now is “long gold” as I’d noted a week or two back. Also note that Right Now it is at the end of a one month run up (roll) so it isn’t the best time to toss new money at it. Buy a dip instead (likely next week or two). But clearly shy money is avoiding stocks and negative interest rate bonds and moving into “no currency risk” gold.
(IMHO, gold is “just another currency” and it really does have currency risk, but most folks don’t think that way.)
OK, what’s left?
That whole “Pack” is various cuts of the EU. Mostly just the big boys (Germany, France, UK). The EZU is a basket of the entire Eurozone, but is dominated by Germany and France, so no surprise that they run together.
The key point here? Being in the Eurozone has not been a big winner. “From upper left to lower right” is losing. Now these things are being measured in $US, that has been rising. But just selling out of the EU and putting that money in $US assets would have won as compared to sitting in € assets. That’s sort of the point.
As a member of the EU, the UK wanted to match the € on average (that’s the usual goal for major trade partners). As an independent UK, it can now go its own way. IMHO, it is leaving a dropping trend and can now gain strength.
Now, the indicators:
RSI was “near 80” long before the BrExit vote. That says “going down soon”. Any surprise it went down?
MACD had crossed over the zero line about 2 weeks ago and was “red on top” and “mouth down” – i.e. going to head down.
DMI was “red on top” about 2 weeks ago. ADX 20 and rising. That says “going down and accelerating”.
All these things ‘pre-vote’. IMHO this shows that the vote is just a scape goat for the downtrend and rollover from a high. From inside the EU, that downslope of 2 years is likely more of a flat. That just says that “screwing the currency” was hiding the reality. Given that the $US is being buggered with massive money printing, where’s the surprise that something dropping relative to it is maybe doing the same…
Sidebar on Greenspan: On Bloomberg, there was an interview with Greenspan. He pointed out M2 (Money supply) was rising at a steady 6% or so rate, then said that while he could not say when, that always leads to lots of inflation. Look again at that GLD line… and the FXB line…
So, to my sensibilities, it is time to do a “risk-off inflation-ready” posture. To that end, I need to end my “mostly just sitting around in $US posture”. It was fine when we were going nowhere fast and I wanted a bit of a vacation. Now it is time to get back to work. The “usual suspects” for a risk off inflation ready? FXF the Swiss Franc, GLD and SLV metals, outside of traded funds “collectables” and real estate. You know the drill if you lived through the ’70s.
In a future posting I’ll look over the REITS and metals more closely.
Generally, a full on market panic has down thrusts that last about 3 days, then drift back up over a week or two. Wash and repeat to a full on “capitulation” on very high volume at a spike shaped bottom. We are not there yet. So I’ll be doing shorter trades based on 10 day charts until a clear bottom is in. While that is happening, it is time to make a U.K. Shopping List. (Hey, it’s on sale! About 20% off!! Woo Hoo!) I don’t know much about U.K. stocks and less about those available as ADRs (American Drawing Rights – a foreign stock on a US market). So I have some homework to do.
IMHO, it will be about 3 weeks to a month to the ‘best buy’ point, but with lots of tradable ripple in between. (Exact length to depend on the EU Kommissars and what stupid they do).
The Close Up
This is a 10 day hourly chart. Good for day trading to swing trading (couple of days).
We have an “open down then rise off the bottom” today. So the market makers are happy to buy at this level. Likely a “good enough” entry point, but they can ‘lay off the risk’ via options, so it is sometimes the case that it goes down a bit more tomorrow, then rises mid day. That would be my target entry.
Gold spiked up, and is slowly rising into the close. Still excess demand there.
Next, notice that there is a ‘hump’ in last week. Things bounced up about 6% then for no good reason. Beware of news talking heads saying stocks or the £ are down “14% !!!!” and not pointing out it was from an up spike of 6% last week. This is a classic ‘whipsaw’ trade event where professional traders were caught out on the wrong side, and panicked hard to the other side on news.
To the indicators:
RSI is “near 20” (actually on it) and that says “trade ending soon”. As that would have been a “shorting” trade, I’d expect to see short covering starting this afternoon into tomorrow. I.e. market maker has been buying today, so closes low, open higher tomorrow. Perhaps even a gap up open so they lock in the gain from what they had to buy today. (Yes, I know that conflicts with what I said above. That was my ideas this is what the indicator says… they are different.)
MACD looks to be approaching a crossover. Likely a ‘buy point’ this afternoon. It CAN just ‘go flat’ in a slow steady decline phase, but the price action looks static, not falling. (Remember this is an ETF traded in US markets when the UK underlying may be closed).
ADX is near 50, so very high strength to the move, yet DMI is “red on top but about to cross” that happens when the trade is ending. Not quite blue on top, but headed that way. Risky and most potential gain trade is ‘buy now’, less risky but OK trade is ‘wait for it’… (on the 15 minuted chart it has already crossed over, so for a day trade it is a go, but for folks not watching the trade every 15 minutes… it’s a wait…)
So overall, this chart is saying “time to buy or soon”. For a day-or-two swing trade.
Personally, I’m still feeling lazy, so will likely wait for tomorrow to put on a trade. Things rarely shoot up off an event like this, so I’d expect there’s time for a ‘good enough’ entry. Remember there is a 3 day ‘settlement period’ so folks who “shorted” on Friday, don’t get the money to buy back until tomorrow… (Deep Pockets don’t care, but many traders do). It would also be best to look directly at the Eurozone tickers to pick the buy as that avoids the ETF tracking errors and timezone issues. Remember I’m at the exactly wrong end of the DateLine for this market…
I’m going to be “piecemeal” on the financial postings for a while. It lets me ‘get it out quick’ for any given item even though there isn’t a big picture context.
This posting is about the Eurozone / UK markets only (though measured against the USA). In future postings I’ll be looking directly at USA stock markets, metals, and other segments.
IMHO, it is almost “time to be among them”, and the long 2 year drought of USA action is nearing an end. It looks like an inflation-soon bias is needed (bonds roll over then, stocks more sideways) but with significant “news driven trades” available as Brexit matures and with a whole lot of “Central Bank Did What?” risk. News risk.
For right now, there’s a firesale price on the UK, and to some extent EU. I’d bet on the UK first, as it is getting a world of freedom that is being under priced in their markets. The EU will continue (and accelerate) the downtrend in that chart above as they continue to accrue burden from southern tier economies, but minus the UK profits. Having a pair trade of “long UK short EU” over a 3 year time horizon ought to be a win, IMHO, but long LEAPS like that are hard to find.
So that’s my take on things at the moment. Remember, as usual, none of this is personal investment advice to anyone. It is only my ideas about what I want to do with my money. You make up your own mind for you. This is free commentary, and worth everything you paid for it…