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By July 11, 2012November 20th, 2023Market Commentary, Uncategorized

Gary’s Comments

World equity markets have taken the first steps that are mandatory for a change in trend back to UP. In fact, by definition the short-term trend is already up but not so quite yet from a medium term and longer term viewpoint. Therefore, it may still be a little early to start piling into equities again. More price action evidence is required.

Of course, there is no guarantee that if that evidence comes forth that it may not turn again very quickly to down. That is the investing world in which we now live. Get used to it. At least for the next few years. Boom times in equities will abound again, we just don’t know when. Until then we need to prepare as if it could happen very soon but simultaneously protect our capital from any major downturn that could occur.

If you have been following my blog articles on planning for retirement it is obvious that more risk needs to be taken that merely remaining in cash for the rest of your investing life. However, the challenge of managing that risk has got increasingly more difficult. But isn’t that what investing is about, risk management.

Back to the markets. My technical reason for the short-term up trend? Just about all international indices have completed higher lows and higher highs over the last month.

I have been asked which markets I include in my regular analysis. Well here goes. In the USA, the DJIA, S&P500, Nasdaq Composite and Nasdaq100, the S&P400 Midcap, S&P600 Small Cap and all three Russel indices have completed higher lows and higher highs. In Europe the STOCXX50, FT100, DAX, TecDAX, CAC40, IBEX35 (Spain), MIB30 (Italy), SMI (Swiss) and BEL20 (Brussels) have completed this pattern as has have the Asian indices in India, Singapore (STI) and Hong Kong (Hang Seng). The laggards are China (SSEC), Brazil (Bovespa) and Korea (KOSPI) which did not complete a higher high after their higher low. It takes me around 2 – 3 mins to step through these markets which I do at least weekly but in times like this daily.

Most of these higher highs and higher lows have bounced off key support levels too. So the first steps are there for a rise in equity markets but, as always, resistance zones lie overhead and these do need to be watched as do the key support levels as markets advance.

Another factor is that volatility levels have been falling which is synonymous with a rising market. In these precarious times all these need to watched with an eagle eye to both take advantage of opportunities and to manage risk and protect capital. Right now, putting aside conjecture about what may happen, price action favours equities markets rising further.

Overseas Markets Report
Index Close % Change Intelledgence
Risk Status
Short Term Trend Long Term Trend
Dow Jones 12653.12 -1.70% Low – Neutral Up Down
SP 500 1341.47 -1.76% Low – Neutral Up Down
Nasdaq 2902.33 -1.66% Low – Neutral Up Down
FT 100 5664.07 -0.42% Low – Neutral Up Down
Dax 6438.33 -2.13% Neutral – High Up Down
CAC 40 3175.41 -2.93% High Up Down
Nikkei 8857.73 -2.30% High Up Down
Hang Seng 19396.36 -1.72% High Up Down
SSE-All 2164.44 -2.90% High Down Down

Commodities markets have all fallen to key support levels and then bounced. The CCI (Continuous Commodity Index) and CRB Index have both jumped. Wheat, Soybeans, Corn, Oil and Copper have been the biggest contributors to the rise.

Gold is heading for a ‘corner’ as a symmetrical triangle forms with lower highs and higher lows. Expect a resolution of this over the next week or two with a breakout to the upside favoured. A clear break above $1640 might be the initiation of Gold’s next major move. Alternatively, the sideways movement between $1550 and $1640 may continue. There is a significant support zone between $1510 and $1550. If this zone does not hold then expect a substantial move down to the $1410 – $1440 zone although I believe this to be a very low probably.

All these commodities and others that make up the CCI can be visually analysed in around 2 -3 minutes. All my past analyses for indices, commodities, currencies and bonds are saved on my charts and automatically displayed as the watchlists and workspaces are stepped through. With a half decent technical analysis tool this should be very simple to set up. Doing the analysis and saving it for future display and updating will require a basic knowledge of technical analysis. But I do provide all my saved analyses on all these charts for our customers on a regular basis to update with a single click .

Index Close % Change Intelledgence Risk Status Short Term Trend Long Term Trend
Brent Oil 97.97 -2.69% High Up Down
Gold 1579.8 -1.12% High Up Down
Copper 339.8 -2.05% High Up Down
Lead 1863 -1.97% High Up Down
EURUSD 1.225 -2.82% High Down Down
US $ Index 83.4 1.98% Low Up Up
CRB Index 288.65 1.56% High Up Down
Silver 2688.2 -2.24% High Up Down
Zinc 1852.5 -2.76% High Up Down
AUDUSD 1.0189 -0.89% Neutral – High Up Down
Platinum 1429.7 -1.96% High Up Down
The completion of the higher low and higher high can be seen below in the chart of the S&P500. The key support zone is between 1300 – 1320 as shown by the horizontal blue lines. A fall below a key support zone for a couple of days is fine, as occurred at the beginning of June but not for a week or more.
The 38.2% retracement level is depicted at 1289.59. At this stage it is fair to say that this support level has held and that the probability is on the side of the index continuing to rise.
Last night’s down bar should therefore reverse in the next day or two for price action to continue in the direction that this pattern indicates, which is higher.
The SMA 200 is rising and the SMA 40 has flattened. The weekly SIROC still hasn’t turned up yet indicating that it is still a little early to begin increasing exposure to this market.
A break for more than a week below the 1290 – 1300 zone would be very bearish.

A market breadth indicator that is used to gain an insight into how markets are tracking is the New High New Lows indicator. This is one that I keep an eye on from week to week, the NYSE New Highs New Lows. Basically, if it is decreasing then there are more stocks making new 52 week lows and if rising then there are more stocks making new 52 week highs. Note how the gap between the New Highs and New Lows has jumped in the last two weeks. Whilst this can be a lagging indicator, caution should be taken when it falls below the SMA 40, even rapidly reducing exposure from equities.
As at 10 July it was 93 to 28 in favour of the New 52 Week Highs compared to New 52 Week Lows from the NYSE Composite Index.
A similar breadth indicator is available for the Nasdaq Composite. It crossed back above its SMA 40 on 3 July.

Local Market Report
Index Close % Change Intelledgence Risk Status Short Term Trend Long Term Trend
All-Ords 4137.9 -0.68% High Up Down
Information Technology 489.8 -1.47% High Down Down
Consumer Discretionary 1230 -0.45% High Up Down
Materials 9349.2 -2.33% High Up Down
Energy 11794 -1.82% High Up Down
Financials excl Property Trusts 4749.3 -0.46% Low – Neutral Up Down
Financials 4168.5 -0.37% Low – Neutral Up Down
Consumer Staples 7712.1 0.36% Low Up Up
Health Care 9223.3 1.31% Low – Neutral Down Up
Telecommunications 1303.5 2.06% Low Up Up
Industrials 3211.4 -1.26% High Up Down
Utilities 4862 0.43% Low Up Up

The short-term trend for all the ASX sectors are up bar two. The traditional defensive sectors of Consumer Staples, Health and Utilities are in long-term up trends as is the Telstra sector.

As the bottom RSC (Relative Strength) chart shows the All Ords continues to underperform the S&P500. The major support zone for the All Ords is between 4090 and 4225, a zone that the All Ords has hardly been able to breakout of. Whilst the All Ords did complete a higher high it was only just. I remain unconvinced of the Australian market for the time being. The opportunities in our market continue to remain in the small to mid cap stocks which are not running at the moment. If the international indices do continue to rise then look for opportunities in those sectors in the weeks to come.

It is unlikely that the All Ords will have a major down turn that is not instigated by the international markets but the reverse does not necessarily apply, that is, international markets could have a nice run and the All Ords just not partake in it. Hence my suggestion to keep an eye on the XEC (Emerging Markets Index), XSO (Small Ords), XSI (Small Industrials), XMD (MidCap) and XSR (Small resources).

An abbreviated video clip of approx. 6.5 mins from my appearance last week on Your Money Your Call includes a brief discussion on the Australian equity market.

The SPA3 public portfolios continue to outperform the market by a large margin. See the performance table below that shows the comparative compounded annual returns.

Portfolio Summary
Portfolio 27/06/2012 4/07/2012 11/07/2012 Weekly Move % Top Mover % Gain Transactions
SPA3 Portfolio – Risk Profile 1 $624,769.01 $626,255.56 $626,873.05 0.10% TLS 1.34% 0
SPA3 Portfolio – Risk Profile 2 $377,244.72 $378,475.33 $377,972.58 -0.13% DMP 1.47% 1
SPA3 Portfolio (Revised Edge) – Risk Profile 2 $388,825.34 $389,595.50 $391,414.08 0.47% SGH 2.63% 1
SPA3CFD Portfolio $42,002.07 $42,042.45 $42,042.45 0.00% 0.00% 0
Intelledgence $401,750.74 $407,537.58 $405,334.53 -0.54% TWD 3.75% 0
Compounded Annual Return
Portfolio 1 Year 3 Year 5 Year 10 Year
SPA3 Portfolio – Risk Profile 1 -5.78% 4.73% 3.39% 15.40%
SPA3 Portfolio – Risk Profile 2 -14.66% 0.48% -4.13% 11.30%
SPA3 Portfolio (Revised Edge) – Risk Profile 2 -11.62% 1.66% -3.45% 11.69%
SPA3CFD Portfolio -25.37% 9.94% N/A N/A
All-Ords -11.01% 2.94% -8.26% 2.78%
All-Ords Accum Index -6.72% 7.33% -4.23% 7.17%

Share Wealth Systems provides more detail on all of the above items at our eUGMS. The eUGMs are weekly multimedia presentations available to Share Wealth Systems members only.

The figures used in this Active Investor are based on data prices as of: 10/07/2012

[qt: 640 360]


  • David Lougher says:

    The comments above are interesting , however I believe there is a paradigm shift(growth is stalled) for investors with regards to equities and markets will remain soft(difficult) for some considerable time(years) a riskier trading(cfd’s) as opposed to investor equity strategy may become relevant?Australia will continue to lower interests rates to stimulate the market.QE3 will only be a band aid , China is having a adapt to lower growth prospects . It will be interesting to have some news from Gary regarding the Forex mechanical system.How will it be structured? will it have similar money management?

    • Gary Stone says:

      Response to Comment by David:

      Your comment regarding paradigm shift has inspired me to write a separate blog as a response. In fact it could require a set of blogs to fully espouse my views on the shift. Maybe more on that in future blogs.

      Regarding the Forex mechnaical system. The money management will have similar principles to the Revised SPA3 Money Management rules that are on the verge of being released (next 3 – 4 weeks) but being a highly leveraged market will not be exactly the same. The risk and money management will be determined by simulated portfolio equity curve research of multiple open FX positions. This means that we will devise money mnanagement concepts and then do the exploratory simulation to allow the research to tell us what the rules should be rather than the other way around.

      The system is still in research – in fact it may be a number of inter-related systems to capture different types of trends. This is my number 1 research project at the moment but doesn’t always get my full undivided attention..

      In closing, it would be a mistake to ignore trading methods, approaches and instruments that have worked well in the past.


  • Rohan Halfpenny says:

    Gary you obviously know the markets. I am surprised however that in the May 12 downturn your trading system got out so late. I really like your work. I’m really interested in when the next March 8 2009 and November 23 2008 ‘type’ bottoms occur.
    Cheers, Rohan

    • Gary Stone says:

      Response to Comment by Rohan:

      Yes, the SPA3 High Market Risk signal was a week late. SPA3 being a mechanical system doesn’t predict, it merely reacts to price action. We calculated that the ALL ORDS needed to close 0.7 lower at 4342 on May 11 to have generated the HMR signal a week earlier. It generated an exit on the S&P500 and Nasd Comp on May 4.

      It doesn’t get it right every time but certainly does enough to have a substantial edge over the market. Such is mechanical trading.

      As to when the next major runup is, I don’t know with any certainty so would prefer not to go public on it. Although the longer we track sideways, from a technical veiwpoint, the closer we get to decent run on the equity markets. Another scenario is of course a major sell off followed by sharp V bottom.


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