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Active Investor e-Newsletter

May 10, 2012
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Gary’s Comments

Here we go again. Another round of fear, uncertainty and doubt (FUD). One might argue that FUD  always exists, it is just the amount of energy that it is afforded relative to the amount of energy that confidence is afforded that determines whether positive or negative holds the sway.

Then the question usually begs what causes the FUD, or confidence, and, is it warranted? In my opinion, when it comes to investing, knowing and understanding what the causes are doesn’t matter at all to each of us at an individual level. All that matters to us individually is that we have an alert mechanisim against which we can act accordingly.

When ‘confidence energy’ is higher than ‘FUD energy’ people feel good and make decisions that are aligned with outcomes that are expected to be positive. This is when people DO things. And when ‘FUD energy’ is higher, decisions are aligned with outcomes that are expected to be negative. This STOPS people from doing things. Why would you do something if you expected a negative outcome?

Feelings eventually change from FUD to confidence when the herd (I include leaders of political ilk in the herd) realise that the outcome will not be as negative as what was expected and that it has all happened before. That may require some changes in some or many of the variables that play a role in the given environment.

The fear at the moment is about sovereign debt default, as it was at times last year and at times the year before that. Like sovereign debt default has never happened before! May I suggest that you do some reserach on sovereign debt defaults. You will find that it is far more common than you realise and has been occurring for centuries, even in large economies far larger than Australia’s.Click here to determine the size of different economies. Click here to start your research on historical sovereign debt defaults.

However, be that as it may, being a bit more informed is NOT going to change confidence levels – there are just too many variables involved than just knowledge about causes. That is why being able to read sentiment is a far more practical skill than having more fundamental  knowledge about companies and economies. Determining net overall sentiment takes all the variables into account and leads you to the result of the causes. And the net result is far more important than knowing the cause when it comes to your financial investments. Knowing the result is achieved via interpreting price action on financial markets – the envioronment in which the net of all the ‘FUD energy’ and ‘confidence energy’ is accutely measured.

At the moment ‘FUD energy’ holds the sway in the short term. And when ‘FUD energy’ holds the sway one must interpret the financial markets on a day by day basis to determine what action to take to protect one’s financial investments. And when sentiment turns again in favour of ‘confidence energy’ one must have a plan to act. See my analysis below on the current status of financial markets.

PS: I am holding a webinar tonight, Thursday 10th May, at 7pm AEST that will discuss the best Managed Funds performance in Australia over the last 10 years, how you can handsomely outperform them and how you can use a short daily process to determine the net balance of ‘FUD energy’ versus ‘confidence energy’ and what action you can take in your portfolio. Click here to watch a recording of the webinar.

Overseas Markets Report
Index Close % Change Intelledgence
Risk Status
Short Term Trend Long Term Trend
Dow Jones 12835.06 -3.27% LOW – Neutral Down Up
SP 500 1354.58 -3.40% LOW – Neutral Down Up
Nasdaq 2934.71 -4.09% LOW – Neutral Down Up
FT 100 5530.05 -4.85% HIGH Down Down
Dax 6475.31 -3.51% Neutral – HIGH Down Down
CAC 40 3118.65 -3.34% HIGH Down Down
Nikkei 9045.06 -5.00% Neutral – HIGH Down Up
Hang Seng 20330.64 -4.59% Neutral – HIGH Down Up
SSE-All 2408.59 -1.22% LOW Up Up
 

All commodities are weaker on the back of weaker equities around the world. Gold has fallen below a key support zone of  $1600 – $1626. The next support zone is the $1525 – $1550 zone where there is also a major horizontal support level. If that zone doesn’t hold then $1450 – $1475 may be on the cards. 

With Copper, the $360 – $365 support zone needs to hold to halt this down movet to turn and take on the $400 zone again. If it doesn’t hold then the next support zones are around $350 and then $325.

It is a case of the US$ against the world at the moment as it strongly maintains its safe haven status despite all the hurdles that the US economy faces. It is nearly a lone green line in the table below.

Commodities
Index Close % Change Intelledgence Risk Status Short Term Trend Long Term Trend
Brent Oil 113.2 -4.23% HIGH Down Down
Gold 1594.2 -3.62% HIGH Down Down
Copper 365.95 -3.37% HIGH Down Down
Lead 2036 -5.32% HIGH Down Up
FX-$-EUR 1.2935 -1.70% HIGH Down Down
US $ Index 80.08 1.20% LOW Up Up
CRB Index 294.83 -3.04% HIGH Down Down
Silver 2924.1 -4.58% HIGH Down Down
Zinc 1936 -5.51% HIGH Down Up
FX-$-AUD 1.0052 -2.73% HIGH Down Down
Platinum 1499.2 -4.17% HIGH Down Down
 

The S&P500 found support at the 1340 level after completing a lower high above 1410 and making a new short term low below 1360. This indicates a short term change in trend to down. The question is whether it will turn into a medium term and longer term down trend.  SPA3 has indicated a ‘sell’ in the medium term – the red down arrow – as has the Nasdaq Composite but not the Nasdaq 100 nor the DJIA.

The 1340 level is the 23.6% Fibonacci retracement level of the runup from early October 2011. A very strong rising market would find support and rise form here. A strong rising market would find support around the 38.2% level which at or around 1290.

The two blue horizontal lines show a strong horizontal support / resistance zone between 1300 – 1320.

These are all key support levels one of which should hold for this rising trend to potentially continue to make a new high above 1422 and then rise to the next two targets of 1450 and then 1483 (138.2% Fibonacci extension).

S&P 500

 
Local Market Report
Index Close % Change Intelledgence Risk Status Short Term Trend Long Term Trend
All-Ords 4332.2 -3.83% Neutral – HIGH Down Up
Information Technology 524.1 -3.25% Neutral – HIGH Down Up
Consumer Discretionary 1276.7 -2.53% Neutral – HIGH Down Up
Materials 10318.8 -7.01% HIGH Down Down
Energy 13202.3 -8.36% HIGH Down Down
Property Trusts 877.3 -0.22% LOW – Neutral
Down Up
Financials 4238.9 -1.88% LOW – Neutral Down Up
Consumer Staples 7724 -0.80% LOW Up Up
Health Care 8977.7 -1.42% LOW Up Up
Telecommunications 1253 1.85% LOW Up Up
Industrials 3568.3 -5.35% Neutral – HIGH Down Up
Utilities 4670.7 -2.65% LOW – Neutral Down Up
 

Since late March the All Ords started slightly outperforming the S&P500  – see the RSC graph below. This was due to some of the Australian larger cap stocks such as our banks starting to make a move. The small caps lead the charge from mid December and now there are signs, although small, that larger cap stocks are starting to strengthen. If they do and then the smaller caps rejoin the campaign (they are due to having had a healthy retracement) we could be in for a jolly time in equity markets. However, there are some headwinds to get through first.

We have had 3 ‘big red’ trading sessions over the last week but everything known to man gets tested. And this equities trend that started late in 2011 is getting tested right now. If it passes the test then that will be hugely positive for equities so don’t quite start running for the hills yet. I’m not saying it will pass the test just that the evidence at hand right now is still with the up trend in the medium to longer term and we should hold our nerves and stay with that decision until we have evidence to the contrary. Suggesting otherwise right now is a pure guess.

The XAO closed below the 23.6% Fibonacci retracement level yesterday. It needs to confirm or deny that break below in the next couple of trading sessions by remaining below or going lower. If it falls further then finding support around the 4253 zone would still support the up trend that started in early October 2011 as a 38.2% retracement is quite healthy provided a new high can be made from there.

If the 38.2% 4253 area doesn’t hold then the All Ords could retest the 4100 – 4200 zone (blue rectangle) yet again. This would yet again dent confidence in equities that would take some time to rebuild.

Keep an eye on these levels of support and resistence.

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.

All Ords

 
Portfolio Summary
Portfolio 25/04/2012 2/05/2012 9/05/2012 Weekly Move %
Intelledgence $424,442.98 $443,319.72 $424,442.98 -4.26%
SPA3 Portfolio – Risk Profile 1 $684,014.33 $695,855.22 $660,791.24 -4.45%
SPA3 Portfolio – Risk Profile 2 $413,934.66 $413,780.68 $389,401.45 -5.89%
SPA3 Portfolio (Revised Edge) – Risk Profile 2 $433,938.53 $438,177.28 $417,515.02 -4.61%
SPA3CFD $53,407.87 $54,993.51 $48,153.20 -12.44%
 
Compounded Annual Return
Portfolio 1 Year 3 Year 5 Year 10 Year
SPA3 Portfolio – Risk Profile 1 -1.63% 5.97% 6.93% 16.26%
SPA3 Portfolio – Risk Profile 2 -16.41% 1.79% -1.54% 11.39%
SPA3 Portfolio (Revised Edge) – Risk Profile 2 -10.37% 4.18% -0.16% 12.17%
SPA3 CFD -20.90% 14.88% N/A N/A
All-Ords -10.34% 3.39% -7.33% 2.80%
All-Ords Accum Index -6.21% 7.70% -3.31% 7.16%
 

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

The figures used in this Active Investor are based on data prices as of: 09/05/2012

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15 people like this post.

Comments

  • Ralph says:

    Hi Gary,
    The links you provide in this article are real eye openers.
    Seems nothing is new as its all happened before so why are we all FUDDED ????