Tipping Point in the Global Economy

Tipping Point in the Global Economy

President Trump could not have chosen a more opportune time to initiate the trade war by levying additional import tariffs on China and other countries. The process started in Jan 2018. The US stock indices reached their peaks in Jan 2018 and they could not have risen higher despite whatever good news might have poured in subsequently. This means that they were already inflated considering the average projected earnings of the constituent companies and that the markets were ignoring the higher yields on bonds in the wake of increasing Fed rates.

The slide below, which shows comparative line graphs/ charts of a few, highly inflated assets in the past clearly indicates the above.

Please refer to my post dated February 5, 2018, the link of which is given below:

https://commoditycurry.blogspot.com/2018/02/beginning-of-global-crash.html

What started as a knee jerk reaction in the US stock markets towards the fag end of January 2018 (Jan 29, 2018 to be precise) and which continued through the month of February 2018 formed a very clear and distinctive two monthly candlestick chart (for the months of Jan-Feb ’18) indicating reversal. The candlestick chart of DOW given below is being considered as a sample and a comparative old chart of silver is also being given in the following slide.

Nifty

Historically (during past 3-4 years), Nifty has always taken a lead in establishing a bearish trend ahead of DOW. So has also been this time. Nifty has formed a bearish engulfing pattern on two monthly candlestick charts. Needless to mention that Nifty is in a confirmed bearish trend.

A weak USD against INR is most likely to help sustaining the Nifty being range bound between 10100 and 10900 for next two months.

USDINR

Dollar crossed past Rs.74 in the current month and may close above or around this level by the end of October, however a pullback is imminent as a reversion to the mean. USD will certainly see a dip to the levels of Rs.69 by the next Fed meeting scheduled for December 18-19.

A most likely 0.25% rate hike in December 2018, will again lead to dollar’s strength taking it back to Rs.74-75 level. This could possibly be the cause of second wave of sell off of the Indian indices and stocks.

EURUSD

A possibly weak USD, generally against Euro and other currencies for next two months can at best help sustain the US stocks and indices at current levels, beyond which the US stock markets are most likely to enter a bear phase come what may.

To summarise, the chance of Fed increasing interest rate by 0.25% during its meeting scheduled in the month of December 2018 is extremely high.

Amazing Amazon

Please refer to my post, dated June 24, 2018, the link to which is given below:

https://commoditycurry.blogspot.com/2018/06/amazing-amazon.html

Given below is the latest candlestick chart of Amazon:

Amazon touched $1 trillion market cap intra-day, briefly, on one of the trading days. Since then, Amazon has formed a dark cloud cover on two monthly candlestick charts and is most likely to drift down further. It could possibly see sub $1000/ share levels in less than a year’s time despite possible robust growth in earnings.

Some important dates to look forward to, in the Oct-Dec ’18 quarter:

October 25, 2018 – Amazon’s quarterly results for QE Sep 2018

November 1, 2018 – Apple’s quarterly results for QE Sep 2018

December 18-19 – FOMC meeting

Crude Oil (WTI)

Crude Oil is very critically poised at this juncture. Any disruption in supplies or any cause in exacerbation of geo political tensions between USA and Saudi Arabia can lead to rates of crude oils going high. However, any turmoil in the global financial markets can also possibly lead to a diminishing demand, thereby causing crude oil rates to drop from here.

Best wishes for the festive season.

For more charts the author can be contacted at: riskadvisory@outlook.com.

DISCLAIMER:

These extracts from my trading worksheets/books are for the purpose of education only. Any advice contained therein is provided for the general information of readers and does not have regard to any particular person's investment objectives, financial situation or needs and must not be construed as an advice to buy, hold and sell or otherwise deal/ trade in commodities, currencies, indices, securities or other forms of investments. Accordingly, no reader should act on the basis of any information contained therein without consulting a suitably qualified financial advisor in the first place.

Amazing Amazon

Amazing Amazon

Let me make a quick comparison of the market price of the following stocks as at the end of the week gone by (June 22, 2018), vis-à-vis a year back, i.e., June 2017.

Common Stock	Price as on June 22, 2018	Price as on June 30, 2017	Change	Market Cap as on June 22, 2018	PE Ratio
Name/ Units	($)	($)	(%)	($/B)	Multiple
Apple	184.92	144.02	28.4%	908.9	17.04
Amazon	1715.67	968.00	77.2%	832.5	270.48
Google	1169.29	929.68	25.8%	807.2	31.01
Microsoft	100.41	68.93	45.7%	770.5	27.87
Facebook	201.74	150.98	33.6%	584.0	29.61
Netflix	411.09	149.41	175.1%	178.7	245.96
NASDAQ 100	7197.51	5646.92	27.5%

Of these stocks the one which has contributed significantly to the growth of NASDAQ 100 is Amazon, with a percentage change of approx.. 77% and a market capitalisation (no. of outstanding ordinary stocks x market price of the stock) of US$832.5 bn. Netflix not being a heavy weight in the index is not being considered.

Trillion dollar club move

What price movement would these stocks require to reach the trillion dollar market cap club?

Common Stock	Price as on June 22, 2018	Trillion Dollar Club Price movement required	Price Change required	Current PE Ratio as on June 22, 2018	New PE Ratio
Name/ Units	($)	($)	(%)	Multiple	Multiple
Apple	184.92	203.45	10.0%	17.04	18.75
Amazon	1715.67	2060.86	20.1%	270.48	324.90
Google	1169.29	1448.58	23.9%	31.01	38.42
Microsoft	100.41	130.31	29.8%	27.87	36.17
Facebook	201.74	345.44	71.2%	29.61	50.70

While it is not impossible for the respective stocks to be able to make the desired price moves to hit the trillion dollar market cap, sustenance of a 400% growth in EPS may be extremely challenging for Amazon stock.

On a current four quarterly trailing EPS of 6.34, even if Amazon declares a quadrupling projected trailing EPS of 25.36 (6.34 x 4 – two years hence, i.e., June 2020), it would translate into PE ratio of 67.65 on projected earnings, market price remaining the same.

For those who are not familiar with the significance of PE multiple, it is a quick benchmark for a potential investor, that signifies as to in how many years, at the current market price, the cost of acquiring the stock, will be recovered, assuming consistent earnings in the future. High income growth generating stocks command high PE multiples.

Despite having added the insurance vertical to its portfolio of offerings, the above seems to be a tall order by any standard. Besides, the company meets competition from its retail counterpart Walmart in the country in which it is still facing challenges to establish itself in one of the toughest and emerging market (India) from a home grown nimble footed rival (Flipkart) whose ability to challenge or survive cannot be questioned and where both the competitors have joined hands (Flipkart has been acquired by Walmart).

It took 20 years since the dotcom bubble got busted (1997-98) for the e-commerce companies to reach this stage. During these two decades the stock markets including tech stocks/ indices peaked in 2007-08 and had a terrible fall immediately, resulting in severe curtailment of capital raising abilities at an attractive prices.

Whether we can call the current period to be the peak of stock indices is a big question mark, yet a selloff in the first week of February 2018 was a jerk to the stock markets, after which except for the tech indices the rest of the market indices have remained range bound and have not scaled back their peaks so far.

Meanwhile, on weekly candlestick charts NASDAQ 100 has made a Doji which also forms a bearish harami pattern as well as a tweezer top, and Amazon’s stock has formed a shooting star and a harami pattern with a small white candle.

The price movement of tech stocks and indices during the remaining days of the June quarter and post declaration of quarterly results will be interesting to watch since the quarterly results about to be announced in the month of July 2018 will determine the direction of the stocks and the indices, with a specific interest for the quarterly results of the heavy weight Amazon.

For charts the author can be contacted at: riskadvisory@outlook.com.

DISCLAIMER:

These extracts from my trading files are for the purpose of education only. Any advice contained therein is provided for the general information of readers and does not have regard to any particular person's investment objectives, financial situation or needs and must not be construed as an advice to buy, hold and sell or otherwise deal in commodities, currencies, indices, securities or other forms of investments. Accordingly, no reader should act on the basis of any information contained therein without consulting a suitably qualified financial advisor in the first place.

Where is Indian Rupee headed against US Dollar?

I was surprised to read on net, two differently styled articles predicting two different outcomes of strength of Indian Rupee (INR) against US Dollar (USD), authored by the same person, on the same day in a matter of a span of three hours, obviously quoting different sources for different views expressed in the articles leading to confusion galore.

The two links are given below:

First article:

https://www.bloomberg.com/news/articles/2018-04-26/rare-rupee-bull-says-currency-to-gain-as-rbi-will-raise-rates  with time stamp of 8:34 a.m. this morning

Second article:

https://www.bloomberg.com/news/articles/2018-04-25/no-love-for-india-s-rupee-as-analysts-rush-to-lower-forecasts with time stamp of 11:29 a.m. this morning

In my opinion, the intermediate sudden weakness of Indian Rupee against USD is a prelude to continued bearishness of USD against INR which is crystal clear on the charts.

We also need to understand that irrespective of the differential in the potential interest rate hikes by the respective Central Banks on the two currencies and/ or the deficits in the trade/ current accounts of the two countries, the relative positions of the two currencies vis-à-vis each other is a matter of critical importance to determine their respective trends.

The weakness that we have witnessed so far is most likely expected to end with the expiry of the current series of F&O.

For charts the author can be contacted at: riskadvisory@outlook.com.

DISCLAIMER:

These extracts from my trading files are for the purpose of education only. Any advice contained therein is provided for the general information of readers and does not have regard to any particular person's investment objectives, financial situation or needs and must not be construed as an advice to buy, hold and sell or otherwise deal in commodities, currencies, indices, securities or other forms of investments. Accordingly, no reader should act on the basis of any information contained therein without consulting a suitably qualified financial advisor in the first place.

Beginning of a Global Crash

Beginning of a Global Crash

Global Indices

Sometimes the only trace that the markets leave before a crash is an innocuous small weekly hanging man candlestick pattern, which no one suspects and the following confirmations are too expensive for anyone to bear.

What we are witnessing in the Global Financial markets is the beginning of a crash led by the US indices in which the Global Indices can lose approximately 50% of their peak values achieved. The price correction can be abrupt but the time correction can be expected to continue over a long period of time. This may lead to stagnation of the economies because of the ensuing liquidity crunch and inability of the corporates to raise cheap money for new projects.

Crude Oil

Crude Oil is bearish for a very short term (a month or so) in a confirmed bull phase. Crude oil in an upward trend will lead to inflationary pressures globally.

To sum up Global economy is entering into a phase of Stagflation for a long duration.

For charts the author can be contacted at: riskadvisory@outlook.com.

DISCLAIMER:

These extracts from my trading files are for the purpose of education only. Any advice contained therein is provided for the general information of readers and does not have regard to any particular person's investment objectives, financial situation or needs and must not be construed as an advice to buy, hold and sell or otherwise deal in commodities, currencies, indices, securities or other forms of investments. Accordingly, no reader should act on the basis of any information contained therein without consulting a suitably qualified financial advisor in the first place.