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.

Bearish NIFTY

I always say that the stock markets are always the same. This time they are a bit different in a limited sense only. But surely whenever they fall, they leave investors with the same emotions each time.

This time the stock markets are different because of some of the factors listed below:

a)    There is a huge liquidity in the market caused by domestic inflows of mutual funds (which is there every time) but this time the figures are being rolled out - something like a specific feature/ technology of a product being used as a USP for selling it.

b)    The general investors are so optimistic about the bullishness of the markets that they have stopped believing that the markets will ever fall. The S shaped cycle models have been successfully deleted out of the mind and memory of the investors and from the books of economics and marketing. Instead the disruptive valuation models are masking the true state of affairs of the markets and economies world over. The PE ratios and growth rates have lost their relevance or are at an acceptable stretched levels as per the newer norms of the global economies.

c)    The markets have been moving and inching up gradually. Each dip in the past has led to a bounce back higher than the previous highs and the markets have moved on thus.

d)    Every investor is upbeat about the mutual funds keeping the markets afloat and each mutual fund investor has become savvy about investment jargons like SIP and STP. Honestly there may be a few more that I am not familiar with.

e)    Factors like geo-political and economic tensions in Asia (North Korea and South China Sea), Middle East (ISIS and attacks in Syria) and Europe (potential financial default by Greece, annexation of Crimea), just to name a few have been ignored by the stock markets or speaking in a reverse sense, the stock markets and fund managers have never let these events affect the markets. Any negative news on the stock markets has been effectively managed by the media/ respective governments.

This time the paanwalas will not be given the privilege to determine the time of fall of the stocks. It is a general saying in the stock market circles that when the paanwalas start giving stock tips to their customers, it is time to exit the markets.

But this time around, the growth story of India is being attributed to two recently undertaken initiatives of demonetisation and GST by the government. These initiatives will definitely turn in positive results for the economy in times to come, but labelling these initiatives as USPs for the growth story is something which is a matter of concern. These measures will bring in improved transparency, good governance and gradual alignment of the unorganised sector/ parallel economy with the mainstream economy.

If vague factors like Digital India/ Start-ups, demonetisation, GST and may be a few more can be termed as the key differentiators of the growth story of India, probably there could be as many other vague factors/ triggers for the bearishness of the Indian indices.

However, there are a few factors which cannot be afforded to be ignored:

1.    Month after month, the foreign money is being pulled out of the Indian stock markets in big quantum. One gets to hear arguments that the Indian mutual funds (please refer to point no. d) above) are pouring in thousands of crores of money into the stock markets.

We are by any standards still very small in comparison to the amount of money invested in India by the Foreign Institutional Investors (FIIs).

2.    A highly probable rupee strengthening (media and news reports speak of contrary) can shave off extra margins from the export earnings of the industry. The software giants may see a straight impact on the EBIDTA margins. For example, a 5% hardening of rupee against USD, will straight away knock off EBIDTA margins of exports/ USD earnings by 5%. This may or may not happen.

3.    A 0.25% increase in interest rates by Fed this year and expected four straight increases in 2018 might lead to a stagnation in the housing sector of the US due to increase in the EMIs (lower disposable income) and in the industrial/ commercial sector due to increased cost of capital, higher payback periods of projects, lower borrowing capacity due to fall in interest coverage ratios, lower capital expenditure by corporates, etc.

A third increase of 0.25% during 2017 is on the cards in the current quarter and the Fed has already indicated unwinding of the balance sheet (shedding off its assets) in a planned and predictable manner starting October 2017.

The Tax reforms passed by the Trump administration, as seen by the performance of the indices, have failed to enthuse the markets.

The next meeting of Fed is scheduled for December 12-13, next week. It will be interesting to see what direction do US and other global indices take post conclusion of the meetings and announcement of the policy decisions by Fed (announcement of the expected interest rate hike).

Two different variants of NIFTY multi-period candlestick charts have been given below for the readers to take clue from.

For the two multi-period candlestick charts (two monthly) shown above, there is one which coincides with calendar months and the other one which doesn’t. Both the charts indicate bearishness. The last candle on the chart where the multi-period candle coincides with the calendar months gives enough indications of bearishness of Nifty. If NIFTY goes down, it confirms bearishness. If it bounces back and goes back to the opening point or above that, it forms a hanging-man pattern, which is again a bearish indicator.

Best wishes to the readers for the festive season and New Year.

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.

NASDAQ 100

Nasdaq 100

Recent reports that the sale of flagship products of Apple Inc. has slowed down led to a selloff in the Apple stock in the beginning of June last month. This also had a rub off effect on other stocks bearing a heavy weightage in the index, consequently leading to a drop in the index as well.

Together Apple, Microsoft, Amazon, Google (Class C Stock, however the charts show Class A Stock) and Facebook contribute to 33% weightage in the Index – Nasdaq 100. Apple’s stock individually is the single largest contributor to the Index; it’s weight being close to 15%, immediately followed by Microsoft (weight 7.4%).

With the earnings season kicking in, it will be interesting to observe if the growth in earnings of these stocks has been consistent with their respective prevailing PE multiples.

However recent stock price action of the above five stocks has clearly indicated weakness and the selling pressure is evident through the pattern of the multi-period candlestick charts of these stocks.

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.