Market Forecast

  • 12 Oct
    These 2 sectors have taken the biggest beating from the latest market rout

    These 2 sectors have taken the biggest beating from the latest market rout

    There’s really nothing like a little bit of volatility in the stock market to make people sit up and take notice. Whether you’re a seasoned, everyday investor or a relative neophyte putting a couple of hundred dollars each month into a 401(k) account, the last couple of days have prompted just about anybody that is trying to make their money work for them with the stock market wonder what is going on. More →

  • 08 Aug
    The S&P 500 is about to hit a new all-time high. How much upside can you expect?

    The S&P 500 is about to hit a new all-time high. How much upside can you expect?

    Since the beginning of July, the market has shown quite a bit of bullish momentum. As of this writing, the S&P 500 (SPY) has rallied more than 150 points from a pivot low in late June in the 2,700 area – a total gain in a little over a month of 9%. The index is now poised to match, and quite possibly exceed the highs it reached in late January. For most technical traders, a new high marks a break above resistance that should give the market momentum to keep pushing even higher. If you’re not the type of person, however to simply “leap before you look,” then like me, you want to try to figure out how much room is left.

    How much upside remains in the market isn’t an easy question to answer, simply because nobody can make anything more than a semi-educated guess about future events – or the way the investing world will interpret them. The same technical traders who look for new all-time highs to extend trends even further also like to use historical price action to come up with estimates. Economists and fundamental investors try to use geopolitical and macroeconomic data and events to identify keys and trends. I hesitate to say that any one approach is better than another. Instead, I like to consider a combination of a couple of different technical techniques, along with economic and, yes, even geopolitical conditions to try to come to my own opinion.

    I spent some time this morning going over some of that data, and here’s what my early conclusions are. Keep in mind, these are just a few of my own best attempts to make a semi-educated guess, so you can take it or leave it as you wish.



    Some Fuzzy Math

    I’ll start by giving you a look at a technical chart of the S&P 500.

     

    There are a couple of elements of this chart that I think are useful right now. The first is the Relative Strength (RSI) indicator shown in the lower portion of the chart. RSI is a sentiment and momentum indicator that oscillates between upper and lower extremes to gauge a trend’s strength and give traders a way to estimate the likelihood the trend will continue or reverse. At the upper extremes (above 70), reversal risk to the downside is increased, while at the lower extremes (below 30), the opposite is true. The other element that comes into play about RSI is that stocks will often continue to follow their current trend even as RSI hovers near, or even beyond extreme levels. That reality is what makes RSI interesting to me right now. Even as the S&P 500 is pushing near to the all-time high it set in January of this year, RSI remains just a little below its uppermost extreme. It has also managed to oscillate within its upper and lower extremes since that high was reached in January, with its general pattern of highs and lows since April closely approximating the pattern of the index. That is a confirmation of the market’s trend over the last four months, and the fact that the indicator still hasn’t pierced its upper extreme band suggests there could be more room to run.

    At this point, it’s worth taking a moment to discuss a basic tenet of trend-based analysis. Trends tend to move in what I like to think of as stages. Typically speaking, most long-term trends can be broken into three different stages. Stage 1 is the earliest portion of a trend, when the market begins to reverse from an extreme or high or low. That’s the hardest stage to recognize, simply because it moves against the grain of the current longer trend, when most people will simply see that counter move as a minor correction or pullback within that trend. Stage 2 is the longest portion of a trend, and the area where the most money is likely to be made. It’s where the new trend is easiest to identify, and so more and more investors jump on board in that direction, making it easier and simpler to maintain. Stage 3 is the latest stage of the trend, and what I like of as the “last gasp” stage of that long-term trend. There is often still quite a bit of room to move along the trend in this stage, and so this stage can still yield very profitable results; but it also means that reversal risk is greatly heightened during this stage.



    The challenge about the stages of a trend is predicting how long any given stage will last. Stage 2 can last 4 to 5 years in many cases, while Stages 1 and 3 are usually considerably shorter. The problem is that word – usually. I’ve been saying the market is in Stage 3 of its long-term upward trend for more than two years, which is undoubtedly longer than that stage should last. I maintain that attitude, however, simply because I think it is smarter to estimate conservatively; plan for the best, but be prepared for the worst. That means that I want to recognize and take advantage of upside opportunity when it’s there, but be ready and positioned to react quickly and effectively when the market reverses back the other way.

    If you operate on the idea that the market is in Stage 3, any upside that remains should be somewhat limited. That is where the “291.78 Total Distance” estimate I highlighted on the chart comes into play. Some people will take the total distance of the last market correction to estimate how far the market’s new opportunity will be after a new high is reached. I think it’s reasonable to use the total distance as a reference point, but I prefer to think in somewhat more conservative terms.

    Another technical method of market analysis that I have learned to appreciate over the course of my years in the market is Fibonacci analysis. It’s pretty fascinating to see how market trends, and their swings from high to low correspond with Fibonacci mathematics. Those calculations can also be used to estimate a market’s extension of a trend. Here’s what we get if we apply the .618 Fibonacci ratio to the total distance of the market’s correction from January to April of this year:

    291.78 X .618 = 180.32

    We can add this number (roughly 62% of the total size of the correction) to the last market high to get an estimate of how much further the market could run if the resistance from that high is broken.

    2,872.87 + 180.32 = 3,052.87

    180.32 / 2,872.87 = 6.27% total upside

    Forecasting broad market upside of about 6% if the market makes a new high seems like a pretty conservative estimate; if it is even remotely close to correct, that should translate to some pretty healthy gains on individual stocks. How long that kind of a run will take is anybody’s guess. I decided to look back at the last two bull markets to gauge how long Stage 3 of their respective long-term trends lasted.



    The bull market that ran from 2002 to 2007 hit a high point in October 2007 before beginning its reversal; the “last gasp”, final stage of that five-year trend began in August, meaning that Stage 3 in that case covered about a two-month period of time. Prior to that, the March 2000 high that marked the end of the “dot-com boom” started its “last gasp” push in February of the same year. Saying the market could move about 6% in one to two months isn’t unreasonable given the increased level of volatility we’ve seen from the market this year; but I also think it’s useful to think about how long it has taken the market to recover from its latest correction (assuming, of course, that a new high is actually made). The bottom came in April, so a conservative estimate could suggest that it may take between 2 to 4 months. That certainly implies the market’s trend could last through the rest of the year, or possibly even longer since my estimate intentionally errs on the conservative side.

    There are some important elements from a fundamental and economic view that I think support the idea the market has some room and reason to run a little longer. Earnings continue to come in generally strong, and most economic reports (jobs, housing etc.) are also showing pretty broad-based strength. A healthy economy should generally lend itself well to continued strength in the stock market. While interest rates are rising, the Fed has maintained a conservative pace and degree of those increases, and the economy seems to following that lead pretty well. As they currently stand, interest rates remain historically low despite the increases we’ve seen so far. That is also a positive, bullish indicator.



    There are risks to my forecast. Frankly, many come from the geopolitical arena at this stage. Trade war concerns are still on everybody’s mind, and the Trump administration’s reimposition of economic sanctions on Iran could put a cap on oil supply that could drive oil prices near to their historical highs. While corporate earnings have yet to really show a negative impact from tariffs between the U.S. and its trading partners, more and more CEO’s are starting to cite tariffs as a risk. If that risk starts to manifest itself in an actual deterioration of revenues, and of earnings, the market can be expected to react negatively. Increased oil prices, at the extreme, could have the net effect of muting demand for a wide range of goods all over the globe. Real estate prices in many parts of the U.S. have also been showing some remarkable increases over the last year or so as well, while wage gains have generally been quite muted; at some point, those increases, along with increasing interest rates could very well put home ownership – a big indicator of broad economic strength – out of the reach of the average working person.

    Is there good upside left in the market? I think there is. I also think we have to be careful to factor risk into our evaluation and our investment decisions. Be conservative and selective about how you jump into a new opportunity, and plan ahead about how long you intend to stay or how much gain you want to chase. Put a plan in place to limit your downside risk if you’re proven wrong and the market turns against you, and limit the size of the new positions you take.


  • 17 Apr
    The Flattening Yield Curve Means Trouble Ahead. Here’s What You Need To Know.

    The Flattening Yield Curve Means Trouble Ahead. Here’s What You Need To Know.

    • What is the yield curve?
    • The yield curve is flattening and if it inverts, there will be a recession.
    • What you can do.



    Introduction

    In this article, I’m going to explain what the yield curve is, what a flattening or steepening yield curve means, how the yield curve impacts the economy, and see whether the current yield curve indicates that we are close to a recession in 2018. More →

  • 11 Sep
    Out Of This World Debt Levels Will Damn Future Generations

    Out Of This World Debt Levels Will Damn Future Generations

    • Debt levels are the key driver of economic growth in developed countries. So keep an eye on debt.
    • The velocity of money, household debt, car loans and sales aren’t telling a good story.
    • Globally, the situation isn’t much better. However, there are a few exceptions.

    Introduction

    In today’s article, I’ll analyze the current global debt environment.

    Debt is an economic factor that is unwatched as long as things are going well but as soon at things turn south, everyone will be screaming about a debt crisis and the end of the financial world as we know it.

    Given this, it’s extremely important to know what is going on, how sustainable the current debt levels are, what the impact of debt on the economy is, how to position your portfolio, and perhaps even how to take advantage of potential black swans arising from future debt instabilities. More →

  • 12 Apr
    How To Prepare For Anything The Economy Throws At You

    How To Prepare For Anything The Economy Throws At You

    • All stocks will rise with a rising tide, therefore it’s wise to buy those stocks that won’t fall off a cliff in a recession.
    • The usual suspects—like consumer staples, utilities, and healthcare—are good ideas, but not at any price.
    • Bonds are close to becoming a win win situation.

    Introduction

    Yesterday we analyzed the FED’s latest meeting minutes, and saw how when the FED applies historical probability calculations to their own estimations, the result is that anything can happen.

    The FED itself stated that, in the next few years, economic growth could be anywhere between -0.5% and 4%, unemployment between 2% and 7%, and inflation between 1% and 3% with a 70% confidence interval. A 70% confidence interval means that there is a 30% chance economic indicators end up outside the above mentioned ranges. More →

  • 02 Feb
    It’s Time To Pay Attention To The Euro

    It’s Time To Pay Attention To The Euro

    • Currency movements can be easily explained through macro trends, but the timing isn’t that precise. However, long term investors can reach additional returns by following a few easy steps.
    • Cyclical currency patterns are natural, and under the influence of economic growth in the long term.
    • The dollar is approaching its peak and is ready to return to its historical mean.

    Introduction

    In last weekend’s Sunday Edition, Investiv Founder, Shane Rawlings, elaborated on how long term macro trends inflect exactly at the moment when there seems to be a general consensus that the trend will last for a long, long time.

    Nobody was buying stocks in 1981 because they thought high inflation would stay around forever. On the other hand, in the 1990s, people were convinced that the best investment was internet stocks. And in the 2000s, the conviction shifted to the real estate market as it seemed that the only way to go was up forever.

    Currently there is a strong conviction that the U.S. dollar is going to strengthen as interest rates rise and the U.S. economy grows, and while Europe continues with monetary easing. More →

  • 02 Nov
    Are You Ready For The Tech Revolution? Sven Tells You How To Position Yourself

    Are You Ready For The Tech Revolution? Sven Tells You How To Position Yourself

    • New technologies are coming fast and will be coming faster in the future.
    • It’s important to avoid getting caught in a declining industry, but it’s also important to not buy into the hype of growth industries at crazy valuations.
    • We’ll try to find sectors that will benefit no matter what happens.

    Introduction

    Last week’s unveiling of Elon Musk’s new “solar roof” poses a very important question for investors: How is your portfolio positioned in relation to structural changes and disruptive technologies?

    We might look at solar roofs as uneconomic at the moment—or call a CEO crazy who wants to colonize Mars—but the trends are here to stay. Rare are those among us who would have reacted positively 20 years ago to the idea that it would soon be the same process buying an electric powered or a gasoline fueled car. More →

  • 28 Jun
    Is the Negative Cycle Ending in the Shipping Sector?

    Is the Negative Cycle Ending in the Shipping Sector?

    • Most shipping companies are down more than 90% and the short term outlook does not look bright.
    • After 25 years of 10% global fleet gross tonnage growth, 2016 is a turning point with growth lower than 5%.
    • Increased interest rates, fewer ships and constant global trade growth show that there are investment opportunities in the shipping world.

    Introduction

    It seems strange to analyze the shipping sector in the current volatile markets, but sound sector analyses help to keep nerves firm and to clearly valuate the opportunities a bear market brings. The shipping sector is interesting due to the fact that it represents a perfect example for a bottomless investment theory and an excellent investment opportunity for those who can and know how to catch a falling knife. More →

  • 14 Jun
    Big Returns on Silver Could Be at the Finish Line, But Are You In for the Wild Ride?

    Big Returns on Silver Could Be at the Finish Line, But Are You In for the Wild Ride?

    • Silver is both a precious metal and a commodity, which makes it a very interesting investment.
    • Silver prices jumped 26% year to date and the market has been in a deficit for 3 years.
    • In the long term, silver will continue to be very volatile but might present excellent investment opportunities for brave investors.

    Introduction

    Silver is a special metal as it is considered both a precious metal and an industrial commodity. Silver is used for solar panels, water filtration, jewelry, electrical contacts and conductors, LCD screens, x-rays, disinfectants and for other various applications. This makes silver have, unlike gold, a pragmatic use influencing the demand for the metal. More →

  • 10 Jun
    Global Smartphone Growth Isn’t Done Yet – Should You Invest?

    Global Smartphone Growth Isn’t Done Yet – Should You Invest?

    • The smartphone trend is bound to continue as 25% of the world has low penetration levels.
    • 2015 was stellar in growth so it is logical that 2016 will be somewhat slower.
    • Valuations are really cheap when compared to the general market.

    Introduction

    The smartphone industry is not only interesting because it includes the biggest company by market capitalization (Apple – NASDAQ: AAPL) but also because it is in a global growing trend and has low valuations. This article is going to provide an overview of the industry and its two biggest players. More →

1 2 3