Best of the Week
Most Popular
1. Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - Nadeem_Walayat
2.Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - James Burgess
3.Gold Price Trend Analysis - - Nadeem_Walayatt
4.The Beginning of the End of the Dollar - Richard_Mills
5.Stock Market Trend Forecast Update - - Nadeem_Walayat
6.Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - Troy_Bombardia
7.Precious Metals Sector: It’s 2013 All Over Again - P_Radomski_CFA
8.Central Banks Have Gone Rogue, Putting Us All at Risk - Ellen_Brown
9.Gold Stocks Forced Capitulation - Zeal_LLC
10.The Post Bubble Market Contraction Thesis Receives Validation - Plunger
Last 7 days
2019’s Hottest Commodity Is About To Explode - 15th Oct 18
Keep A Proper Perspective About Stock Market Recent Move - 15th Oct 18
Is the Stocks Bull Dead? - 15th Oct 18
Stock Market Bottoms are a Process - 15th Oct 18
Fed is Doing More Than Just Raising Rates - 14th Oct 18
Stock Markets Last Cheap Sector - Gold - 14th Oct 18
Next Points for Crude Oil Bears - 13th Oct 18
Stock Market Crash: Time to Buy Stocks? - 12th Oct 18
Sheffield Best Secondary School Clusters for 2018-19 Place Applications - 12th Oct 18
Trump’s Tariffs Echo US Trade Policy That Led to the Great Depression - 12th Oct 18
US Dollar Engulfing Bearish Pattern Warns Of Dollar Weakness - 12th Oct 18
Stock Market Storm Crash, Dow Plunges to Trend Forecast! - 12th Oct 18
SP500 Stock Market Sell Off Well Forecast by President Trump - 11th Oct 18
USD and US Tr. Yields Retreat, GBP Gains on Brexit-deal Report - 11th Oct 18
Loss Of Yield Curve "Shock Absorber" Could Mean A Rough Ride Ahead For Markets & Housing - 11th Oct 18
Just How Bearish is the Stock Market’s Breadth? - 11th Oct 18
Here’s Why Gold Stocks, Gold, and Silver Are Great Buys Now - 10th Oct 18
Russian Ruble Technical Chart Analysis and Forecast - 10th Oct 18
Society Trends To Keep in Mind in the USA - 10th Oct 18
[eBook] How to Identify Turning Points in the Market - 10th Oct 18
Euro Vulnerable as Slowing Growth Reveals Underlying Issues - 9th Oct 18
Construction Companies to Watch For in 2019 - 9th Oct 18
ECB Meeting Minutes and US Inflation Data in Focus - 9th Oct 18
Interest Rate Shock-Time to Find Out Who has been Swimming Naked - 9th Oct 18
Unintended Consequences of Expanding Sheffield's Best Ranking State Secondary Schools - 9th Oct 18
Crude Oil Price Trend Forecast 2018 Update - 9th Oct 18
Inflation Is Starting To Heat Up - 8th Oct 18
Stock Market Seasonal Influence at Work - 8th Oct 18
Barrick Randgold Deal Breathes New Life into Gold - 8th Oct 18
Stock Market Sell Off, Dollar Rally Expected, Now What? - 8th Oct 18
The Chartology of Gold and Silver - 8th Oct 18
The Income for Life Playbook - 8th Oct 18

Market Oracle FREE Newsletter

Trading Any Market

Stock Market Technical Picture

Stock-Markets / Stock Markets 2018 Jul 19, 2018 - 05:50 PM GMT

By: Christopher_Quigley

Stock-Markets

No two recessions are ever the same.
One of the best indicators of a possible recession on the horizon is the inversion of the American Treasury interest rate yield curves. Inversion means the yield on short term rates are abnormally higher than long term rates. With Jerome Powell, the FED chairman, publically committed to another two .25% interest rate hikes this year, it is highly probable that by year end the 2/10 year yield curve will have inverted. (Currently the spread between the 2 year and 10 year yield is only .26%). In the recessions of 2000 and 2008 the American economy experienced severe recessions within 22 months and 24 months, respectively, upon yield curve inversion.


With this perspective in mind I hear a lot of punters saying they are not too worried, short term, believing that there is plenty of time to exit the market and protect the wonderful profits made during this bull market. However, given the mature nature of this stock market (it commenced in March 2009) and taking cognisence of the potential interest rate inversion I have advised student clients, particularly those with substantial funds, to take a sizable percentage of their capital out of this market and place it in cash and I have told those folk nearing retiremnt to go totally to cash, should inversion actually occur as expected.

My main reason for maintaining this view is due to the changed nature of the market as a result the explosive popularity in “basket investing” through exchange traded funds. This I reckon will be a recurring “mantre” of the next recession, for recessions are never the same and always have their unique “footprints”. The defining feature of the next recession, I think, will be multi flash-crashes due to collapsing market liquidity and the “sameness” of ETF investment portfilio structure. In the circumstance of flash-crashes sell-stops will be of little benefit. There wil be severs gap-downs, with no actual market to fill sell-stop  trigger points. The lack of  traditional “market makers”, quant trading, high frequency trading and algorithim trading will all exacerbate the problem. Due to the fact that technical analysis programming has become so ubiquitous everybody, (or to put it more honestly, every trading computer bot), will “desire” to sell the same basket of equities, contained in the same popular ETFs, all at the same time. Result: no market, period.

However, there is a sunny side to this historical observation. I have always told students that recessions are wonderful things for any investor who is  prepared. Being prepared means having a cash position to take advantage of market price action once the panic is over and prices have stabilised.  Warren Buffit exemplified this concept in a recent  Berkshire Hathaway Newsletter. To paraphrase him he said: “in recessions when valuations fall and value becomes evident we do not go out investing with a spoon, we use a bath tub”.

Technical Picture.
The market is solidly repairing the damage done by the New Year “correction”. The NASDAQ and the Russell 2000 have reached new highs and the S & P 500 has finally taken out the July highs. The Dow industrials and the Dow Transports have not done so yet but are making a strong effort to follow suit.

The 14 day and 28 day stochastics we are giving over bought reading, thus it would be reasonable to get a pullback of some degree but I think technically the markets are building up for a strong year end.

The one important negative factor to bear in mind is that the VIX is hard on the floor of its trading range, so an explosion upward is fairly likely at some stage thus bringing with it strong volatility and price contraction. The important thing is that it that when this occurs the technical damage is contained. If not and similar breakdowns occur like that of February last  what with rising interest rates, a strengthening dollar,  quantitative tightening, escalating trade wars and potential Brexit chaos growing in Britain, Ireland and greater Europe, a short-term bear trend could easily morph into something more destabilizing.

Chart: Dow Industrials: Daily.


Chart: Dow Transports: Daily.



Chart: NASDAQ: Daily.


Chart: S & P 500: Daily.

Chart: Russell 2000: Daily.


Chart: VIX: Daily.


Charts: Courtesy StockCharts.Com.

Christopher Quiqley

B.Sc., M.M.I.I. Grad., M.A.
http://www.wealthbuilder.ie

Mr. Quigley was born in 1958 in Dublin, Ireland. He holds a Bachelor Degree in Accounting and Management from Trinity College Dublin and is a graduate of the Marketing Institute of Ireland. He commenced investing in the stock market in 1989 in Belmont, California where he lived for 6 years. He has developed the Wealthbuilder investment and trading course over the last two decades as a result of research, study and experience. This system marries fundamental analysis with technical analysis and focuses on momentum, value and pension strategies.

Since 2007 Mr. Quigley has written over 80 articles which have been published on popular web   sites based in California, New York, London and Dublin.

Mr. Quigley is now lives in Dublin, Ireland and Tampa Bay, Florida.

© 2018 Copyright Christopher M. Quigley - All Rights Reserved

Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any trading losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors before engaging in any trading activities.

Christopher M. Quigley Archive

© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules