51
The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East India Club – 16 St. James Square London SW1Y 4LH, UK

The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Embed Size (px)

Citation preview

Page 1: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

The Markets Now

Risks Versus Rewards

for Financial Markets

Through Yearend and to mid-2015

David Fuller – 10th November 2014fullertreacymoney.com

East India Club – 16 St. James SquareLondon SW1Y 4LH, UK

Page 2: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

What are the main known risksfor stock markets, in your opinion?

Page 3: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Geopolitical Political & Economic Risks • The war against ‘Islamic State’ is expensive and divisive

• Putin is a weakened loose cannon but can still lash out

• China’s arriviste military strength risks territorial aggression

• The UK General Election result in 2015 is uncertain & risky

• The US Dollar’s Strength for emerging market borrowers

• Europe’s deflationary slump and growing political unrest

Page 4: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Specific Market Risks

• US public offerings are the highest in over a decade

• Leverage by hedge funds & traders has soared in the USA

• Leverage in other performing stock markets is increasing

• EU breakup risks increase if ECB’s Mario Draghi resigns

• Some emerging market currencies slump on USD rise

• Bond market yields will eventually rise with GDP growth

Page 5: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East
Page 6: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East
Page 7: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East
Page 8: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East
Page 9: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Technical warning signs to watch for among indices

• Trend acceleration relative to 200-day moving averages• Declining market breadth (fewer shares rising)• Failed upside breakouts from trading ranges• Loss of uptrend consistency characteristics• Churning price action relative to recent trading ranges • Breaks of 200-day moving averages• Broadening patterns relative the last several trading

ranges• 200-day moving averages turn downwards• Resistance is encountered beneath declining 200-day MAs• Previous rising lows are replaced by lower rally highs • Indices fall faster than they rose to their highs

Page 10: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Bullish Points for Stock Markets • S&P up15.3% on average 6 months after mid-term election

• Global monetary policy is still extremely accommodative

• Central banks are worried about deflation, not inflation

• Capitalism increasingly dominates on a global basis

• Globalisation spurs rapid emerging market development

• Growth in middleclass consumers surges, led by Asia-Pac

Page 11: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East
Page 12: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

2002

Since 1950

Page 13: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Wall Street’s canary in the coal mine

Downsidefailure

Page 14: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

S&P 500 over 20 years

This gain above the 2000 peak is due to CPI inflation

No inflation?

Page 15: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Roundophobia

Failed breaksbut warnings?

What were the uptrend consistencycharacteristics from here, and have they changed?

Page 16: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Tech still very much in form

Page 17: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Significantly, recovered evenfaster than it fell, showing liquidityon the sidelines and a growing belief in the ‘Buy the Dips’ mantra.

Page 18: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Transports have led the move to new highs, confirming the strength of the US economy

Page 19: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

JNJ example of a still-inform Autonomy,provided it holds above $95est p/e 18, yield 2.59%

Page 20: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

PG another example of an inform Autonomy,provided it holds above $75est p/e 20.39, yields 2.89%

Page 21: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

KMB another example of an inform Autonomy, provided it holds above $104est p/e 18.82, yields 2.97%

Page 22: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Lengthy correction due to the sharp drop in oil prices

Page 23: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Can you see all the overextensionsand mean reversions on this chart?

The moving average is a wonderfultool for identifying overextensionsand potential for mean reversion

Page 24: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Significant breakdown from broadeningpattern, ending sequence of higherreaction lows – 6000 level is important

Page 25: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Did not maintain break beneath 3000 but overhead supply may still be a problem

Page 26: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

EU banks remain a concerndespite significant assistance from the European Central Bank

Page 27: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

German DAX Index did not maintainbreak beneath 8900 but has pausedbeneath the declining MA and there isplenty of overhead supply

Page 28: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

BMW is a cheap Autonomy,Est p/e 9.24, yield 3.11%,but needs to move above and hold above the MA

Page 29: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Governance is Everything - favourableregime change would make Russia arecovery candidate on cheap valuations

Page 30: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Watch the current trend’s consistency characteristics for signs of medium-termcorrections and buying opportunities

My 5-year plus favourite,due to Narendra Modi -currently short-term O/B

Page 31: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Still a very promising frontier market Biggest risk – China’s potential aggression

Page 32: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Enigmatic but attractively valuedand coming back into form – a long-term favourite subject to governance

Page 33: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

A long-term favourite Biggest risk – if China erodes its freedoms

Page 34: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Is this reincarnation the new corporate showpiece of China?

Page 35: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Acquired by Alibaba US

Page 36: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Still a classic recovery candidateFollowing governance changes

Page 37: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

A long-term favourite Shrugging off the resources slump?

Page 38: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Still a long-term recovery favouriteprovided it stays above 1030

Page 39: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Long-term bull factors for stock markets

• Accommodative monetary policies, until growth accelerates

• An accelerating rate of technological innovation

• Lower energy prices in real terms, thanks to innovation

• The triumph of capitalism, both democratic & authoritarian

• Globalisation, hastening development of emerging markets

• Middleclass growth in emerging markets

• Continued growth in the global population

Page 40: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

1) Probable lengthy base building2) Above 3% base maturing3) Above 4% probable base completion

Page 41: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Top completion for US bondholders when this total returnpattern breaks downwards

Page 42: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

US Dollar Index completing a base formationDriven by energy independence & tech leadFed & Treasury will control speed of $ recovery

Page 43: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Nevertheless the US dollar is still a fiat currency, whichhas lost most of its purchasing power since only 1968

Page 44: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

1. Broke critical juncture2. Traders heavily short3. Yet to reach sufficient revulsion stage for investor or trader longs?4. Indians & Chinese buying

Gold is hard money, albeit witha fluctuating price, just like anything else which can bebought or sold.

Page 45: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Big upside key day reversallast Friday

Page 46: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Gold has been out of favourwith Western investorswho are in stocks & bonds

Page 47: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Silver is high-beta goldIt will outperform When the yellow metal really has bottomed

Page 48: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Currently oversold but rallies $105are unlikely to hold

Page 49: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

The ending of an era for producers of crude oilThey are losing price control in this market

No more price spikes such as 2008, despite turmoil in many producer regions and an eventualglobal economic recovery

Page 50: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Many thanks for your interest!Any more questions?

Please visit our site:www.fullertreacymoney.com

Page 51: The Markets Now Risks Versus Rewards for Financial Markets Through Yearend and to mid-2015 David Fuller – 10 th November 2014 fullertreacymoney.com East

Is Wall Street’s next secular bull market

Underway?

If so, it will be led by1) Accelerated technological innovation2) Lower energy costs in real terms3) Worldwide acceptance of capitalism4) Globalisation 5) An increasing global population6) A rapidly growing global middleclass