article 3 months old

These Charts Still Scream Good News

FYI | Jul 31 2018

By Peter Switzer, Switzer Super Report

These charts still scream good news for stocks

The old saying goes that a picture paints a thousand words and charts can do the same. So, for a point of difference I thought I’d give you a pictorial presentation of the graphs that say, ‘staying long stocks makes a lot of sense’, at least for the present. Let’s be clear on this, we have an unspoken ‘deal’ that I will do my best to warn you when I think the stock market looks seriously toppy and worrying.

And while doing that is a big call, and fraught with danger for a market watcher like me, that’s what I endeavour to do, and right now I’m more optimistic about stocks than I’m pessimistic and the charts below will explain why.

Exhibit A – the US

The first shows how the most important stock market in the world — Wall Street — has an economy on song and growing fast enough to warn off fears about recession and falling profits, which are toxic for stock prices.

Exhibit B – Australian economy

The next chart shows how the Oz economy is showing signs of good 3% plus economic growth, which again has to be a good driver of profits and higher stock prices.

This clearly shows that since September 2016 there has been a rising trend of better economic growth. This coincides with the Westpac consumer sentiment reading at long last surging. This is how Trading Economics summed up the latest data: “The Westpac Melbourne Institute Consumer Sentiment Index for Australia jumped 3.9% month-on-month to 106.1 in July of 2018, following a 0.3% rise in the previous month. It is the highest reading since November 2013, driven by growing optimism about the economy. Expectations for the economic outlook over the next five years surged 9.8%; and those for the economic outlook over the next 12 months rose by 3.9%. In addition, the measure of family finances compared to a year ago increased by 2.3% from a month earlier; and those of family finances over the next 12 months went up 2.1%.”

This pretty picture on consumers shows that since August, consumers have re-discovered their mojo. Any number over 100 says optimists outnumber pessimists.

Meanwhile the market messages coming from the S&P/ASX 200 index are confirming that we are in an uptrend, with little reason to doubt that, in the absence of a curve ball, possibly thrown by the unpredictable President of the USA, the ups and downs of the daily take on the stock market will largely be up, rather than down, for the rest of this year. Of course reporting season here, and on Wall Street, will be critically important to this best guess on the direction of stocks, but the news so far out of the States is promising.

Late last week, FactSet said at the 50% mark for US reporting, where half the companies in the S&P 500 index have done show-and-tell, 79.8% have come in with better-than-expected earnings.

Ahead of reporting season the expectations for profits were very bullish.

“U.S. companies are set for one of the strongest quarterly earnings seasons in a decade, according to FactSet estimates, as surging economic growth, rising oil prices and Republican-led tax cuts continue to boost corporate America’s collective bottom line,” reported Martin Baccardax at thestreet.com.

But this was based on an economic growth guess at the time of 3.8%, however the number came in on Friday at 4.1%, which has to be another plus for stocks going forward.

Meanwhile, AMP Capital’s Shane Oliver thinks our reporting season will show a 7% rise in company earnings. This is not spectacular but it’s solid and justifies current levels of the stock market.

And while I like seeing these charts reinforce a positive view on our economic and potential market outlook, I know that what happens in the USA will have the biggest impact on our market. We couldn’t ignore a big Wall Street sell off and we’d go along for a ride for any nice upswing in stock prices.

Exhibit C – the gurus

A guy called the “the godfather of charts”, Ralph Acampora, the director of technical research at Altaira Capital Partners, says the lines he perpetually ponders are positive for stocks.

He noted that the S&P 500 nearly touched its resistance level on Thursday and he sees this a prelude ahead of another leg up and says a break through this level, 2801, will lead to a “quick move up.”

“I think it’s a pretty good opportunity we break through them,” said Acampora. “If we do, then I think the S&P challenges its high, which is not that far away, and the Dow’s all-time high is around 26,600, and I think it’s very, very doable,” he told CNBC.

And I have to say I love this from Acampora.

“There are days you’re in the fetal position under your desk, and I more than understand if people get very, very nervous, rightly so,” he said. But, “I have to say I’m impressed with the market’s ability to hang in, and that alone suggests to me, that with any luck, I think we break these levels that I just referred to and we go for new highs.”

Of course, I don’t expect the course up for stocks will be without challenges and Kristina Hooper, the chief global market strategist at Invesco tips a drama ahead.

“We could see another about 10% sell off, and it could happen relatively quickly or it could be a bit more gradual this time – sort of death by a thousand slashed potentially this fall,” she told CNBC last week. ” “I wouldn’t be surprised to see a significant sell off in the second half.”

She thinks a survey her firm commissioned, of more than 800 advisors and 1,015 investors in both January and April, suggests nervousness in the market will translate into many players taking profit and selling.

Triggers could be Trump, trade, China and many other market-worrying factors, but her basic argument is that a sell off is overdue. That said, her end of year price target is 2,850 to 2,950. And if she’s right, that could be a 5% gain for US stocks from current levels, which says any stocks slide will be another buying opportunity.

On optimism for stocks, I think the pics and the people make it easy for me to say: “I rest my case, at least for the present.”

Peter Switzer is the founder and publisher of the Switzer Super Report, a newsletter and website that offers advice, information and education to help you grow your DIY super.

Content included in this article is not by association the view of FNArena (see our disclaimer).

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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