This Could Be The Start Of Something Different

Always an independent thinker, Rudi has not shied away from making big out-of-consensus predictions that proved accurate later on. When Rio Tinto shares surged above $120 he wrote investors should sell. In mid-2008 he warned investors not to hold on to equities in oil producers. In August 2008 he predicted the largest sell-off in commodities stocks was about to follow. In 2009 he suggested Australian banks were an excellent buy. Between 2011 and 2015 Rudi consistently maintained investors were better off avoiding exposure to commodities and to commodities stocks. Post GFC, he dedicated his research to finding All-Weather Performers. See also "All-Weather Performers" on this website, as well as the Special Reports section.

Rudi's View | Oct 25 2018

In this week's Weekly Insights:

-This Could Be The Start Of Something Different
-Digital Advice - The New Frontier

-Rudi Talks
-Rudi On Tour

This Could Be The Start Of Something Different

By Rudi Filapek-Vandyck, Editor FNArena

There is a whole bunch of scaremongers out there, waving index charts that look as scary as they can for any human mind with doubts about the future direction of risk assets. But the untold truth is most of these perma-bears have been waving similar charts for at least the past two years, which as far as I am concerned, gives them no credibility in today's tough environment for risk assets globally.

It's a bit like grabbing the media-megaphone and telling everybody CSL shares are extremely over-priced when they are trading at $120 and now claiming victory because they have retreated, finally, -20% from an all-time high of $230.

In my humble opinion, none of this provides any evidence such prediction/opinion was correct. It proves the opposite.

Having said all this, I have been paying attention to price charts and technical analysis myself of late. Not because technical analysis reveals the future (it does not), but because it is important to keep an eye out for how internal dynamics are changing for global equity markets. In case anyone has any doubt, still: apart from most markets being oversold, which is a temporary status, internal dynamics for equities have deteriorated quite markedly this month.

Markedly lower volumes on up-days, with indices holding up on support from a shrinking number of stocks is but one way to describe the current situation. Another observation is that a growing number of stocks are well-off their year high, and trading below the 200 day moving average. The Dow Jones Industrial Average (DJIA) and the Nasdaq are among few equity indices that are still in positive territory for the running calendar year.

We can all deduce from daily, direction-less and volatile soul-searching in markets, investors are not quite certain how to deal with this.

In Australia, of course, we are inclined to feel doubly disempowered. Tomorrow's direction is either going to be determined by the latest earnings reports in the US, or by movements in US Treasuries, another Tweet from Capitol Hill, or maybe also from news snippets coming out of Beijing (not that we fully want to ignore what happens in Europe either).

From a fundamental angle, modeling by stockbroker Morgans suggests fair value for the ASX200 sits a little above 6000, but if one takes a bullish view a la JP Morgan the year-end target shifts to 6500. But how wise is it to adopt such an optimistic view?

Given US equities have outperformed (by quite some mileage) the rest of the world in years past, and in particular throughout 2018, it seems likely that whatever happens with the likes of Apple, Amazon, Boeing, JP Morgan, etc will also determine the immediate direction for equities in Australia.

Here, in particular, we should all be paying attention to updated insights and views from the global strategy team at Morgan Stanley in New York. On my observation, Morgan Stanley's committee of strategists has read this year's deflation of the US bull market very accurately, which gives them a lot more credence than those who have remained bullish optimists all through the past ten months, as well as those scaremongers I referred to in my opening sentence.

Unfortunately, this doesn't suggest the outlook is getting any rosier, in particular not in the short term.

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