FYI | Oct 27 2020
By Peter Switzer, Switzer Report
Its technically official: stock market is set to rise!
Ive seen a vision of the future and its very positive for stocks. Now this isnt my vision, and, best of all, its supplied by a man known for his realistic views on the subject of the economy and markets.
Percy Allan was a former New South Wales Treasury boss and put together an initiative that we supported called Market Timing. Regrettably, not enough investors were into getting insights when a market would crash or zoom off!
That said, critics of market timing indicator watchers could ask: Did they see this Coronavirus crash coming?
The cynic has a case with this one, as the virus-created pandemic and recession was from the furthest imaginable left-field ever! However, the Citi Bear Market checklist, which I watch closely, shows two important things that critics of market timing should remember.
First, on the list of indicators that Citis smart market team watches, it doesnt have anything like pandemic threat that has been an issue for markets in the past.
Second, before the recent stock market crash, only four out of 18 indicators screamed get out of stocks. Before the dotcom crash, it was 17.5/18. And before the GFC, it was 13/18. And with the latter case, the debt ratings agencies didnt tell us about their false rating on the exotic investment products (called CDOs), which rattled financial markets into a death spiral, taking stocks down 50%!
If they did tell us the truth, that number might have been 15 out of 18, and the cautious market-timer might have gone to cash or at least defensive. Back then, one-year term deposit rates were 6%!
From my point of view, when it comes to investing, I take in many different points of view, and if I get a strong coincidence either to the positive or negative, I buy or sell.
For example, if I see a company in a growing industry, with good management, a leader in its sector and where the technical or charts tell me that the market is loving this company, Im really inclined to go long that business, and vice versa.
So when Percy writes that this week it happened the All Ords share indexs 30-day trend line surpassed its 300-day trend line, suggesting its all over rover for the bear market, I have to take him seriously.
This is the sort of stuff Percy throws at you: When the Coppock momentum indicator turns up it should confirm that the crash of February/March is behind us and the markets bull rally since March 23rdis supported by not only by trend analysis, but also momentum analysis.
But what is the Coppock indicator? Investopedia says: TheCoppockCurve is a long-term pricemomentum indicatorused primarily to recognize major downturns and upturns in a stock market index. It is calculated as a 10-month weighted moving average of the sum of the 14-month rate of change and the 11-month rate of change for the index.
On closer reading, Percy is saying that the shorter-term reading of six months is more positive about the death of the bear market than the longer 12-month graph but it still is pretty positive.
The chart below takes in the 12-month story. But dont be unsettled if it looks like Double Dutch to you. (Can we say that kind of thing nowadays?)
The green line is the Coppock indicator and it does look like its trying to turn up after sliding big time since late February. On short-to-medium-term trend analysis the All Ords index remains bullish, but its momentum is slowing, Percy noted. Its 10-day trend line sits comfortably above its 30-day one, but it MACD oscillator while still positive is quickly losing momentum.
The MACD Oscillator? Investopedia says the Moving Average Convergence Divergence is is a double-edged technical indicator in that it offers traders and analysts the ability to follow trends in the market, as well as gauge the momentum of price changes, to spot trends in the market, anticipate potential shifts in trading, and, ultimately to either trade successfully or to offer advice to clients so that they may trade successfully.
Dont worry if Percy and I are losing you, I just want to show how smart he is and how I try to get you really important information to help you invest well.
As a consequence, let me give you a summary of Percys findings about the end of the bear market (with my comments in bracket).
So here goes:
- Americas S&P500 index while still bullish is less so than Australias All Ords index. (US infection rates and the stimulus/election question marks arent helping Wall Street or the US economy.)
- The Democrats look likely to win the US election, though Bidens lead in the key swing states is only 4 percentage points. However, in the Senate race, its neck and neck between the Republicans and the Democrats with nine states in doubt.
Source: S&P data 2020 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.)Dimensional Fund Advisers.
- Historically, Democrat Presidents (shown in blue in chart above) have always presided over secular bull markets except for Roosevelt in the latter half of the 1930s.
- Wall Street is warming to a Biden Presidency with their expected big spending being more relevant with interest rates so low, which takes away fire power for central banks and their monetary policies worldwide.