Technicals | Nov 23 2010
By Rudi Filapek-Vandyck
For those who missed it: I used the smaller stories at the bottom of this week's Weekly Insights email (non-paying members will have to wait another 24 hours) to point out that, on my observation, the post QE2 world has been characterised by non-performing risk assets, but also by market strategists scaling back their year-end forecasts for equities and, equally important, a growing number of technical analysts who have started to express warnings and bearish outlooks.
One of such warnings was issued in the form of a press release, which caught my attention. I suspect there is a very good reason why an old hand for one of the Wall Street firms has used a press statement to express his view that risk assets, including global equities, are now biased for more weakness. It's because, I suspect, he wants to be able to direct his clientele, and others, at some point into the future to the public statement and say "see, I was there, I saw it and I warned everyone who cared to pay attention".
One might thus assume that whoever puts out a press release carries a bit of conviction in his present views.
Technical analyst Walter Murphy runs his own firm these days, Walter Murphy Global Advisors, and his warning to global investors read as follows:
"Momentum and sentiment favored both a dollar rally and a correction for gold. At the same time, Murphy — who, in July, advised his subscribers of a worthwhile summer rally for stocks — believes that the four-month uptrend in the S&P 500 is now at risk of an important reversal. His most recent Short Term Review warned subscribers that both the rally from March 2009 to April 2010 and the subsequent uptrend since last July's low are best counted as bear market rallies. Since such rallies usually "end badly," Murphy has consistently suggested that investors use market strength as an opportunity to cull underperformers and adopt a more defensive posture.
"These pressures are global in scope. Murphy has told subscribers that the technical underpinnings for most of the 37 non-US markets that the firm monitors are similar to those in the US. Thus, a reversal of the July-November intermediate uptrend should be global in scope."
The press release also suggests that anyone who puts in a request can get a copy of the original technical report behind the release, but I am still waiting, after putting in my request per email on Friday.
Walter Murphy is far from the only one, even though not everyone is necessarily as worried as his press statement suggests. Technical market analysts at Barclays, for instance, have been putting out some moderating market predictions as well ever since QE2 by Bernanle and Co failed to live up to expectations, but they have thus far not seen a reason to abandon their ongoing positive medium-term view for "risk" overall. Probably best to think in terms of short-term temporary set-backs, in Barclays' view.
However, on Tuesday morning our very own TechWizard issued his own warning and this was also based on the latest technical analysis. Reports the Wizard: The ASX200 index is now sitting on the bottom trend line support after a lacklustre performance so far in November. The Wizard notes "a parallel line acting as resistance was drawn and a blow off top above this line was quickly reversed and we are now at a crucial level".
What does this mean, a "crucial level"? Well, reports the Wizard, his proprietary trading system has started generating yellow and red bars, which is not good news for anyone with a bullish view on where the sharemarket is heading, he adds. Says the Wizard: a market that is sitting right on the bottom Bollinger band is in essence a very uncomfortable market, because if it breaks lower this will essentially open a door, leading to much larger losses in a relatively short time span. The Wizard notes, for example, there doesn't seem to be much in place in terms of technical support between current levels for the Australian share market index and … 4300.
One other technical analyst who receives irregularly a mentioning on the FNArena service is Daniel Goulding, publisher of his own weekly, The Sextant Report. Goulding already decided a few weeks ago that 5000 would be a big bridge too far for this market, effectively revising his earlier bullish prediction. In line with the predictions above, Goulding believes this market has become "very tired", if not "exhausted", a view based on internal market signals. This is why he predicts, with conviction, that investors should expect "lower lows".
Similar to the TechWizard, Goulding mentions the absence of technical support once the downtrend kicks in. But where the Wizard has set his focus on 4300, Goulding has set his on the May low of 4175. The good news is, Goulding does believe the share market near this level will represent good buying opportunities, and this is what he is preparing for.
