My observations below should be viewed as general advice and may not be right for you.
Happy New Year All,
It seems that I am one of the last brokers to put pen to paper and write their thoughts for 2013. And this is for good reason. I cringe time and time again when I read absurd market calls trying to predict the XJO level to a tick almost 1 year out. I am yet to read many commentators who get even close. But every year, one by one, the "predictions" come out for all to see.
The reality is that the future is unpredictable. I do not subscribe in its entirety to Taleb's theory of the Black Swan but I do believe we have become increasingly prone to shock and surprising events which have a major effect on the markets. Debt has built up, leverage has increased, technology has become faster and more reactive, and thus we are prone to big and nasty moves both on the upside and to the downside. An example of a Black Swan event was seen last year in the near collapse of the European system with Bond Yields across the region sky-rocketing. It took a last minute bazooka from European Officials and "unlimited" intervention to stem the panic. All kinds of problems in Greece and Spain remain under the surface and who knows when they want to rear their heads once more.
I really don't mean to be a cynic. But in recent years we have seen increasing shocks, panics, and subsequent waves of Euphoria as politicians come to the rescue. That is the nature of the market and the game right now. How can one possibly predict with any kind of certainty in this environment? How can one try and project a company’s future cash flows and try to discount this back to the present day to derive a value? For me, I always try to use the price action and the charts to ascertain what is really going on out there and guide through these minefields. My timeframe has become shorter.
So a number of clients have asked me what my thoughts are for the year and thus the simple fact that I am now writing this seems I have succumbed to peer pressure. What I want to try and stress here is that these are NOT predictions per se but my current thoughts as to what is currently going on out there and how this may have an influence on the immediate future. These thoughts are prone to changing in line with the changing price action. I feel that's what a trader needs to do as market constantly adapt and change. for most clients, these thoughts are probably not even actionable as it doesnt fit their trading plan or timeframe.
I will sit on the fence here and think we are likely to see more of the same. The rally across Equity markets has been supported by global central bank intervention and low interest rates. I can’t see them pulling the liquidity taps until a genuine pick up in the economy which we are just not seeing yet. Australia is a classic example where the budget surplus has been abandoned, the mining boom has supposedly "topped" and as a consequence rates have been slashed with more projected to come. And stocks have soared.
There are going to be continuous shocks and these could come from anywhere whether it be the US debt ceiling (fiscal cliff was a sideshow to this one); Spain; Greece; Slowing growth in China; Or more likely some unknown Black Swan event. The reality is that every big panic has thus far led to one great big buying opportunity. Where else can investors put their money when rates are this low? Until rates rise, there is no alternative. And rates will not rise until we start seeing inflation return and genuine growth.
US MARKETS
The recent FED Minutes indicated that the current Bond-Buying programmes may come to an end at some point at the end of 2013. Well we have heard that before. We are now on QE3/QE4. Markets will make a high, turn lower on rhetoric of central banks turning the taps off/an improving economy, and then this sell off will probably force Ben Bernanke’s hand into QE5 and the like. Japan is a roadmap here.
S&P500:
First Resistance 1470. Major 1550/75
Currently we are sitting right at the top end of the range and a strong potential resistance zone. However, the recent move post the Fiscal deal looks like yet another kick off bullish event given the strong price action over the past few days. Thus, I anticipate breakouts above this 1460/1470 zone in time with a target up to the previous 2007 highs at 1550. March is usually a major turning point for the markets and interestingly, this coincides with the deadline for the US Debt Ceiling negotiations. This is probably the area to be looking for genuine resistance and a bigger picture turn lower. I wrote about the phenomenon of March in this blog post last year and please have a look through these simple charts: http://swingtradersedge.blogspot.com.au/2012/04/ides-of-march.html
Weekly
The 2007 high up at 1550s looks like the target for this move
Daily
Need to break the recent highs at 1465/1470. This would open up a move into the top end of this channel as shown.
60mins:
Support at 1400 was strongly defended. Pullbacks into 1440/1430 in coming days could offer a great low risk buying opportunity into this uptrend. The alternative is waiting for confirmed breakouts above 1470. Risk for the bulls is a move back below 1400.
AUSTRALIA
XJO:
First Resistance 4750. Then 4875 to 5000 Major
The XJO is now also right at the top end of the range and beginning to turn lower. Of late, we have outperformed global markets and I believe a period of profit taking may well be due. Iron Ore continues to soar and yet the major miners are now all turning lower which is a bearish divergence.
If the S&P500 does go on and breakout, corrections may well be shallow. Call me a short term bear and bigger picture Bull back into this uptrend.
Daily 1:
Hit the first resistance zone and turning lower. Aggressive traders could be looking for low risk short setups here in the short term with tight stops.
Daily Target 2:
I think any strong dips back into the trend present a good buying opportunity with the ultimate targets up to 4875/4900.
XJO Base:
This base pattern projects all the way up to 5000. Note how the 200ema has crossed to the upside and was successfully defended. This is a bullish development.
CHINA
The A Shares and Shanghai Composite look to have put in a major low and bullish turning point. Indeed, the price action looks very similar to events in the S&P500 in March 2009. This has coincided with the unveiling of a new Party Leadership and it would the market is anticipating more beneficial market policies.
The charts below illustrate my thinking and why I believe this is but the beginning of a bigger picture rally. No doubt, this will be a real bullish factor the Australian market should this play out.
China Daily:
This looks like an attempted breakdown lower that failed to follow through. The reversal back above the previous lows is indicative of genuine strength and marks a "failed breakdown" pattern. These are some of my favourite patterns out there as they imply that sellers were unable to take the market lower as there was little added momentum. A market that cannot go down is left with one other option.
China Daily 2:
Note the back to back strong rally candles which have a very wide range. This is a sign of genuine strength and looks very similar to the price action out of the March 2009 low.
S&P500 Daily March 2009:
Note the similarities
China Weekly Count:
Price bottomed right at the low end of this ending wedge pattern and right on a Fibonacci projection where A=C. In Elliot wave terms, this ABC move is corrective and implies a new move right back up to the previous highs! Obviously this will take time and I try to not forecast too far out but it is certainly a bullish indication.
Bullish divergences on the low and breakout above the downward trendline. Also note a completed 5 wave decline which implies an end to the downtrend.
WHAT STOCKS TO PLAY:
To me, I am not trying to unearth the next "penny" or cent stock and give you a fundamental reason as to why it will go on to surge into a 10 bagger. Instead, I would rather focus on those stocks currently that have formed great multi month Base patterns. This implies that the worst is behind these stocks and a period of outperformance and a new trend higher may be underway. Many of these stocks I have called out over the prior 4 months and they have performed nicely to date.
These include:
Financials
AMP
Resources
Remember the calls for the "top" of the mining boom earlier this year? Interestingly, that was when all the majors put in their respective lows. That is exactly the kinda of sentiment backdrop needed or to be expected at major turns.
RIO
Clear trend change from down to up. Buying dips back into this new trend is the play as the bigger picture targets are higher still.
BHP
I think the targets for this move could be as high as the 61.8 Fib up at 42.00 are achievable in the bigger picture. For now, we are into the first target zone at the 38.. this 5 wave decline implies a low and end to the downtrend.
MIN
AWC
MBN
PNA
Gold:
BDR
IGO
SFR
Energy
LNC
Gamers:
ALL Weekly
TTS Weekly
Consumer Disc
SWM
Material
CSR
IPL
Industrial:
AMC
BXB
LEI
TOL
God stocks for those trend followers include: BCI, CCV, CRZ, FLT, NVT, SUL, WTF.
So there are some of my thoughts. Now watch that all prove to be very wrong :)
Thanks
Austin
