Tuesday, 27 November 2012

CRM back at resistance

Looking at the Charts today I noticed that Salesforce.com was once again testing the 160 overhead resistance. This level has been a major hurtle for this stock, as it has had trouble closing above 160 for the past year

Take a look at the 160-161 leve on this two year CRM chart:

From a larger perspective, there is a potential for a Head and Shoulders pattern if the overhead resistance holds. BUT if CRM breaks through 160-161 in a decisive manner (closing around 164 and keeps going) it could be the trigger for a break-out to new highs.

Either way, it's not a bad time to pay attention to CRM.

Wednesday, 7 November 2012

Fiscal Cliffs, Riots and The Other "Election"

As Obama supporters in Chicago awake from their victory party, markets have turned decidedly sour this morning. After a pre-election ramp, markets are now worried about the Fiscal Cliff debate which is looming before us. American politicians have 7 weeks to get their collective shit together and get a reasonable deficit fighting plan off the ground before the first of January. From the action on the markets this morning, its clear that not everyone is optimistic that this will happen. The biggest problem is that Congress is still divided between the Democrats and the Republicans, which raises the specter of a drawn-out bi-partisan fight over the Fiscal Cliff.

But the Fiscal Cliff is not the only problem today. One problem is the re-emergence of the Greek drama due to a parliamentary vote on another round of austerity measures for the Greek economy. If they dont pass the latest austerity package, Greece may not receive its next tranche of aid from the EU. There has been much violence and drama as parliament was briefly disrupted and a violent 48 hour strike has culminated in near riots in front of parliaments.

China's Leadership Transition

Another major event to watch for this week and the weeks that follow, is the leadership transition that will be occurring in China during the 18th Communist Party congress this week. Beginning on Thursday, the top brass of the Chinese Communist Party (CCP) will embark on a once in a decade leadership transition. It is already a well-known fact that the 59 year old Xi Jingping will replace Hu Jintao as the next President of China, while Li Keqiang will be the premier (replacing Wen Jiabao.  These two will be amongst a new generation of Chinese leaders who will be responsible for running the country over the next decade.

Though shrouded in secrecy, this year's leadership transition has been described as the most turbulent and controversial political upheaval since the Tianemen square protests in 1989. The biggest source of the turmoil has been the very public scandal surrounding Bo Xilai, who until recently had been considered one of the top candidates for a seat on the Politburo standing committee (the 7-9 men who have the final say in China). Bo had embarked on a campaign to eliminate corruption and organized crime while simultaneously using Maoist era rhetoric and policies to garner populist support from the public. He has since been removed from his senior position, his wife was charged, and found guilty, of murder and he is expected to be charged with corruption. The scandal has revealed major internal conflicts within China's Communist party, which has a number of factions based on different political visions for the country going forward (such as whether to liberalize social and political freedoms).

With Bo out of the way, the Chinese elite will be deciding on the composition of the next Politburo standing committee. This will be accompanied by a major change in the composition of lower-level cadres (basically bureaucrats, though with far more political power and resources than in the west). In preparing for this transition, China has been on high alert with arrests of activists and limits on the sale of kitchen knives and toy helicopters. The odds of a negative shock coming from the congress are rather low, but the weeks and months that follow may be filled with internal struggles for power within the party, which could spill over in unpredictable ways.

Here are a few videos explaining some basics about the leadership transition:

Monday, 5 November 2012

How US elections may impact the Markets

As the poor citizens of Ohio and Colorado are well aware of, Tuesday November 6th is the eve of the US presidential election. The candidates are essentially neck and neck at this point as they scramble to garner as many votes as possible in the swing states of Colorado, Nevada, Wisconsin, Iowa, Florida, North Carolina and Virginia.

Market Implications

The results of Tuesday's election could have a major impact on financial markets for two reasons. The first is that any major change in the political class of the United States, which has the largest economy and market in the work, will be important for financial Markets. The second reason is that the US is rapidly approaching a "Fiscal Cliff", which are a series of automatic tax increases and spending cuts that go into effect on January 1st 2013. If a deal is not struck, the US would automatically have approximately $600-720 billion worth of tax increases and spending cuts, equivalent to 4.6% of GDP. (More about this HERE and HERE)

Romney is generally viewed as more "pro-business", but he is also presented himself (at times) as a fiscal hawk that would try and reduce spending and eliminate or reduce social programs. This approach could cause concern if the US embarks upon an EU-style austerity budget cutting program that could stifle, or be seen to stifle, growth. Romney has also stated that he would not re-appoint Ben Bernanke if he wins Tuesday's election. This could be very negative for risk, as investors have grown to know, and love, the "Bernanke put", which refers to an unspoken understanding that if markets go down significantly, the fed chairman will step in and save the rally.

If Obama wins, many see this as a negative due to the continuation of actual or perceived "uncertainty" that the president's policies have caused the business community, at least according to some pundits. An Obaman victory could also cause concerns that the huge deficits of the past four years will continue for another four, which could grow the debt of the United States to a dangerous level. On the other hand, Obama seems to be a fan of Ben Bernanke, and is seen as a candidate which would keep the chairman, and his infamous put, in the Federal reserve for the foreseeable future.

Fiscal Cliff

Here is where the biggest risk lies, and unfortunately a nightmare scenario is possible under either a Romney victory or a second Obama term. Back in August of 2011, American politicians underwent an intense month-long debate about what to do with regard to the countries budget deficit. After much arguing and weeks of violent swings on the markets, US politicians agreed to kick the proverbial can down to road and settle this issue by January 1st 2013. This date is rapidly approaching.

As you can see from this chart, Markets were not impressed by the US politicians' ability, or lack thereof, to settle this issue in a reasonable and timely manner. The US government almost ran out of money in August 2011. Disaster was avoided with an agreement to essentially postpone any long-term fiscal until January 1st of 2013.

Nightmare Scenario

The worst thing that could happen would be a divided congress with no clear mandate on which direction to take the fiscal policy. If Romney wins, he will not be inaugurated until mid-January, though he has made it clear that he plans to have "a say" in the Fiscal cliff debates if he is elected President. But the ugly truth is that the whole country must shift from election mode to fiscal negotiation mode very quickly. The US politicians have from November 6th until January 1st to get a deal to avoid the fiscal cliff, which all economists agree would be economically devastating to the US. But two months is a very short time for such an important and divisive topic. Unfortunately  the two months available for this debate fall in a very awkward time between an election, a leadership transition and right before Christmas holidays. If the US goes over the Fiscal Cliff, it would be a needless, self-inflicted wound that the US and Global economy cannot afford. 

Wednesday, 24 October 2012

The SPY is falling

US stocks have been taking a beating over the last few trading sessions as earnings from some major US corporations, including economic bell-weathers such as 3M and Dupont, have been disappointing. Many of these companies have mentioned slowing demand out of Asia and Europe as the reason behind weaker earning and dimmer forecasts.

But should this be any surprise? The EU has long been economically stagnant with pockets of outright depression in places like Spain, Portugal and Greece. China is clearly slowing down, though many commentators believe that the bottom is in and we are now set for a rebound in the Chinese economy (check out articles about the Bull Case and Bear Case). The other major unknown facing markets is the "Fiscal Cliff" debacle that is looming once there is a new American President, more on that below.

Despite these issues, stocks have been rallying rather impressively, with the S&P and Nasdaq hitting multi-year highs in recent weeks. The torrent of Quantitative Easing (see Money Printing) from the US, EU and Japan could certainly be the reason why stocks have largely ignored all these pesky macro economic issues and continued their upward trend. But bulls should not get too complacent here. The S&P 500 hit its high of the year the day that Ben Bernanke announced QE3, and the market has been trending lower ever since. And there are a few important events looming ahead of us, perhaps the most important being the Presidential elections and the "Fiscal Cliff", which are uniquely connected and rapidly approaching.

Fiscal Cliff

In case you may have forgotten, the geniuses in the US congress have created a "Fiscal Cliff" which goes into effect January 1st, 2013, a few months away. This means that there will be across the board cuts in spending and an effective tax rise if nothing is negotiated between the squabbling American politicians. If we fall over this cliff, it is equivalent to a major dose of Austerity for the US economy, which, if the European experience is anything to go by, will be pretty detrimental to US growth. 

To mix things up even more, the US Presidential election is on November 6th, which could create a range of unpredictable scenarios for the fiscal cliff negotiations. These various scenarios include a lame duck president with no power or a divided Congress with no hope of negotiating a solution in less than months. 

Quick Horizontal Level To Watch For

As you keep track of the Markets, keep an eye on $140 on the SPY (S&P 500 ETF), it has proven to be an important level in the past.

Wednesday, 17 October 2012

Apple slice from the Nasdaq?

Lets make this clear upfront, we are not calling the top for Apple. We simply want to illustrate the point that this market behemoth should be monitored closely for insight on where the Nasdaq Index may be heading next. With Apple representing over 20% of the Nasdaq it may be an important market tell.

From a technical standpoint both the Nasdaq and Apple have been trending steadily higher throughout 2012 and have recently bounced off long term support. However, the dynamics of this uptrend may be changing. The charts below indicate the high level of correlation +0.92 over the last 30 days between Apple and the Nasdaq.

Both markets have formed head and shoulder top formations that have been confirmed with breakdowns below the neckline of the pattern. It appears that a retest of this neckline level, Apple $660 and Nasdaq (QQQ) $68.50, are at hand. If both these markets fail at the neckline and the 50 SMA a test of major trendline support will be a very critical inflection point for the overall health of the equity markets.

Apple Daily Chart
Notice any similarities?

QQQ Daily Chart