ARTICLES

The Coming Blow-off

At the start of 2021, it is as well to stand back and consider the context of where world markets are as they slavishly follow Wall Street up to new record highs.  Consider the 12-year chart of the S&P500:

The chart shows that the great bull market which began in March 2009 is on-going. It is moving within a clearly defined channel. The upper channel line is established by no less than 8 touch points (marked with the red arrows) - and the lower channel line is exactly parallel to it. What is interesting is that this lower parallel channel line precisely connects the initial low of March 2009 with the COVID-19 low of March 2020. This is not just a coincidence, but a strong confirmation of the validity of channel lines as a method of analysis.

Fundamentally, the strong upward trend is being driven by Biden’s clear win, both of the presidential election and now of control over the US senate. This clears the way for further massive stimulation of the US economy and share prices are eagerly anticipating this.

The bulls have taken heart from the fact that the market has, once again, made a startling recovery. If you consider the COVID-19 downtrend as a technical aberration, rather than a bear trend (which is our position), then this bull market is now almost 12 years old – an all-time record by some distance. The bears have been consummately beaten into submission.

Alan Greenspan’s 1987 innovation of pumping cash into the economy every time there was the possibility of a severe downward trend has established a pattern which now dictates economic policy. It has become politically impossible for the US Government (either Democrat or Republican) to countenance a recession. Every time one threatens, monetary policy stimulation supported by lavish quantitative easing (Q/E) becomes the order of the day. There can be little doubt that the new Biden administration will conform to what has become the unwritten economic policy norm.

This, of course, makes a huge bubble in shares not only possible, but virtual certainty. For many years now we have been predicting an unprecedented blow-off in equity prices based on the excessive printing of money in the world economy. As the bulls gain confidence, the bears retreat into obscurity and investors begin to believe that recessions and bear trends have been eliminated by new and ingenious economic policies.

The JSE Overall index, despite the parlous local economic conditions and the overwhelming second wave of the pandemic, has now also made a new record high:

It has been well said that, for the next Kondratiev wave to occur, investors must first forget about Kondratiev. In 1987, after the crash, everyone was talking about the Kondratiev wave. Today, 33 years later, nobody even knows who Kondratiev was.

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PDSNET ARTICLES

The Anatomy of the Bear

As the bear market unfolds on Wall Street you either hold shares or you are sitting in cash. For those who are holding shares, as we have said consistently, you need to watch your stop-loss levels very closely because you are operating in a market where the odds are decidedly against you.

For those in cash, your position is

Bear Trend

We never regarded the COVID-19 fall of the S&P500 in March 2020 as a bear trend. In our view it was always a technical aberration caused by the “black swan” event of the pandemic. It caused a temporary downward spike which lasted from February to August 2020, but it was never a true bear market.

Then on Monday

Uncharted Territory

The world has entered a turbulent time, the outcome of which will largely determine the future order of things. There are six great areas of uncertainty which the private investor should formulate a coherent opinion on:

• The war in Ukraine is in reality the remnants of the cold war, a low-level conflict

Triple bottoms

Investors should be riveted to the progress of the S&P500 index these days. As we said in our article three weeks ago, the S&P is teetering on the edge of a bear trend. Following that article, the index climbed back up and then on the US Memorial Day weekend it encountered significant

Basic Fundamentals

Public, listed companies are required to report back to their shareholders on a regular basis. They must produce audited financial statements after the first six months of their financial year (interims) and then again at the end of the financial year (finals). Listed companies must produce these statements within 3 months of the end of their

Teetering on the Edge

Last Friday, the S&P500 actually dipped into bear market territory during the trading day. It went as low as 3811.28 before staging a remarkable recovery in afternoon trade to close at 3901.36. This resulted in Friday’s candle becoming what is known as a “hammer” – a candle with a very short body and a long downward

Bitcoin versus Gold

Cryptocurrencies cannot really be considered an investment because they have no fundamentals. Their value is derived exclusively from the belief of the people who invest in them. When belief in Bitcoin is strong the price rises and when it is weak, the price falls.

Bitcoin cannot be regarded as a “safe haven” asset

Uncertainty

Most investors would probably agree that there is a considerable amount of uncertainty in equity markets at the moment. From a fundamental perspective, that uncertainty has come about because of:

1. The force with which the central banks of the world (especially the US Fed) will “stamp on the brakes” to reduce

Powells Punch

In November last year we wrote the following about the U.S. economy in the Confidential Report:

“…what if the Fed is wrong about inflation and it persists at the current high levels or even increases? September was the 5^th month where inflation was above 5%. If they are wrong, then they will need to raise interest