Here at Better Trader we warned of the danger of buying Chinese stocks back in April http://www.bettertrader.co.uk/blog/2015/04/will-chinas-stock-market-bubble-be-the-trigger.html
Here at Better Trader we warned of the danger of buying Chinese stocks back in April http://www.bettertrader.co.uk/blog/2015/04/will-chinas-stock-market-bubble-be-the-trigger.html
"Chao gu" is the Chinese term for speculating in stocks. Roughly translated, it means "stir-frying" shares. Lately, though, for millions of Chinese investors, it means getting fried.
Enter the "nerve-shredding," "whiplash-inducing," rollercoaster "tantrum" of China's stock market. After soaring to 7-year highs on June 12, both the Shanghai Composite and Shenzhen stock indexes collapsed in a respective 21% and 25% sell-off (as of June 30), frequently marked by wrenching intraday swings the likes of which haven't been seen in 20 years.
In the words of one June 28 news source (bold added):
"You have to have a very strong stomach to trade in China. You have to be prepared for days when you are up or down more than 5% and there is no clear fundamental explanation." (FinanceAsia)
In fact, not only isn't there a bearish fundamental explanation for the market rout, but those fundamentals widely seen as bullish for stocks have also failed to stem the slide. Take, for instance, these recent stock-boosting initiatives on the part of the People's Bank of China:
That China's stock market shrugged off these (and other) supposedly bullish catalysts hasn't gone unnoticed. In the words of one Chinese investor, these moves imply "the stock market is kidnapping the government." (The Globe & Mail, June 30)
Well, he's sort of right. The moves imply the government is not in control of the market. Actually, on June 5, our own Asian-Pacific Financial Forecast expressed this exact sentiment and wrote:
"China's current bull market is not a product of government stimulus or of investor ignorance or -- as a prominent short-seller told CNBC this week -- 'the largest pump-and-dump in history.' "(Bloomberg, 6/1/15).
So, what is it a product of? Well, our Asian-Pacific Financial Forecast provides this Elliott wave explanation:
"Actually, it's the initial wave within China's wave V up, which followed the end of its wave IV contracting triangle."
In other words, Chinese stocks have been in a bullish Elliott wave formation, but those don't develop in a straight line; you should expect pullbacks, whether or not there is a good "fundamental" explanation for them.
In fact, before the current rollercoaster ride began, our Asian-Pacific Financial Forecast wave count showed China's stocks nearing a wave 3 peak, setting the stage for an important decline. On June 5, we wrote:
"The indexes should soon correct in wave 4 for some weeks"
One week later -- on June 12 -- China's stocks turned down in the stomach-churning decline we see today.
Whether this decline marks a long-term top for China's bull market -- the same June 5 Asian-Pacific Financial Forecast shows you what key indicators to look for, and when.
The best part is, EWI has bundled exclusive charts and commentary from that subscriber-only report and made it available as a FREE resource to all Club EWI members.
This free resource, titled "China Stocks: Where Have They Been and Where Are They Going?" may be the most valuable report you read on the developing trend in China's stock market. And the best part is, it's absolutely FREE to all Club EWI members. If you haven't joined already, a life-time membership to Club EWI is also FREE!
Or -- for existing Club EWI members, click here for instant access to the entire "China Stocks: Where Have They Been and Where Are They Going?" report.
During QE3, the latest round of the Fed's quantitative easing, the stock market rose. We all know that.
But did you also know that commodities fell?
That's right: QE3 had zero effect on commodities -- or maybe even a negative effect. In fact, an unbiased observer of the trend might conclude that the Fed drove commodity prices down.
That, of course, would be heresy to investors who believe that the Fed's actions have been inflating all financial markets.
What should you make of the fact that commodities have failed to respond to the massive, historic, unprecedented central-bank stimulus? We see it as a red flag.
What's more, you may be surprised to know that not one of the Fed's stimulus programs -- QE1, QE2 and QE3 -- pushed up commodity prices.
As Robert Prechter, the president of Elliott Wave International, wrote in his November 2013 Elliott Wave Theorist, "Charts tell the truth. Let's look at some charts." These four charts and analysis that he published in May, July, and November 2013 tell the story:
(Robert Prechter, July 2013 Elliott Wave Theorist)
The CRB index of commodities has been losing ground for more than two years, as shown in Figure 3. Notice the four short arrows on the chart. Based on their positions, you might think they would mark the timing of accurate sell signals generated by a secret indicator. But there's no secret indicator. These happen to be the times at which the Fed launched its inflationary QE programs!
Investors almost universally take news at face value rather than paradoxically as they should. So they believed the Fed's QE actions would be bullish for commodities. But -- ironically yet naturally -- every launch of a new QE program provided an opportunity to sell commodities near a high.
The first time the Fed bought a slew of new assets (QE0) was in 2008, and commodities went straight down during the entire buying spree.
QE1 (see below) was just a swapping of assets, not new buying, so it wasn't inflationary; ironically, commodities rose during this time.
Commodities rose a little bit after the inflationary QE2 started but ultimately went lower. Since QE3 and QE4 -- the two most aggressive programs of inflating the Fed has ever initiated -- commodity prices have been trending lower as well.
Are commodities just late and poised to soar? I don't think so. Figure 4 shows a chart of the CRB index published in The Elliott Wave Theorist back in May 2011.
It shows a three-step, countertrend rally ... inside of a parallel trend channel ... at a [Fibonacci] 62% retracement ... thus giving three reasons to expect a peak at that time. [Indeed] the CRB index has trended moderately but persistently lower since then.
Prechter gave another update in his November 2013 Elliott Wave Theorist:
Commodities are in a bear market. Figure 1 proves that the Fed's feverish quantitative easing (QE) -- i.e. record fiat-money inflating -- is not driving overall prices of goods higher.
The bear market in commodities began two months before the Fed's massive asset-buying program began. Despite the Fed's inflating at a 33% rate annually for five straight years, commodities are still slipping lower.
Prechter's final point from the November 2013 Elliott Wave Theorist summarizes it best:
None of the believers in omnipotent monetary authorities and their pledges to inflate saw any of those changes coming. Meanwhile, we couldn't see how it could turn out any other way.
The largest inverted debt pyramid in the history of the world is the reason that QE won't work. The future is already fully mortgaged.
15 Hand-Picked Charts to Help You See What's Coming in the Markets
Have you ever seen price charts that tell a story clearly? Prechter chose 15 charts to explain to his subscribers where the financial markets are headed in 2014. They cover markets like the S&P 500, NASDAQ, the Dow, commodities, gold, and mutual funds. With this information, they are now prepared to be on the right side of the financial markets. You can be, too, because, in a rare opportunity, we can offer you a look at the whole issue -- FREE.
Prechter says that "charts tell the truth." Here is your chance to see what truths these charts are telling. If a picture is worth a thousand words, then this latest publication is like reading more than 15,000 words of his market analysis.
Famed radio broadcaster Earl Nightingale, who was the voice of Sky King on the radio and later went on to become a motivational speaker, described what he believed to be the biggest sin a public speaker could commit.
It's not stumbling over words or going overboard with warm-up jokes or speaking too long. The greatest sin a public speaker can commit is to be uninteresting. What's more, the failure is related much more to the speaker's lack of preparation than to the topic. Nightingale argued that even the history of the fork could become an interesting talk.
We believe our economic analysis is made even more interesting and insightful by using our own unique charts. They reflect our independent analysis, and they are different from what you find in other financial publications.
Robert Prechter created this chart for a speech he gave to the Market Technicians Association in April 2013, which is reprinted in the July-August Elliott Wave Theorist. He used the chart to address the often-voiced fear that runaway inflation is just around the corner because, via quantitative easing, the Federal Reserve has been manufacturing new banknotes and swapping them for the debts of others - a process that inflates the supply of dollars.
The Fed has been inflating the supply of dollars at a stunning 33% annual rate over the past five years. It plans to continue doing so at least through the end of this year and has kept open the possibility that it will do so indefinitely. This is the policy upon which those predicting runaway inflation are basing their arguments. With this dramatic a rise, it's no wonder investors expect inflation and have aggressively positioned for it.
Look just about anywhere else, however, and you will see subtle evidence of deflationary pressures. Given knowledge only of the Fed's inflating, many people would expect the Producer and Consumer Price Indexes to be rising at a rate of 33% annually. But, as you can see in [the chart], the PPI's annual rate of change is stuck at zero and the CPI has been rising at only a 2% rate.
-- The Elliott Wave Theorist, July-August 2013
Everyone else is talking about inflation, but deflation is the real threat they should be concerned with. Our friends at Elliott Wave International have created a report that spells out the dangers of deflation and you can have it on your screen with just a few clicks -- free! See below for full details.
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Two months ago, Federal Reserve Chairman Ben Bernanke said he was puzzled by the upward surge in Treasury yields. And bond yields are even higher now, reaching a two-year high on August 15.
But the rise in bond yields - and the concomitant drop in bond prices since they move inversely to yields - is no surprise to EWI analysts. EWI's June 2012 Special Report on bonds noted: "If rates do begin to rise as we expect, most observers will probably be fooled. Bulls on the economy may take the new trend as a sign of economic expansion."
Indeed, on August 15, the financial media linked the spike in U.S. Treasury yields to economic improvement:
[B]ond prices tumbled after [the release of] stronger-than-expected economic data ... .
-- Wall Street Journal, August 15
U.S. Treasurys yields rose to their highest in two years on [August 15] after data showed that the number of Americans filing new claims for unemployment benefits fell to a near six-year low ... .
-- CNBC, August 15
Also note that the August 15 plummet in bond prices occurred on the same day that stocks took a triple-digit dive. So much for the mainstream idea that a portfolio should include bonds to balance stock market risk. In 2002, when Robert Prechter's financial best-seller Conquer the Crash was first published, he warned of what to expect in the kind of financial environment that we have now:
Conventional analysts who have not studied the Great Depression or who expect bonds to move "contra-cyclically" to stocks are going to be shocked to see their bonds plummeting in value right along with the stock market. Ironically, economists will see the first wave down in bonds as a sign of inflation and recovery, when in fact, it will be the opposite.
-- Conquer the Crash, second edition, p. 145
The lesson? If we are now in the early stages of a financial environment that is similar to what unfolded during the Great Depression, then it would serve investors well to learn what happened to bonds from 1929-1932.
How can you do that?
EWI's most recent publications tell you how the financial lessons of the Great Depression apply to today, and they give you an idea of how high bond yields could climb.
More than that, you can find in-depth analysis of the sweeping economic trend that could surpass the severity of the Great Depression.
Bonds just hit a two-year low. The impact on your portfolio may be significant, and the significance for our economy substantial. Elliott Wave International has released a special report on bonds. You can see a part of that report now -- FREE! See below for full details.
More than a year ago, in the face of fierce opposition from the bond bulls in the forecasting industry, Elliott Wave International issued this contrarian forecast: "The bull market in the bond market is aged and ripe for a reversal. Generally speaking, if you are invested in long-term debt, sell it." Today, EWI has updated that original market-beating report with a vital four-page bulletin: 3 Dangerous Myths About Rising Bond Yields. Read it now for free >>
Gold and silver have been all over the financial news.
On Thursday, June 20, silver fell below $20 (-60% from 2011 high), and gold fell below $1300 (-30% from 2011 high).
We first published the chart below after metals plunged in mid-April. It shows EWI's forecasts not only leading up to those big moves ... but during the past three years of opportunity.
Three years of volatile price action in these two markets is plain to see. And the forecasts speak for themselves.
Overwhelmingly, most metals experts favored the other side of the gold and silver trend for the past three years - and they still do today. Meanwhile, EWI subscribers were prepared ahead of time for nearly every important turn.
Now, some periods are more vexing than others. But currently we are in a period where the wave patterns are particularly clear.
Metals prices may bounce higher near-term - like we warned they would do after the April 16-18 lows - but the quotes on the chart clearly show how countertrends are the source of opportunity. And that is the great strength of pattern analysis via the Elliott wave method, along with tools like sentiment, momentum and price.
For a limited time you can see the full story in metals in a free report from EWI. See below for more details.
Elliott Wave International forecasted nearly every major trend and turn of the past three years in gold and silver. If you invest in precious metals, you owe it to yourself to see how we got to where we are today. In a 10-minute video titled Gold Defies Bulls' Optimism, Elliott Wave International's Chief Market Analyst Steve Hochberg lays out what has transpired in gold since 2011 so you can understand where it's headed next.
By Kathryn James
Both gold and silver have been falling away from the highs made in October 2012, lured by the pulling forces of the 200-day moving average. While fear of deflation and imminent market collapse continues to drives economic policy and supports the markets to a large degree, precious metal prices should increasingly feel this pressure as funds are allocated further into riskier assets. Despite this lack of support from economic policy, even if the tide were to turn a stable dollar, deflation and a weaker stock market could also lead to more selling pressure in commodities and subsequent lower prices in gold and silver. So the outlook doesn’t look too hot for gold or silver either way and a sell signal trigger could provide a good trading opportunity in either of the precious metals. The following is a technical summary of where gold and silver sit today.
Gold topped on 5th October at 1797 and has since declined by nearly 10% to the recent low of 1625 on 4th January. The lower high and lower low indicates that the downtrend is becoming established. The key technical 200-dma has provided support around 1660 which has fuelled a bounce back to today’s price of 1680 but the price would need to rally above the lower high marked back in November of 1754 to trigger a buy signal. A break above 1800 being super bullish on the longer term chart.
I’m watching the current trading channel for a break in either direction but I’m favouring gold as a sell and a rise to the upper boundary of the channel would offer a decent entry level to trade. A further test of the 200-dma is worth watching also, if it fails to hold second time round then trouble could be looming for gold.
Silver shows a similar technical picture and has fallen by over 10% since it peaked in September. I’m equally as bearish on this chartbut as with gold would favour some strength to sell into. It barely sits just above its 200-dma. 30.00 support and the uptrend line from the June lows are too close to offer any comfort to the bulls and a fall back to support at 27.50 looks plausible. Upside resistance lies at 32.50 and a break from the current trading flag may take it there. However there is a strong technical indication that silver could peak fairly soon as it sits at the top of a small daily flag pattern (see chart below), but I’m waiting for further indications to confirm a trade.
Please note: Both Silver and Gold charts shown are the continuous CFD market. Silver CFD prices are shown in thousands i.e. 3000 whereas the cash market trades in tens i.e. 30.00.
By Ashraf Laidi
Italian 10-year government bond yields post their fourth consecutive monthly decline, the longest decline in three years.
One of the least discussed aspects of the ECB’s announced OMT programme was its counter-intuitively stabilising impact. The announcement did not force Spain into requesting sovereign aid, but it succeeded in supporting the euro, sovereign bonds as well as European bank stocks. Those improved ‘market metrics’ removed the market strains accompanied with forcing a nation to request a bailout and led to more favourable conditions, enabling economies to pursue austere policies in less strenuous market environments.
More importantly, 10-year BTP yields have broken below their 200-week moving average for the first time since December 2010. The first attempt occurred two weeks ago, followed by a rebound, but this week’s renewed decline is rather considerable.
The Death Cross on the weekly chart is illustrated by the cross-over between the 55 and 100 WMAs. The chart shows two previous occasions of Death and Golden Crosses when yields moved accordingly. Not shown on the chart is the Golden Cross of 2006 (leading to higher yields), and the Death Cross of 2004 (leading to falling yields).
On the monthly chart, 10-yr BTP yields drop below their 100-month moving average, shortly after breaking below the 55- and 200-month moving average.
Marrying such powerful indicators from various schools of technical analysis bolsters the case for further yields downside and is consistent with our previous calls for EUR/USD and equities aid out here, here, here and here.
Sovereign bond spreads (against 10-year bunds) are also falling sharply. Spreads on Greek 10-year yields over their German counterpart hit 10.25% (from 35% in February) – the lowest in 19 months. Portuguese 10-year spreads have more than halved to 5.55% – the lowest in 18 months.
Spain’s 10-year yields have also fallen for the fourth straight month, hitting 5.17%, down 33% from their June highs. The weekly chart shows the next technical target stands near 4.92% – the 200-WMA. A move from the current 5.26% to 4.92% would likely translate to the next EUR/USD run-up, now seen at 1.3370s.
Ashraf Laidi is Chief Global Strategist at Leading Spread Betting Company - City Index