Technical & Fundamental Analysis, S&P500, USDJPY, Gold, Helicopter Money & Much More

Our general market overview starts with the UK, and the 30y yield which is at a record low level and there is a growing concern that the Bank of England may not find enough sellers for its suggested additional QE program. Moreover, the bond and Forex market experience high volatility at present, while indices could be found in a sleep mode. Another key economic theme these days is that Saudi Arabia continues pumping oil into the market at record high 10.4 Bn barrel per day. 

We would like to start with Japan, and our research suggests that the country's fiscal & monetary policy last 20 years have not been sufficient to bolster the economy and structural reforms are urgently required. While the QE (quantitative easing) inflates assets and provides people with more money to spend, the Japanese problem with low rates could also be referred to demographically issues, such as an aging population, low rates of women participation on the job market and historically low immigration levels. Quantitative easing together with negative interest rates have therefore not been enough to stimulate the Japanese economy. The interest rate levels have instead lowered bank profits and contributed with less lending.

In regards Japan, and the fact QE has not been enough to boost the economy, there are now ongoing discussions about helicopter money, the so called people's QE. This would imply that the central bank prints money for the government to be distributed as required, with no obligation to repay the cash in some circumstances. One example could be to forgive student debts, which would certainly boost the American economy as well, if the FED took the same action, because the average colleague graduate in America is drown in study debts (208,000 USD) per person. Moreover, the central bank of Japan (BoJ) is at present pumping $5Bn per month into the equity market besides $65Bn purchase of government bonds per month, while interest rates are negative. 

Returning to the UK, our economic snapshot reveals that the GDP per head is up 1% since 2009, and that household income has stagnated last 7 years, besides a UK unemployment rate at 11 year low. Another interesting point about the UK economy is that sales of electric and hybrid cars have taken off in the UK from 20,000 sold items annually to 100,000 sold cars in 2016 according to The Times newspaper. Hence, 1 in 30 is now an electric or a hybrid car in the UK and this could be an interesting long term investment for those seeking to buy growth assets in the environmental friendly industry.

Moving on to the US and ongoing bull market, this still seems to be intact since the start at the beginning of 2009, which is the second longest bull market on Wall Street for many decades. However, the S&P500 is reaching new highs, but the earnings do not always justify this, and the S&P500 profits in Q2 2016 have declined on an annual basis, followed by overvalued stocks. Many investors are also looking into bonds in these uncertain times including the ghost of Brexit, USA upcoming elections, global extremism, immigration crisis, middle east unrest, low oil prices and a slow growing European economy. But to buy bonds with almost zero or in many cases minus yield is a big question mark at present.

The US economy furthermore keeps rising and will continue to go up until interest rates are increased at meaningful levels as mentioned by Mr Michael Steinhardt. Can the bull market continue and for how long? This would require a sustained upturn in corporate profits (which have been flat in the UK past year), and a continuation of a rising bull market would likely require new technology trends in order to get investors more excited, or, very positive world events (compared with the fall of communism 1990, and the 1995-1999 dotcom boom).

The FTSE300 Pan European index has also fallen 7.4% while US stocks reach all-time highs. In addition, Europe earnings estimates need to be revised down, and the political tensions in the Eurozone needs to be solved, meantime ensuring a decline in unemployment, in order to get a significant boost in the European economy.

Mr Alan Greenspan, former FED Bank Chief,  mentions that the economy in many western countries are approaching stagflation, that is to say, low growth with increased inflation. Even though wage growth is outstripping productivity, the output per our worked, has grown less than 1% in many major developed economies. One explanation could be an ageing population with pensions putting heavy burdens on the governmental budget together with uncertain future corporate taxes. The latter discourages firms of long term investments, thus, bringing a focus of short term opportunities.  

In regards to below charts, following conclusion has been made by analysts, traders and partners at Businesslynch.com, 12/08/2016:

  • With a growing US economy, supported by recent positive trending PMI, CPI, PPI and core inflation data, besides, our technical analysis of S&P500, we see next resistance level at 2250. This is also supported by below stock performance map showing strong growth of the technology sector, which constitutes a major part of the S&P500 index.
  • However, notice below data does not say anything about the real value of the S&P500 as market psychology and irregular optimism certainly have inflated the overvalued price of S&P500.
  • Below US sentiment data is also at top levels, thus, further giving headwinds to additional short term peaks of the S&P500.
  • The volatility index VIX also supports less uncertainty and more of a buy-in mentality of equities, which is obvious in a declining VIX recently.
  • Gold is forming a symmetric triangle as part of an up-trend and if a break-out occur we could expect next strong resistance level at 1477. It’s likely that investors seek to top up equity holdings with gold investments due to actual low bond yield market, as well as global uncertainties.
  • USDJPY indicates further downturn supported by Japanese QE program and likely upcoming helicopter money as described above. Next strong down turn resistance level for USDJPY is seen at 94.684 and in the long run, 87.97 (Fib 23.60)
  • The MSCI World index also supports a growing economic trend, thus encouraging a purchase of S&P500. Bear in mind I am not in the market at present, because I want to see some rebounds, clear reversals, before entering the S&P500, which aligns well with my Swing Trading strategy.

Nice weekend

/Antonios Papadimitriou, MBA, Capital Markets Analyst, S&P500 & DAX Trader, Digital Strategist

 Figure 1. S&P500 Monthly

Figure 1. S&P500 Monthly

 Figure 2. S&P500 Weekly

Figure 2. S&P500 Weekly

 Figure 3. S&P500 Daily

Figure 3. S&P500 Daily

 Figure 4. S&P500 4h

Figure 4. S&P500 4h

 Figure 5. VIX Daily

Figure 5. VIX Daily

 Figure 6. Gold Weekly 

Figure 6. Gold Weekly 

 Figure 7. USDJPY Weekly 

Figure 7. USDJPY Weekly 

 Figure 8. MSCI World Index 

Figure 8. MSCI World Index 

 Figure 9. S&P500 1M stock performance by finviz.com 

Figure 9. S&P500 1M stock performance by finviz.com 

 Figure 10. S&P500 6M stock performance by finviz.com

Figure 10. S&P500 6M stock performance by finviz.com

 Figure 11. S&P500 1Y stock performance by finviz.com  

Figure 11. S&P500 1Y stock performance by finviz.com  

 Figure 12. S&P500 sector weighting 

Figure 12. S&P500 sector weighting 

 Figure 13

Figure 13

 Figure 14. 

Figure 14. 

 Figure 15. 

Figure 15. 

 Figure 16. 

Figure 16. 

 Figure 17. 

Figure 17. 

 Figure 18. 

Figure 18. 

 Figure 19. 

Figure 19. 

 Figure 20. PMI Manufacturing index US

Figure 20. PMI Manufacturing index US

 Figure 21. US Service Sector PMI

Figure 21. US Service Sector PMI

 Figure 22. 

Figure 22.