As always I am starting this Blog later than I wanted to and most unusually I am doing it on a Saturday Night because tomorrow Night I am off to The Anvil, Basingstoke, to see The Shires and really getting quite keen on the idea. If you don’t know them they are a Boy and Girl from ‘the shires’ and are probably at the leading edge of a Country Music scene in the UK. I really like them because their voices go really well together (think Lady Antebellum) but they also have a lot of quite rocky stuff on their Albums - maybe this is no shock when you consider that Rock‘n Roll had its roots partly in US Country music. If anything you could perhaps liken them a bit to Fleetwood Mac and funnily enough they quite often do FM Covers at their gigs. I have a feeling there is a Link at the bottom of the ‘Wheelie’s Bookshop’ page to their first album and although all 3 of their Albums are pretty good it is probably this one that stands out.
The delays in getting on with this today were caused by me panicking to get my Courgette Plants finally out in the Garden (as opposed to just languishing in small Pots in the plastic Greenhouse thing). Of course, if this had simply been a case of digging holes and shoving the Plants in it would have been easy but as always I had to dig the ground over again and level it out before I could shove them in and this seemed to take forever - and this wasn’t helped by a few infrequent Rain Showers and my constant requirement for Cups of Tea !! The panic was because I am so behind with my Garden this year - I am sure most years my Plants have been planted out in the Garden way before this and I still have a load of Sweetcorn Plants to get done - but they will have to wait. I think the Compost Bin project distracted me a lot…..
And don’t mention my 2 inch high Tomato Plant efforts !!
Bit of a funny old Week with lots of drama and Ups & Downs but in the end my Portfolio gained 1.2% over everything (this does not include my Income Portfolio) and is now pretty much back at its highest ever level. I will look at the Charts in a bit but I did see that the US was quite good on Friday so the set-up for Next Week looks pretty reasonable - but the big potential Apple Cart tipper over is that The US Federal Reserve could raise Interest Rates by a tiny bit but of course they are very likely to re-iterate that despite this Interest Rates are likely to only rise very slowly in future.
It is starting to look like the Global Synchronised Growth that we had a few Months ago is starting to falter and although the US and Asia seem to be doing quite well, the Eurozone and the UK are both finding things tough - and as I will cover in a bit, the problems around Brexit are very likely to keep the UK in a miserable state economically for some time yet. I suppose one upside of all this is that Interest Rates will remain low by historic standards and this is supportive of Stocks as well as meaning that when and if my Leon Cupra finally arrives I might be able to borrow cheaply to fund the mythical beast and avoid using my crucial Capital (‘Other People’s Money’ and all that).
In terms of my Strategy I am pretty much following the path I have stuck to all year so far - in other words doing as little as I can get away with. I am not keen to add to my Long Exposure as I have plenty of Dosh tucked away in Stocks and my Long Spreadbet Exposure is probably a little bit higher than I would ideally like - I will be looking to lower this in coming Weeks but I am in no particular rush and will be focusing on making sure I reduce any Positions by Selling at High Points, not Lows !!
I will cover the ESMA Spreadbet Regulation changes in a bit as this is relevant to my desire to lower Long Spreadbet Exposure and I am eager to keep my Cash and if anything I would like to increase my Cash Holdings. Just by doing not very much the constant trickle of Dividend Payments is slowly increasing the Cash sitting in my ISA Account and of course if I ever get round to Selling something then that would boost my Cash a lot - and I would love a Takeover or two to make the Sell Decisions for me !!
As I will come on to, I am quite nervous about various Macroeconomic Things that are playing out and I think we are long overdue a proper Autumn Correction (you know, when Shares just tank and you shake your head in disbelief at how extreme some of the drops are and you swear at your Fone screen when checking the ADVFN App) - the last one of these we had was probably when Trump was elected back in 2016 so we have been a long, long time since a proper Sell-off. On the other hand, we had a poor start to 2018 and this will have shaken out a lot of Weak Holders who will be scrambling to get back in as the Markets rise but there are some specific reasons which I will come on to that align with my Fears of an Autumn Drop. By the Way, I am targeting the Autumn because that has historically been the time of Year when we get Big Falls - and September/October are particular culprits in this regard.
ESMA Spreadbet/CFD Regulation Changes
This is something that has been getting part of my Brain Power in recent Weeks as I consider the implications of the Rule Changes which I think come in on August 1st 2018. I have quite a large Long Exposure in my igIndex Spreadbetting Account and it is partly made up of FTSE100 Stocks that I am Long on (some are a ‘Mirror-Trade’ of Stocks I hold in my Income Portfolio). The problem with this is that under the New Rules (sounds like a Dua Lipa tune !!) the Maximum Leverage a Client will be allowed is 5 times or something like that - which means the Margin Deposit will be 20% minimum. The catch is that at the moment FTSE100 Stocks are on a Margin of 5% or 10% and therefore to keep my Long FTSE100 Positions open I will need to use more Capital - so this means my ‘Cash Available’ will go down and I will need to put more Cash in perhaps to keep my Cash ‘Buffer’ of the size I like.
Having said that, there is an upside that I doubt anyone else has thought of. It has often been the case in the past that when there is a major worrying Macro Event going on (like the Brexit Vote for example), then igIndex have increased their Margin Rates and to be honest I find this a Pain in the Arse as of course when we are about to go into a Market Meltdown the last thing I want is my Spreadbetting Provider using up more of my Free Cash Buffer !! Hopefully this will not happen in future.
Another effect is that it might mean the Margin Requirement on Index Trades is massively increased (at the moment it is absurdly low like 1% or something) and this will mean doing large Index Longs or Shorts will need loads and loads of Margin Cash and therefore Smaller Positions might be the only practical way forwards. We shall see.
There is also a possible wider impact that if lots of Spreadbet and CFD Customers end up Closing many of their Long Positions then this could put a degree of Selling Pressure upon Stocks in the normal Stockmarket. It is hard to predict how much this could happen - it might be absolutely minimal but it is worth considering that even though it should only affect Index and FTSE100 Positions, it could be that Customers are forced to sell Long Positions (and Close Short Positions although this would probably only have a small impact) in FTSE250 and FTSE Small Cap Stocks etc. as this is the only way they can keep some FTSE100 Positions open - so the impact could be across the Markets.
My hunch is that the effect would be small and limited and probably only impact for a few Days but it is something to be aware of at the start of August. Of course, it might also impact the Revenues and Profits that the Spreadbetting/CFD Companies can make - it seems likely the number of Trades in aggregate will reduce and the size will definitely be much smaller if more Margin is needed upfront.
I think there was another Rule Change that was relevant about when they will Close out a Position if your Margin drops below 50% or something - it is not something that concerns me but if I have missed something relevant about this I will probably include it in a future Blog.
It was only a couple of Weeks ago but I bet everyone has forgotten about the Italian Election Fiasco already !! Anyway, I remember scribbling something in a Blog about Italy and how I was of the view that I could not see how Italy and several other Southern European States could possibly stay in the Eurozone Long Term and that something will have to give as the only way they can escape the Euro Strait Jacket is by getting back their own Currencies. I won’t dwell on that but I tripped over an Article by Chris Dillow in this Week’s Investors Chronicle (8th June 2018 to 14th June and with ‘Sink or Swim’ on a blue coloured cover) and I thought this first chunk of text was extremely relevant. You can read the full article on Page 16:
“The half-finished euro
Investors should not be misled by last week’s resolution of Italy’s latest political crisis. The country’s fundamental problem remains, and it poses a threat to the future of the euro in its current form.
The problem is simply a lack of economic growth. Since it joined the euro in 1999 real GDP has grown by only 0.3 per cent per year and it is still lower than it was in 2007. Quite apart from the damage done to living standards, especially for young people, this has had two major effects.
One is that it has kept government debt high; it is equivalent to 127 per cent of GDP. This isn’t because governments have been profligate recently. They haven’t. In fact, they have run primary budget surpluses for the past 20 years - that is, taxes have exceeded government spending excluding debt interest. Instead, a lack of GDP growth has meant a lack of growth in tax revenues, so governments have been unable to grow their way out of high debt.
The other is that a stagnant economy has led to hostility to established political parties - hence the rise of the Five Star Movement and La Lega. As Harvard University’s Ben Friedman and Australia National University’s Markus Brueckner have both shown, weak economies lead to rising intolerance and to right-wing extremism. The rise of anti-establishment nationalist parties is the direct result of poor economic conditions.
And here’s the problem. In its current form, the euro lacks any meaningful way of getting Italy back to growth. There’s no fiscal union whereby faster-growing economies can support slower-growing ones. And there are insufficient policies to promote growth. The ECB cannot cut interest rates any more, and those governments in the region that have the space to loosen fiscal policy (such as Germany) are loath to do so.”
It’s a great article and well worth reading, but the obvious consequence of all this is that the EU is extremely unstable and we can expect Debt Crises like that around Greece to keep occurring in coming Years until the People of these Countries have finally endured enough madness and rise up to secure their Freedom.
The Brexit Fiasco
On the subject of Freedom, Brexit has yet again reared its extremely unpretty head and my thoughts recently that a General Election would happen soon are looking like being much more likely.
Since the disaster for the Tories at the last General Election when Theresa May was expecting to increase her Majority of MPs in Parliament - which of course made sense when she called it because the Brexit Legislation was always going to be difficult to get through Parliamentary Votes as the majority of MPs are on the ‘Remain’ side and as we have seen in practice they are not necessarily aligned with the wishes of their Electors - the Tory Party and several potential future Leaders have been happy to take a backseat and to let T May get on with the miserable task of trying to push Brexit through but recently things have changed dramatically and to the extent that I simply cannot see how T May survives the current situation.
The difficulties for T May have arisen from her Political Weakness in simply not having enough Votes in Parliament to safely get her Legislation through - in fact, on the coming Brexit Withdrawal Bill Votes which are due this coming Week I think, there are 15 Amendments and she could lose a Vote on pretty much any of them. This weakness is meaning that in the Brexit Talks with the EU, they simply need to stand their ground and T May is pretty much having to give in to anything they demand and she also seems to lack any strength of character to ‘push back’ on the EU and get some concessions from their side. I simply cannot think of any point where the EU has conceded and the simple fact that they are dictating how the Process flows is in itself an indication of T May’s weakness.
Anyway, the details of the Discussions and Votes are irrelevant really, the crux of the matter is that the UK appears to be heading to an absurd (and surely unsustainable?) ‘form’ of Brexit whereby we are going to ‘Leave’ the EU but still be in the Customs Union and in the Single Market. This is beyond ridiculous because it really is the epitome of “No Deal is better than a Bad Deal” and it is really impossible to dream up an Outcome that could be worse than this. And of course T May’s Political Weakness means she is unable to walk away (as we should have done ages ago !!).
There are even reports in the Sunday Papers that the EU is going to demand that Freedom of Movement still applies if we want access to the Single Market which is an obvious snub to the Working Class Voters of the UK.
Up until now the MPs in the Tory Party (and perhaps more importantly the Tory Party Membership) have been happy to go along with a few concessions to Brussels but it is obvious that things have now gone much too far and it is extremely likely that T May will be in effect kicked out and a Leadership Contest will take place. The mechanism for this is that 50 MPs need to write a Letter to the Head of the Tory Backbench 1922 Committee and this will trigger a Leadership Contest. The word is that they already have 48 Letters so I think it is pretty safe to assume that they will get the final 2 Letters that are needed in due course as T May is almost certainly going to lurch from potential crisis to potential crisis over the next few Weeks as she has to deal with the Withdrawal Bill Votes, the Brussels Brexit Talks and at the end of the Month she has arranged an ‘Away Day’ at Chequers for the Cabinet and I suspect that is where things will really come to a head if they have not already by then.
Another bit of gossip in the Sunday Papers is that David Davis got very near to resigning last Week and apparently as many as 12 other Ministers were going to resign with him.
There is an extremely key reason as to why this chain of events is very likely to play out. The simple fact is that staying in the Single Market and Customs Union is not Brexit ("Brexit no longer means Brexit" !!) and once Tory Voters realise how they have been conned, they will punish the Tory Party by either not voting at all in future General Elections or by voting UKIP (assuming they still exist at the time !!) - but whatever way the Tory ‘Leave’ Voters go in future General Elections, the key point is that the Tory Party is desperate for their Votes and cannot afford to see them drift away. In the last Election the Tories lost their Majority and if they just bled away a few Votes that would probably be enough to lose an Election (something like 60% or more of Tory Voters voted ‘Leave’ in the Brexit Referendum).
The Voters in the Country care little about the niceties of Parliamentary Numbers and suchlike and all they will see is a Tory Government who have not delivered on the Brexit they voted for in a so-called Democratic Vote and they will feel cheated and will never vote Tory again. The Tory Membership and MPs understand this dynamic and this is why they will move to oust T May and to trigger the Leadership Contest.
In theory the Tories could have a Leadership Contest but not have a new General Election but in practice this simply wouldn’t work because whoever was to become the new Leader would have exactly the same Political Weakness as T May - they simply do not have the Numbers in Parliament to get Votes through with confidence. For this reason, I suspect the most likely turn of events is that the new Leader will call a General Election (this might not be a simple mechanism but probably needs some sort of ‘No Confidence’ vote I guess) and the pitch to the Electorate will be very simply that this is in effect another Referendum on Brexit and the new Leader will say “Vote for me if you want Brexit to be delivered”. It is a high stakes strategy but I see no sensible alternative and if they win the Election, then they will have a very clear Mandate to push Brexit through and it will be hard for the likes of Blair, Adonis, Chuka, Clegg, Soros, Barnier, and various other undesirables to thwart the ‘Will of the People’ this time.
Such a Mandate will also give the new PM the power to ‘Walk away’ from the Brexit Talks if the EU do not respond in a positive manner. At the moment the EU know they are not ‘negotiating’ with T May but with Parliament and they know the latter wants to stay in the EU.
So the likely turn of events is that we get another General Election (“oh, no, not another one !!”) sometime in the Autumn which of course would time nicely with the weakest point of the year for Markets !!
Even before all of that if T May fails to be able to win a Vote on Amendments to the EU Withdrawal Bill next Week then she might even be resigning early.
What a mess…………
I had a bit of a Week-off from Blog Scribbling last Week as I got very distracted by the Isle of Man TT (incredibly Pete Hickman did an AVERAGE 135mph in the Senior Race which is just unreal - I can recall 120mph being seen as almost impossible and no doubt this Record will tumble at some point but perhaps with the Electric Bikes coming that might get put off for some time), but thankfully Justin Scarborough saved my bacon with an excellent Guest Blog on the Basics of Accounting and if you have not read it I recommend that you do. There is also a really handy List of Accounting Terms at the end of it which could be a useful reference.
Part 2 of Justin’s Blogs on the Valuation side of things should be issued this Week and I intend to get on with writing the Second Part of the PHP Blogs although I have another Guest Blog Draft to look at so I have plenty to keep me busy. It is a constant frustration that I have loads of WD Projects and Ideas that I would love to do but simply do not have the time to fit everything in. Having said that, I am hoping that one of the ‘WD Projects’ will appear in a few Months time although it is early days and plenty of things could derail what we are planning to do………
Oh, and I must get that ‘Weekly Performance’ bit for May updated.
Bloggies Blast from the Past
Recently a chap on the Tweets asked me about how to judge whether or not a Stock is any good and I sent them the 2 Blogs which are included below I think. I note that in the last few Days someone else asked a similar thing so if you are reading this Blog then hopefully this will help. In addition, I would recommend getting a copy of ‘The Naked Trader’ by Robbie Burns from ‘Wheelie’s Bookshop’ as this is very good on this sort of thing and keeps it nice and simple (you don’t want the NT Spreadbetting book for this or the ‘Trade like a Shark’ one):
By the way, if you are reading this and you don’t follow me on Twitter you might be missing out on a huge amount of Information (much of it of questionable use I am sure !!) and of course you can open a Twitter Account for nothing but another way of seeing my Tweets is to go to Google and simply type ‘Tweets by @wheeliedealer’ and you should get them or if you go to the bottom of my Homepage then there is a Tweet Feed there (I bet you didn’t realise !!).
Also to assist in the ‘How do I assess a Stock’ issue, if you look at any of my ‘Buy Rationale’ blogs then you should get a good idea of the kinds of aspects that I look at.
OK, that’s been an epic amount of text, let’s do a few Charts.
Dow Jones Industrial Average DOW
As ever the Charts I will show are all dragged from the brilliant ShareScope Software that I use and if you click on them they should get bigger so you can see the details better.
I was very pleasantly surprised to see the US Markets put in a nice Up Day yesterday (Friday 8th June) because if you look at my Chart below with the Daily Candlesticks on it, where my Green Arrow is I was pointing to an ‘Inverted Hammer’ Candle from Thursday and this looked a good ‘Set-up’ for a bit of a Pullback if the Markets so wished. The fact that a mildly Bearish Signal like this has been completely over-ridden by the Bulls shows just how strong this Market is to the upside.
Where my Yellow Circle is we had the Breakout from the Triangle Topline which is in Red (Red Arrow) and this was an important development for the DOW which has resulted in a good move up as it should do. Also note how in recent Days the DOW has broken over that Horizontal Resistance at 25086 - this is yet more Bullish Behaviour and suggests this Rally has more hooves yet.
Another supporting factor for the Bull argument is that the 50 Day Moving Average Line (marked by my Blue Arrow) has turned up now and it looks like it will avoid a Bearish ‘Death Cross’ which we would have been ‘treated’ to if the 50 Day MA had dropped down through the 200 Day MA which is marked by my Black Arrow.
The next Resistance Level is 25800 and if that is broken then we could go on to 26000 and then the All Time High up at 26617.
In the bottom window below we have the RSI (Relative Strength Indicator) for the DOW - on a Reading of RSI 60 this has plenty of room to go higher and there is no way this can be called ‘Over-bought’. This is a great Indicator for telling us when a Market has gone too high or too low - it works best at Extremes.
Next we have the Weekly Candles for the DOW and where my Black Arrow is we have a lovely big White Up Candle off of a Hammer from the Week before - this is a sweet Bullish picture.
On the Chart below we have the Daily Candles for the DOW with the Blue Wiggly Bollinger Bands above and below. I have unusually zoomed in close here because I want to show clearly how where my Black Arrow is the Candle from Friday is ‘outside’ the Upper Bollinger Band - this is an unstable situation and usually means the Price needs to fall back within the Bands or to perhaps go sideways.
The S&P500 is very much like the DOW so I won’t show it this Week.
Nasdaq Composite (US Tech)
My Chart below has the Daily Candles for the Nasdaq Comp and my Green Arrow is pointing to a nice White Up Candle from Friday 8th June and note how this comes after a pretty rough Thursday when we got a Big Red Down Candle after Breaking Out of the Previous All Time High at 7637. The Key now is that we stay above 7600 which is marked with the Red Text Box and if we can manage this then the Nasdaq should go higher.
Note as with the DOW the Darker Blue Wiggly 50 Day MA Line has turned up.
The Chart below has the Daily Candles and will be quite similar to what I have shown in previous Weeks. On Friday 8th June we got the Hammer Candle which is in my Green Box and the main thing here is that we must stay above the Lows of Friday and really this means staying above 7610. To the upside, we need to get over Resistance at 7772 if we are to push on to challenge that All Time High again soon.
In the big picture, where my Yellow Circle is we had a recent Bullish ‘Golden Cross’ between the 50 and 200 Day Moving Averages and this is telling us to expect good Weeks and Months ahead.
Next one of my favouritest Indicators - where my Blue Arrow is we had a Bullish ‘Golden Cross’ between the Black Line which is the 13 Day Exponential Moving Average and the Green Line which is the 21 Day EMA - this GX is still ‘in force’ as you can see because the Black Line has remained above the Green Line. If they Cross with the Black Line falling, then that is a Bearish ‘Death Cross’ and would spell Bad News most likely.
On the Chart below we have the Daily Candles for the FTSE100 with the Blue Bollinger Bands above and below. Where my Yellow Circle is I am trying to show that the Intraday Low of the Candle from Friday nearly touched the Bottom BB at about 7600 - this is not an exact science, but it suggests that Support is very near by.
On the Chart below we have the Daily Candles for the FTSE250 and my Green Rectangle is trying to capture an Inverted Hammer or ‘Shooting Star’ that we got on Thursday 7th June which was a Bearish Development and then on Friday we got pretty much the opposite so the FTSE250 is really just chopping around between the New All Time High at 21278 and Nearby Support at about 21000. Obviously a Breakout over the ATH would be as Bullish as anything.
My Yellow Circle is highlighting a Bullish ‘Golden Cross’ between the 50 and 200 Day Moving Averages.
Below we have the RSI on the FTSE250 Daily and on a Reading of RSI 64 there is room to go higher. It has pulled back from the Highs but it is possible for it to keep rising.
Next we have the 13 and 21 Day EMAs and where my Green Arrow is we had a ‘Golden Cross’ and since that it is still ‘in force’.
I want to show some Stocks so here we go……
This was highlighted to me by a mate on Twitter and as you can see it has dropped a lot lately so for Income Portfolio Buyers this could be worth consideration. The current Forward Dividend Yield is 7% and they have never cut the Dividend and have a record of raising it every year since VOD Floated which must be 20 years or more. I am weighing this up for my Income Portfolio but to be honest I am holding back because I want to preserve Cash.
VOD lost their CEO recently and I suspect that might be causing some of the weakness but I don’t think Investors with a Long Term View should be too worried about this.
The Chart below is a long term thing and my Yellow Arrow is pointing to where the Price is now - we will zoom in on the coming Charts but it is obviously ‘low’.
On the Chart below in the bottom Window we have the RSI for VOD Daily. On a Reading of RSI 37 it can obviously go a bit lower but this is clearly quite a low level.
On the Chart below we have the 13 and 21 Day EMAs and where my Red Arrow is we had a Bearish ‘Death Cross’ and look how this predicted the subsequent drop. That DX is still ‘in force’ and cautious Buyers could wait for a Golden Cross before buying - or perhaps to nibble some soon to get that meaty Dividend and then buy more when you get the GX.
My Blue Arrow is pointing to a Spinning Top or ‘Long Tails Doji’ from Friday 8th June and this suggests the force of the move down is weakening - Key Support now is about 185p and 180p was Support back in 2014.
Flowtech Fluidpower FLO
I noticed Simon Thompson going on about this again in this Week’s Investors Chronicle (page 14 if you get it) and he was saying it was on a Forward P/E of 10 and with a 3.9% Dividend Yield which I think looks pretty attractive.
Here is a Chart of the Daily Candles on FLO going back about just over 2 Years and you should be able to see a bit of a wide Uptrend Channel going on here. Note where my Blue Arrow is that the 200 Day Moving Average is nicely rising which of course is a sign of an Uptrend.
On the Screen Below I have zoomed in and now where my Red Arrow is you might be able to see a bit of a Dragonfly Doji Candle from Friday. In isolation this is not telling us a lot and I suspect that the Recovery Intraday on Friday was caused by Investors Chronicle coming out and people buying after reading what Simon Thompson had to say !!
My Black Arrow is pointing to the 50 Day Moving Average Line and look how it seems to be turning up now and should avoid a Bearish ‘Death Cross’ with the 200 Day MA which is pointed at by my Blue Arrow.
In the Bottom Right Hand Corner of the Screen note the Text Box which says that FLO went Ex-Dividend on Thursday 7th June for 3.85p a Share, so Buyers now are not entitled to that Final Dividend payment.
On the Chart below my Green Arrow is pointing to where we are lining up a 13/21 Day EMA on FLO - if this happens that would be Bullish. Cautious Buyers could wait for that Cross or perhaps a better Buy Signal would be a move up over 176p which was the Intraday High on Wednesday 6th June.
OK, I will leave it there - I hope you found this Blog varied and thought provoking at least !!
Good Luck y’all,
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