2018 has not started all that easily - after another tough Week my Portfolio was down 1.4% and again for 2018 it has dipped slightly into negative territory - although so far nowhere near as bad as it was a few Weeks ago (it would be lovely if it can bounce now and judging by the Charts that looks possible although I am not sure it can be maintained for long).
I am overall a bit nervous about these Markets - from a very quick look tonight I get the view that the US looks better but the UK and Europe Markets don’t look all that happy - I will address these points in detail later but the essence of my worries around Europe and UK are that we are very near Bearish ‘Death Crosses’ on the 50/200 Day Moving Averages and if we get those it could be telling us there is trouble ahead.
Fundamentally we have the Italian Elections today but from what I have seen so far these don’t really seem to be driving Markets - the ‘blame’ tends to be put on Rising Interest Rates and Inflation Fears although I think the truth is more likely to be that nobody really ‘knows’ the reasons for any Market Moves and these things are just in essence far too complex for anyone to understand and that considerations of Fundamental Drivers are probably utterly pointless (even if you could get a handle on these Drivers it is utterly impossible to predict how other Market Participants will react to these and also the Network Effects and stuff are impossible to model).
I am sure I will write about this in the future but more and more I am thinking this way and falling back to the old Trader adage of “Trade what you SEE not what you THINK”.
Partly down to my nervousness on the Markets in general I trimmed a few ‘odd’ Positions I had last week which was mainly a bit of a Spring Clean (don’t laugh as you look out of your window and see Snow !!) and of course Selling a Stock or two lowers my Long Exposure and frees up a bit of Cash which is partly a ‘Hedge’ but also gives me firepower if I want to buy in the future - one I am particularly keen on is more Hostelworld HSW because I realised I only have a Long Spreadbet on it, I do not hold Shares.
Slightly related to this, one ‘high class problem’ I have now got is that as my Portfolio has grown, my £ Value of 1% of my Portfolio (I have a Minimum Size Rule that I will only buy Chunks of at least 1% of my Portfolio except in very rare High Risk situations) has risen a lot. Look at it like this - if my Portfolio had been £100k a few years ago then the 1% Minimum Trade would have been £1000 but if it had now grown to £200k then the 1% Minimum Trade would be £2000. It is a strange problem to have but it is noticeable how much larger my Positions are becoming. This is probably not helped by the fact I am being much stricter on my Number of Holdings and I am now down to 41 which is not quite the desired WD40 !!
Those Sales were partly things I have been meaning to clean up for a while and in the case of both KCOM and RMG they had had a strong run up and I was taking advantage of this move (see my ‘Trades’ page) but other than that I am not over desperate to sell much (apart from FCCN but don’t even go there !!) and I am happy to keep my Portfolio as it is and I will of course be Hedging via Indexes if need be.
I wrote a few Weeks ago about the typical March Market as per the UK Stockmarket Almanac and I just had a quick look at it again and the thing that stood out to me is that a typical March seems to rise for the first few Weeks and then fall away at the end (with a particularly bad Last Week). It will be interesting to see how this plays out because February 2018 was far from a typical February where Markets normally go up for the whole Month.
Another potential ‘problem’ could occur in the Retail Sector and Distribution stuff etc. - of course I am thinking of the awful and unusual Weather we have had in the last Week or so and it would not surprise me if we see a few Profit Warnings from Retailers as a result. Of course a period of Weather like this is very unusual so it could actually create an Opportunity but as always any Drops after a Profit Warning are very risky to buy into and it would be best to let the dust settle properly before Buying after such Drops (if they happen.)
The Blog Slate
The Final Part of those ‘Investor Evolution’ Blogs is pretty much complete so it needs some tweaks and proof reading but it should come out in the middle of Next Week. I have made decent progress on a Buy Rationale Blog for EU Supply EUSP so that should be the next one to emerge and I also started on the Blog about my new approach to Trading the Indexes last night - so there are a lot of things due in coming Weeks. I also have several other small Blogs in Draft form so we can be pretty confident I will be able to keep the flow going even as we move into Spring (yeah, right) and I have less time because I am out enjoying myself !!
Let’s get Indexing………
This one is of particular interest to me because I have a couple of Short Positions on it - yet again this might not have been my best idea and a Short or two on the FTSE100 might actually be better. With my New Approach to trading the Indexes, I would be quite happy to use the FTSE100 (in the recent past I have disliked it because of the way it moves against the £ and also because it is so dependent on just a few Huge Stocks).
The Screen below is my actual ‘Working’ Chart which shows where my Short Positions were Opened (Short Blue Horizontal Lines) and where my Stoplosses are (the Short Pink Lines). As always, the Charts I shove in are from the brilliant ShareScope software that I use. First off please check out the Yellow Circle and note how this shows a Reversal Pattern in the Candlesticks which was really about a Big Red Down Candle which ‘Engulfed’ the White Up Candle from the Day before (so we got a Bearish Engulfing Candle). Then look how we got 2 big Red Down Candles and these could easily be a ‘Three Black Crows’ Pattern which is not good usually but note where my Green Circle is that we seem to have a possible Reversal Pattern in the form of a 2 Day ‘Bullish Piercing Lines’ - for this Reversal to be confirmed, we need the S&P500 to rise tomorrow (Monday 5th March) - I will leave my Shorts in place for now and make a decision about whether or not to Close them at the End of Play tomorrow Night.
Something else to be aware of here now is where we got the Yellow Circle, the Market formed a ‘Peak’ which was lower than the Peak that was the All Time High up around 2873 - so we might be getting a series of ‘Lower Highs’ - this would not be good. However, if we do get a Reversal now then perhaps the S&P500 is starting an Uptrend Channel from the Recent Low at 2532 so things might work out fine. It certainly looks much better than the Charts for the UK and Europe.
The Chart below is extremely important and it is exactly why I am more happy with the US Markets than I am with Europe and the UK. My Blue Arrow is pointing to the 50 Day Moving Average and my Black Arrow is pointing to the 200 Day Moving Average - the point is that the 50 Day MA is nicely above the 200 Day MA and at the moment we are miles away from the 50 Day MA dropping down and crossing the 200 Day MA to do a Bearish ‘Death Cross’ - sadly we are in a different situation for Europe and the UK as I will show soon.
In my Text for the last Chart I talked about a possible Uptrend Channel - my Green Lines on the Chart below (marked by the Green Arrows) are my attempt to show what I meant by this - but of course it entirely depends on the S&P500 turning up now and being good in the coming Week.
In the Short Term this is not so good, although in reality the MACD is a ‘slow’ indicator. The bottom window on my Screen below is showing the MACD (Moving Average Convergence Divergence) for the S&P500 Daily. My Green Arrow is pointing to a ‘Bearish MACD Cross’ in the Histogram Bars format and my Black Arrow is showing the same thing in the Signal Lines format.
This is not so good. The Candlesticks below are of the Weekly sort (and remember, when it comes to Technical Analysis stuff any Longer Term thing dominates over Shorter Term moves) and my Green Arrow is showing how we got a Down Red ‘Bearish Engulfing’ Candle although it has to be appreciated that this has long ‘Tails’ (or ‘Wicks‘) and is not a perfect example of such a Bearish Candle. However, note, how it ‘Engulfed’ the small White Candle from the Week before.
And more ‘Big Picture’ stuff - the Candles below are for the S&P500 again but this time they are Monthly Jobbies. My Black Arrow is pointing to the Red Down Candle from February (the little one in my Yellow Arrow is for March and therefore it has no validity yet) and as it stands I don’t think this tells us much. My best interpretation is that the Main Body of the February Candle is ‘inside’ the White Up Candle from January and therefore we need March’s Candle to complete a 3-Candle Pattern and either we will get a ‘3 Inside Up’ or a ‘3 Inside Down’ - of course Bulls don’t want to see the latter although we won’t know until March is out of the way.
Note how the Candle on February dipped down to the Light Blue 200 Day Moving Average Line - this is clearly Strong Support.
Below we have the Heiken Ashi Candlesticks (remember these are totally different to ‘Normal’ Candlesticks) - my Green Circle is highlighting how we got a Big Red Down Candle on Friday and this is still suggesting the Trend is down. However, it needs to be appreciated that the HA Candles are ‘slower’ than normal Candles so my earlier Charts could be correct in expecting a Reversal upwards here and it won’t show on the HA Candles until probably Monday Night.
The Chart below is the Renko Chart - I have no idea how these work but my Blue Arrow is showing a Red Down Square - my assumption at the moment is that this is telling us that Downside is more dominant on a larger timeframe. From a quick read of how Renko Charts are formed, I think they take a longer Average of Opens and Closes etc. for a series of Days - in other words they show something like the moves over 3 Days I think.
I can’t believe I had missed this one out - it is defo one of my favourite Indicators !!! My Black Arrow is pointing to where the Red 13 Day Exponential Moving Average is below the Green 21 Day EMA - and note how the Red one tried to cross the Green one a few Days ago but failed - such failures are not good. For this to look better, we now need the S&P500 to move up for a few Days and to give us a Bullish ‘Golden Cross’ where the Red one crosses the Green one - as it stands this is a bearish chart.
You can click on the Chart to make it grow bigger so you have a chance of actually seeing the detail here.
The Nasdaq is pretty similar to the S&P500 although I noticed that the 13/21 Day EMA situation looks a lot better. My Black Arrow is showing on the Chart below how we had a Bullish ‘Golden Cross’ between the Red 13 Day EMA and the Green 21 Day EMA about a Week ago.
My Yellow Box is showing how we got a similar 2 Day ‘Bullish Piercing Lines’ as to that on the S&P500.
The Chart below is the Renko - my Blue Arrow is pointing to where we have Black Squares - I am assuming this is good for the Nasdaq Comp but I really am not sure !!
DOW (Dow Jones Industrials Index)
This one is again similar to the S&P500 and Nasdaq in many ways but from Friday we got quite a nice Candle which really does look to me like a Reversal Signal - my Green Circle is capturing it on the Chart below and it looks like a small Hammer - in the context of the 3 Red Down Candles before this could mark a bounce. However, the real test will be about how long any move up (if it happens) can be sustained - it needs to take out the Peak from 4 Days ago (failure to make a ‘New High’ now would be a problem.)
Apart from that the DOW is almost identical to the S&P500.
First off some Big Picture stuff and this is exactly what is concerning me most about the FTSE100 and the European Indexes. On the chart below please ignore the Red Line but the Yellow Circle is trying to show how the 50 Day Moving Average (marked by my Black Arrow) is heading down towards the 200 Day Moving Average (marked by my Blue Arrow) - if they do Cross, then we get a Bearish ‘Death Cross’ and this would not be good as it may mean at best we go Sideways for months or, far worse, we get a continual fall and it might as well be a Bear Market.
These scenarios are not inevitable but we must monitor what is happening here - it is possible for the Death Cross to occur but for it to quickly reverse and do a Bullish ‘Golden Cross’ - this happened in early 2016 when we had that hefty Sell-off. It looks to me like a ‘Death Cross’ is pretty much nailed on - the only way it might be avoided would be if the Markets suddenly rallied hard now - that looks extremely unlikely to me.
While I think of it, in addition to these Charts Blogs I tend to do at Weekends, I also Tweet a lot late at Night about the Indexes - if you do not look at my Tweets then you can either Follow me or open a Twitter Account or do a Google Search for ‘Tweets by @WheelieDealer’ or look at the Twitter Timeline at the bottom of the Homepage to this Website.
Here is another Big Picture thing - the Chart below has the Weekly Candles (please ignore all the ‘mess’ on this Chart and just concentrate on the bits I am pointing out) for the FTSE100 and you may remember me showing a Chart very similar to this a few Weeks ago. The key thing here is that there has been an Uptrend Channel which is defined by my Blue Lines above and below which are marked by my Blue Arrows. Note how the Big Red Down Candle from Last Week (that in itself is a Bearish looking Candle) which is inside my small Yellow Box actually fell below the Bottom Line of the Uptrend Channel and this doesn’t look too great.
Note also that the Big Down Candle from Last Week also made a new Relative Low - it was below the Level from the recent Drop in Early February and this is not a good failure of Support.
And another Chart that suggests the Big Picture is not looking great - the Chart below has the Monthly Candles - please ignore the one in the Green Circle because that is the March one and of course it needs to form up properly (I wonder why ShareScope shows this - perhaps they should delete it until March is done.) My Blue Arrow is pointing to the Red Down Candle from January (I am pretty sure I highlighted this in early February) and note how it has a ‘Tail’ or ‘Wick’ up above - so it was a bit of an Inverted Hammer sort of jobbie. Now look at my Black Arrow and that is pointing to a Big Red Down Candle for February which after the Candle from January makes it look like the January one was a ‘Pivot Point’ (or Reversal Point if you like) and February has confirmed this turn of events.
We now need a Reversal Candle to enable Bulls to take control and things to move up again. If we don’t get such a Reversal Candle for March, then it is likely we get more Falls in April etc.
There’s a bit of Noise on the Chart below with my Lines and Numbers etc., please ignore these. What I want to show here is where my Black Arrow points to a Bearish ‘Death Cross’ between the 13 and 21 Day EMAs and look how predictive this was and we have as yet no sign of a Reversal here and a ‘Golden Cross’ - we need the FTSE100 to turn up ASAP in a sustained way for us to get such a Golden Cross.
Renko on the Chart below where my Blue Arrow is looks Bearish with a Red Lump.
Now we will move in a bit closer - my Chart below is my ‘Working’ Screen (please ignore the Long Trade Details in the Textbox here - that is an ‘old‘ Trade) and the thing to note is how we had a bit of a Sideways Range starting between 7073 at the bottom and 7312 at the top (the Red Text Boxes are highlighting these Levels). I mentioned on Tweets and in a Charts Blog recently how I was concerned that the Sideways Move could be the start of a ‘Bear Flag’ or maybe even a ‘Ledge’ before we drop again - it looks like this could be very possible as the Big Red Down Candle from Friday (marked by my Green Arrow) made a new Low (in other words it fell below Support at 7073) - this is very Bad although it is possible that it is an ‘Overshoot’ and if so we need a Rebound now - if it continues to drop on Monday, then we are in trouble (such a fall might be a Sell Signal).
In the Bottom Window below we have the RSI (Relative Strength Index) for the FTSE100 Daily. On a Reading of RSI 34 it is quite Low but note how just a few Weeks ago it was much lower and of course it can keep dropping.
OK, if the FTSE100 does drop from here, where are the Support Levels which might cut in to save us and from which a Base could be built to more up from? The Chart below has various Lines and the immediate one is the 7000 Level and where my Big Green Circle is there is a lot of ‘Congestion’ and this should be a good Support Area. If none of these Hold, then I would think 6600 at the bottom would be a last resort.
The Chart below is the Heiken Ashi Candles - my Yellow Circle is highlighting a Big Red Down Candle and this suggests more falls. Remember, this is a ‘Slower’ Indicator and if we get a Bounce on Monday, then we might be able to avoid the prediction held within these HA Candles.
The Smaller UK Indexes like the FTSE250 and FTSE Smallcap also look a bit ropey but not quite as bad as the FTSE100 - but clearly they are following the lead it gives.
I need to finish off soon and get this effort Proof Read and Uploaded to the Website, so I will just show this one Chart to demonstrate how Europe is as rough looking as the FTSE100 (if not worse !!). My Yellow Circle below is highlighting how we are heading towards a 50/200 Day MA ‘Death Cross’ (if this doesn’t make sense, look at the Charts I showed on this earlier for the FTSE100 and S&P500) and my Green Circle is highlighting a Big Red Down Candle from Friday which looks horrible because it actually broke cleanly below 12000 as well - which is a key Psychological Support Level.
It is worth pondering how the US and the UK and Europe seem out of sync - this is unusual and suggests to me that either the UK and Europe are going to improve or the US is going to get a lot worse - take your pick !! It is possible that Currency is an issue here - Dollar Weakness might explain the difference - but of course such Economic ‘Reasons’ are pure guesswork.
OK, I have scared you all enough for one night, I hope everyone navigates the coming Week safely and we actually make some Money !!
Welcome to my Educational Blog Page - I have another 'Stocks & Markets' Blog Page which you can access via a Button on the top of the Homepage.
Please see the Full Range of Book Ideas in Wheelie's Bookshop.