**WHILST UPLOADING THIS I HEAR RENZI HAS RESIGNED**
Thankfully Austria has managed to avoid electing a President from a party started by a former Nazi, but the focus now shifts to Italy and from what I am hearing on TV News, the result should come out in the early morning and by the time the Markets open on Monday 5th Dec, the result will be known.
If the vote is ‘No’ then Mateo Renzi will most likely resign as Prime Minister of Italy - although of course he could do the usual Politician’s trick of reneging on his words and staying on anyway. In addition, even if he resigns, it is very possible that the President will ask him to carry on anyway. If Renzi goes, then a Technocratic Government should be formed and they have until February 2018 to call a General Election - that’s when the fun would really start if Bepe Grillo’s Comedy Party wins and starts to move Italy out of the Eurozone.
The worries for the Markets are all around the Italian Banks - they are carrying huge amounts of Bad Debts on their Balance Sheets and it has long been said that they need recapitalising - the problem is that the EU will not allow the Italian Government to do such a ‘bail-out’. The problems are complicated by German Banks being closely linked to several of the Italian Banks - and this is of course exacerbated by Deutsche Bank’s woes - there has been a respite in the pressure on DB, but it is not resolved by any means.
Later in the week on Thursday there is an ECB meeting but it seems unlikely much will come out of that - perhaps if Italy gets in a mess with a ‘No’ Vote, they might do something (although I doubt they have much room to manoeuvre now with Interest Rates already on the floor and Quantitative Easing (QE) being done to the Max).
While on the subject of Europe (don’t worry, I am not going to mention Brexit !!), I have read a few things recently about how Europe’s Economy is slowing down - this is something to keep an eye on because it could impact the UK as a major Trading Partner and also because it could strengthen anti-EU feeling in key countries like France, Holland, Germany etc. which all have Elections soon that could threaten the very existence of the EU. As much as I personally detest such a Stalinist and undemocratic folly, the turmoil when the EU Collapses will be horrific and I expect to see 2008 all over again.
Heiken Ashi Candles
If you follow me on Twitter you may have seen me mention Heiken Ashi Candlesticks a few times after hearing Nicola Duke (@NicTrades) talk briefly about them on a Podcast at Conker’s Corner. These were not something I had come across before but you all know my obsession with normal Candlestick Charting - anyway, it turns out several mates have already been dabbling with these things and they look very interesting. The beauty is that they give very clear signals of a change in trend and seem to sort of combine the MACD (Moving Average Convergence Divergence) with a Candlestick-like representation of Price.
At the moment I am only doing some preliminary investigation into them but I have managed to find a Graph Setting in ShareScope and I will start looking at them as part of my regular Chart Checks every night. If and when I start to really understand them and see some usefulness, no doubt I will mention them more in my Blogs etc. Anyway, as a quick taster here is a Chart of the FTSE100 Daily with Heiken Ashi Candles - note how the Colours change to mark the Trend change.
What has the Almanac got to say?
As we know, December has a great reputation but often the gains come towards the end of the month, particularly just for the days around Xmas and New Year. For the coming week (w/c 5th December 2016), according to the UK Stockmarket Almanac 2016, the FTSE100 is Up on average for only 45% of Years with an Average Return of 0.0% (yes, zero). So often a flat week then.
Note - I have just shoved the ‘Harriman UK Stock Market Almanac 2017’ into Wheelie’s Bookshop - it’s a bit steep at around £24 but maybe a couple of weeks into the New Year it will get more sensible. However, it is Xmas coming and it makes a great Desk Diary with loads of room to scribble. I have also put Robbie’s latest book in there - ‘Trade like a Shark’.
There is something I want to point out but before I get to that I want to set the scene and look at the ‘Big Picture’. The Chart below is the Daily Candles over millions of years (ok, about 25 years) but first off please look at my Red Line at the top (marked with the Red Arrow). This Line shows how we are up near the Highs on this Chart and of course there is a lot of long-standing Resistance up here. Next look at my Blue Line at the bottom (marked with my Blue Arrow) - this suggests a bit of a Triangle going on and that the Price Line is being squeezed up towards the Top Red Line - if this is the case, then it hints that the Price might pop out of the Top and this would be really bullish. If this does happen, it is some time off though.
OK, you could argue that my Blue Line is a bit rubbish because there are only 2 ‘touch points’. That is a very fair comment so I have drawn in a different Line which is my Green Line (marked with my Green Arrow) and although this is a shallower Line, it is really showing a similar concept with a clear Triangle against the Upper Red Line - but for this Triangle to resolve might take much longer.
The Chart below has what I was really wanting to point out. I have mentioned during this Week both on the Website with my ‘Technical Views’ and via Twitter about a possible ‘Head & Shoulders’ pattern on the FTSE100. The Chart below should show exactly this - the Small Green Circle in the Top Right Hand Side Corner shows the ‘Head’ and the 2 Small Pinky Candles are marking the ‘Shoulders’. In theory, if the Price breaks down through the ‘Neckline’ (this is the Black Line just below the Pinky Circles) then it will most likely fall a lot more. I would see the Key Support Level here at about 6650 but to be sure, a Break Down through 6600 would be a very clear confirmation that the Bearish tendencies of the Head & Shoulders were playing out. If 6600 breaks I reckon we might see as low as 6400 to 6200.
My Big Yellow Circle shows a similar ‘Topping Pattern’ back in early 2015, and we all know how that played out (oh, you don’t? Well look at the chart then !!).
I guess a lot of this will depend on Italy. If the Vote goes horribly wrong for Renzi, then maybe the uncertainty and Bank Worries could trigger a break down through the Neckline. Linked to this, if the Vote goes badly, it would most likely weaken the Euro against the Pound and this would be something the FTSE100 is probably not going to like.
I wasn’t going to start showing any Heiken Ashi Candles, but already I have spotted an example of how they differ from ‘Normal’ Candles and could be of use. If you look at the Screen below, you should see FTSE100 Daily Candles going back about 5 months. If you are sharp, the Head & Shoulders from the previous Chart should be easy enough to discern. Anyway, the key thing here is the Hammer Candle from Friday 2nd December which I have marked with my Black Arrow. In this context of several down Candles, it would be quite reasonable to think that such a Hammer might be marking the end of the Downmove and it tested Support at around 6676 really well. However, if you look at the next chart, this might show a conflicting opinion.
On the Chart below, we have the Daily Heiken Ashi Candles for a similar timeframe on the FTSE100. Again the Head & Shoulders is fairly easy to make out but this time my Blue Arrow is pointing to a very similar looking Candle to what we had on the ‘Normal’ Candles above. However, the interpretation is quite different - I am no expert on HA Candles (ha ha, I only heard about them on Tuesday for goodness sake !!), but my understanding is that the Red Down Candle shows the Trend is Downwards and the ‘Wick’ or ‘Tail’ pointing downwards (with no upper Tail or Wick) shows the power is firmly to the downside - so whereas with Normal Candles I might think a Reversal Upwards is on the cards, the HA Candles are saying something quite different.
In fact, with HA Candles, we need to look for Small Bodies on the Candles and Wicks both above and below the Body to suggest that the Trend Downwards is faltering and might be about to turn up. It will be interesting to see how this plays out in the next few days.
In the bottom window on the Chart below we have the MACD (Moving Average Convergence Divergence) for the FTSE100 Daily. We have just had a Bearish MACD Cross - this is shown with my Blue Arrow in the ‘Signal Lines’ form and by my Black Circle in the ‘Histogram’ form (ok, it is not easy to see !!).
The screen below has the Weekly Candles for the FTSE100 going back all of 2016 and a little bit more. My Black Arrow is pointing to a Big Red Down Candle which turned off the 3 White Candles before which are looking like a retracement in a downmove - this looks bearish to me.
Again you should be able to discern the Head & Shoulders pattern.
On the chart below we have the Monthly Candles for the FTSE100. November is now complete and it fulfils my concerns from last week - my Blue Arrow is pointing to a Big Red Down Candle (admittedly with a bit of a Tail below so it managed to Close up off the Low Point of the Month) which swung down off the Inverted Hammer Candle marked by my Yellow Circle. Ignore the Candle after the November one - this is December but we have only had 2 days so it has no value yet.
The Chart below has the Weekly Candles going back for 2016. After breaking out to the upside from the Blue Downtrend Line, we seem to be in a Range between about 10092 and 10802 or perhaps a little tighter. If it breaks out to the Upside from this Range then that would be Bullish for more gains and if it breaks Downwards then expect more falls.
There is something interesting on the Chart below. This is the Daily Candles for the DAX but what I am trying to show here is where my Yellow Circle is highlighting a Bearish ‘Death Cross’ between the 13 Day Exponential Moving Average and the 21 Day EMA (the 13 is Red and the 21 is Green). Normally (in a Market which tends to be moving in clear Trends - up and down), such a Death Cross would imply more falls to come for perhaps a few weeks, however, when a Market is Range-Bound and chopping up and down like the DAX is at the moment, these 13/21 Day EMAs are of less use.
Dow Jones Industrials (US - only 30 Megacap stocks)
This one is particularly interesting to me as I put a small Short Position on it on Wednesday Night. The Chart below is actually my ‘working’ screen from ShareScope which I don’t normally show you Peeps (mainly because I tend to draw loads and loads of crazy lines all over the place and they are a right mess except to me they make loads of sense !!) but this one is unusually ‘clean’ (probably because I rarely trade the Dow) and I am happy to demonstrate it.
This shows the Daily Candles going back about 4 months but the key thing here is how we had a strong run up after The Trumpster got elected for about 15 Days or so but then we got a beautiful example of an ‘Inverted Hammer’ and I took this as my Signal to Short the swine because it looks way over-extended to the upside and due a pullback. I have marked the Inverted Hammer with my Black Arrow.
Because this is my ‘live’ Screen, the Blue Line marks where my Trade was placed (time and level) and the Red Line shows my Manual Stoploss at 19235 - if the Price moves over this on an ‘End of Day Close’ basis then I will Close my Short Position and take a small Loss. This is all part of my new approach to Hedging Shorts as I outlined in a recent Blog. Note I placed the Stoploss slightly above the Top of the ‘Tail’ on the Inverted Hammer (this is at 19225) and note how on Thursday and Friday the price did not fall as I had hoped, but on both days it is still below that High Point on the Tail so I am keeping in the Trade.
Had I been more patient, a more ‘textbook’ approach would have been to have noted the Inverted Hammer and then only gone Short if the Price had opened Lower than the Inverted Hammer on the next Day.
I don’t believe it !! More Heiken Blo*dy Ashi Candles !!
The Chart below has the HA Candles showing the Strong move up on the Daily Dow since Trumpy got the White House. Note here that we have had nothing but White Up Candles which says the Trend is clearly Up. However, my Yellow Circle is pointing out an area where the Candle Bodies have less length and the force upwards seems to be easing - but note all the ‘Wicks’ are pointing up which suggests the Up Move could still be on. So looking at this, it suggests I might be too soon - we shall see.
Note my Green Circle which shows how the HA Candle Bodies got smaller but the Trend still carried on up as there were no Down Candles. The rule from what I understand is that you can have 1 Down Candle (Red) in a Move Up of White Candles but once you get 2 of them, it is likely the Trend is changing to Down.
In the bottom window on the Chart below we have the Relative Strength Index (RSI) for the Dow Daily. With a reading of RSI 69 this is an extreme high by the standards of the Dow and this was a key part of my rationale for going Short.
The next chart has the Weekly Candles for the Dow - my Yellow Circle is pointing out a ‘Spinning Top Doji’ which is a hint the Trend could turn down now but it is not a given - I would prefer to see a neat Inverted Hammer here really but Markets can turn down off a Spinning Top.
Pound vs. Dollar
I will just start off here with some Big Piccie stuff. My Chart below goes back to before the Brexit Vote and my Blue Arrow points to where the Brexit Vote happened and the Quid started to tank against the Dollar. We then went into a Sideways Range marked by my Parallel Green Lines between about 1.28 to 1.35 and then we broke down in a Huge Move again where my Black Arrow is (this was Theresa May talking about leaving the Single Market or something).
Following this, it looks like we might be establishing a Range again between about 1.1947 and 1.28 - we are nearly at the top of such a Range and it will be interesting to see if the Pound can get its sorry arse over the 1.28 Resistance Line. Note both the Darker Blue Wavy 50 Day Moving Average Line and the Lighter Blue Wavy 200 Day Moving Average Line are falling - not good for the Pound that.
I have zoomed in on the Screen below to about the last 4 months ish. My Black Arrow is pointing to a big Up Candle from Friday 2nd December and this looks bullish. There is a lot of Resistance up above at 1.28 and this will be difficult to get over I suspect. Note though that the Price for the Quid has managed to get up over the Blue 50 Day Moving Average Line (marked with my Blue Arrow) - this is a positive thing.
I couldn’t resist looking at the HAs - my Yellow Circle is highlighting 2 Big Up White Heiken Ashi Candles - this suggests an Uptrend is in force and the Wicks up above are showing Bullishness. Interesting stuff……..(note also how the Trend Changes are really clear on this Chart with Red and White Candles clearly showing - it’s impressive stuff this).
Note with HA Candles we are not looking for Inverted Hammers and stuff - it works quite differently - and a lot simpler.
I am just throwing in this one quick to highlight with my Yellow Circle an Inverted Hammer on the Nikkei Daily - looks like it could drop from here. Get shorting !!
Brent Oil (Spot)
Big Picture first - the Chart below goes back a couple of years and you should be able to see how we are taking on Resistance at $55 now and it looks like we are putting in a decent attempt to get over it - we will look closer in a bit. Up above that there is considerable Resistance at $70 and my Yellow Circle is marking an area of Resistance that will be difficult to wade through.
The bottom window on the screen below has the RSI for Brent. On a reading of RSI 64 this is quite high by Brent’s normal standards - any upside might be limited from here in the very short term.
My Blue Arrow on the Chart below is pointing to a Hammer Candle which in the context of the strong run up in recent days might suggest a move down is very near now. I won’t show it here but the Heiken Ashi Candles look good here still - my suspicion is that Normal Candles are slightly more ‘timely’ then HA Candles but the latter give much more clear and simple signals.
Remember, if the Oil Price does falter here, that might impact on the FTSE100 in a Bearish way. The Quid rising more would also have a similar Bearish impact.
It’s been a mighty strong move down on Gold and a Bounce must be quite likely. My Yellow Circle is highlighting 2 Doji Candles which were produced on Thursday and Friday last week and both of these are hinting that the move Down could be faltering - but Gold has been so negative I think we need a move over about $1200 to be really confident Gold is recovering.
The Chart below has the Weekly Candles for Gold - my Green Arrow is pointing to a lovely example of a ‘Spinning Top’ Doji - this suggests that the trend might turn upwards soon.
OK, that’s shallot, good luck for the coming week’s various excitements….
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