2019 has started pretty well on the Markets with a strong bounce in January after a very difficult end to 2018. It is hard to be convinced by this though and I am of the view that the focus will now go away from individual Stocks which were perhaps boosted partly by the Results Season and now the minds of Market participants will start to focus on the ticking clock regarding Brexit and the growth slowdown that seems to be infecting many parts of the globe and Europe in particular (Italy is now officially in Recession and Germany is just about staying positive for now).
It is something like 7 Weeks to the date that the UK is due to leave the EU and despite attempts by assorted MPs to delay this date with an extension to Article 50, they have so far not succeeded and arguably it would not be particularly helpful anyway because at least the time pressure is focusing minds and more ‘can kicking’ would just prolong the agony (and of course it would undermine the UK‘s negotiating position). Anyway, the EU have to agree to such an extension and they claim to only be prepared to do this in a few circumstances such as a Second Referendum, a General Election, or if a Deal just needs finalising but is pretty much in the bag. Of course the problem here is that the first 2 are pretty unlikely and we seem to be impaled on the Irish Border fiasco which is stopping a Deal from being completed.
The thing that keeps hitting me is that the DUP (Democratic Unionist Party) are the key here - if the DUP do not agree with any particular outcome, then they can in essence block the Government from doing it or if it goes through without their permission, then they will vote against the Government on all legislation (apart from a ‘No Confidence’ vote because they utterly detest Corbyn - and rightly so !!) and this will mean that we end up with a Government that is ‘in office but not in power’ and that of course cannot be sustained. What a mess.
The DUP and the Brexiteers in the Tory Party (the ERG) have made it very clear that they will only vote for Theresa May’s abysmal deal if the Irish Border ‘Backstop’ is removed from the Withdrawal Agreement - and this looks increasingly unlikely as the EU and the Irish Government are digging their heels in and saying the WA cannot be re-opened (although of course they seem well happy to re-open it if it was to lead to a ‘softer’ Brexit - typical hypocrisy there then). With this impasse it is impossible to see how the Deal can get DUP and ERG backing and as I mentioned earlier, if the Deal goes through on the back of Labour MP votes, then the DUP will block the Government on all future attempts to legislate and it risks a split in the Tory Party which it is hard to see Theresa May enabling. The next step is that Theresa May is due to come back to Parliament this Wednesday 13th February and she is going to do a speech along the lines that she wants to be able to continue ‘negotiating’ with the EU until the 27th February which is another 2 Weeks and if there has not been a ‘Meaningful Vote’ on the Deal by then she will timetable one in probably on the 28th February. It is obvious to anyone that she is running down the clock and as much as Parliament tries to assert control over the process, so far they have been very unsuccessful. It is unclear to me now if there will be votes this coming Thursday but I think that is possible - if so there might be another attempt to get that Nick Bowles/Yvette Cooper Amendment through which is to ‘rule out’ a No Deal Brexit and to extend this pantomime to the end of 2019 - personally I really don’t want that to happen as it just prolongs this utter nonsense and we would probably be far better off ‘crashing out’ on a No Deal than continuing this pain. Lord only knows what will happen but it looks like we could end up leaving on No Deal terms simply due to the utter incompetence of the people we elect to represent us in Parliament - it would not surprise me if the EU told us to get lost if we asked for an Extension with no real reason for it - they must be as fed up as everyone else is (although they could solve the problem instantly be removing their ridiculous demands for the Backstop but that now looks like a political impossibility because there is too much political capital already expended on it and there is a need to save face). Of course the great irony here is that the Backstop is supposed to prevent a ‘Hard Border’ (which no one is going to build anyway !!) but by keeping it in the WA they are meaning we crash out on No Deal and that would require a Hard Border if you follow the false logic through. There would be no need for a Hard Border anyway because there are established ways of using ‘E-Borders’ to enable trade as was covered on Sky News earlier this Week (there is a constant mistruth peddled by the usual Remaindeer crowd that ‘Technical Solutions’ do not exist when in fact this is simply not true and a solution could be installed in around 2 years. I even remember that Fujitsu were involved in E-Borders when I worked there nearly 10 Years ago and they had already been working on it for several years - this is pretty old ‘tech‘ now. It is infuriating that the Media also seem to totally have bought into this myth that Technical Solutions do not exist - no wonder people are increasingly screaming “Fake News !!”). If we leave on No Deal terms then I would expect the UK Economy to slip into Recession for probably a few Months and then to slowly crawl out of the dip - this would be less about queues at the Ports and stuff and more about the hit to Consumer Confidence where the fears around a No Deal Brexit would be a self-fulfilling prophecy as people just stop spending. There is evidence that we are already seeing this in the UK with things like House Sales and Car Retail drying up and people are nervous. In addition, Europe is notably weak and it won’t take much to topple it into Recession and the implications of that for the future of the EU must be significant - it baffles me how an EU Establishment that is already so hated across the Continent can be so out of touch that they would risk a Recession that would only make their existence even more in doubt - it’s mind boggling. Such Economic woes would clearly hit Stockmarkets and the Pound is likely to suffer and we will probably see the Markets start to factor this in over the coming Weeks and I can’t see much happening to the upside for quite some time unless some sort of miraculous Deal is arrived at. I am really fed up with these Markets but they are what they are. I want to get back to being able to focus on Stocks and looking for stuff to Buy and all that - but at the moment I just don’t think Buying is a good idea until we know where we stand on Brexit. The Chartist in Investors Chronicle this Week Nicole Elliott in Investors Chronicle this Week on page 19 wrote the following regarding the S&P500: “January’s strong bounce, correcting a Fibonacci 61% of the previous collapse, is due in part to the rates outlook, but is more a sharp reaction to the elastic band that was stretched too far down in December.” “The rally is clearly corrective rather than a new impulsive wave - for now at least. We are trading under the 200-day moving average, which lies above the 50-day one - another bearish sign. For the first time since Q1 2016 we are trading below the weekly Ichimoku cloud that had supported the rally through to October 2018. It looks to cap price action over the summer.” This is more bearish stuff and lines up with my thoughts (classic ‘Confirmation Bias’ then !!). Last Week Despite my Hedges with Shorts on the FTSE100 and the S&P500, my Portfolio was down 1% last week and I suspect this was partly down to the mismatch that the FTSE100 has with my Portfolio which tends to have a fair bit of FTSE250 and Smallcaps and AIM stuff in it. The FTSE100 is a troublesome Index because it is heavily weighted to just a few huge megacap Stocks and its does often move inversely to the Pound although that relationship seems quite fickle. However, if we get properly ‘Risk off’ as I suspect we will, then the FTSE100 is likely to drop with everything else, so I am happy to keep my Shorts running. In addition, as I have written extensively for what seems like a year or more now, I will not be buying any Stocks and my bias is more towards selling stuff than buying but I will only sell if I have good reason. Blog Slate Last week I published the 2nd Part of those Macroeconomics Blogs and I think there are a couple more bits to be released and I expect to do Part 3 this week. I have been getting a bit frustrated with this one because I kept thinking of new Sections to write in it and this was stopping me moving onto an entirely different Blog subject that I am desperate to start writing (I really have the attention span and focus of an amoeba) but I have figured out a way to achieve this. So a Section that I was going to put in about how to Stimulate and Slowdown an Economy is now going to have its own separate Blog in the future and this might be a few months away even - but it enables me to move on. The Blog I want to start writing is about the precise mechanism regarding how Trades are actually placed and executed and I intend to include loads of Flow Diagrams and stuff to explain it. The problem is that I had a go at this last night by sitting down with some blank sheets of paper and trying to ‘Storyboard’ it but I did not make much progress. My thinking is that once I have those Macroeconomics Blogs in a nearly finished state I can move my attention to attempting to produce a sort of generic diagram of the Information Flows which I can then recreate and alter as I go through the various stages of a Trade - it is not easy and there is a huge risk that these Blogs will never see the light of day because I cannot figure out how to do it (and my newly discovered Microsoft Paint ‘skills’ might not actually be up to the job !!). Anyway I will persevere and see if I can create something - I really get the sense that how Trades are executed in terms of what your Broker does and what the Market Makers do and now the Prices moves is hugely misunderstood (it drives me completely kin mental when I see people every day on Twitter saying “A Buy for 500k Shares has just gone through” on a piece of AIM garbage and of course they are usually Ramping the Stock because anyone with half a Brain should know that a 500k Buy has Sells of 500k on the other side of it). Last week I also updated the ‘Weekly Performance’ page with how my Portfolio did through January and I have written a lot about Strategy and stuff there if you have not seen it already. The Time Tunnel I had a mooch about in the Blog Archives and this week I have this particular specimen for you: http://wheeliedealer.weebly.com/educational-blogs/information-overload If you go to the ‘Blog Index List’ which sits on the WD2 Website and has a Button at the top of the Main Homepage, then you can easily dig out ancient Blogs which are gathering dust down in the basement. OK, onto the Charts although I might not show many this Week as there isn’t much point when there is a huge need to be cautious and we are really just awaiting something definite to happen on Brexit. S&P500 As always the Charts I show here are ScreenShots from the excellent SharePad Software thing that I subscribe to and if you click on the images then they should grow bigger so you can see more detail. I have a Short Position on the S&P500 so this is something I am obviously very focused on. On the Chart below we have the Daily Candlesticks for the S&P500 and my Red Arrow is pointing to where the Price seems to have turned down at the Light Blue Wavy Line which is the 200 Day Moving Average at around 2750. My Black Arrow is pointing to an Up Candle from Friday and note that it closed just up off the Lows which is good but overall I suspect this is a Continuation Candle which implies more downside. My Blue Arrow is pointing to the Darker Blue Wavy Line which is the 50 Day Moving Average and this could be support at around 2615 or so.
The Chart below has the Daily Candles with the Pink Zone being the Bollinger Bands above and below the Price Line. My Black Arrow is showing how the Price has fallen away from the Upper Band and the Lower one is at about 2630.
The next Chart has the Daily Heiken Ashi Candles which work totally differently to the usual Candles I show. Anyway, my Red Arrow is pointing to 2 Black Down Candles and after the run up of White HA Candles, this looks Bearish.
Finally for the S&P500 we have the Weekly Candles. My Black Arrow is pointing to a ‘Long Tails Doji’ Candle and in the context of a run up for the previous 6 Weeks this looks highly likely to mark a Turning Point from which we drop back.
DOW
On the Dow, it is very similar to the S&P500 and I will just show this Weekly Candles screen which has a similar ‘Long Tails Doji’ which suggests a turn could be coming.
Nasdaq Composite
The Nasdaq Comp has even more of a Bearish looking Weekly Candle with the Chart below showing a Hammer type of thing or ‘Shooting Star’ if you like - whatever, in this context after so many Up Weeks it looks Bearish.
DAX
The German DAX looks bearish on the Weekly also - my Red Arrow on the Chart below is showing a Big Black Down Candle from last Week and after the small Doji Candles of the previous 2 Weeks this is looking like a well-executed Handbrake Turn. The French CAC40 is similar but I won’t show it now.
FTSE100
Unusually I will start with the Weekly Candles because I have been showing these on the other Indexes and it is interesting to see how the FTSE100 compares. My Chart below has a Black Arrow pointing to a Hammer or Shooting Star for last Week and this looks Bearish with Resistance up where the Red Line is at 7200.
This is my working screen for my FTSE100 Shorts and the Blue Arrow is pointing to the Blue Lines which are where I opened the Shorts - as you can see they are hurting me at the moment !! Remember these are Hedges though and they are working reasonably well in that I am flat on the Year (although CAKE skews this) and if the Markets drop back I should recover some of the paper losses on the Shorts as my Long Share Positions fall back.
My Green Arrow is pointing to a Small Down Candle for Friday and after the big drop on Thursday and the Doji Candle on Wednesday, this looks like another Chart that has turned. The Red Arrow is showing a Bearish ‘Death Cross’ between the 50 and 200 Day Moving Averages and note that the Price Candles have not managed to get back up to the 200 Day MA which is the Lighter Blue Wavy Line at about 7310. Note also that both Moving Average Lines are falling still.
My Chart below has the Daily Candles with the Pink Zone showing the Bollinger Bands. My Black Arrow is pointing to where we have turned down off the Upper Band and the Lower Band down at about 6750 could be Support.
FTSE250
The FTSE250 is similar to the FTSE100 and on my Screen below in the bottom window we have the MACD (Moving Average Convergence Divergence) and my Arrows are pointing to a Bearish MACD Cross on both the Signal Lines and Histogram Bar formats.
The Chart below has the Daily Heiken Ashi Candles and my Red Arrow is pointing to a big Black Down Candle and note how it formed up after a Narrow Candle from Thursday - this looks like a Bearish Turn.
And last off here is the Weekly Chart for the FTSE250 - my Blue Arrow is showing a Hammer looking thing which is Bearish really.
That’s it for this Week - I hope things go your way in the coming Days and that you can keep your mind as the Brexit shenanigans carry on !! Cheers, WD.
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