The clock (or timebomb !!) is ticking down to the 31st October and the likelihood of the UK leaving the EU on ‘No Deal’ terms seems to be rising and is looking like a very high probability now. Of course the EU could prevent it by coming up with a new ‘Deal’ that removes the Irish Backstop (or perhaps a time limit although Boris Pecker claims that this would not be enough – I suspect if the EU offered this then enough MPs would support it) and there is a theory kicking around that the EU will do that once any attempts by pro-Remain MPs have failed. Trouble is in terms of the Markets they could do one heck of a lot of fretting and worrying before such an event and we could see significant falls before that happens.
Jezza Corbyn has put forward the idea that if MPs vote down the Boris Government in a ‘No Confidence’ vote, then he would lead a ‘Government of National Unity’ (what a ridiculous name – it would only be something Remain enthusiasts would like and is certainly not going to ‘unify’ Leave Voters – except for them to vote for the Brexit Party and destroy the Tory Party) for 2 Weeks and there would be a General Election and Labour would offer a Second Referendum.
This idea is looking ‘dead on arrival’ though because Jo Stimson of the LibDems instantly kicked back because she thinks Corbyn cannot lead such a ‘Government of National Disunity’. She is probably right but by convention, and to be fair by common sense, Corbyn has every right to head up such a Caretaker Government and after all it is only he who can call the No Confidence Vote so why on earth shouldn’t he be the Interim PM? The idea that Corbyn would stand aside to let Blairite Harriet Harperson in or even more unlikely the Tory ‘wet’, Ken Clarke, is clearly a non-starter.
Anyway, the Numbers simply aren’t there. I have seen various guesses at the number of Tory MPs who are needed by the Remain side to win a No Confidence Vote and Chuka Umuna (I think he is a LibDem this week) thinks about 7 or 8 Tory MPs are required and Tom Newton-Dunn, the Political bod at ‘The Soaraway Sun’, reckons it could be as high as 14 or 15 – this is because there are a load of Independents now who although they dislike Brexit, they dislike Corbyn even more. Boris starts with a miniscule Majority of 1 but the highest estimate of Tory MPs likely to vote against their Party is merely 2 MPs – so you can see the problem. Even arch-Remainer Dominic Grieve has said he will not vote against his Party and let Corbyn into Number 10 and also Oliver Letwin (he of the ‘Balls/Letwin’ Motion which took control of the Order Paper to get an Extension back in March or whenever it was) has said he will not vote against the Tories. So it looks like this way to stop Brexit is dead. Lots of Remain MPs like Phillip Hammond have said that Parliament will find a way to stop a No Deal Brexit but when they are pressed for a detailed Parliamentary mechanism, none of them ever have an answer. It appears that there might be some unusual and arcane trick that can be used with the collusion (oh, that word again !!) of Speaker Bercow but there are no guarantees and on the other side there will be committed Leavers like Jacob Moggy who are just as finickity and obsessive about the minutiae of the ‘Erskine May’ Parliamentary Conventions and they could perhaps find a way to block any attempt to use this route to stop Brexit. In fact, I haven’t seen the ‘Experts’ talking about this but I suspect that even if the Remain side can come up with some clever Parliamentary trick to enable a Vote on a No Deal Brexit, then there are not necessarily the Numbers. Just like I pointed out on the No Confidence Vote, it is unclear that Boris could be defeated as not enough Tories will vote against him. The Whipping operation will be as full-on as ever for such a vote and because the very existence of the Tory Party is at stake, there will be immense pressure on any Tory MPs who are minded to vote against their Party – and remember this is not a Secret Ballot but the MPs walk through the ‘Divisions’ which in essence means they go into one Hall alongside the House of Commons Chamber or they go into the other Hall. So any Tories who rebel will be clearly visible and if they defeat Boris, then they will be extremely unpopular both within the Tory Parliamentary Party and the 1922 Committee but also with their own Constituency Parties etc. It is important to appreciate that one of the huge problems with the Theresa May Premiership was that she was unable to enforce discipline and was extremely weak after the abysmal General Election Campaign she ran and also due to her own insular and silent personality. The Boris Government is serious and committed and he has the mandate of the backing of winning a proper Tory Leadership contest – this is a powerful force that he has behind him. So the reality of the situation is that No Deal is extremely possible. On top of this there is a huge likelihood of a General Election either via the No Confidence Vote route (although I don’t think that will happen) or there is a rumour kicking around that Boris will call an Election for the 1st of November – the idea is that he can then say “Hey, look, I am so amazing I got Brexit done” and it will be just before the crunch of Port problems and Goods Supplies and suchlike. With Brexit done the support for The Brexit Party is likely to dissipate and the Liberals are likely to pinch loads of votes from Labour and I suspect Boris could get a very big Victory. Another possibility is an Election in the Spring but that could be dangerous for Boris if things go messy and this includes a Recession which might merely be from external forces of a Global Slowdown – whatever the cause, leaving it to the Spring might be risky. It is also very clear that Boris and his Ministers are already in Election Campaign mode and you only need to look at the spending the Tories are doing on Facebook Ads to see this in action. I am writing this particular paragraph on Sunday evening and there was some significant Brexit news today with Gina Miller having got the Government to concede that prorogation of Parliament where the House of Commons is suspended would not be legal, although this is a marginal victory for the Remain side as the Government was unlikely to use this anyway. In addition, Ms Miller is also a seeking Court ruling to ensure that the Government must let Parliament have a vote and pass necessary legislation to give its judgement on whether or not the UK should leave on ‘No Deal’ terms. This will be something to watch because if the Courts do rule along the lines Ms Miller wants, then that could force Boris to seek an Extension to Article 50 although as I mentioned above, it is not guaranteed that Parliament would actually vote this way. The other important bit is that Boris is meeting with Macron on Tuesday I think and with Ms Merkel on Wednesday and it will be interesting to hear what is said in any Press Conferences afterwards. It is pretty obvious to anyone that yet more dragging on of the question about whether or not we will leave the EU is unlikely to help the UK Economy and the continual uncertainty could drag on Stocks. The Remain side are doing everything they can to stop Brexit actually happening but in order to do so they are opening up the possibility of at least 9 more months of Political nonsense. This is very silly. Do not be fooled – the protestations about preventing “Crashing out on No Deal terms” are really code for stopping Brexit altogether and are to push towards the Remain Side’s Holy Grail of another Referendum (which they could very easily lose) creating yet more strife and division within the Country. Anyway, that gives you a sense of the Political shenanigans that are going on and I think we can pretty much write-off the rest of August and September and of course October if we are to leave on No Deal terms on Halloween. No doubt through this period the Markets will chop about with big drops and sharp Rallies but I suspect (and I am positioned for !!) the overall Major Trend will be down and people will be very unenthusiastic about Buying Stocks – of course all the time there are Buyers and Sellers but the lack of ‘Buying Pressure’ will mean Prices need to keep dropping. The Pound could be a factor with regards to what the FTSE100 does but I suspect we will see both falling together and that has been what we have seen a lot recently. The Inverse Correlation between the FTSE100 and the Pound is not strong and there are lots of times where the mood goes ‘Risk off’ and we will see both falling. After all, the Pound is seen as a Risk Asset and so are Equities – so when the mood goes more to safety, both get dumped. But of course the Political mess in the UK is not the only thing to be concerned about. Just this week we had more weak economic figures from China and Germany and it looks like Germany and Europe is on the verge of Recession and the UK will almost certainly slip into Recession this Quarter. The US is still looking better than most Countries but it is hard to see how that continues if everywhere else hits trouble. On top of that we have the battles in Hong Kong (a key Global Financial hub and crucial for Asia) and North Korea is misbehaving again and we have Iran and all the usual disputes. With this kind of backdrop (and an Inverted Yield Curve which has worried lots of people) it is hard to see how Stocks can do well and I think the 10 Year Bull Market Uptrend that we have seen on all Major Indexes could come under pressure soon. Last Week I looked at the FTSE100 and S&P500 long-term Charts and I pointed out the Key Support Levels that must hold if we are to avoid the end of the Bull Market (if you look at last week’s Blog you will see this). All these problems mounting up also explain why Gold has been so strong. I remember on a TPI Podcast a few months ago I was mentioning this because Gold had already started rising and I pointed out that this could be signalling trouble. And to be clear and explicit, I have NEVER seen Stocks rise when there is a Global Recession. Last Week My Portfolio was down 1.75% on the week which is perhaps a little disappointing as I have such a massive Short Position on the FTSE100 (and a small one on the S&P500) and I thought it might Hedge a little better. Of course it is very variable and I was particularly hit last week because MPAC dropped a lot and that is one of my biggest positions now and that had quite an impact. I did add to my FTSE100 Shorts a bit (if you go to the ‘Trades’ page that sits on WD1 then you can see more details on these) but I might add a little more in coming Days especially if we get a bit of a rally as I expect we will, which then fizzles out and I can get a Short on then. I need to be careful though and not to overdo it. I am using strict Stoplosses on any new Shorts I open. Other than that my Strategy is just as it has been for all of 2019 – I am in no mood to buy anything and I am happy to sit on Cash and let things play out. I might buy more VOD (I published a Blog about this which I think you can find underneath this Blog on the ‘Weekend Markets Blog’ page) but that would only be to capture the Dividends and on a Breakout higher. I would like to Short the S&P500 a bit more but again I am being careful. It is just guesswork but my hunch is that most of 2019 can be written-off now and at best we might get a Rally in December or something but once we get into 2020 we might find things get tough again. If there is to be a Recession, and that is extremely likely, then 2020 must be difficult for Stocks for a while. We have had the strongest and longest Bull Market in history so there is a lot of ‘froth’ to come out and I have mentioned for ages how I think Tech Stock valuations in the US are bonkers. If the Nasdaq unwinds as a result, then that will hit the S&P500 as they move very much in-step with one another. Just out of interest, I used the Open and Close numbers on SharePad to calculate the % drops over the Week on the FTSE100 and FTSE250 which were 1.9% and 1.4% respectively. So I guess my Portfolio down 1.75% is quite unimpressive because my Hedging seems to have made little difference. My Portfolio is a mix of stuff so I have also just checked the drop on AIM Allshare which was 2.8% and the FTSE Smallcap which was 1.9%. So I am disappointed that my Hedging hasn’t helped as much as I would have liked. It will be interesting to see how things play out in the coming week and into September. Blog Slate I have been really busy with the Blogs lately and have got a nice backlog of half-written stuff piling up. In the week just gone I had an excellent Guest Blog that was sent to me by @journal_invest which has a really neat tool which Readers can use to track their Stocks and their Watchlist and it has various Analysis features as well. And it is FREE which is always something that has a certain appeal !! I also issued the VOD Buy Rationale Blog and even if you are not interested in VOD per se, it is worth reading for my thoughts on large companies and how useful their Accounts are (not very !!). This week I intend to publish the second part of the ‘You can’t time the Markets’ blogs and last night I half wrote one about why it is a bad idea to Panic at any time and how we can avoid doing so by preparing in advance but also by working robotically in a consistent way which helps to avoid us getting all stressed out and worried and doing daft things. The way I work is to have a huge MS Word Document which contains lots of Blogs in various draft forms and also a list of the Ideas for Blogs I have and some draft text for the Website and pretty much anything gets chucked in this huge Document. Anyway, from time to time I go through the Doc and I delete Blogs that I have actually published (they are on the website and I have a backup as well) and last night I did this for the first time in ages and it hit me just how many half-written drafts I have – this is really pleasing for me as it means Readers should be able to ‘look forward’ to the weekly flow or material continuing well into the next few months !! From past Summers Actually this is more from Autumn 2016 but I was chucking out some psychology stuff on Twitter earlier this week and this one is related to that idea (links to the earlier Parts are at the bottom): http://wheeliedealer.weebly.com/educational-blogs/the-psychology-of-the-topchop-part-3-of-3 Most people take little or no notice of the psychological aspects of Investing and Trading – this is a huge mistake I think and I see it as just as important as things like Fundamental Research, Charting Analysis, and Risk Management. I suspect that many people who have done a few years in the Markets will have got a decent understanding of most things but will be lacking in the psychology aspects and many are weak on Charting skills. Both are worth learning and this is good use of your time over the next few months when you probably won’t be keen on looking at the Markets all that much !! WheelieBash Just before starting to write this Blog I phoned up Landlord Phil at The White Hart in Winkfield where we hold the WheelieBash and warned him that it looks like we will have 60 people – so it is going to be a big event this year. In 2018 we had 40 people and that went very well and with another 20 it should be really good fun and there is a superb mix of ages and experience levels and there is a full list of highly talented Investors and Traders and many well-known ‘Gurus’ – it is totally informal and unstructured and just an opportunity for people to meet up and put ‘names to faces and to tweets’ and the Pub is great and a proper Country Boozer. Landlord Phil sounded a bit surprised but also very pleased that so many People would be coming this year (I am convinced that he only agreed to 60 this year because I kept nagging him and he didn’t actually expect us to get that many !!) and he said he will have Chefs on all day and was happy that the ‘format’ is exactly the same as last year – in other words, come and go as you please !! It is on Saturday 7th September just outside Windsor and starts at 12 noon – if you skip over to the ‘Events’ page on this Website then you can see more details. Please Email me or DM me if you want to come along and I can squeeze a few more people in I think. There is no Entry Fee or any of that nonsense but if you want to buy me as Beer then I probably won’t refuse !! OK, that’s enough admin, let’s do the Charts. S&P500 It’s a long (and annoying) story but I am doing this Blog using my Laptop on my sofa so I do not have the benefit of the Big Screen and I will be squinting at the Charts. Anyway, I am sure I can manage but I would love to be on the Big Screen with a proper Mouse as well !! I am particularly interested in the S&P500 because I have a small Short on it and I would like to increase that Position a bit. I think the Nasdaq is crazy overvalued and if we get a proper Correction that moves the Nasdaq then I expect the S&P500 to suffer as well. So I am eager to see what the Charts are telling me. As always the Charts are from the excellent SharePad thing I subscribe to and if you click on them they should grow larger so you can see some detail. I will start with the ‘Bigger Picture’ stuff first because the slightly longer timeframe stuff will dominate over wiggles on the shorter timeframes and my expectation is that we might see a short Rally before Markets fizzle out and drop down again – the Big Picture should highlight why this is a likely scenario. My Chart below has the Daily Candlesticks for the S&P500 but I want to draw your attention to the Black Arrow which is pointing to a Bearish Crossover on the 13/21 Day Exponential Moving Average (EMA) Lines. This is significant because it is not until we get a Bullish Cross like where my Green Arrow is that the S&P500 is likely to be able to move up in a sustainable way – the current situation where the S&P500 is effectively in ‘Bear Mode’ on this Indicator is consistent with a Rally over a few Days which then runs out of puff.
Next we have the Weekly Candles for the S&P500. This is quite interesting because last week we were treated to a ‘Long Tails Doji’ kind of Candle and note how it is very similar to the Candle on the week before but it is a Black Down Candle in the Body unlike the previous one which was a White Up Candle in the Body. The colour of the Bodies is irrelevant though and what this is really saying is that the Bears and Bulls are battling it out hard and neither is really getting anywhere.
Key now are the Support and Resistance Levels. If the S&P500 Closes down below 2822 which is the Low of the week before last then expect more Falls and if it Closes above 2843 which is the High from last week, then expect more gains.
My next Chart has the Daily Candles for the S&P500 with the Pink Zone marking the Upper and Lower Bollinger Bands. My Black Arrow is pointing to the Up Candle from Friday and note how it ‘gapped’ up at the Open off of a Hammer Candle from Thursday and it is rising off the Bottom Bollinger Band.
Look at how the Top of the White Candle from Friday is up at the Mid Line of the Bollinger Bands – it often happens that it falls away from this Mid Line so that is something to watch. Really like on the Weekly Chart, this is about Support and Resistance. If the S&P500 is going to properly rally then it needs to get over my Blue Line at 2843 marked by the Blue Arrow and to the downside it needs to drop below the Green Line (Green Arrow) at 2822. In other words it could wiggle around inside this Range and whether it breaks to the upside or the downside will indicate the future direction.
In the bottom window on the Screen below we have the RSI (Relative Strength Index) for the S&P500 Daily and on a Reading of RSI 43 where my Arrow is this is quite a low Reading and it seems to be wiggling around – again this just shows how much the Bulls and Bears are fighting.
FTSE100
I’ll follow pretty much the same sequence with the FTSE100 Charts so first up we have the 13/21 Day EMAs. Where my Black Arrow is we had a Bearish Cross which means we are in Bear Mode. We need a Bullish Cross like where the Green Arrow is for things to look better. I find this Indicator highly predictive and something important I have learnt is that having a Directional Position in opposition to this Indicator is usually bad news. For example, being Long on an Asset when the 13/21 Day EMA is in Bear Mode, is likely to hurt !!
Next up the Weekly Candles for the FTSE100. This doesn’t look too pretty because where my Red Arrow is we have a Black Down Candle last week (which is bearish on its own) but in combination with the 2 previous Candles that looks like a ‘Three Black Crows’ Candle pattern – that is Bearish.
Now the Daily Candles for the FTSE100 with the Pink Zone showing the Bollinger Bands. My Blue Arrow is pointing to a White Up Candle from Friday and note how this is moving up from the bottom Bollinger Band which is nice ‘textbook’ behaviour. As with the S&P500 we need to watch the Mid Line and the Top BB is at about 7320. Note how the White Up Candle from Friday when combined with the Black Down Candle from Thursday makes a 2 Day Bullish Harami Pattern – that suggests a bounce.
Like on the S&P500 we could have a bit of a Range. I have not drawn lines on this one but I am sure you can figure it out. Here’s a huge clue – the Low is at 7020 and the FTSE100 must stay above this and the High is at 7300 ish which the FTSE100 needs to break above.
Finally in the bottom window we have the RSI for the FTSE100 Daily. On a Reading of RSI 33 this is very low and a Rally could be on the cards which lines up with the Charts I have just shown. Remember though, that 13/21 EMA Lines one is dominant and a Rally will only be sustainable if we get a Bull Cross on that one.
OK, that’s it for this Weekend, good luck for the coming travails !! Cheers, WD.
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Stocks & Markets WheelieBlogsThese tend to be more Markets and Stocks related and timely - the Blog Page on the Main WheelieDealer Website has the 'Educational' stuff (well that's the theory anyway !!). Archives
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