Chris Ciovacco
European Trends: Slowing Momentum
Today we have an interesting look at the trends in the European Financial Market from guest author Chris Ciovacco, Chief Investment Officer of Ciovacco Capital Management.
European Financial Market
As noted in the video below, the markets have little margin for error from a technical perspective, which means they have been in need of some good news. Good news did come this morning from Europe in the form of better than expected factory orders in Germany. On Sunday night, S&P 500 futures hit a low of 1,342. As of 8:30 a.m. EDT, they stood at 1,358 or 16 points above Sunday night’s low.
Why were the S&P 500 futures so weak on Sunday night? Elections were held over the weekend in France and Greece. The markets knew there was going to be some political turnover, but the magnitude of the turnover, especially in Greece, was worse than anticipated. Two key problems have surfaced:
- It will be very difficult to form a new government in Greece with no clear majority party/coalition coming out the other side of the elections. It is possible another round of elections will need to be held creating more fear, uncertainty, and doubt for market participants.
- Nicolas Sarkozy was ousted by disgruntled voters in France. The Sarkozy-Merkel tag team is no more, creating uncertainty relative to the direction of future debt crisis policy.
A third problem relates to the European market’s slowing momentum from a technical perspective. Daily and weekly charts have little room for error as of Friday’s close. Given the news from Europe over the weekend, it is unlikely the technicals will improve during Monday’s session. The video below shows clear deterioration in trends and momentum; it also explores an excellent way to monitor the battle between “risk on” and “risk off”.
One thing we have noticed over the years while building financial models is markets that are on the edge technically can find their footing just as they appear to be ready to accelerate to the downside. That’s not a forecast for the current market, which remains on the edge technically, but it serves as a reminder to keep an open mind about where we go from here.
About the Author:
Chris Ciovacco, is Chief Investment Officer of Ciovacco Capital Management. Chris Ciovacco has been managing money and serving investors for over 16 years. He is a regular contributor to Financial Sense, Seeking Alpha, and Safehaven. Mr. Ciovacco has been quoted in several media outlets, including the Dow Jones Wire Service, MarketWatch, Fox Business News, the Atlanta-Journal Consitution, and Nasdaq.com.
3 Bears for the Markets
These days there doesn’t seem to be much in the way of good news out there anymore. What with Greece, the looming recession and all the market technicals looking negative we have three big bears (at least) roaring in our faces. In todays commentary Chris Ciovacco Chief Investment Officer of Ciovacco Capital Management tells us how these bears are lined up and what to expect next. Tim McMahon, editor.
Greece, Recession Odds, & Technicals All Bearish
While inspectors from the International Monetary Fund, EU and European Central Bank, known as the troika, are in Athens to review the books, Reuters reported Sunday:
Greece will miss deficit targets set just months ago in a massive bailout package, sources said citing a budget draft being adopted by the cabinet on Sunday, in a setback in Europe’s efforts to stave off the country’s bankruptcy.
Two sources confirmed the new budget numbers, which predict a budget deficit of 8.5 percent of gross domestic product (GDP) for this year and 6.8 percent next year, compared with targets of 7.6 percent for this year and 6.5 percent for 2012.
With Germany hinting last week the terms of the bailouts may need to be revisited, these latest developments may put more pressure on financial markets as we enter October. Back in the United States, more economists and economic forecasters are migrating to the recession camp. From the Economic Cycle Research Institute’s (ECRI) website (9/30/2011) :
Early last week, ECRI notified clients that the U.S. economy is indeed tipping into a new recession. And there’s nothing that policy makers can do to head it off. ECRI’s recession call isn’t based on just one or two leading indexes, but on dozens of specialized leading indexes, including the U.S. Long Leading Index, which was the first to turn down – before the Arab Spring and Japanese earthquake – to be followed by downturns in the Weekly Leading Index and other shorter-leading indexes. In fact, the most reliable forward-looking indicators are now collectively behaving as they did on the cusp of full-blown recessions, not “soft landings.”
From a technical perspective, September closed out with numerous long-term bearish signals present on weekly and monthly charts (see table below). The signals below tell us the odds favor bearish outcomes in October. Could stocks rally instead? Sure they could, but it is the lower probability outcome given the fundamental and technical backdrop. The downside potential of stocks and the euro we outlined on September 23 remains in play as we head into the typically volatile month of October.
See the full article here
Market Parallels to 2000 and 2008
The typical financial disclaimer reads, “the past is no predictor of the future” but learning from historical markets is definately a good thing to do. For some time now Robert Prechter has been telling us to expect a double dip with 2008 being the first wave down. Today we are going to look to Chris Ciovacco, Chief Investment Officer of Ciovacco Capital Management. Typically Chris is a bit more upbeat than Prechter, lets see what he has to say as he compares current market conditions to 2000 and 2008. ~ Tim McMahon, editor
Parallels To 2000 And 2008 Should Not Be Ignored
Before you read your favorite author’s work relative to the outlook for today’s markets, we invite you to go back into their article archives and see what they were saying in early 2008 and the summer of 2008. On February 13, 2008, with the S&P trading at 1,348, we published Technical Breakdowns Call For More Hedging. Unfortunately, much of our analysis from early 2008 applies to the current market, which is showing indications that a new bear market may be on the horizon. Continue reading
Markets Appear Ripe for a Sustainable Bullish Turn
Early September is very important for the financial markets; especially for the bulls. Numerous elements are in place for a rally to take hold now. The markets have been weak and the bears have been in control. If the bulls cannot make a stand soon, it will be a bad sign for risk assets. The good news for the bulls is several factors, across numerous markets and asset classes, are pointing to a possible rally in risk assets:
- Bearish sentiment is high at the moment. Sentiment, especially as it approaches extremes, can serve as a contrary indicator.
- The Fed has signaled they are willing to print more money if needed. Right, wrong, or indifferent, the markets are anticipating more quantitative easing from the Fed. The Fed’s next meeting is only three weeks away. Markets look forward. A rally in risk assets for a few weeks is not out of the question.
The Reverse Wealth Effect
By Chris Ciovacco
Ciovacco Capital Management
In our current global economic environment, the number of moving parts for the individual investor to track and attempt to analyze is often overwhelming. Without a systematic approach to the global asset markets, it is virtually impossible to discern the relative importance of an almost infinite number of inputs. While it is a tall order, we’ll attempt to highlight some of the key moving parts of the economic engine in terms of the possible long-term impact on your portfolio and purchasing power.
Monetary Policy, Structured Finance, and Net Worth
According to the Wall Street Journal, the net worth of individuals soared 82% from 1992 through 2000, and increased 39% from 2000 through 2008. How did this happen? Was it the “productivity miracle” fueled by technology? Since we all know productivity did not increase by 82% from 1992 through 2000, and again by 39% from 2000 through 2008, there had to be some other important factors. Continue reading
Are Stocks Cheap Enough to Start Buying, Yet?
By Chris Ciovacco
Ciovacco Capital Management
“Where observation is concerned, chance favors only the prepared mind.” –Louis Pasteur (1822-1895)
How Do You Decide how Much Is a Stock Really Worth?
The basic fundamental value in buying a stock or a business is the cash flow it can produce over time. Investors discount expected cash flows to a single present value to come up with a valuation for a stock or business. You value a stock the same way you would value a dry cleaning business. A prospective buyer of a dry cleaning establishment wants to know how much cash it can produce over time after all the bills are paid. Discounting the anticipated future cash flows of a business to the present (time value of money) helps you determine what the dry cleaner is worth today (valuation). To make sure you do not overpay for the business, you should discount earnings from both periods of economic expansion and economic contraction. The dry cleaner’s profit margin, like most businesses, will be higher in good times and lower during recessions. Using a single year’s cash flow or revenue will not paint an accurate picture of the business’ true value to an owner.
As an investor, if you feel Johnson & Johnson (JNJ) is going to be around for the foreseeable future, you should evaluate the stock as if you were going to buy the whole business by discounting anticipated cash flows. Stockholders basically own a partial claim to future cash flows. Using this rationale, value investors have the guts to step in and buy good businesses during a bear market (when they are cheap). Continue reading
