Jackson Hole came and went last weekend, central bankers in suits but no ties trying to look relaxed, while admitting that they alone couldn’t prevent an economic downturn. Over in Biarritz snipers cleared the beaches, surfers plucked out of the ocean, and 13,000 police and barricades kept G7 leaders (ex-PM Guiseppe Conte standing in for Italy despite resigning three days earlier) plus the EU’s (strained-looking) Donald Tusk, safe. Over in Brazil raging fires forced president Bolsonaro to adjust tactics and send in the military, while Greenpeace flew over inspecting the jungle. Let’s hope that ends soon too.
Financial trends also come and go, economic booms and busts more prevalent and obvious in the past when money was harder to come by; a shortage concentrates the mind – as all too many retailers know now. Some end with a bang, others with a whimper, and technical analysis can help you spot these. Today we look at four rather different signs of distress, keeping in mind where and when the trend started, noting accompanying noise and fads.
My first example is the US Russell 2000 index of small-cap shares that peaked at a record high in September 2018 and slumped in the fourth quarter of 2018 like so many others. This year it’s retraced a Fibonacci 61-76 per cent of that fall, a move that is therefore corrective, not impulsive. Stuck in the 1450 to 1600 range for seven consecutive months (potentially a triple top on the weekly chart) we can safely say it’s gone pretty much nowhere. Its problem: it’s recently seen four consecutive weekly closes below both the 50-day and 200-day moving averages (levels 1530 and 1515). A bit more of this and the averages will form a death cross, where the 50-day one drops below the longer moving average and when these are already pointing down. A well-known bear market signal, Spain’s Ibex and the Hang Seng have managed this feat recently, Malaysia and South Korea midway through 2018.
My second top-heavy chart is that of the Dow Jones Transportation average, first created as the Railroad one in 1896. After rallying steadily in a well-defined channel for a decade, the trend accelerating between 2016 and 2018, monthly ranges have, overall, been bigger since January 2018. The bottom of the channel held again (just about) after the slump at the end of last year and we’ve formed a series of descending highs since the record high. Giving up 61 per cent of this year’s rally, trading below long-term moving averages, we appear to be forming a difficult chart pattern called a diamond top; elements of this can be spotted in Facebook’s price chart too.
Some markets form spike highs and then subside quickly, prevalent in commodity futures where pressure’s on the front-month contract ahead of delivery, caused by bottlenecks, shortages of appropriate stock, and sudden unexpected demand. Here, I’m using the CME’s US natural gas, the third-largest physical commodity futures contract in the world. At the end of last year, we saw an impressive spike above the top of a descending trend channel; a regular phenomenon and now it’s back to dwindling prices – as usual.
My final chart is for illustration purposes only, the Saudi Arabian Tadawul stock index of all shares traded in the kingdom, between 2002 and 2009. Stockbrokers provided ever more lavish offices and halls for clients to meet and discuss how clever they were, spotting the latest darling share. A no-brainer; just keep buying.
