The next recession will be difficult for Central Banks as already low interest rates, inflated balance sheets & high deficits will likely result in a diminishing effect of policy tools to fight off deflation.
US GDP has slipped from 2.5% to 0.7% in the March quarter. A long way from the 3.5 or 4% the Trump administration says is achievable. More worrying is GDP appears to be trending lower and now showing only 0.2% growth. The March employment numbers were unexpectedly low, auto sales are dropping due to rising defaults and lenders tightening lending standards. Student loan defaults are rising and mortgage applications are no longer growing.
Many market commentators are dismissing the negative GDP trend as “seasonal issues” and are forecasting a sharp rebound in the June numbers. We’re not so sure and continue to feel that risk assets will soon come under pressure & portfolios should be defensively positioned.
The bulls will say, yeah but that doesn’t matter, stock prices are rising S&P500 earnings are growing at an average rate of 6%, (ex-energy), and 11% including the rebound in energy related profits, as oil prices recover from this time last year.
Technology giants Microsoft, Google, Apple, Facebook & Amazon are all delivering tremendous earnings growth and this can’t be denied, however, we’ve seen these names suffer during past recessions. They’re not infallible
With the bulk of the S&P500 delivering minimal top line revenue growth, PE’s expanding in a backdrop of falling GDP and rising bad debts, we feel caution is justified.
Local ASX Instruments to consider BEAR, BBOZ, YANK, BBUS & GOLD ETF’s along with Index XJO Puts . Overweight, healthcare, consumer staples, technology & yield sensitive names.
The ALGO engine gave a buy signal for ANZ on February 7th at $28.80. During yesterday’s session,the stock traded up to $32.85; within 20 cents of the $33.03 high posted on August 4th, 2015.
Looking back at that price action, after ANZ traded over $33.00 in August of 2015, the share price fell to $26.40 during the next three weeks.
That type of sell off is not our based case. However, with almost a $4.00 profit since the ALGO buy signal at $28.80, investors may want to consider taking profits or write covered calls on ANZ above $33.25.
The ALGO engine has given many profitable signals in the market, in general, and in the banking sector, specifically. We will look for the next buy signal to enter ANZ on the long side again.
Based on internal momentum indicators, $30.00 is the initial level of price support.
Below is a list of the current ASX top 50 stocks that have open buy signals from our ALGO engine.
Some of these trends are maturing and are in the latter stages of their price expansion. However, taking the time to look through the charts and overlaying the ALGO Engine signals will be a worthwhile exercise.
We have contracted a third-party firm to conduct a study on the ALGO Engine signals and trading model performance.
The preliminary results have supported my assumptions made by following 18 years of practical experience in the markets. The methodologies developed are now being integrated into a model using the following technical principles.
Our Algo Engine is capturing higher low buy points in individual stocks which make up the ASX top 50 index. When the XJO itself is making “higher highs” and “higher lows”, this produces a very high success rate.
Buying into these patterns can keep investors exposed to major bullish momentum without the human emotion of prematurely taking profits on the trade, and importantly, automating the stop-loss when the upward price momentum begins to reverse.
The chart below shows the performance of the “long only” ALGO Engine signals. The model is based on buying $50k in all long signals and holding the long position until a subsequent short or sell signal is triggered.
An example of this logic is also displayed on the individual stock sample below using Amcor.
For a comprehensive copy of our preliminary research paper, please contact me on firstname.lastname@example.org