Month: October 2012

China stocks to rally further after golden week break

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

The Shanghai Composite Index made a new low near 1,999 on September 26 and then developed a good rally rebound. There is a high probability the rally will continue after the Golden week holiday that ends Friday.

This development has the potential to establish the conditions for a trend reversal. This type of trend reversal is first shown with the Relative Strength Index (RSI) Divergence reversal signal.

RSI divergence occurs when the trend line using the valley lows on the RSI moves in the opposite direction to the trend line for the same time period applied to the valley lows on the Shanghai index (Shanghai Stock Exchange: .SSEC). RSI divergence signals will appear first on the daily chart.

The first low in the RSI indicator appears at the same time as the index low near 2,040 shown as point A on the Shanghai index. Investors wait for the Shanghai index to make a new valley rebound low.

This situation creates two valley lows – point A and point B. At the moment we do not know where point B will be located so investors wait for this to develop.

The trend direction of these valley lows are compared with the trend line of the valley lows made at the same time on the RSI indicator. If these two trend lines show divergence then the RSI divergence pattern helps confirm the increasing probability of a trend change.

The RSI divergence is also confirmed with the classic test and retest pattern of trend reversal in a Guppy Multiple Moving Averages (GMMA) trend reversal signal.

The first rally is shown as point 1. The short term GMMA moved up and touched the lower edge of the long term GMMA before retreating. This is test 1.

The most recent rally is test 2. The short term GMMA penetrated into the long term GMMA shown at point 2 before retreating. Investors watch for these conditions in this trend reversal pattern.

A rebound rally is where the value of the short term GMMA moves up to the value of the upper edge of the long term GMMA and then retreats. This creates point 3 in the rally test, retreat and rally test pattern. The arrow shows the general nature of this type of development.

After the third rally investors wait for a retreat from the upper edge of the long term GMMA and wait for another new rally that will carry the value of the short term GMMA above the value of the upper edge of the long term GMMA. This creates classic GMMA trend breakout pattern behavior.

The most important development after the October holiday is the ability of the Shanghai index to develop a new rally rebound and complete the next step in the classic GMMA trend reversal pattern.

Daryl Guppy is a trader and author of Trend Trading, The 36 Strategies of the Chinese for Financial Traders –www.guppytraders.com . He is a regular guest on CNBC`s Asia Squawk Box. He is a speaker at trading conferences in China, Asia, Australia and Europe.

If you would like Daryl to chart a specific stock, commodity or currency, please write to us at ChartingAsia@cnbc.com. We welcome all questions, comments and requests.

CNBC assumes no responsibility for any losses, damages or liability whatsoever suffered or incurred by any person, resulting from or attributable to the use of the information published on this site. User is using this information at his/her sole risk.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Hedge fund returns worsen: Is enormous unraveling near?

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

The more stocks rise, the further behind hedge funds fall-with the industry now lagging market returns by double-digit percentage points.

Though hedges actually have attracted more investor cash this year, the bulk has gone to bond funds and away from equities, even though the Standard and Poor`s 500 is up a robust 14 percent so far in 2012.

As a result, hedge funds have returned just 3 percent year to date, though assets under management have swelled to USD 2.56 trillion, according to eVestment, a data firm that tracks the industry.

The change in fortune for hedge funds, which had trounced stock performance over the past two decades, has market insiders searching for answers.

“Could the underperformance be cyclical or is there a structural change that has changed the return structure of returns for the hedge fund industry?” Mary Ann Bartels, technical analyst at Bank of America Merrill Lynch, wondered in a report Monday. “We continue to conclude as in prior research, there (are) likely too many hedge funds chasing (too) few returns.”

There are about 8,300 active hedge funds, and while the financial crisis wiped took a large toll new funds continue to crop up.

BofA research shows that convertible arbitrage (simultaneously buying convertible shares and shorting common stock) and event-driven (headline-following) strategies fared best in September, with respective returns of 5.6 and 5 percent. Market neutral lagged, losing 5.31 percent.

For the year, this is the third-worst performance to date since BofA began tracking hedges in 1994.

Nevertheless, fixed income-based hedge funds have seen inflows of USD 38.8 billion this year, while equity funds have watched USD 7.4 billion come out.

That risk aversion during an aggressive stock market run-up may be what is holding back fund performance more than anything else.

Hedge fund manager and author James Altucher predicts more trouble ahead, in which there will be “an enormous unraveling of hedge fund assets at end of year when hedge funds open their doors and this will lead to a bad Q1 in 2013.”

From the end of 1994 until August, globally diversified hedge funds have outperformed the SandP 500 by 130 percent, though the returns have waned as the American economy has sought to shake off the financial crisis.

“Generally speaking, hedge funds have delivered better risk-adjusted returns during this period,” Bartels said. “Although long/short strategies were unscathed by the 2000-2003 downturn, they did not fare as well during the financial crisis and have underperformed the market since the end of 2010.”

Moreover, industry insiders say managers have struggled to meet benchmark returns as the market has become far less fundamentally driven and more influenced by headline events such as the European debt crisis and fiscal peril in the U.S.

Aggressive monetary easing from global central banks also has made it more difficult for fund managers to anticipate market movements, with active fund managers overall suffering what could turn into their worst year ever against benchmark returns.

“I worry that crowded trades will become more crowded. We may see hedge fund hotels become more overbooked and that will make them roach motels. You can check in but you can`t check out,” said Michael Block at Phoenix Partners. “That will make markets more vulnerable to exogenous shocks.”

–John Melloy, executive producer for Fast Money and Halftime, contributed to this report.

Questions? Comments? Email us at NetNet@cnbc.com

Follow Jeff @ twitter.com/JeffCoxCNBCcom

Follow NetNet on Twitter @ twitter.com/CNBCnetnet

Facebook us @ www.facebook.com/NetNetCNBC

Copyright 2012 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Fed to ease until jobless rate falls below 7%: Evans

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

The Federal Reserve is doing all it can to prop up an underperforming economy and will keep at it until the jobless rate falls below 7 percent, Chicago Fed President Charles Evans told CNBC.

Not only did Evans defend the central bank`s recent announcement that it would embark on a third round of quantitative easing, but he also said he would have preferred if the Fed had been even more aggressive.

Evans said the Fed should keep policy loose until the unemployment rate falls below 7 percent. The current rate of 8.1 percent is too high and showing that the economy has yet to achieve sustainable growth, he said.

“That tells me that more accommodation would be appropriate, especially if it`s effective,” Evans said during a “Squawk Box” interview. “By all the analyses I`ve seen, it will be effective and the inflation risks are not very large at the moment.”

After expanding its balance sheet to USD 2.8 trillion, the Fed said its QE3 program would entail buying another USD 40 billion a month in mortgage-backed securities, with the program piggybacking on the Operation Twist bond-buying.

All told, the Fed will be buying USD 85 billion a month in debt.

“There`s scope for doing more. I would have been doing more for a longer period of time,” Evans said. “The committee made the determination that we`re a lot closer to something like unacceptable growth – stall speed – and it`s time to do more.”

Fed critics worry that the easing policies involve too much money creation and thus will cause inflation once those new dollars start to circulate through the economy.

The banks that have benefited from the infusion of new cash have largely used it to shore up their balance sheets rather than lend it out.

Evans believes that QE3, because it targets the housing market, will do a better job of fostering economic growth than simply buying Treasurys, which QE2 entailed.

“To the extent that we make it more attractive and easier for people to refinance their mortgages, that would leave them with more after-tax income to spend,” he said. “If they need to save, they can save more quickly. If they would like to spend and buy durable goods they put off for the last three years, buy new cars, that would increase demand.”

“I don`t see any inflationary pressures,” he said, adding that inflation actually would indicate that the economy was improving. As long it remains within the 2 percent or so that the Fed targets, Evans said he would welcome a little inflation and the opportunity for the Fed to consider raising its near-zero interest rate target.

“The way to get to a point like that is because the economy grows,” Evans said. “Then you get more money in circulation in a productive fashion. Yes, it would be the case that price pressure and interest rates would go up. That would be a healthy thing in terms of the higher interest rates.”

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Stock market may be headed for rude shock this month

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

The focus on fundamentals is about to begin.

For the last three months, investors have been ignoring the weak economic backdrop and plowing money into stocks because of the cheap money swirling from central banks around the world. Investors are searching for yield in an environment of rock bottom rates.

But judgment day is coming.

The fourth quarter has begun and the third-quarter earnings will start to flow, giving us a window on just how anemic the last three months have been in the real economy. (Read More: Stocks End Lower, but Log Best Third Quarter Since 2010.)

That doesn`t mean the chasing of the highly volatile big performers will let up. But it does mean selectivity when buying stocks will be more important than ever. And the risks of a big sell-off are higher.

Big institutions and other deep pools of capital, such as pension funds, have been playing catch up, chasing stocks even in the face of anemic economic growth, stubbornly high unemployment, and a mess in Europe that has yet to be resolved.

The Dow Jones Industrial Average is up more than 10 percent year to date, 4.3 percent in the third quarter. The SandP 500 index is more than 15 percent year to date, and 5.8 percent in the past quarter, and the Nasdaq Composite Index, the big winner of all is up nearly 20 percent year to date and 6.2 percent in the third quarter.

But as money has flowed into stocks, the backdrop for corporate earnings has worsened. Gross domestic product, the broadest measure of the economy, was revised downward to show a slow 1.3 percent growth versus an earlier estimate of 1.7 percent.

Earnings for the third quarter are seen contracting – SandP Capital IQ is expecting a negative showing for third-quarter numbers, with profits down 1.9 percent. It would be the weakest earnings picture since the second quarter of 2009, smack dab in the middle of the recession.

Revenue is seen growing just 1.4 percent. To put that in context, historically over the last 10 years, revenue has grown some 7 percent.

The drags in the third quarter will once again be materials and energy, where earnings are expected to fall about 19 percent apiece.

There are some positives, including the financials, which of course has been where the momentum has been in stocks. Earnings for the banks are expected to rise 8 percent, with the commercial banks and insurance companies seeing gains of some 25 percent, which is coming off of a low base. (Read More: Is Third Quarter the Bottom for Slowing Earnings?)

Rich Peterson from SandP Capital Markets said the reason the financials are expected to see a boost is that the third quarter has been busy for leveraged buyout deals – the best since the third quarter of 2007, when more than $45 billion dollars in deals took place.

The fourth quarter will be boosted by more catch up: There`s about $100 billion in so-called dry powder – unused capital from earlier fundraising – whereby private-equity firms may be rushing to get deals done before year end.

Once again, future guidance from these companies will be critical and we will get more clarity once we know who will occupy the White House.

But the guidance in the past few months has not been a positive. Of the 101 companies that provided guidance for the third quarter, some 72 percent were negative.  (Read More: Obama-Romney Debate Faces Off-Script Challenge.)

Things are seen picking back up in the fourth quarter, with overall earnings growth expected at nearly 10 percent – but many sources I speak to are questioning such a bounce from negative to double-digit growth.

Revenue is still expected to be anemic in the fourth quarter, coming in at about 3 percent, with materials seen rebounding 25 percent based on increased demand for construction, metals, and mining.

By all counts, these numbers are underwhelming. Particularly in a market that does not have a whole lot of room for error with the Fed bond-buying program taking stocks high and expectations even higher.

-By CNBC`s Maria Bartiromo; Follow Her on Twitter @MariaBartiromo

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

US stocks should be higher after election: Strategist

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

The US is the best house on a bad block, and investors should stick with US-focused stocks, Alec Young, SandP Capital IQ strategist, told CNBC on Friday.

That has his firm advocating an overweight stance on technology and consumer discretionary sectors while underweighting utilities and materials.

“The overriding theme is that we want to be more domestic,” Young said. “We think most of the risks out there are global.”

He also said investors should hedge against more bad news from overseas by going long on the consumer discretionary sector while shorting materials.

“Nothing is more vulnerable to bad news out of China than the entire commodity complex,” Young noted.

With pent-up demand and ongoing corporate productivity enhancements, SandP is “less worried about a negative surprise within tech,” the strategist said.

Investors should also position for gains in the market following the election. Young noted that in election years, the SandP 500 tends to make its annual high in November and December after the election. “There`s a strong track record that removing the uncertainty of who wins the presidential election and the Congress helps stocks,” he said.

Young also said that they’ll be plenty of time for investors to position for the “fiscal cliff” – when a number of tax cuts expire and spending cuts kick in later in the year – later in the year. “If you`re worried about it, you can hedge it from what we thing will probably be higher levels,” Young said.

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

Asia’s booming equities starting to lose their shine

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Asian equity markets, which have had a stellar rally this year with gains of more than 10 percent in much of the region, are now starting to lose their shine as the outlook for regional exports deteriorates, analysts told CNBC.

“It’s tough generally. Our companies are telling us that they are not seeing any pickup in business and activity, said Hugh Young, managing director of Aberdeen Asset Management in Singapore. “We will see marginal earnings growth this year at best…Single digits, I think.”

Aberdeen owns shares of companies in a range of industries including China Mobile, CNOOC, Siam Cement, and SembCorp Marine and United Plantations.

Economies across the region are struggling with slowing exports as orders from their biggest markets decline. Much of Europe is in recession, while economic growth in the US remains weak and China’s economy has slowed more than expected in recent months.

Singapore’s non-oil domestic exports in August fell by a bigger-than-expected 10.6 percent from a year earlier, hurt by a 28.7 percent plunge in shipments to the European Union, Singapore’s largest market.

Exports from South Korea and Thailand dropped by more than 6 percent in August from a year earlier and this is a sign of worse to come for the region, analysts said.

“I’m not convinced exports will pick up in the fourth quarter,” Young said. “There’s no demand.”

Equity markets in South Korean and Taiwan have rallied almost 10 percent so far this year, while Hong Kong’s benchmark stock index has gained about 13 percent and Singapore shares have jumped 16 percent.

That compares with gains of about 15 percent in the SandP 500 index and a rise of around 8 percent in European shares. Chinese markets have bucked the regional trend as weak economic growth in the world’s second largest economy dents investor sentiment.

Vasu Menon, vice president, wealth management with OCBC bank in Singapore, is also cautious about Asian stocks for the rest of the year, agreeing that corporate earnings will likely weaken.

“At this juncture, I can’t say with conviction that I’m bullish about Asian stocks,” he said. “I think corporate earnings are not going to be amazing this year. There’s going to be fears of slower growth and markets are poised for some kind of pullback.”

Southeast Asia Remains Bright Spot

While data show that exports are indeed slowing in Asia, it is not all bad news, economists say.

The domestic consumption story in Southeast Asia should be able to provide some support to GDP growth, they added.

This means that stocks in the Southeast Asian region could still do well in the fourth quarter, according to Tim Condon, head of research for Asia with ING Financial Markets. In particular, he likes stocks in Indonesia, Philippines and Thailand, which have gained 11 percent, 21.8 percent and 26.4 percent respectively this year.

“I think Southeast Asia will have the best prospects,” he said. “There is nothing there to be particularly alarmed about. They have had a good run and they will continue to have a good run,” he said.

OCBC’s Menon also favors Thailand and Indonesia among Southeast Asian nations.

“Thailand is an interesting story, and one that we are a bit more excited about,” he said. “Indonesia, we are quite upbeat because its economy appears to be holding up quite well.”

Even if there is a correction of 5 to 10 percent in Southeast Asian markets in the short term, investors should see this as a buying opportunity, he added.

By CNCBC’s Jean Chua.

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow

China stocks top pick among BRICs: Goldman’s O’Neill

KV Prasad Jun 13, 2022, 06:35 AM IST (Published)

Listen to the Article (6 Minutes)

Chinese equities fell to their lowest levels since 2009 this week on concerns over an economic slowdown, but Jim O’Neill, chairman of Goldman Sachs Asset Management says mainland stocks present the most exciting investment opportunity of all the BRIC markets.

“At this moment, the Chinese market looks the most attractive to me. You don’t want to be with consensus; it’s quite easy to be on the wrong side of things,” O’Neill, the man famous for coining the acronym BRIC, said at a press conference in Singapore on Friday.

With the benchmark Shanghai Composite trading at historically low valuations, he argues that the market is ripe for stock picking.

As China rebalances its economy towards being more domestically-driven rather than export oriented, there are going to be a lot of new winners, O’Neill said.

“Go long anything to do with the new China, and short anything to do with the old China,” he said.

He recommends taking this opportunity to invest in all sectors that are set to benefit from rising incomes in the middle class – including consumption and healthcare stocks, while staying clear of companies involved in heavy industrial production and their related commodities.

Chinese stocks have been one of the worst performers globally – down almost 6 percent since the start of the year, after falling 22 percent in 2011. Stimulus measures over the past, including the USD 150 billion-plus in infrastructure spending and incentives for exporters, have failed to drive a sustainable turnaround in the market.

O’Neill said the continued underperformance of the market can be attributed to disappointment among investors who have excessively high expectations for China’s growth outlook.

“The market has been on this drug of 10 percent growth – people think that China will rescue the economy with conventional historic type measures, that’s why the market keeps getting disappointed because they aren’t going to do that,” he said, referring to the country’s USD 4 trillion stimulus package unveiled in 2008.

He said that until the investment community readjusts their expectations to reflect the new, but slower growth era in China, the market is unlikely to rally.

“The sell-side (firms that sell investment services) consensus for China GDP growth is still close to 8 percent (for 2012), they are stuck on the drug of the past too. Consensus for next year is higher than 8.5 percent. The best thing for the market will be when the sell-side consensus brings growth forecasts down to 7.5 percent,” he said. “People need to stop thinking about China in the framework of the old China.”

No Hard Landing in China

While Goldman Sachs reduced its 2012 growth forecast for China to 7.4 percent from 8.2 percent earlier this month, O’Neill said the world’s second largest economy is not headed for a hard landing.

“It’s not clear the momentum is turning yet, but I’m pretty sure it won’t turn into a true hard landing as some people are saying,” he said.

However, he adds that there is a risk that growth in the third quarter could be weaker than in the second quarter. China’s economy grew 7.6 percent in the April-June period, its slowest pace in more than three years.

O’Neill said that aggressive monetary easing would bring momentum back into the economy, but that has yet to happen.

“Given how low inflation is-I would be surprised if there was some kind of monetary stimulus while we’re sitting in this room,” he said.

While the People’s Bank of China made its biggest-ever weekly cash injection into money markets this week aimed at preventing a potential short-term liquidity crunch at commercial banks, it has left interest rates on hold since its last cut in July.

-By CNBC’s Ansuya Harjani

Copyright 2011 cnbc.com

Elon Musk forms several ‘X Holdings’ companies to fund potential Twitter buyout

3 Mins Read

Thursday’s filing dispelled some doubts, though Musk still has work to do. He and his advisers will spend the coming days vetting potential investors for the equity portion of his offer, according to people familiar with the matter

KV Prasad Journo follow politics, process in Parliament and US Congress. Former Congressional APSA-Fulbright Fellow