The next few weeks trading in the equity market will be worth keeping an eye on. As I mentioned last week, we have now received a couple of high probability sell signals on the US equity market.
As always the topping process can take weeks or months to form, so it may still be early days, but now that we have received a false break of April’s high in the S+P 500 and the intermediate trend signals have turned down we should be on high alert for lower prices ahead.
Europe has fallen off the radar over the past few months but there are a couple of things popping up over there that could flare up. Greek government debt has sold off about 10% in the past week alone. Also Italian and Spanish bond spreads have been widening and are up about 15bps in the past week.
It looks like the Greek ruling coalition is struggling to survive because the Samaras-led coalition just lost one of its three members, after the Democratic Left announced it would take its 16 votes and vote against any further austerity.
This may be posturing to soften some of the upcoming austerity moves but it does show you that the current stability is very tenuous. Another election in Greece would probably see the anti-bailout camp increasing their share of the vote dramatically. ‘Grexit‘ may still be on the way in the next year or so.
The fragile recovery taking place in Europe was shown in spades today when National Australia Bank [ASX: NAB] released their results. Full year net profit fell 22 per cent to $4.08 billion, with the great bulk of the problems stemming from their UK operations. Bad debt provisions rose 44% to $2.6 billion.
They had already flagged these issues in the past so their share price hasn’t taken a beating today, but it shows you quite clearly that all is not well in Europe.
The US election is the next big hurdle for the market to overcome. We may not see much aggressive selling in the market prior to the election but I’ll wager that things may be different once it’s out of the way.
A lot of economic figures lately have been remarkably sanguine. I think there has been a deliberate effort to dress up the figures ahead of the election to increase Obama’s chance of re-election. A bit of a conspiracy theory I admit, but I think politicians would do everything in their power to fudge data in their favour.
Once the election is out of the way I suspect the flow of data may not be so positive.
Murray Dawes
Slipstream Trader
From the Port Phillip Publishing Library
Special Report:
After the Bust
Daily Reckoning:
Riding out the Storm
Money Morning:
How the Aussie Dollar is Caught Up in Big Bankers’ Games
Pursuit of Happiness:
Look Out for Melbourne’s Body Snatchers
