Author: Colin Twiggs

Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters. Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis. Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events. He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.
Posted on

China threatened by loss of US trade

The threat of a US-China trade war has rattled investors, with the Shanghai Composite Index breaking primary support at 2700 to signal another decline. Trend Index peaks below zero warn of strong selling pressure. Long-term target is the 2012 to 2014 lows at 2000.

Shanghai Composite Index

Hong Kong’s Hang Seng Index is also under the pump, breaking support at 28,000 to warn of another decline.

Hang Seng Index

Copper prices, a good barometer of the Chinese economy, are also falling. Breach of $6,000 offers a target of $5,500/tonne.

Copper S1

The Yuan has fallen almost 10 percent, testing support at 14.5 US cents. Failure of the PBOC to support the Yuan (by selling some of their $3 trillion of foreign reserves) may cushion the economic impact in the short-term but only invites further escalation from the Trump administration.

Chinese Yuan/USD

There is no easy way out. Trump clearly has the upper hand in trade negotiations.

Posted on

ASX 200 breakout

Strong earnings reports and continued interest in major banks lifted the ASX 200. Rising Trend Index troughs signal buying pressure. Breakout above 6300 offers a short-term target of 6500.

ASX 200

The ASX 300 Banks index followed through above 8100, indicating another rally with a medium-term target of 8500 (long-term 8750).

ASX 300 Banks Index

But the ASX 300 Metals & Mining index broke support at 3750, warning of a test of primary support at 3400. Fears of a US-China trade war are likely to undermine commodity prices.

ASX 300 Metals & Mining

I am also wary of banks because of higher funding costs, falling credit growth and rising default risk .

So the primary trend on the ASX 200 is up but I remain cautious, holding over 30% cash in the Australian Growth portfolio.

Posted on

Gold stocks hammered

China’s Yuan continues to fall.

CNY/USD

Causing the US Dollar to strengthen. Dollar Index follow-through above resistance at 95 suggests further gains unless China intervenes to support the Yuan. Long-term target for the advance is 103.

Dollar Index

Gold plunged through support at $1200/ounce. Expect a test of primary support at $1130 but the long-term target is the 2015 low of $1050/ounce.

Spot Gold in USD

A Trend Index peak below zero warns of a strong decline on the Australian Dollar.

Australian Dollar/USD

But Aussie weakness was not enough to shield local gold miners. The All Ordinaries Gold Index (XGD) broke support at 4900, offering a long-term target of 4100.

All Ordinaries Gold Index

Local gold stocks are getting hammered, as I feared.

Posted on

S&P 500 earnings surge

Of companies in the S&P 500 index, 90.2% have reported their results for the quarter. According to S&P Dow Jones Indices:

  • Sales growth at 11.0% year-on-year (Y/Y) is close to a potential record.
  • The earnings beat rate of 78% is also historically high, compared to an average of 67%.
  • Operating margins are at a record 11.58%, compared to an average of 8.08% over the last 20 years.

Forward earnings estimates are climbing, driving the forward Price-Earnings ratio to a more comfortable 17.6 compared to its March 2015 high of 23.9.

S&P 500 Forward Earnings Estimates

Valuations based on historic earnings remain high, but P/E multiples have fallen to 22.02 from 24.16 in the last quarter. The long-term chart below compares the index price to previous highest annual EPS, to eliminate distortions caused by sudden falls in earnings.

S&P 500 Price-earnings based on Maximum Previous Earnngs

The current earnings multiple is still significantly higher than the 18.86 reached prior to the 1929 Wall Street crash and 18.69 in October 1987. But high valuations don’t cause market crashes. Sudden falls in earnings do. And there is little sign of that at present.

The S&P 500 is retracing for another test of its new support level at 2800. Respect would signal an advance to 3000. Declining Money Flow warns of selling pressure but this appears secondary in nature, with the indicator still well above the zero line.

S&P 500

The Nasdaq 100 also warns of a correction, with bearish divergence on Twiggs Money Flow. Again this appears secondary in nature because of the indicator’s position relative to the zero line. Expect a test of support at 7000.

Nasdaq 100

Posted on

ASX 200 buying pressure

The ASX 300 Metals & Mining index continues to test support at 3750. Breach of support and the rising trendline would warn of a correction to 3400.

ASX 300 Metals & Mining

The ASX 300 Banks index recovered above 8000, the false break suggesting another rally, targeting 8500.

ASX 300 Banks Index

I remain wary of banks, however, because of higher funding costs, falling credit growth and rising default risk .

The ASX 200 continues to test resistance at 6300. Rising Twiggs Money Flow troughs signal buying pressure. Breakout above 6300 would present a short-term target of 6500.

ASX 200

The primary trend is upward but economic indicators and the potential impact of a US-China trade war make me cautious. I hold more than 30% cash in the Australian Growth portfolio.

Posted on

No Silver lining for Gold stocks

A long-term chart shows Silver broke support at $16/ounce and is headed for a test of its 2015 low at $14.

Spot Silver in USD

Silver is more volatile but often indicates, ahead of Gold, the direction of the two precious metals. At present that suggests Gold is likely to test its 2015 low of $1050/ounce.

Spot Gold in USD

China’s Yuan continues to fall against the US Dollar.

CNY/USD

The Dollar Index followed through after breaking resistance at 95. Retracement to test the new support level is now unlikely unless China intervenes to support the Yuan. Focus shifts to the long-term target of 103.

Dollar Index

The Australian Dollar broke support at 73 US cents, the Trend Index peak below zero warning of a strong decline. This may cushion local gold miners, to some extent, from the falling US Dollar price but Gold is more volatile.

Australian Dollar/USD

The All Ordinaries Gold Index (XGD) continues to test support at 4900. Breach is likely and would offer a long-term target of 4100.

All Ordinaries Gold Index

Not a good time to buy Gold stocks.

Posted on

Wisetech Global Ltd (WTC)

Stock: Wisetech Global Ltd
Symbol: WTC
Exchange: ASX
Latest Price: $15.47
Date: 9 August 2018
Financial Year: 30 June 2018
Results Due: 22 August 2018

WTC was added to the ASX 200 in December 2017 and shows strong growth in revenue and earnings as well as price performance since 2016.

Wisetech Global Ltd (WTC)

We have not rated WTC as a buy signal because:

Our valuation is substantially below the current price. Assuming long-term revenue growth of 25%, while operating expenses grow at a slower rate of 23% due to economies of scale, delivers a value of $10.00 per share.

Results for the 6 months to 31 December 2017 (1H18) show declining Net Income and Free Cash Flow as a percentage of Revenue. Declining margins are the opposite of what we expect to see with economies of scale.

WTC Net Income and Free Cash Flow as % of Revenue

Free Cash Flow is also consistently lower than Net Income because a percentage of research and development costs is capitalized. While one can expect to benefit from current R&D in future years, most companies need to expend a constant percentage of Revenue on R&D in order to maintain their competitive position, especially in Software Development .

WTC looks like a great business, with strong customer retention rates, but is over-priced at present.

We will review WTC performance after FY18 results are announced on 22 August 2018.

Posted on

Appen Limited (APX)

Stock: Appen Limited
Symbol: APX
Exchange: ASX

Appen was added to the ASX 200 in June 2018 and displays strong performance in both LT technical and revenue & earnings growth.

Appen Limited (APX)

Despite this, we have not added APX to our model portfolio, or issued a buy signal, because of its market position.

We are looking for companies with a competitive advantage that enables them to defend market share against competitors, without compromising profit margins.

APX competes in a crowded, technology-driven market against a vast number of competitors (over 17,500 Content Relevance and Language Resources providers, according to Jacob Simonsen at Lincoln) and is vulnerable to technology advances by competitors that could make it difficult for APX to defend its market share.

Posted on

Inactivity | Warren Buffett

“Much success can be attributed to inactivity. Most investors cannot resist the temptation to constantly buy and sell.”

~ Warren Buffett

Posted on

S&P 500 rallies while inflation subdued

Average hourly earnings growth came in at 2.7% (All Employees) for the 12 months ended July 2018. Growth in average hourly earnings is an excellent gauge of underlying inflationary pressures in the economy, which remain subdued.

Average Hourly Wages Growth

Consumer price index (CPI) growth is slightly higher, at 2.8% for June 2018, but lower core CPI (2.2%) suggests that food and energy prices are partly to blame.

Consumer Price Index and Core CPI

The S&P 500 respected support at 2800, signaling an advance to 3000. Declining 21-day Volatility suggests that market risk is declining and the market is returning to business as usual.

S&P 500

The Nasdaq 100 shook off recent Facebook (FB) and Netflix (NFLX) tremors and is testing resistance at 7400. Breakout is likely and would offer a target of 7800.

Nasdaq 100

Powered by WordPress / WordPress Maintenance Service By Website Helper