US Stocks have more to come?

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It’s been a big week in the US stock market with the Dow breaching the 20000 mark for the first time. As I write the Dow cash closed the week at 20075. I remain long of the index from an entry late in the week ending Friday 20th January. I explained the setup in my post of last weekend. It is based on the teachings of WD Gann and Richard Wyckoff and is an example of a “low risk entry”. I have added to the position during the week.

Below is the chart of the VectorVest Composite of the USA stock market. This is an equally weighted index of the 7660 stocks that we follow over all US equity markets. I have marked an ascending triangle on the chart and it is clear that the market broke from the triangle on the 4th attempt. I can nearly see MR Gann smile.

From a chartists perspective the move from the low in November to the breakout of the triangle should be repeated and thus I feel that this move in the US has still got a lot of legs. I remain bullish and will add to my position (a spread bet) upon a resumption of the trend. This possible move can easily last into March or April.

Stocks in the US are being driven by pure optimism based on a slowly improving domestic US economy and also by the belief that the new President will deliver on his election policies. So far that seems to be the case whether you like them or not. These involve slashing both corporate and individual taxes, investing a trillion dollars on infrastructure and widespread deregulation of the economy. These are all measures that Wall Street greatly warms too. At the same time as stocks have advanced US interest rates on 10 year notes have increased from 1.8% to 2.4%.

A strong dollar is an important headwind for US corporate profits. The FED indicates that it will hike at least twice this year. A combination of tighter monetary policy (interest rates) and loose fiscal policy (Government spending and taxation) would seem to indicate that the dollar will get considerably stronger.

While the US has had a great week the London market has churned sideways and lagged. This is probably due to the strength in the pound over the last few days. The Pound/Dollar pair (Cable) has risen from 1.2 to 1.26 since the 16th January. For those unfamiliar with spot currency quotes the number represents the amount of the secondary currency to purchase 1 unit of the base currency. In the case of Cable, the pound is the base currency and the dollar is the secondary currency.

I feel that the strength of the pound is temporary and that further weakness is on the way. In my webcast of last Monday I detailed the position in the Dow and also described my strategy in trading the Cable. Again the objective is to find a “low risk entry”. Please meditate on these three words. Put them on your fridge door. My objective as a consistently winning trader is to test my trading idea for a little risk as possible. Below I show the four chart of Cable as described last Monday. The webcast is recorded at www.vectorvest.co.uk. Then click on live events and scroll down to archived webcasts. The title is VectorVest UK Q and A January 23rd 2017.

Cable charted a perfect 5 wave impulse pattern downwards and then rallied in three waves. I placed my “low risk entry” at the 78% retracement of the move down. I entered as the market reversed back down through the level. I call this process “stalking a good and elegant entry”. I am short of the Cable at 1.2610, slightly in the money and holding my small initial position over the weekend. If the move continues I will add. All of the trades don’t move like the Dow of last week, more is the pity.

The UK Composite is shown below. The trends here are Down/Up as was the case last week and nothing has changed in relation to leading divergences between the price of the Composite and the MTI. The highs of October are still acting as current support and that’s a bullish sign.

If I am correct about the pound and the USA stock market then sooner or later the London market should follow the US. I am holding all of my positions and remain fully invested at this time and will remain so until VectorVest tells me different. The Primary wave is down and VectorVest advises caution. Please sit on your hands and only add to stock positions if and when the Primary wave turns back up.

If I am incorrect about the Dow and about Cable then this will show up immediately on the Color Guard. A  DEW sell signal would indicate a weakening of the technical position. Please don’t hesitate to manage risk and protect the considerable profits we have made over the past few months. I suggest reviewing lesson 2 of the Quick Start Course on VectorVest to prepare for this event. Whether it comes next week or in May, it will come. Markets are living entities. They breathe in and they breathe out.

David Paul

28th January 2017

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Swallowfield (SWL.L) is a UK-based company…

Swallowfield (SWL.L) is a UK-based company, which is engaged in the development, formulation and supply of personal care and beauty products across other European Union countries and rest of the world. The Company offers its products in various product types, such as personal care aerosols, hot pour, premium liquids/tubes/roll-ons, fragrance and gifting, and color cosmetics and pencils. The Company’s manufacturing, filling and aerosol packaging capabilities include traditional system in tin-plate or aluminium cans. Swallowfield offers its products in various brands, and offers a range of services, such as project management, sourcing, manufacturing and logistics.

On November 10th 2016, Swallowfield published an AGM statement, and said that trading in the first four months of the year had been in line with expectations. The group said it expects that significant new product launches for major brand owners will contribute strongly to group performance, particularly in the first half of the fiscal year. Further contract wins were achieved in the UK and Europe, which will start to contribute from the beginning of the next financial year. Management anticipates that profitability in the first half will also see a small benefit from Sterling weakness. Long-term the group expects to maintain the positive momentum and are confident in the prospects for the year. Aside from the strong trading update, SWL’s Real Shaving Company brand “sensitive shave gel” won best new product at the prestigious GQ grooming awards. Interim results are due late February, early March 2017.

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The potential upside in SWL had been flagged up across several key metrics across the VectorVest stock analysis and portfolio management system when the stock fell in value during October 2016. Despite the recovery since then, in the view of VectorVest the value in the company still has yet to be recognised. The VST-Vector (VST) is the master indicator for ranking every stock in the VectorVest database, and is computed from the square root of a weighted sum of the squares of Relative Value, Relative Safety, and Relative Timing. SWL has a VST rating of 1.30, which is very good on a scale of 0.00 to 2.00. In terms of valuation, VectorVest currently values SWL at 439.07p per share, vs. the current price of 292.50p per share.

The chart of Swallofield is shown above with the VectorVest valuation shown as the green line study above the price. Below the price window earnings per share (EPS) is charted and is growing strongly. Since the high in October 2016 the share has charted a “rounded bottom” or cup formation. This is a bullish pattern and when confirmed by a break of the 52 week high should see the share moving much higher. The technical target from the “measured move” and the VectorVest valuation are both around 450 which represents a potential (and highly probable) 50% move from yesterdays close.

The combination of a strong trading update, prestigious product awards and even the growing dividend yield marks out SWL has a special growth opportunity. Even with the shares trading at all time highs, there remains a significant valuation gap, which VectorVest believes will close in the run up to the upcoming interim results.

At present the trends on VectorVest are Down/Up. This means the short term trend is down while the longer term is positive. Our advice is to wait until the short term trend changes to Up before any action is taken.

David Paul

January 25th 2017

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Which way from now? and sausages.

I will leave the discussions around the events of last week to your weekend newspapers. On both sides on the pond we had a full week of breaking news. I can only imagine the liberal elite in Davos scratching their heads as how these events occurred in the first place. Last year their predictions were totally on the wrong side of the money.

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In the following I shall try and present the facts and after that my feelings of what should happen next. Finally I will discuss a (Worry Free) defensive share that should prosper during 2017.

Below I show a daily chart of the VectorVest Composite UK over the last year. The red and green triangles represent the most conservative Market Timing signals on VectorVest. These are named Confirmed Calls and they are perfect for the longer term investor/trader. They are the basis of the Worry Free investment strategy that I have presented here on many occasions. On the chart the price is represented by candles. In the window below the price is the VectorVest proprietary MTI indicator. The MTI is a composite indicator constructed by combining the rate of change of the price of the Composite and the breadth of the Composite as measured by the VectorVest Buy/Sell ratio.

 

Over the past few days the Composite has pulled back and found support at the highs made in October 2016. This is a normal state of affairs and although the short term trend is Down a “kiss” of the previous high is still a bullish event. Of concern is the MTI which has retreated from a value of 1.6. Over the years a MTI value of 1.6 represents a market that’s much overbought and certainly it shows that the present upwards cycle that started in November is becoming mature.

On a more bullish note the MTI has made a new high while the price has also made a new high. At the turn down from October we note that prior to the fall the price increased to a new high but the MTI made a falling high. I have marked this divergence on the chart above in red trend lines. This divergence is absent from the present situation. For this reason I feel that there is a high probability of another leg upwards where a divergence can setup in the same manner as in the period August to October 2016 and in the run up to the high in April 2016

Please note that this is supposition and that I will be trading the market and NOT the forecast. At present I am holding positions but if the trend should change as measured by the VectorVest Market Timing signals I will take profits.

To add to this picture I have included an h4 chart of the Dow Jones Industrial average cash index below. It has set up a “lost motion” trade where the market has retreated and fallen below a major low and then reversed. I was taught this setup by W D Gann and it has been the basis of my short term trading for many a long year. Richard Wyckoff named the setup a “spring” and that what I hope is going to happen. I am long from the red line on the chart. It’s a tiny position but if it works out I will add and add as the position moves north. I have no doubt that the Dow will come back and rerun the stops prior (probably many times) to any trending move. Once this accumulation is over, and if the support holds, the move should be fast and furious. A characteristic of a “spring” is a fast and strong move.

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For investors the Color Guard will tell you when it’s time to initiate new positions and to add to existing positions. At present the trends are Down/Up. When this changes to Up/Up then the ball is in and the game is on.

Cranswick plc is a supplier of food products. The Company operates through Foods segment, which is engaged in the manufacture and supply of food products to the United Kingdom grocery retailers, the food service sector and other food producers. The Company provides a range of pork, gourmet sausages, cooked meats, cooked poultry, charcuterie, hand-cured and air-dried bacon, gourmet pastry products and sandwiches through retail, food servicing and manufacturing channels. The Company’s brands include Bodega, Woodall’s, Simply Sausages and Yorkshire Baker. The Company operates from approximately 10 production facilities in the United Kingdom. The Company also owns its own pig breeding and rearing operations. It produces approximately 800 tons of gourmet sausages per week. From its sitesin Manchester, the Company manufactures and distributes foods from Europe, using packaging formats and flavor combinations.

I have been holding Cranswick for some months and the share has been sitting within the boundaries of an “ascending triangle” continuation pattern which I show in the weekly chart below. The share is now on a Buy recommendation and the market is trying to breakout at the fourth attempt. My mentor MR Gann always taught that markets will break on the fourth attempt. The Relative Safety of Cranswick is high and technically a break from the triangle should initiate a multi-year advance. It won’t be a fast ride but it should beat the pants of the averages when the move finally gets going. A perfect anchor for a conservative portfolio in this defensive food counter.

Keep your eyes peeled on the Color Guard and the VectorVest Market Timing signals. The cycle from November is becoming mature but the market can easily run further into May 2017.

David Paul

January 21st 2017

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Gold and Gold shares

The Gold price has had a good week. Last weekend I felt that there was a 100$ plus move up on the way and that seems to have started in the first trading week of 2017. The USA labor report was good and it showed a strong hike in wages which is inflationary and good for the price of the yellow metal.

The weekly chart of Gold is shown below with the last low confirmed last weekend by a “morning star” candle pattern. On a weekly chart these patterns are highly predictive and that’s one of the reasons I made the call in Gold last weekend.

david-1

Is this a continuation of the Gold bull market which many are convinced started at the beginning of 2016 or is it a rally in the bear market? In my opinion that question won’t be answered until we observe the market action at around 62% or 78% of the selloff from the high in July. That’s where the big money shorts will be sitting. The important levels are approximately 1275 and 1320. I think that whatever happens (a bounce or restart of the bull market) a move to these levels is a high probability event. Please be assured it won’t occur in a straight line and my stomach tells me that the market is close to sub wave top. I have diagrammatically tried to show the possible sub waves on the chart above.

Randgold Resources is shown below. The chart shows the upmove from the last quarter of 2015 to the high in July and the subsequent selloff. The selloff has charted a “flag” pattern which found support at around 62% of the upmove. Over the past few days Randgold Resources has broken above the higher trend line defining the flag.  I would be surprised if the share didn’t pullback and “kiss” that same line prior to a further move up the chart. That would be a low risk entry for those brave souls who have the emotional reserves, fortitude and resilient to trade in Gold counters.

david-2

Of note is the massive reverse divergence that has set up between the price of the share and its momentum as measured by a MACD. This is a divergence that lasts for over a year and it’s a very positive sign. My friends at elliottwave.com refer to a reverse divergence as a “slingshot” which infers a high momentum and strong move. If you remember there was a reverse divergence between the UK VectorVest Composite and the VectorVest MTI which preceded the strong move in the UK market over the past month. Santa came to town in considerable style.

Please note that Gold shares require focus and need to be closely managed. A moment of weakness in applying strong risk management will be severely punished.

I look forward to discussing the markets at the webcasts to the UK and SA on Monday 9th January.

David Paul

January 6th 2017

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