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DOW JONES COMPOSITE INDEX

December 20, 2015/0 Comments/in DEVELOPED MARKET EQUITIES, Uncategorized/by Aksel Kibar

Dow Jones Averages are price weighted indices, while most of the broad market indices such as S&P 500 and Nasdaq 100 are market-cap weighted. In a price-weighted index higher prices will influence the direction of the average more than lower prices, regardless of the actual size of the company.

Dow Jones Composite Index measures changes within the 65 companies that make up three Dow Jones averages: the 30 stocks that form the Dow Jones Industrial Average (DJIA), the 20 stocks that make up the Dow Jones Transportation Average (DJTA) and the 15 stocks of the Dow Jones Utility Average (DJUA). The Dow Jones 65 Composite, like the three sub-indexes, is price-weighted.

Over the past two years Dow Jones Composite Index has formed a top formation usually regarded as Head & Shoulder. Head and shoulder chart pattern forms after a prolonged uptrend and signals a possible change in trend. Chart pattern is confirmed with the breakdown of the neckline. Similar chart patterns can be seen on some of the constituents of the top US indices. If not in the next few weeks, the first quarter of 2016 we can see some corrective price action on these charts. Confirmation of such price movement will be a decisive break below horizontal support levels (neckline).

USD/CAD

December 18, 2015/0 Comments/in DEVELOPED MARKET CURRENCIES, Uncategorized/by Aksel Kibar

Weak energy and metal prices continue to put pressure on the Canadian economy and its currency. Since the beginning of 2011, Canadian dollar has been losing ground against the U.S. dollar (for earlier analysis on USD/CAD). 1.3040 was an important resistance – levels that were seen during the 2008 financial meltdown.

In the last quarter of 2015, USD/CAD breached the strong resistance at 1.3040 and possibly completed a longer-term base formation. With the last couple of week’s sharp depreciation we can conclude that there is further weakness due for 2016. Unless the cross rate falls below 1.3040 levels in the following months, the new trading range will be between 1.3040 and 1.62.

MSCI EMERGING MARKETS

December 13, 2015/0 Comments/in EMERGING MARKET EQUITIES, Uncategorized/by Aksel Kibar

Emerging markets are experiencing renewed weakness after three months of sideways consolidation. MSCI Emerging Markets index sold-off between May and August 2015. Since August the index rebounded but hardly reached the strong resistance area formed by several long-term trend lines. In August, 850-900 area was broken down with a long monthly price action. Three months of consolidation was not able to push prices back to July-August levels. As the FED December meeting approached, emerging markets started weakening again. Breakdown below August 2015 low levels (771) can result in further sell-off.

It is important to note that, since 2011 emerging markets are under performing developed markets. This trend is likely to continue.

Not all emerging markets are showing weakness. Selective markets are performing better than their peers. I’m reviewing below markets that are exposed to strong downward momentum if the MSCI Emerging Markets index breaks below August 2015 low levels.

Turkey BIST 100 index formed head and shoulder chart pattern. Index is in the process of breaking down the year-long top formation. Another week of price action might be needed for confirmation as the index closed at its August low.

Not sure if the top formation on South Africa All Share can be plotted as H&S top, but breakdown below 46,000-46,500 area will result in further weakness in the coming months.

Philippines SE Composite Index is rolling over with a possible H&S top formation. I see this market a strong candidate for further weakness.

Another Asian emerging markets index that has outperformed its peers, is now showing signs of weakness. While the long-term trend might remain intact, BSE Sensex index can retest 21,200 levels.

Brazil’s Bovespa Index has been in a clear downtrend and it continues to make lower lows. In case of a breakdown on the MSCI emerging markets index, Bovespa can test the lower boundary of its trend channel at 40,000 levels.

Mexico IPC index performed better than its peers. Though, the South American index is also challenging multi-year trend support.

In emerging Europe, Poland’s WIG 20 index is selling off sharply. Index can test 2009 low levels.

Recently upgraded energy economies are facing tough times. With the collapse of oil and gas prices, Qatar’s DMS 20 index started selling off. First support area remains between 8,000 and 8,500.

Egypt’s EGX 30 index is now challenging multi-year trend support. Breakdown could result in further weakness towards 5,000-5,500 area.

WHEAT, SOYBEANS & METALS

December 6, 2015/0 Comments/in COMMODITIES, Uncategorized/by Aksel Kibar

Silver is likely to outperform Gold prices in the coming months. Long-term chart of SILVER/GOLD suggests the ratio is at a major turning point. Multi-decade support reversed the ratio three times over the past two decades and this could be the fourth time. Reversal from the strong support in the past resulted in an approximately 1.5x-1.6x outperformance with the exception of 2.3x during 2009-2011 period.

Grains and beans complex is at a major turning point. Soybean price is trying to reverse from a multi-year trend support. Two long-term trend lines acted as support around 850 levels. Momentum indicator RSI formed positive divergence. This could prove to be a major low for Soybeans.

Similar price action can be seen on Wheat price. Last three year’s downtrend found support around 455 levels. Strong support can prove to be a turning point for the agricultural commodity.

HUNGARY BUDAPEST SE INDEX

November 23, 2015/0 Comments/in Blog Post/by Aksel Kibar

Since the beginning of 2011, developed market equities have been performing better than emerging markets. This trend is still intact.

Though there is one emerging European equity market that is showing clear strength against its peers. That is HUNGARY. Budapest SE index is ready for another upward leg, after an initial breakout followed by a pullback.

Since the beginning of the year MSCI Hungary has been outperforming MSCI emerging markets index. Also, a major reversal chart pattern; head and shoulder bottom, might be developing on the MSCI HUNGARY price index. These are bullish sign for the emerging European country.

Two charts from the constituents of Budapest SE index have positive technical outlook:

OTP BANK formed a flag (or symmetrical triangle) continuation chart pattern.

RICHTER GEDEON formed a massive bullish ascending triangle.

Breakouts from these chart patterns should resume existing uptrends.

KUWAIT, NIGERIA and SAUDI ARABIA

November 18, 2015/0 Comments/in FRONTIER MARKET EQUITIES, Uncategorized/by Aksel Kibar

Weak energy prices are putting pressure on oil exporting economies. Kuwait and Nigeria are two of the large weights in the MSCI Frontier Markets index. Both countries indices are testing critical long-term support levels. Already weak stock market performance can continue in the following months if there are further breakdowns. Saudi Arabia, another major oil exporter broke down its 6 year-long trend support.

Kuwait KSE Index is testing strong long-term support at 5,700 levels. Breakdown below 5,700 will push the index towards 4,500-5,000 area.

Nigeria All Share Index is now testing 28,250 levels. Breakdown below the year-long support will push the index towards 20,000-25,000 area.

WTI Crude oil is now at a critical support. Breakdown below $40 levels will push the energy price towards the next support at $32.

EMERGING MARKETS and SOUTH AFRICA

November 15, 2015/0 Comments/in EMERGING MARKET EQUITIES, Uncategorized/by Aksel Kibar

Following one month of positive price action, weakness resumed in the emerging market equities. Until previously broken support levels are breached on the upside, strength in emerging market equities will be classified as counter-trend move. In other words, MSCI Emerging Markets index should clear 860-900 area on the upside to reverse the larger-scale downtrend.

Since the beginning of 2011, emerging market equity weakness has been mainly due to sharp depreciation in the local currencies. Some of the emerging market equity indices reached all-time high levels while the U.S. dollar denominated MSCI Emerging Markets index recorded lower lows. One good example is the South Africa All Share Index (with local currency). Since the beginning of 2011, South Africa All Share index resumed its multi-year uptrend, reaching all-time high levels while the MSCI South Africa index (price index in U.S. dollar) trended lower.

Weakness in emerging market currencies are likely to continue. USD/ZAR is breaking out to all-time high levels. Supported by the FED rate hike we might see acceleration in those currency trends.

Any thoughts on how U.S. dollar denominated equity indices such as MSCI South Africa will perform if we see South Africa All Share index testing lower levels with U.S. dollar strength?

SMALL CAPS vs. LARGE CAPS

November 4, 2015/0 Comments/in DEVELOPED MARKET EQUITIES, Uncategorized/by Aksel Kibar

Small caps show relative weakness vs. the large caps when investors move out of riskier/high-beta names and into relatively safe large caps. Opposite can be said during small cap strength vs. large caps.

There are two ways to capture this relationship to understand if there is a possibility of small cap outperformance in the following weeks.

1) Russell 2000 vs DJIA is now testing a 6 year-long trend line support. Until it is broken down, these type of trend lines are expected to resume the current trend. In this case the trend is upwards and the ratio is likely to rebound from the long-term support, resulting in an outperformance for the small caps.

Data Source: Thomson Reuters, Charts created in MetaStock

2) Russell 2000 vs. S&P 500 index is now testing the lower boundary of the horizontal trading range. A rebound from the lower boundary will likely result in an outperforming period for Russell 2000 index versus the S&P 500 index.

Data Source: Thomson Reuters, Charts created in MetaStock

U.S. DOLLAR/HUNGARIAN FORINT

October 27, 2015/0 Comments/in EMERGING MARKET CURRENCIES, Uncategorized/by Aksel Kibar

U.S. dollar remains strong against major cross-rates. Several emerging market currencies lost ground against the U.S. dollar during 2014-2015 period. Weak performance was interrupted by a medium-term consolidation over the past few months.

U.S. dollar/Hungarian Forint formed one of those identifiable consolidation chart patterns that is usually regarded as a flag or a triangle. These type of consolidation chart patterns usually resolve in the direction of the dominant trend, in this instance possibly upwards.

Breakout above 290-295 area will target the historical high around 320 levels. Expect emerging market currencies to remain weak in the following months.

MSCI WORLD MARKETS vs. MSCI EMERGING MARKETS

October 25, 2015/0 Comments/in DEVELOPED MARKET EQUITIES, EMERGING MARKET EQUITIES, Uncategorized/by Aksel Kibar

Central banks across the globe are showing their support for the financial markets by either delaying interest rate hikes or cutting interest rates and showing willingness to increase quantitative easing measures. After the ECB’s dovish comments, Chinese central bank cut interest rates to boost economic growth.

Since 2011, markets are positioned for emerging market weakness and this trend continues to remain intact irrespective of interest rate cuts or additional monetary stimulus by central banks. Emerging markets continue to underperform developed markets as the ratio between MSCI World Markets/MSCI Emerging Markets shows. This trend is likely to continue in the following months.

DOW JONES COMPOSITE INDEX

USD/CAD

WHEAT, SOYBEANS & METALS

HUNGARY BUDAPEST SE INDEX

SMALL CAPS vs. LARGE CAPS

U.S. DOLLAR/HUNGARIAN FORINT

MSCI WORLD MARKETS vs. MSCI EMERGING MARKETS

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