Monday, December 5, 2011

An upside-down perspective

For a different perspective, it's always useful to look at a stock chart differently. Consider the following chart whose identifying labels have been removed, would you buy this stock?


The pattern certainly looks constructive. The "stock" has certainly been forming a wide saucer base and undergoing an uptrend. Would you buy it?
What about this next one?

This chart of this second "stock" is similar to the first one, except that the pattern is a little better developed inasmuch as it has broken out of resistance and undergoing a classic bullish cup and handle formation.

I don't want to keep everyone in suspense. The first chart is the Euro STOXX 50 viewed upside-down, which is the market's signal of the ongoing problems in the eurozone, and the second is the upside-down chart of the yield on 10-year Treasury Note (TNX), an indicator of the risk-off safety trade. Here I present the original charts, without further comments or annotations.



These charts have mixed messages as to the timing of a break. The inverted chart of TNX suggests that the time to tactically get defensive is now, while the chart of the Euro STOXX 50 indicates a breakdown is more likely in 1Q. Much could happen next week as we approach the Marseilles summit, but many obstacles remain.

My inner investor tells me to be afraid, very afraid. My inner trader tells me to be prepared for volatility in the next two weeks, which will see an ECB meeting, an EU summit and an FOMC meeting. Anything can happen in the short-term.




Cam Hui is a portfolio manager at Qwest Investment Fund Management Ltd. ("Qwest"). This article is prepared by Mr. Hui as an outside business activity. As such, Qwest does not review or approve materials presented herein. The opinions and any recommendations expressed in this blog are those of the author and do not reflect the opinions or recommendations of Qwest.

None of the information or opinions expressed in this blog constitutes a solicitation for the purchase or sale of any security or other instrument. Nothing in this article constitutes investment advice and any recommendations that may be contained herein have not been based upon a consideration of the investment objectives, financial situation or particular needs of any specific recipient. Any purchase or sale activity in any securities or other instrument should be based upon your own analysis and conclusions. Past performance is not indicative of future results. Either Qwest or Mr. Hui may hold or control long or short positions in the securities or instruments mentioned.

4 comments:

Tiho said...

My "inner contrarian" tells me you are about to be wrong again. The market will stage a melt up for the next few weeks to a month or so.

Huge net short positions on th Euro, mixed together with negative opinion on just about every single risk on asset class is a perfect recipe for huge short squeeze.

On top of that every man and his dog is loaded up on Treasury Bonds expecting further yield decline. If money starts poiuring out of bonds it will go into just about anything.

Euro problems are not resolved, but the yields on PIIGS have dropped and a Eurocrat kicking of can could cause a power rally on good season months of Dec and Jan.

Strawberry Blonde said...

Interesting comparison...thx!

WimpyInvestor said...

Back in late 2008 (after Lehman collapse), having suffered a major loss in my portfolio and perhaps completely out of frustration, I inverted the chart of SPY, and started to see the world in a completely different way.

Things were "going up" when you reverse the point of view ... and I was lucky enough to recover some of my losses by shorting the market with SDS/QID through Q1 2009.

I thought I was the only one in the whole world doing this. Since I have no formal training in technical analysis, I thought such unconventional approach would be laughed at by the experts.

It's great to see that the professionals like you also use this technique. Thanks for the interesting perspective. I don't feel as weird anymore.

Michele said...

I'll admit to having done this too on occasion. Another thing I like to do is to back away from the chart, literally. I'll push my chair back about 6 feet and look at the screen from there.

It's interesting the way how you look at something affects how you see it, and how looking at something in a new light offers you a new perspective, literally.

But I think this is something that artists have known for a long time. Thanks for bring up the topic.