Tag Archive for 'active investment managers'

The Stock Market in 2011

Published on January 25, 2011 in Education and Market Reviews. 0 Comments Tags: , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , .

To add to our recent reports about the danger of a stock market crash.

The FTSE has again tested the resistance of the 6050 level and fallen back. But, as it has not fallen hard and is starting to rally it would appear that buyers are still active and wanting to put their money into shares.

There is nothing wrong with that – IF you are an ‘investor’ happy to buy and to hold no matter what state the market is in and irrespective of its vicissitudes. However, if you are unhappy about jumping in to the market and then hoping that share prices will rise then you might be better advised to take a more contrarian approach and not follow this herd as they pile into the equity markets just now.

Many seem to be ignoring, or to have forgotten about, the very real problems that continue to exist in the world; the potential for inflation in the Far East (China et al.) as well as in the UK, the continuing sovereign debt saga of several European countries, the Municipal debt problem in the US etc. etc. The point is that the only thing that seems to be driving the FTSE (and the US indices) upwards is the blind faith that these problems are being resolved and that share prices have only one way to go.

Unfortunately, neither case is true.

To these fundamental points we add our technical analysis of the market indices. We have commented on this in our regular ‘FTSE Forecast’ reports but it deserves repetition and we make the following observations -

1. The FTSE and the S&P, as representative of nearly all of the major market indices, are in a long-term ‘repetitive’ trends – by this we mean they are still within the boundaries of earlier high and low levels and, as such, they offer limited upside potential and are vulnerable to sudden reversals -

2. The US economy is in dire straits with several states (California, New Jersey and others) in severe budgetary problems that may lead to Municipal Bond defaults. Look how the S&P National Municipal Bond Fund has performed of late – it has crashed down by 50% and, if it falls below the 50% retracement support level (shown) then dire problems will follow -

3. And, despite what you may read elsewhere, “Emerging Markets” are unlikely to be a source of salvation. Not only are they likely to similarly suffer in the event of a major downmove but, in any event, they are not looking very bright in their own right. Take two by way of example, China and India.

The Shanghai Composite index is looking pretty sick -

in that it has now fallen below the potential support offered by the 25 % retracement of its big fall and is trending downwards.

And India, although looking healthier, has found resistance at 21200 level of its Nov ’08 high and is now falling down to test for support at the 75% retracement level at 18000. Should that level fail then it is likely to fall to the 14500 area.

So it is unlikely that these markets will provide much upside potential in the coming months.

4. Closer to home, the FTSE 100 has risen to and continues to test a level of major resistance (5970-6050) and the US market indices (S&P 500, DJIA and NASD 100) all have a small increase potential  before they too reach levels of potentially hard resistance.

The FTSE 100 -

The S&P 500 -

The DJIA -

Now, these levels of resistance, when they operate, will cause one of two results; either to delay the rising index and to lock it into a congestion or consolidation trend for a few weeks or, possibly, months

or, secondly, to halt the rising index and to push it back down the scale. And that is where the other underlying (fundamental) problems and uncertainties can have a major impact; with the market having turned down it only requires a major incident to erupt (terrorist attack, sovereign debt impasse, currency turbulence, poor corporate earnings….whatever) to cause the indices to start responding to gravity and to crash.

Having said all that and painted a picture of gloom and doom there is a potential brighter side – If, repeat ‘if’, the FTSE can break, and stay, above 6050 then it is likely to push on upwards towards the 6750 level of the June, July and Oct 2007 highs. Here it will find very considerable resistance and the possibility of forming a long term triple top that may then be its denouement; but before then we will all be able to make considerable profits whilst it is on its way up.

Conclusion:

If you are a ‘buy and hold’ investor holding a portfolio of shares then you could be in for a troubled and troubling time of it before you will see any real and lasting increase in portfolio values. The coming months will likely be a time for stock picking and ‘trading’ rather than portfolio holding – for the following reasons:

  1. If the markets do move into sideways consolidation or congestion trends then share prices will stagnate and only the occasional fast mover will be worthy of purchase. Should the FTSE rise to the 6750 area then this will only delay the inevitable and likely cause a more devastating eventual drop.

2.  If, on the other hand, the markets do tumble from around the 6050 area then there is no advantage to be had by just holding grimly on as prices collapse – instead trading shares to the downside (“shorting”) will be likely to bring good profits

3.  Good stock-picking and trading, rather than holding, shares will allow purchases to be made at lower prices and the commencement of the big rebound that will eventually follow a crash. The ‘buy and hold’ investor will be anxiously watching and waiting to recover, missing out on profits entirely.

Alan Saunders,

Chief Analyst,  ShareHunter.com

The Hidden Dangers of Unitised Funds

Published on August 25, 2010 in Education and Market Reviews. 0 Comments Tags: , , , , , , , , , , , .

When you look at the chart of the FTSE 100 index you have to question the wisdom of the ‘Buy and Hold’ philosophy espoused by the banks and insurance companies.

There really is no advantage to having bought shares or invested into insurance company equity funds or unit trusts and watch their value go up and down like the big dipper only to end up, when you need the money, at the same or lower value than when you went in.

Oh yes, we know all about the supposed virtues of pound cost averaging and of dividend income but they tend to be put about by those organisations which stand to benefit from you being persuaded to keep your money invested in their funds.

In our view – and in our experience – there is NO alternative to active management. Identifying the dominant trend in the stock market and of an individual share and buying or selling in sympathy with it is a far superior way to accumulate wealth than simply paying an insurance or unit trust company to hold your money for you.

And, using the ShareHunter Alerts service, to build increasing wealth only requires 15 to 20 minutes a day (and, even then, not even every day) and, importantly, it puts you in full control of your own money.

Listed below are three common practices that, in our view, are specifically loaded in favour of the supplier and against the best interests of you, the investor. They are best avoided -

1 – ASSET ALLOCATION - This is practised by virtually the whole of the investment community. In reality it is poor advice because, when severe bear markets are experienced, virtually all areas collapse. There are very few exceptions to this so simply spreading risk across different sectors is a futile exercise. A decision to exit from a severe bear stock market is vital in order to protect capital. So why do so many investment managements and advisors recommend asset allocation claiming that it reduces risk? The fact is they have little or no choice as the size of their funds excludes the ditching of assets to any significant degree so it doesn’t work.

2 – LARGE PENSION, INSURANCE and UNIT TRUST FUNDS – As soon as an investor arranges to put money into one of these funds it is, to all intents and purposes, ensnared and trapped in whatever investment cycle then follows. It therefore falls to the investor to personally extract himself from such holdings if he can. Most investors need assistance to make such difficult decisions. This will not be available from the investment managers themselves whose aim is to grow the funds under their management and not to give advice which would prejudice their lucrative management fees.

3 – MORATORIUMS - It is far from unusual for fund managers to hold back funds for fairly lengthy periods when there is a run, or even just a danger of a run, on their fund. This is always at the time when it is best to exit that particular market. By the time the moratorium expires the damage to the value of the holding will have been done. And, of course, the investor has been refused his request for the return of his money

As evidence increases of a growing weakness materializing in the stock market the best action has always been to withdraw from funds being managed by institutions (banks, insurance companies, unit trusts etc) in large funds. With the current growing evidence of a stock markets’ crash in the offing the likelihood of an extreme reaction grows bigger with every day as does the danger of moratoriums being placed on withdrawal of one’s money.