On Thursday Telstra reported a 12% drop in its half year earnings ending December 2016.  This took the market completely by surprise and the stock was savaged by investors as it fell 4.5% for the day on extremely high volume.

Telstra which is the largest market cap Telco in Australia is quite popular with retail investors and super funds because of its large dividends paid out annually. The key question going forward is whether investors will still support the stock as it struggles to grow its profits.

Today's chart review of Telstra we look at all 3 time horizons Monthly, weekly and daily charts to determine where Telstra could go next.

Disclaimer: This post is for educational purposes only, and all the information contained within this post is not to be considered as advice or a recommendation of any kind. If you require advice or assistance please seek a licensed professional who can provide these services.

Stock Review - Telstra (TLS)

Monthly Chart

With just over half the month completed in February it appears that Telstra will close below a key support line of $5 a share. If this is to occur by the end of the month this will be quite bearish for Telstra, as the $5.00 level has previously held up on a monthly chart when the price reached or fell below these levels. Since the stock is trading below the $5 level I have labelled this level of support now as its new resistance level.

Momentum which I have circled in the chart below is currently negative and has been negative for over a year now. This indicates the weakness in the stock since Mid 2015 is confirmed by the momentum indicator as well. The monthly stochastic indicator which is another momentum indicator has also turned bearish again confirming the break of the $5 support level.

If the $5.00 a share support level has been broken and confirmed by the end of February, the next stop for Telstra is $4.50 support on the monthly chart. This new support level is another 34c away from the current price on Friday's intraday price of $4.845.

Telstra Already In Long Term Downtrend Before Profit Announcement

If you take another look at the monthly chart below you will notice that Telstra broke its long term uptrend back in October 2015. Since breaking the uptrend line the stock bounced up and down for the last 18 months, before falling below $5 a share this week.

Weekly Chart

The picture does not improve for Telstra on a weekly chart with the stock failing to move toward the $5.5 downtrend line. Instead because of yesterday's profit announcement the stock has now formed a steeper downtrend line shown along the circle on the chart. If this down trend line holds it would mean that in the short term we could see sharper declines for the stock once the stock has gone ex dividend.

I have circled the weekly stochastic indicator to show that it too has turned down from close to its peak levels. This suggests that the trend has room to move and will continue to decline lower over the medium term.

Moving Average Bearish Cross

Telstra's weekly moving averages formed a bearish cross back in September last year when the 10 week moving average closed below the 50 week moving average. Since this is a weekly chart the moving averages crossing over late last year confirms that Telstra is in a medium to long term down trend phase.

In addition the current price is sitting below both moving averages which is another bearish indicator for the stock.

Just like the monthly chart the next level of support for Telstra  on the weekly chart is $4.50. Failure to hold this level would see Telstra move towards $4 a share. Considering Telstra still has a considerable decent dividend attached to the stock, it would be unlikely to see Telstra move below the $4.50 level without a further deterioration in profits and or dividends.

Daily Chart

Gap Downs On Heavy Volume Never A Good Sign

I have circled on the chart below the big gap lower where Telstra opened at yesterday after disappointing the market expectations on profit. The volume reached just over 118 million shares traded yesterday compared to the daily average of 28 million shares. When ever you see a massive increase above average volume like Telstra achieved yesterday coupled with a big gap down, the prospects for the stock in the short to medium term are usually never positive for the price.

Days before the profit announcement you will notice the stock got close to the $5.30 resistance level but failed to reach it. This was bearish indicator for the stock even before the announcement.

Now that the stock fell sharply the daily chart moving averages have formed a bearish cross as the stock's next support level is $4.70 a share.

Similar to the monthly and weekly chart the momentum and Stochastic indicators have confirmed the bearish move lower as they both are signalling overall weakness in momentum.

Conclusion:

After looking at all 3 charts above, there is no positive or bullish indicators for the stock on any of the time horizons. With the most likely direction for the time being to continue to head lower to the next level of support. The only bright spot for the stock outside of the chart is the big dividend that now looks more appealing if the stock can sustain the dividend over time.

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Stocks Bullishness At Record Highs While The US Economy Is Approaching Recession

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Whos Winning In The Aus Large Cap Healthcare Sector CSL vs Ramsay

Disclaimer: This post is for educational purposes only, and all the information contained within this post is not to be considered as advice or a recommendation of any kind. If you require advice or assistance please seek a licensed professional who can provide these services.

US stocks are at or near all time record highs across all major indices, with the markets bursting out after the election win of Donald Trump back in November 2016. Since then investor bullishness has also spiked to 10 year high levels. While this bullish euphoria is occurring something else is taking place far more important. The US economy has been trending down for some time now and the slowdown momentum is gathering pace as it moves closer to a recession possibly as soon as this year.

Market Euphoria Clouds Judgement

The markets have a history of becoming totally blind to whats actually occurring in the real economy, instead focusing on the direction of the market to give them an indication of whats taking place. In the chart below you can also see that the composite bullish index (red line) back in mid 2007 was very high around 130 just before the markets began their 50% decline.

Currently the market greed / fear index (see chart below) is close to at the maximum level of extreme greed side, while the actual economy is rapidly declining with a similar dynamic playing out presently with a potential twist to the market outcome.

How Can The Market Be At Record Highs While The Economy Is Heading Towards Recession?

In a nutshell the answer is Central Banks, if you take a look at the chart below you can see how the Central Banks have massively increased their balance sheet since 2008 / 2009. This has been achieved by printing money and buying up assets to provide additional liquidity into the system. This extra liquidity has flowed its way into stocks all over the world, regardless of which Central Bank has been been providing the additional liquidity.

Recently though most Central Banks have once again picked up the pace in growing their balance sheet . So even though the US has effectively kept their balance sheet flat to slightly down over the last 2 years, the other Central Banks have effectively been adding to the pool of global liquidity pushing up prices of stocks, real estate and other assets. Clearly this practice is totally artificial and is giving false bullish signals to investors as the markets are not functioning on their own.

The S&P 500 Index No Longer Tracks Earnings

Further evidence that the Central Banks actions are providing false signals to the markets is shown in the chart below. S&P 500 earnings per share (EPS) are totally out of sync with the rise of the market and now represent a large divergence in their trends.


Earnings are now slowly tracking higher after falling for several years, however this is more a case of financial engineering of companies artificially raising their EPS by buying back their stock usually with debt. Since 2012 corporate profits are down so even companies themselves are misleading investors to the true financial health of their investments.

How Lower Corporate Profits Tie In With The Economy - Jobs, Jobs, Jobs

Since 2016 global employment in S&P 500 companies has been slowing down (see chart below) and late 2016 turned negative as the slowdown accelerated with employment growth. The last time this occurred the US economy went into a recession shortly after.

If you look at US non-farm payrolls you will notice that its also trending down but a slower pace.

The interesting point about the non-farm payrolls data is that the data each month is provided based on the combination of a Government surveys (small sample) as well Government generated predictions of jobs, Ie Birth death model of estimated new businesses commenced to produce the monthly result. Several months later up to a 1 year later the actual data collected from companies are imputed and adjustments are made on prior months. Usually the number of jobs actually created is readjusted lower. So the true effect of a slowdown with companies in the S&P 500 will not show in the non-farm payroll data for several months.

Every Time The FED's Own Signal Falls Below Zero Y/Y A Recession Occurs

Scroll video to 12min 52sec.

This video indicates that an indicator that the FED actually monitors has fallen -0.3 in December and has fallen 5.8% y/y, which is the largest since 2010. Each of the last 8 occurrences of this indicator falling below zero y/y has resulted in a recession in the US.

Consumer Credit Grow Demand Drops 43% Month on Month

In December consumer credit grew by $14.2 billion  a 43% drop compared to November's $25.2 billion. Since consumer spending makes up over 70% of the GDP data and the savings rates is falling in the US, a large drop in the amount of new credit card debt also points to a slowdown in retail sales.

The credit data below is actual data collected from the banks rather than from surveys, so it shows a very accurate picture of demand for credit card debt. Given the big collapse in S&P500 employments levels the trend in credit demand will likely continue to move lower and lower the GDP result.

FED Senior Loan Officer Survey Demand Falls Over

The overall trend for credit demand going forward is not looking good with the latest results from the FED senior loan officer survey. Indications for demand for debt for Construction, credit cards and auto loans are all down at multi year lows.

This is important as credit demand overall has been tied to overall demand within the economy and especially with consumers. If the intentions from the survey follow through, the slowdown in the economy will begin to gather pace with the higher probability of the US starting a recession in 2017.

Auto sales have performed very strongly since hitting the lows in 2009, with demand for auto loans driving a large proportion of retail sales demand. Auto sales have recovered strongly also because interest rates for auto loans have fallen substantially over the last 7 years from the FED dropping interest rates and pushing down bond yields via QE purchases. This has allowed buying a new car more accessible for consumers and allowed consumers to own more expensive models that previously they have not been able to afford on higher interest rates.

Auto sales Decline Y/Y First Time Since 2009

The strong performance of auto sales bubble appears to be over as December and January figures have been very weak. Making things worse y/y auto sales have recorded its first decline since 2009 the same year the US experienced a recession.

The data below shows the big 4 car companies in terms of autos units sold all experienced declines in y/y figures. Since the FED senior officer survey results for demand for auto credit is also falling, US car sales declines will  most likely continue in 2017.

With Record Amounts Of Stimulus Why Is The US Economy Weak?

Each month the Government releases the wages growth figures and overall they are usually positive rising slowly over time. The data that the financial media show is the data in the chart below (red line) which is nominal growth in wages. Since 2000 nominal growth has risen 40.2%, however when you take into account inflation real wages have declined 1.1% over the same period.

When the Government calculates inflation, the data they release is usually under reporting the true state of inflation due to various statistical measures like hedonics applied to the data to bring the level of actual inflation down. Therefore the average workers real wages have probably fallen by more than 1.1% since 2000.

Since the average worker has to spend more of their wages to buy the same amount of goods and services, this impacts on their spending power and ability to borrow. Lower spending and borrowing capability translates to weaker GDP growth since consumer spending makes such a large proportion of the calculation.

Weaker Economy = Higher Bankruptcies

The 2009 US recession caused bankruptcies to rise for several years and after peaking in 2011 the overall trend in bankruptcies continued to decline for the next 5 years as the economy recovered from record stimulus implemented by the FED and the Federal Government.

The declining trend has shifted when bankruptcies began to surge in November 2015 and continued to move higher in 2016. This has resulted in bankruptcies recording their first y/y rise since 2010 after rising 26% from the prior year.

Given bankruptcies is a lagging indicator due to the time required to process and complete bankruptcies, the deterioration of the economy has been occurring for an extended period of time now. Since other economic data  is showing further weakness, bankruptcies will continue to rise further in 2017 and into 2018.

Stimulus High No Longer Effective

Despite continuous stimulus of some form or another from Central banks and the US Federal Government growing their debt levels at record pace, the 2016 GDP growth came in at only 1.6% matching the 2011 low read after hitting 2.6% growth in 2015.

Based on the actual data from the US Government, the economy is slowing and no longer receiving a boost from the various stimulus options in place currently to support the economy, consumers and businesses.

Whilst the economy was slowing in 2016 another setback for the economy occurred in November last year, when the US 10 year Government bond yields soared over 0.60% within short period after the US election results.

Given the majority of consumer and business debt products interest rates in the US are priced from the 10 year Government bond yield rate, consumers and businesses effectively experienced two 0.30 rate rises over a 2 month period in late 2016. To view the article written back in November outlining the impact of higher Government bond yields on the US economy click the link below:

Surging Bond Yields Signalling Pain Not Growth Ahead For US Economy

A Rising Stock Market During A Recession Is A Possibility

After viewing this article you might come to the conclusion that despite the stock market sitting at record highs in the US, stocks are set to fall if an imminent recession is arriving in 2017. Well not exactly, since we are not in normal times and the actions of Central banks and the US Government are unprecedented.

When you take into consideration several of the previous FED QE programs occurred after US stocks began to correct by around 10%. In addition the odd market behavior in stocks over the last 6 - 12 months where we have not experienced a fall of greater than 5%. Its a reasonable possibility that stocks may stay elevated or even rise higher even if the US has an official recession. If this occurs this will be another new record in US history.

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Whos Winning In The Aus Large Cap Healthcare Sector CSL vs Ramsay

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China Braces For More Pain Ahead As Economy Slowdown Accelerates

Disclaimer: This post was for educational purposes only, and all the information contained within this post is not to be considered as advice or a recommendation of any kind. If you require advice or assistance please seek a licensed professional who can provide these services.

CSL (CSL) Chart Review

CSL Continues Along Long Term Uptrend Towards Record Highs

CSL has experienced a phenomenal run in its share price over the last 5 years as the stock has been able to consistently grow its profits and dividends under its previous CEO who retired last year.

The stock has risen from around the $29 a share mark back in late 2011 to an all time high of around $118
last July. This equates to an approximate 300%+ return over the 5 year span outperforming the local Australian index XJO considerably over the same period.

False Break Of Up Trend

Last November and December was a nervous period for CSL shareholders as the stock had been under a succession of monthly declines after reaching the highs set in July last year. Back in November it appeared the stock had closed below its long term uptrend which was a potential signal to sell based on the chart trend lines.

December trading in CSL initially followed on from its dismal performance in November as it experienced steep losses early in the month indicating that CSL was about to confirm a clear reversal and break its up trend and support level of around $98. However a surge in buying support in the second half of December, saw the stock completely reverse its losses for the month and finish slightly higher on the month. Since it respected $98 support and its trend line it provided a strong bullish signal based on the monthly price action.

January Follow Through Buying

The bullishness continued into January for CSL as the company had made an announcement of a profit upgrade on previous estimates provided by the company. This sent the stock soaring and finished the month at $112.30 on heavy volume, which is another strong bullish sign.

Based on the strong buying support in December and January and momentum rising supporting the rally, CSL is bound to reach its previous all time highs of $118 in the short term.

Note:

Watch the price action over the coming months for a potential reversal to its $98 - $98.50 support level which would signal a break of its 5 year uptrend. This outcome though has a very low probability based on its bullish indicators and price action.

CSL Weekly Chart Review

CSL Confirms Reversal & Close Above Down Trend

The weekly chart below gives a better indication of sharp V reversal of CSL share price in December, as well as the spike in price in January shown with the most recent long blue candle.

I have circled the area where CSL had closed above the down trend. This was the first signal of a change in sentiment for the stock and direction. If you notice the volume once the reversal in trend occurred was not accompanied by an uptick in volume due to the holiday period so the move could not be relied upon for confirmation. However the volume exploded shortly after in January after the company announcement of a profit upgrade over its original estimates came out.

The recent strong performance of CSL in the last few weeks allowed it to comfortably close above the $107 support level as it now heads for its previous high and resistance of $119 a share. However a failure to hold above $107 on a weekly basis will result in CSL heading back down to the $95 level on the weekly chart.

The weekly chart technicals of CSL are very bullish, with both momentum and stochastic showing strong support for the move higher. In addition the above average volume is also supporting the bullishness of move higher. The most likely move for CSL after reaching the $119 level in the short term, is to make an attempt at a new all time high after a potential brief consolidation at resistance.

Ramsay Healthcare  (RHC) Chart Review

Ramsay Healthcare like CSL had also experienced a large move in price over the last 5 years as the stock appeared to mirror CSL's performance over the same period. Ramsay went from around $19 a share in late 2011 to a high of $84 a share reached in September last year producing an impressive 340%+ return over the period. Slightly beating CSL same time frame performance.

Ramsay Breaks Its Long Term Uptrend

Once Ramsay made the new all time high in September it begun to fall in price following a similar path that CSL had experienced in the second half of 2016. Compared to CSL which was able to respect its 5 year uptrend in December, Ramsay has continued to move lower in December and January. In doing so Ramsay has confirmed a reversal of its long term uptrend in January as it closed below its support level of $68 a share.

Next Stop $56 Support.

Based on the confirmation on the monthly chart closing price in January, Ramsay next move lower is towards a previously strong support level of around $56 a share. Initially over the coming weeks and months. We may see the price move towards its previous support level of $68 though in the short term before it moves lower to its next support level.

Note:

Just like CSL if Ramsay was able to receive some material positive news on the company in the interim we could see the stock reverse the close below its uptrend and support level of $68. If this was to occur a close above its previous long term uptrend on a monthly basis would confirm the move.

Apart from any material news from the company, based on the chart technicals and momentum trending down the performance of Ramsay in 2017 will be weak.

Weekly Chart Review

The weekly chart for Ramsay does not provide much change in sentiment and analysis compared to the monthly chart. I have circled the key pivot points for Ramsay recently and resulted shift in trend as a consequence.

The stochastic indicator though is showing a divergence to the direction of the price action, however since its a lagging indicator provided the price continues to fall lower the stochastic indicator will reverse in line with the trend.

If the price in short term was to close above $68.50 on a weekly chart we could see a potential test of the $81.30 resistance level. A move that based on the price and momentum indicator trending down on the weekly chart is unlikely to occur.

The Final Verdict

After reviewing both large cap healthcare stocks recent price action on a monthly and weekly basis, its clear that CSL is clear favorite to outperform in 2017 over Ramsay Healthcare. If CSL's management had not increased its profit estimate last month, CSL could have easily found itself mirroring the sentiment and direction of Ramsay.

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Markets Hate Uncertainty & Trumps Providing A Bucket Load Of It

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China Braces For More Pain Ahead As Economy Slowdown Accelerates

Disclaimer: This post was for educational purposes only, and all the information contained within this post is not to be considered as advice or a recommendation of any kind. If you require advice or assistance please seek a licensed professional who can provide these services.

The Election Honeymoon Is Over

It appears the honeymoon has ended for Trump and the markets after sparking a major rally in both the US dollar and the stock market since the election result.

The US dollar after topping at the end of 2016 has now started in a new down trend after falling steadily in January. It's now at the same level reached just after the election results in Mid November. (See chart above)

Over the last 2 trading days the US stock market has fallen the most in 4 months, as a series of actions taken by president Trump over its immigration policy in the last few days has shocked the market and brought about uncertainty and fear. Ironically the actions taken by Trump was already raised in his election campaign promises.

Adding to further uncertainty and fear in the market Trump decided to fire the acting attorney general for not following on his executive order over his immigration ban on seven countries. (For further information you can click the headline below)

DOW Reverses Breakout Trade

The Dow Jones Industrial index made a breakout out of its tight trading channel last week after moving sideways for nearly a month. However the last 2 trading days losses has seen the index fall back within the channel as the 20,000 level support failed to hold.

For traders and investors interested in the Dow index, watch the index to see if the previous support line shown in the chart will hold. A close below support could easily see the Dow fall back to pre-election results levels around 18,600.

Nasdaq Still Bullish Despite Uncertainty

The Nasdaq composite has been on a steady uptrend with little hesitation / pullback in price since the election rally begun. As a consequence of the strong uptrend rally late in the year the Nasdaq has made multiple record highs in January 2017.

Even though the index has fallen the last 2 days the index continues to remain well within the uptrend as well its current support. Compared to the Dow index the Nasdaq is showing strong bullish technicals despite the minor pullback in price from Trump's recent actions.

Note:

Despite the relative strong performance of the Nasdaq Composite, a potential close below its current uptrend line could see the Nasdaq fall back to the 5,500 level in price. With the current uncertainty and fear that is currently gripping the markets its quite possible for a reversal to occur.

S&P 500 - Hanging On To Breakout

The S&P 500 has experienced a minor pullback so far this week and depending on how you look at it, is just above or just below its breakout level that it crossed over in last week's breakout trade.

With the last 2 trading days showing some buying support despite falling both trading days, indicates the S&P 500 is likely to respect new support level around 2,275 - 2,278 in the short term. On the flip side with recent above average volume on both down days for the index does not bode well for market sentiment as fear remains within the market.

Weak Economic Data Adding To Market Weakness

Last Friday the US released its first look at last quarter's GDP as well durable goods orders for last month. Both pieces of key economic data missed market expectations, with GDP coming in at 1.9% versus 2.1% expectation. Durable goods missed heavily coming in at -0.4% vs 2.7% expected. 

Interestingly after the release of the key data the market barely responded initially. However after the unexpected immigration ban placed over the weekend by Trump's executive order and the firing of the acting Attorney General yesterday the market decided to react the recent deluge of negative news and shocks with the 2 day declines.

Market Bullish Exuberance Not Broadly Supported

Another key risk for the markets on top of the recent market uncertainties from Trump's actions, is the lack of bullishness among the majority of the stocks within the S&P 500. If you look at the chart below, the percentage of stocks above their 200 day moving average has diverged from the index back in September last year.  This indicates the larger stocks within the S&P 500 are driving the recent strong performance as the remaining stocks under perform. A divergence this large will most likely result in a reversal in trend to coincide with the overall strength of the index.

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If you would like to view my last macro article on China's click the link below:

China Braces For More Pain Ahead As Economy Slowdown Accelerates

To view my latest chart review on Gold click the link below:

Gold begins the year strong will the bullish run continue for 2017?

Disclaimer: This post was for educational purposes only, and all the information contained within this post is not to be considered as advice or a recommendation of any kind. If you require advice or assistance please seek a licensed professional who can provide these services.