Graph: US NASDAQ
I love to watch the money markets and the share indices as it gives me an idea of what we can expect to come in both businesses and our private lives.
Whilst not perfect, a graph can tell me at a glance what the underlying sentiment is behind the din of noise created by thousands of commentators, websites and news channels.
There is a saying amongst traders that a company's share price or an index has already factored in news that hasn't been released.
In other words (and some of this will be due to illegal insider trader) people close to a company or those who trade the stock will have already become aware of good or bad news; be that through rumour or advice from futures analysts and would have made their trading or investment decision before the official news breaks.
Since 2008 when the rest of the world eventually woke up to what others had been forecasting and predicting, catastrophes have broken out everywhere. Banks have collapsed, institutions merged, companies consolidated or closed and smaller businesses ceased trading.
There's been so much news that the markets were all over the place and this is what caused the volatility. In trading terms it was a dream with fortunes made from others' woes.
There's now talk that we are on the cusp of exiting recession. Indeed the markets are calmer and the ferocious falls we saw as the markets capitulated as the recession took its grip, have receded.
I'm with Mervyn King when he predicts that it will take a decade or more to eventually exit the severe recession. Our children will have to cope with a previous generation's crass ineptitude.
It's not all doom and gloom though. Whilst it's tough to endure a recession it was something the world needed in order to redress the balance. Prices we were paying for goods, as well as company valuations, were at stupid levels whilst the banking system was stitching everyone up.
I still think the world's economies are on shaky ground though.
Since the 2008 crash, tech indices have surged as advances in technology have brought the consumer and business user much more choice and easier to ways to do business.
Just one example: The last three years has seen an explosion in online accounting software helping small to medium sized businesses streamline bookkeeping. Gone are the days of manually inputting bank payments as fast linking of bank account to accounting system sync everything in an instant.
It's powerful stuff and what's more it's all done in the cloud.
Gone are the days of having to upload a programme via a compact disc and then saving all of the data on floppy or hard discs. Whilst there's still the option to store data locally, online data storage through Google Docs (or Drive as it's called now) or Dropbox (to name just two) means you never have to worry about losing or deleting anything again.
I'm digressing slightly for illustration purposes but there's evidence to suggest that the technology cycle (in investment terms) is about to collapse too. Perhaps collapse is too strong a word but the market is overheated and it must therefore correct itself.
Google recently scared the markets with an unprecedented failure to meet expectations and Facebook's shares languish at more than 50% below its floatation price.
Facebook is still struggling to find a way to harness its one billion users and make a profit. Yesterday it revealed yet another quarterly loss. It won't be any time soon investors, who bought the over-hyped share float and valuation, see a break-even on their investment.
In short there's now a maturity in the technology market and it's getting close to the time when investors and traders who've ridden the wave, start to take their profits.
Traders will become bears for the interim. Seasoned investors will also be keen to lock in profits.
This doesn't mean they suddenly hate the companies they invested in when the shares were rising but they know that until positive sentiment returns, share prices will fall until the last of the bears leave and the bulls start to return.
More importantly, the short term, nobody knows how many new customers there will be or indeed what new technologies will be released to keep revenues flowing in at the rate they have been in the past four years.
Don't get me wrong, I think there's still plenty of sexy stuff to be released, The 7" iPad Mini is just one example. But Apple are now pitching into a maturing market. There's very little room for the wow factor.
Coupled with this, prices are dropping due to renewed competition.
Apple may still be the market leaders with 84% of the tablet market but strong competition from Samsung and Kindle (and soon the Microsoft Surface PC) will see Apple's valuation come under increased pressure.
Apple's share price has risen steadily from on $0.90 in 2008 to a high of over $700.00 by September 2012. This all happened when traditional businesses were in active freefall as the recession gripped. It proved that there was a strong demand for new technology meaning good tech companies bucked the general recessionary trend.
Investors are probably already assessing whether there's any steam left in the upward trading cycle. Yesterday saw over 3% wiped from Apple's share price bringing overall falls to 10% since the September 2012 highs.
Way back in June there were concerns of tech bubble bursting. Personally I think the tech markets are now way overvalued and we are due for a major correction (it's probably already started). The problem for the rest of the financial markets is that they may well be spooked into following suit.
It is a well known fact that the Unites Sates S&P 100 index closely follows the Nasdaq and when the Nasdaq sneezes, the S&P 100 almost always catches a cold.
Graph: Ftse 100 share index
I'm also a believer in market tests. We're in a double-dip recession. As you might expect, the term double-dip is taken from looking at a graph where the lows look as though they've dipped twice.
The severity of the current recession will almost certainly mean there's little power to the upside and if you look at the current footsie 100 chart it's possible to clearly see that a flag or wedge is forming. Lower highs and higher lows are forcing trading into a narrow range.
In trading terms, if there's a break up through the upper resistance line or fall down below the lower support line it will determine the new medium to long range direction of the markets.
With tech companies now being squeezed I expect to see further falls in share price. If this is the case, and if my assessment is correct, then the footsie (but you will see similar patterns in most of the leading indices) will fall below its current support, therefore determining its medium trend.
October is also a dangerous time as analysts get down to real business after their lazy summer holidays. brokers and traders will be desperate to lock in profits ahead of the traditional Christmas bonus period.
In the UK the TechMARK 100 share index appears to have hit a high at just over 2,400. Looking at the chart there's the definite strong formation of a double-top. I'd expect to see a 10-20% correction at least as investors take profits.
I've read commentary this week where the question is asked if 5000 is a fair valuation for the ftse 100? Well if human psychology has anything to do with it then it is fair to say that there will be a third attempt to break through to lower levels. I would expect 5000 to be breached to the downside creating what looks like a third dip on the chart.
A third dip won't mean we are in a treble-dip recession, it's just a technical indicator at this point but if this lower level were to be breached then we might well be in trouble.
The problem for the world's economies is that all the indicators point to a perfect storm. Heavy drops now on large volumes of trades could spark a short-term panic.
I will be watching the tech industry closely over the next few months as it may have implications for us all.
Britain has moved closer to its first-ever triple-dip recession with UK factories suffering a deep slump.
A renewed downturn would put further pressure on the UK's prized triple-A credit rating and knock business and consumer confidence.
The Office for National Statistics said factory output fell 1.3% in October, far worse than the 0.2% decline that analysts had been expecting. The wider measure of industrial production, which also includes mining and utilities output, fell 0.8%, reflecting a record fall in oil extraction although this was partly due to maintenance on North Sea rigs.
"A truly dire set of figures for the manufacturing sector," said Andrew Goodwin, senior economic adviser to the Ernst & Young Item Club. "With services only growing very slowly, this sizable drag from production is likely to be enough to tip fourth-quarter GDP growth back into negative territory."
The decline adds to the recent flow of poor numbers for the UK economy and bodes ill for overall growth. A rise of 1% between July and September brought the longest double-dip recession since the 1950s to an end, but this was partly due to a temporary boost from the London Olympics. The economy has been flatlining over the last two years.
http://www.guardian.co.uk/business/2012/dec/07/manufacturing-data-uk-triple-dip-recession
Posted by: Philip Voice | Dec 07, 2012 at 12:20 PM
What's eating Apple?
http://www.telegraph.co.uk/finance/newsbysector/mediatechnologyandtelecoms/digital-media/10007045/Whats-eating-Apple.html
Posted by: Philip Voice | Apr 22, 2013 at 09:20 AM