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Three Quick Ideas

We are always wary of making big calls on the basis of thin summer markets, so here are three quick ideas. First, Japan produced an important technical buy signal just before Prime Minister Suga announced his resignation. It is very similar to the one at the start of the Abenomics rally in 2012. Second, the recommended weight of US equities to the rest of the world is at a 10-year high and it does not normally hold this level for more than a month. Third, we think European industrials are out of line with US Industrials and potentially vulnerable.  [Read More... ]

China vs US Exceptionalism

Our recommended exposure to Chinese equities is effectively zero, but EM Equities (of which China is by far the largest part) are critical to the success of any global balanced portfolio. So, we have looked at individual Chinese sectors to see which ones have been the most successful diversifiers compared to their US counterpart. The good news is that it is easy to identify those which fail the test badly: Financials, Industrials, Telecom and Small Caps. The bad news is that only Technology has offered successful diversification over the whole of our test period, but now is not a good entry point. There may also be opportunities in Consumer Staples and Healthcare, but, again, we prefer to wait for a better entry point.  [Read More... ]

Europe Has Second Thoughts

We have started to apply our probability approach to consensus earnings estimates. For Europe ex UK, we cover 45 industry groups as well as the index. There is still a 100% probability that consensus estimates for the index will be higher in 12 months’ time than they are now. But the average score for individual industry groups peaked in February and has started falling. There are eight industries where the probability of an increase is now less than 50%. More importantly, a downturn in the average industry score is normally a indicator that the index score is also about to decline.  [Read More... ]

Tickets to the Moon

The recent outperformance of Small Caps is starting to generate headlines, but we think there is more to come, especially in Europe. We don’t see any need to take profits, nor do we think that Small Cap outperformance is a reliable indicator of an upcoming peak in the equity index. We do accept that it may be too late to start a big overweight position, So, if you are looking for the next big thing, you may want to consider Energy.  [Read More... ]

Fizzing or Bubbling?

Everyone is suddenly on bubble alert, but our numbers suggest that the main danger lies in Asian equities, not the US. China, Hong Kong, Taiwan, Korea, India, Japan, Australia and Indonesia all have weekly RSIs above 70%, which is our warning signal. US equities are still below this threshold, apart from Small Caps, which broke above it three weeks ago.  [Read More... ]

Three Ideas from the US Senate

Elections don’t change things, except when they do. The combination of the Saudi oil cut and Democrat control of the Senate could usher in a period of materially higher oil prices. The Senate victory also means that social media companies may be threatened with more regulation and even a possible break-up. But does the new administration have the political capital to take on Big Pharma at the same time? The outlook for the Healthcare sector may be more hopeful than the Blue Wave doomsters suggested.  [Read More... ]

How the World Turns

This report is a real-time survey of how the great rotation is progressing in different regions of the world. Our conclusions are (1) Many of the important sector infection points happened back in September; so talking about them now in terms of factors suggests that people missed them the first time round. (2) The UK has much the most aggressive sector rotation and China the least. (3) There are different winners and losers in each region and any attempt to apply one paradigm to all of them is likely to fail. (4) Many value-rich sectors in each region have hardly moved, suggesting that the value trade has already been differentiated into those sectors which have catalysts and those which don’t.  [Read More... ]

Party Like It’s 1999

The US Tech sector has just flashed an important warning signal. Our recommended weighting has just dropped below its 52-week moving average. This has happened seven times in the last 25 years and the result is always a significant reduction in exposure. Six times out of seven, the sector has not bottomed until it was deep in underweight territory.  [Read More... ]


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