Thursday, 21 September 2017

Apple (AAPL) Stock Chart on the Verge of Breaking Down ?

Apple share has done some medium term dips from time to time (in the shape of Great Dipper (that flips along the vertical axis)).


The Great Dipper Constellation
The Great Dipper Constellation


The chart below shows its last 2 of such dips. Are we expecting the start of the next dip? Such dip provides great buying (or shorting) opportunity.

AAPL weekly stock chart from 2012 to 2017
AAPL weekly stock chart from 2012 to 2017
(Click chart to enlarge)


Apple share have been showing bearish divergences in all 3 technical indicators since Feb 2017 (see chart below). Would this divergence finally play out to cause the share to start its next dip? The last time this happened, it broke down from the 14-month rising channel (marked by light purple colour) that sustained from Apr 2014 to Jun 2015.

If we're breaking down from the current 12-month rising channel that sustained from Oct 2016 to Sep 2017, the technical argument would be stronger for the start of such great dip.

Will keep an eye on price action and let it, and it alone, to decide the Great Dipper thesis.


Of course, you can have the scenario where the prices break down from this rising channel, but then comes back into the channel, and only to form double or trip tops (the handle of the Great Dipper) like it did the last time. Likewise, prices could go up a little bit more before breaking down from this rising channel. Will see.


AAPL daily stock chart from 2016 to 2017
AAPL daily stock chart from 2016 to 2017
(Click chart to enlarge)




Tuesday, 5 September 2017

Big Picture of Inflation, Reflation and Deflation, So Far

This is something of a follow-up of Resumption of the Reflation Trade ? article.


TIP to TLT Ratio chart showing market expectation of inflation
TIP to TLT Ratio chart showing market expectation of inflation
(Click chart to enlarge)

The TIP to TLT ratio provides a nice picture of how the the bulls and bears of inflationary forces are being played out since Trump won the election. If the ratio is trending up, the market is expecting rising inflation; if it's trending down, deflation (or disinflation).

I remember the market euphoria after Trump election when the noted hedge fund manager and billionaire Stanley Druckenmiller excitedly told CNBC (inter)viewers to short bonds because it's going to burst by Trump's fiscal policies. When inflation picks up, bond prices will drop. Many other well known investors also chimed in and called the Bond Bubble Burst.

This Trump fiscal euphoria sent bond yields soaring (bond prices plunging) within a month in a stunning fashion (indicated by the oval in the chart). As the markets started to digest the news coming out of new administration from Washington in the following 3 months, the inflation expectation was in a trading range (indicated by the rectangle in the chart).

By mid-March, the markets have digested the news (that are mostly D.C. dramas) and decided that either the Trump Team isn't going to deliver the fiscal policy soon, or that the confidence in Trump Team to carry out these policies successfully is slowly being eroded. This leads to Trump Dump (indicated by the downtrend line in the chart).

By mid-June, the inflation expectation - as described by this chart - is completely rewound, or that Trump Dump is complete. That is, the TIP/TLT ratio is back to same level as the Election Day (indicated by the horizontal green line). It's as if Trump has never being elected, as far as inflationary expectation is concerned.

When i wrote the article about the resumption of reflation in July, the inflation was trended up into August. But it has since dripping down. Interestingly, 4 trading days ago (29 Aug), this ratio bounces off strongly, forming a double bottoms. If you look closely at this chart, it's no coincidence that this come at a juncture with 2 supports (the Election Day level + Uptrend line from July low of 2016).

This strong bounce could just be a technical bounce, but if i'm pressed for explanation in terms of fundamentals, i'll say it's either due to the recent strong Chinese data (accompanied by rising industrial metal prices: Dr. copper, zinc, and aluminium). But it could also due to the Trump Team's talk of tax reform and other fiscal policies that re-ignite the rally.


We're approaching the apex of the triangle - another critical juncture. Whatever the fundamental reason, it's important that the ratio would hold this Election Day level. A breakout of the descending triangle is a sign of positive inflation expectation and is bullish for equity market. A break below this Election Day level would be messy.

My feeling is that it would break out of the triangle because despite the rewinding of inflation expectation since mid-March, the ratio is trending up since Mid-July last year. With synchronized global economic growth, while i don't expect rampant inflation, it's pretty hard to sell deflation expectation.

But then, who cares about my feeling? It's not made of pure crystal. We just have to wait and see...

Keep a close eye on this chart in the next few weeks for clues in the direction of inflation expectation.

The Fed could put a spanner in the works. But that would also reflect in this chart.