Stock Chartist

January 27th, 2012

VTR and REITs: Awaiting Resolution of “Great Convergence”

As discussed in the previous post, the market is at a crucial juncture, something I have labelled “The Great Convergence”. The confluence of risk and opportunity is seldom as obvious as it is today. Many of the risks still hang over our heads (need I mention Europe sovereign debt, U.S. election season, renewed U.S. budget debates, housing market still on its back, another round of debate about healthcare, etc.) yet each, through the prospect of their ultimate resolution, presents impetus offers another reason to be bullish.

The Convergence is evident as the apex of the huge symmetrical triangle that has formed over the past 4-5 years in chart of the S&P 500 Index since 2007.

One sector that safe for waiting for more certainty are the REITs. With the Fed announcing that they foresee low interest rates through 2014, the yields available in REITs still looks competitively attractive, even though the stocks continue to appreciate without any significant correction. One stock that seems to fit that description is VTR (Ventas Inc). With a dividend yield of 3.9%, VTR appears to be a stock in which one can sit and wait until the direction out of the Great Convergence is clear.

Rather than mimicking the chart of the S&P 500, VTR recently broke above a significant 5-quarter resistance trendline. That may be considered a consolidation cup-and-handle after the long run from the reversal pattern at the bottom of the Financial Crisis Crash. If it turns out to actually be a consolidation, then the next move could take the stock up to around 100 using the charting rule-of-thumb that a consolidation is at the mid-point of the move (the move after the consolidation should approximately equal the move before):

Technorati Tags: Healthcare, REITs, VTR

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Posted in Healthcare Industry, REITs, Technical Analysis | No Comments »

January 25th, 2012

“The Great Convergence”

In last week’s Recap Report recently sent to subscribers, I wrote and included the following chart:

“….. at the risk of being labelled melodramatic …. I see “The Great Convergence” coming to a head and finally getting resolved with the 18-month struggle between bulls and bears with (I hope it’s not just wishful thinking but an actuality) the bulls finally gaining the upper hand and finally being able to break into new higher ground.”

After today’s close and after closing higher for 20 of the last 23 trading days, the market is now up 10.01% since December 19. Even more important is to note that today’s close was at 1326.06, almost exactly the level many chartists have touted as the breakout point that confirms an exit from this summer’s bear market and the continuation of last year’s bull market run off the lows.

It should also be noted that it’s almost exactly where the descending trendline connecting the 2007 and 2011 peaks is today. However, rather than thinking in terms of points (e.g., 1325 or 1326) we need to think of a zone. Every single trader doesn’t simultaneously decide to buy or sell which in turn causes a reversal at a single point. Furthermore, the Index is composed of 500 different stocks in every economic sector and each of these stocks will have their own underlying market dynamics. Market psychology does change when the market hits various levels but a change of psychology happens over time.

What the above chart indicates is a change in market psychology that’s been on-going since the bottom of the Financial Crisis Crash (see “Revisiting Housing and Banking With a New Ending” of a few days ago). The ascending trendline since the bottom (higher lows) and the descending trendline from the pre-crash peak (lower highs) results in this “Great Convergence”. The best momentum indicator (in my book) of moving averages across multiple time horizons are turning constructive adding to the conviction that a clear-cut signal to put, as they say in Wall Street, “risk back on”.

I believe there needs to be a 4-6% consolidation of this 10%, 23-day run and we’re going to look at it as a buying opportunity. But if the market continues to zoom ahead another 2-3% without that correction, then it’s “damn the torpedoes, full speed ahead.”

Technorati Tags: bulls and bears, moving averages, trendlines

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Posted in Discipline, Market Psychology, Market Timing, Momentum, Patterns, Stock Markets, Technical Analysis | No Comments »

January 24th, 2012

The Outlook for FXI and Chinese Stocks

From the EconomicTimes of India:

“China’s economy is showing signs of slowing, with foreign investment falling for the second straight month in December and home prices dropping in most cities, the government said Wednesday.

The latest indicators came a day after data showed the economy expanded 9.2 per cent last year, narrowing from 10.4 per cent in 2010, as global turbulence and efforts to tame high inflation put the brakes on growth.”

From USAToday:

“China’s gross domestic product grew at its slowest pace in more than two years in the fourth quarter, and the worst may be yet to come, as weak exports and government tightening ripple through the world’s second-largest economy.

In the final three months of 2011, China’s GDP — the total value of goods and services — increased 8.9% from a year earlier. That was a fourth-consecutive quarter of slowing growth and the slowest expansion since the second quarter of 2009, when the economy grew 8.2%, the Chinese government said Tuesday.

For all of 2011, China’s economy expanded 9.2%, compared with 10.4% the year before.”

And finally, from The Guardian in the U.K.

“China’s economy is also “unstable, unco-ordinated and ultimately unsustainable”, a verdict delivered not by some capitalist running dog on a Canary Wharf trading floor, but by none other than premier Wen Jiabao. Nevertheless, any appraisal of China’s prospects must begin by admitting that the Middle Kingdom is the most astonishing development success story in the world today, and that its three decades of 9%-plus growth have been achieved in the face of widespread scepticism from foreign observers.”<

When we look at a chart of FXI, the ETF of Chinese stocks, we see a classic inverted head-and-shoulder or ascending triangle or any of a number of bottom reversals:

From the above chart it appears that the Chinese market would rebound in sync with the US market …. should that come to pass. The extent of that rebound, however, is bound by different constraints than the US market when viewed from a longer-term term perspective:

This short-term inverted head-and-shoulder may signal the beginning of a Chinese market recovery but a complete reversal of its long-term downtrend would also require a cross above a long-term descending trendline stretching back to the heydays of 2007 followed by a cross above the top boundary of what now looks potentially like a multi-year ascending triangle at 46-47.

The near-term inverted head-and-shoulders supports a move to 47 but moves above that need more umph and momentum to overcome their local economic and international trade challenges.

Technorati Tags: Chinese Stocks, FXI