Market Commentary for April 2018
By Alan Hull
This commentary is in part or entirely created using extracts and comments from my weekly Blue Chip Report. For more information about the Blue Chip Report, including subscription details and a recent sample report, go to Blue Chip Report
I sold all of my growth shares during January/February and in the March commentary (which you received at the end of February) I wrote...
...be aware that a market crash or correction is a moment of complete capitulation which can occur at any time during the formation of any of the above patterns. Hence I will remain 100% in cash until I have a much better idea of what these markets are up to.
And now I do have a better idea of what they are up to...and it isn't good. The majority of major global equity markets are now trending down on a weekly basis, according to Dow Theory. Dow Theory states that a market which is making a lower low and a lower high is in a down trend and the Dow Jones index, shown below, is a perfect example of a weekly down trend....
So I can conservatively say that global equity markets are trending sideways to down on a medium term basis. And it is for this reason that I have taken a tentative step towards short selling the U.S. Stockmarkets. Now short selling a major reversal like this, is easy...but it's hard. It's easy because we are trading sentiment rather than fundamentals, which means top down rather than bottom up analysis.
There's less diversification and therefore there's less things to worry about. Hence, everything goes down together in a big blob and we don't have to worry so much about individual stocks and their individual merits. Telstra goes down, BHP goes down, the Banks go down, index ETFs go down, etc, etc. From a tactical standpoint, short selling is more about optimization than diversification.
But it's hard because everything is also more volatile. Good news sends the markets stratospheric while bad news sends them plummeting. So the strategy you employ has to be more fluid and adaptable, as conventional stop losses will keep whipsawing you in and out of the market. You also have to know what instruments are safe and which ones could get you into trouble in a major correction. What instruments should you hedge with and what instruments should you trade with?
And there's an insidious issue with short selling...psychology. Everyone else wants the Stockmarkets to go up and not down. Investors want them to go up, financial planners want them to go up, fund managers want them to go up, brokers want them to go up, commentators want them to go up, regulators want them to go up and especially the politicians want them to go up. Your brother wants them to go up, your sister wants them to go up, your cousins want them to go up and even your parents want them to go up. I think you get the idea.
So when you're short selling and the Stockmarkets do go up, everyone around you will be applauding and singing happy days. You'll be watching the evening news when the financial commentator, wearing a huge grin, will announce a rescue package from so-and-so for so-and-so and world markets have collectively rallied 3%. Human beings are optimists by nature and going against this common predisposition puts you squarely on the outer. I know this well because I've been there.
But I'm here to help...and yes, this is the sales pitch. When markets took off in August last year, I knew it was time to prepare for the forthcoming correction. And now that we are well into the topping pattern it's a good time to learn how to short sell. So in June and July I am holding another series of half day seminars in Melbourne, Sydney and Brisbane on short selling. The cost is $499 per person but if you attended my 'Preparing for the Correction' seminar in 2017 then you will receive a very attractive discount...
- The early bird discount is $100
- Past attendees are eligible for a $200 discount
- BRONZE and SILVER PASS holders are half price
- But SILVER PASS can access the online version for free
- GOLD PASS holders pay nothing
- Discounts are not cumulative
And the dates are...
- Sydney - Saturday the 9th of June - venue TBA
- Melbourne - Saturday the 23rd of June - Wantirna Club
- Brisbane - Saturday the 7th of July - RFH on Gregory
This time we will start a little bit later at 1.30pm but we'll finish at the same time of 5.00pm. And all our usual features apply...
- A comprehensive set of notes and access to an online version
- A moneyback guarantee if you leave at the end of the first session
- Get the Blue Chip Report or ALANHULL TV from enrolment to the seminar
The content is pretty much everything you need to know about short selling so you won't get hurt. The first session is a tutorial covering a wide range of related topics while the second session includes three trading simulations. You will learn how to short sell using a systematic approach on a short term basis and how to short sell Stockmarket indexes over the longer term. We will be short selling both local and overseas stocks.
Now last time we were full in Brisbane and we came very close in Melbourne. So if you want to qualify for the early bird special and/or reserve your seat then please send an expression of interest to Simon at email@example.com including which seminar you wish to attend. This applies lifetime subscribers as well. Those on the early bird list will get preferential treatment and there is no obligation. We will contact you when we are ready to take enrolments in a few weeks time and you don't have to decide until then.
Expect confusing and very polarised opinions from financial market commentators over the coming months. And unfortunately this is a time when you have to decide who you choose to listen to...but I do hope I see you in June/July.
Have a happy and safe Easter...