WHERE ARE WE IN THE BULL- BEAR MARKET CYCLE?

Transcription

1 WHERE ARE WE IN THE BULL- BEAR MARKET CYCLE? Presentation by Colin Nicholson Australian Investors Association Sydney 10 June 2015 Copyright Colin Nicholson 1

2 Please Note The views expressed today are intended only for discussion and education They are neither intended to be, nor are they suitable to be, acted upon as investment advice I am not a licensed investment adviser Copyright Colin Nicholson 2

3 Agenda A long-term perspective My market exposure strategy Dow theory phase analysis Coppock indicator Dow theory - trend analysis Strategy summary Entry to the current bull market Where are we now in the bull-bear market cycle? Copyright Colin Nicholson 3

4 Long Term Perspective USA (DJIA) DJR - Dow Jones Industrials Index > -0.3% to M 3101A Copyright Colin Nicholson 4

5 Long Term Perspective USA (S&P 500) SP5 - S&P500 Index > -0.2% to M 3101A Copyright Colin Nicholson 5

6 Long Term Perspective USA (Nasdaq) 98NAS - NASDAQ Composite Index > 0% to M Copyright Colin Nicholson 6

7 Long Term Perspective UK (FTSE 100) FTS - FTSE 100 Index > +0.3% to M Copyright Colin Nicholson 7

8 Long Term Perspective - Australia XAO - ALL ORDINARIES INDEX > +0.9% to M 3101A Copyright Colin Nicholson 8

9 A Closer Perspective - Australia XAO - ALL ORDINARIES INDEX > +0.9% to EXP MOV AVS 12(0) mnth M Copyright Colin Nicholson 9

10 Long Term Perspective Summary Some evidence to support pattern of Debt-fuelled booms Deleveraging (sideways period) Sets scene for next multi-year expansion Copyright Colin Nicholson 10

11 My Market Exposure Strategy Three tools Bull-bear market phase analysis Coppock indicator Trend analysis Copyright Colin Nicholson 11

12 Dow Theory BULL AND BEAR MARKET PHASES Phase 3 Rampant Speculation Phase 1 Abandon Hopes Phase 2 Increasing Earnings Phase 2 Decreasing Earnings Phase 1 Reviving Confidence Phase 3 Distress Selling Bull Market Bear Market Copyright Colin Nicholson 12

13 Coppock Indicator XAO - ALL ORDINARIES INDEX > +0.9% to EXP MOV AVS 12(0) mnth M Coppock = Copp Copyright Colin Nicholson 13

14 Dow Theory START OF A BULL MARKET Start of a Bull Market Start of a Bull Market Start of a Bull Market Start of a Bear Market just turn these diagrams upside down Copyright Colin Nicholson 14

15 My Market Exposure Strategy Entry to a bull market - summary Distress selling invest 20% Coppock signal invest 40% Trend change invest 70% First big correction complete invest 100% Copyright Colin Nicholson 15

16 My Market Exposure Strategy Exit from a bull market - summary Rampant speculation appears sell 30% Rampant speculation grows sell 40% Trend change sell last 30% Copyright Colin Nicholson 16

17 My Market Exposure Strategy SELL Phase 3 Rampant Speculation Phase 1 Abandon Hopes Phase 2 Increasing Earnings Phase 2 Decreasing Earnings Phase 1 Reviving Confidence BUY Bull Market Bear Market Phase 3 Distress Selling BUY Copyright Colin Nicholson 17

18 My Market Exposure Strategy Copyright Colin Nicholson 18

19 Entry to the Current Bull Market Best explained by examining the markers for phase one of a bull market Reviving Confidence Phase marker News about the economy and market tends to be negative Assessment Yes, we were past this mid to late 2009 Copyright Colin Nicholson 19

20 Entry to the Current Bull Market Phase marker The market is anticipating a recovery Assessment Yes, prices rising from the bear market bottom. See chart: Copyright Colin Nicholson 20

21 Entry to the Current Bull Market Phase marker Household savings ratio still high Assessment Yes, see chart: Following up a question on the night as to whether compulsory superannuation was included in the savings number and was therefore the cause of the rise in the ratio: Compulsory super is included in the household savings ratio. However, the compulsory super rate was steady at 9% from 2002 to Thus, the increase in the savings ratio was not attributable to an increase in compulsory superannuation. Copyright Colin Nicholson 21

22 Entry to the Current Bull Market Phase marker Interest rates relatively low Assessment Yes, see 10-year bond yield and 90-day bill yield charts: Copyright Colin Nicholson 22

23 Entry to the Current Bull Market Phase marker Interest rates relatively low Assessment Yes, see 10-year bond yield and 90-day bill yield charts: Copyright Colin Nicholson 23

24 Entry to the Current Bull Market Phase marker Private investors largely absent from the market Assessment Yes, they held high levels of cash Phase marker The market may start to ignore bad news Assessment Yes, the market began to take bad news in its stride, though it still affected the stocks involved Copyright Colin Nicholson 24

25 Entry to the Current Bull Market Phase marker The rise was thought to be another bear market rally Assessment Yes, that was a general view. Most private investors were traumatised and confused about what had happened Copyright Colin Nicholson 25

26 Entry to the Current Bull Market Phase marker Disbelief that the rally is the start of a bull market turns to fear of missing out Assessment There was a general expectation of a re-testing of the bear market low. Instead, there was a moderate correction and then a strong rise indicating fear of missing out, which is especially the case among professional investment managers. See chart: Copyright Colin Nicholson 26

27 Copyright Colin Nicholson 27

28 Entry to the Current Bull Market Phase marker The market is fundamentally undervalued Assessment The best easily available measures are the market average price earnings ratio and dividend yield. See charts: Copyright Colin Nicholson 28

29 Copyright Colin Nicholson 29

30 Entry to the Current Bull Market Phase marker Very few, companies being floated on the stock market (IPOs) Assessment Yes, see chart of the 12-month moving average (to smooth the seasonality) of the number of IPOs: Copyright Colin Nicholson 30

31 Entry to the Current Bull Market Phase marker Enquiries into what went wrong Assessment Yes, under way or finished Phase marker Regulation is tightened Assessment Yes, largely done process ongoing GENERAL CONCLUSION All Reviving Confidence markers were in place mid to late 2009 The bull market had begun. I was 100% invested. Copyright Colin Nicholson 31

32 Where are we now in the bull-bear market cycle? We have had two Coppock indicator signals XAOA - ALL ORDINARIES ACC INDEX > -0.8% to M EXP MOV AVS 12(0) mnth Coppock = Copp Copyright Colin Nicholson

33 Where are we now in the bull-bear market cycle? The trend is up and we are well above the 2007 peak and more than double the 2009 low XAOA - ALL ORDINARIES ACC INDEX > -0.1% to EXP MOV AVS 12(0) mnth M Copyright Colin Nicholson

34 Where are we now in the bull-bear market cycle? So, are we in phase two Increasing earnings? Copyright Colin Nicholson 34

35 Phase Two Increasing Earnings Phase marker Many companies announce increased earnings Assessment Yes. Many companies have reported increased earnings. Mostly the result of cost-cutting, which is normal for this stage in the cycle. Phase marker Good news is announced Assessment Yes some, but there is a general overlay of negative influences. Copyright Colin Nicholson 35

36 Phase Two Increasing Earnings Phase marker Unemployment falls Assessment No. Unemployment is still rising: Copyright Colin Nicholson 36

37 Phase Two Increasing Earnings Phase marker Household savings ratio falling Assessment No. Households are still saving strongly, not spending: Copyright Colin Nicholson 37

38 Phase Two Increasing Earnings Phase marker More companies are being floated in the stock market (IPOs) Assessment Yes, but more slowly than in previous cycles. Many backdoor listings, which are not in these data: Copyright Colin Nicholson 38

39 Phase Two Increasing Earnings Phase marker Significant market corrections end higher Assessment Yes. The market is now clearly trending upward: XAOA - ALL ORDINARIES ACC INDEX > -0.1% to EXP MOV AVS 12(0) mnth M Copyright Colin Nicholson 39

40 and the price index XAO - ALL ORDINARIES INDEX > -0.1% to EXP MOV AVS 52(0) week W Copyright Colin Nicholson 40

41 Phase Two Increasing Earnings Phase marker Fundamental values return to normal Assessment Yes. (1) The market average price earnings ratio is in the top of the fair value range: Copyright Colin Nicholson 41

42 Phase Two Increasing Earnings Phase marker Fundamental values return to normal Assessment Yes. (2) The market average dividend yield is also in the top of the fair value range: Copyright Colin Nicholson 42

43 Phase Two Increasing Earnings Phase marker Sector rotation Assessment Yes, some evidence of this, especially around the chase of yield. GENERAL CONCLUSION All but two Increasing Earnings markers are in place We would seem to be in this phase. I am 100% invested. Copyright Colin Nicholson 43

44 Where are we now in the bull-bear market cycle? But, are we in phase three Rampant speculation? Copyright Colin Nicholson 44

45 Phase Marker Rampant Speculation Significant fundamental overvaluation Interest rates relatively high Increased price volatility Many capital raisings Many IPOs, many without merit Private investors heavily in the market Day traders heavily in the market Increased use of debt/leverage by investors Much commercial building construction Someone builds world s highest building Increased media coverage New paradigm theories advanced Market led by relatively few stocks General Conclusion Assessment No, only a bit high No, are extremely low No, not unusually high No No, but backdoor listings No No No No No No No No No sign of this phase yet Copyright Colin Nicholson 45

46 My Strategy From Here Remain 100% invested we are in a bull market Hold high quality investment grade stocks Competitive advantage Make consistent, growing earnings per share High and growing return on capital Pays growing dividends Conservatively financed Stock price trending upward Bought at a low price relative to value Manage risk Stop-loss Copyright Colin Nicholson 46

47 Questions? Copyright Colin Nicholson 47