Skip to content
Subscribers Only
Investment Alerts

Two charts that signal danger for the stock market

November 3, 2022

This is the chart of 10 year US Treasury bond yields and there is no sign that it has topped out. On the contrary it looks poised to move significantly higher which fits in with the latest statement from the US Federal Reserve that the priority is making sure that inflation does not become entrenched in the US economy. Inflation is a tenacious beast as they discovered in the 1970s and early 1980s. It takes determination to beat it and it can be painful.

This is the second chart warning of trouble ahead. The US$ has been on a spectacular charge since June 2021. If this chart is to be believed the rise is not over yet. It looks like a continuation pattern which will most likely break higher. A strong dollar reflects tightening money in the US, tightening money meeting runaway rising prices, which is a classic recipe for a strengthening dollar and its counterpart, weakening currencies in other centres.

Poor Liz Truss took much of the flack but since June 2021 the dollar has risen 25.2pc and the pound has dropped 20pc. It is actually doing better than the basket of currencies against which the US$ is measured and may very well move lower in coming weeks and months even though Liz is gone.

People can be very insular when looking at what is happening in their domestic market and fail to put it into a global context. It’s like inflation. Labour naturally portrays this as a failure of policy by the Tories but if so why is it happening all over the world including in the mighty US economy.

It might not be happening in China but who knows since they have no free press to tell us what is happening, only a government for whom truth is a meaningless concept. What is it about humanity that so many countries end up with the worst kind of despots as leaders.

Strategy

Below are a couple of equity charts that do not look too happy. First is the OGIG chart, an ETF containing so many Quentinvest shares. It is breaking down from a consolidation and looks to be headed lower.

Second is the Alphabet chart. Online advertising is under pressure as is evidenced by the travails of companies such as Meta Platforms and Snap. It seems that Alphabet businesses, Google and YouTube are not immune to what is happening and the shares are under severe pressure. We have had the chart breakdown. Now the shares are in free fall with the next major support around $60. Snap shares are consolidating but that is after plummeting from $83 in September 2021 to $9.54 currently. It’s brutal out there.Poor battered Meta Platforms (Facebook) shares are down from $99.50, when I wrote my piece on their disastrous meta verse bet on 27 October to $90.54 as I write.

The only stance for this market is one of extreme caution.

Another important chart looking threatening is Amazon; with a chart like this I would not touch the shares with a barge pole. There is a big area of support laid down between August 2018 and April 2020 but that is the problem with support in bear markets. So often it doesn’t work. These shares are in free fall and now that the $100 level has been decisively broken could fall significantly lower.

Looking again at the Tesla chart, it looks scary like the price is hanging by a thread on the edge of a precipice. You never really know what is happening at companies and in the markets they are addressing. This chart suggests that something is going wrong. The Coppock indicator has just turned negative, which some people think is a bearish indicator. Maybe Tesla breaking down is going to be one of the last acts of what has been a terrifying bear market for high growth, high momentum stocks.

An architect just came to my house. He was driving a Tesla model S, which he has had for 10 years, which he loves and for which he gets free charging for life from Tesla Superchargers. Every time I get bearish on the Tesla chart I think bullish from the story but then I love BMWs and their shares haven’t exactly set the world on fire over the last 20 years.

Further reading

More >
Subscribers Only
Investment Alerts

US Long Bond Yields Test New Peaks

April 19, 2024
Subscribers Only
Investment Alerts

But My Heart Belongs to GoDaddy

April 12, 2024
Subscribers Only
Investment Alerts

Zooming Higher, at Least for the Moment

April 11, 2024
Subscribers Only
Investment Alerts

Let’s Hear it for Spotify

April 9, 2024