Why you should ignore these ‘psychological levels’

Wednesday, 15 November 2017
Melbourne, Australia
By Bernd Struben

  • Leave your emotions at the door
  • 100 to 1 in the stock market

So much for the ‘psychologically important’ 6,000-point level.

Last Tuesday, 7 November, the ASX 200 closed above 6,000 points for the first time since January 2008.

I’m sure you remember. There wasn’t a financial news outlet in Australia that didn’t run some headline or other touting investor exuberance. And according to some commentators, we could expect 6,000 points to serve as a strong support level.

After all, it took almost 10 years to battle back above this point following the GFC. Surely this line would now hold. At least for more than a few days…

Of course, we know now that didn’t happen.



chart image

Source: Google Finance
Click to enlarge

As you can see in the chart above, the index closed at 5,969 points yesterday. And as at writing today it’s down 0.47%, at 5,941 points.

Of course, if you read last Thursday’s Port Phillip Insider, this should come as no surprise.

We’ll pick it up here, right after a look at markets.

Markets

Overnight, the Dow Jones Industrial Average closed down 30.23 points, or 0.13%.

The S&P 500 lost 5.97 points, or 0.23%.

In Europe, the Euro Stoxx 50 index finished down 18.14 points, or 0.51%. Meanwhile, the FTSE 100 fell 0.01%, and Germany’s DAX lost 40.94 points, or 0.31%.

In Asian markets, Japan’s Nikkei 225 index is down 355.81 points, or 1.59%. And China’s CSI 300 is down 0.81%.

In Australia, the S&P/ASX 200 is down 27.94 points, or 0.47%.

On the commodities markets, West Texas Intermediate crude oil is US$55.07 per barrel. Brent crude is US$62.21 per barrel.

Gold is trading for US$1,280.68 (AU$1,678.48) per troy ounce. Silver is US$17.03 (AU$22.32) per troy ounce.

One bitcoin is worth US$6,591.19.

The Aussie dollar is worth 76.30 US cents.

Leave your emotions at the door

In last Thursday’s Port Phillip Insider, I cautioned you not to buy into those analysts predicting 6,000 points would be a new floor for the market. I wrote that ‘6,000 points may be fleeting’.

At the time, the ASX 200 was on a three-day winning streak. It closed last Thursday at 6,045.50 points. But as I explained, there are some major headwinds facing the Aussie market. Namely investors’ expectations on corporate tax rates.

As a quick recap, the market appears to have largely priced in Donald Trump’s planned cuts to corporate taxes in the US. Cuts that would see the tax rate fall from 35% to 20%, presenting a boon to corporations and share prices alike.

This expectation has buoyed US markets, and in turn helped lift the Aussie market. But those tax cuts are now looking ever less likely to make it through Congress. And I say that despite increasing optimism from Goldman Sachs’ economists that the US House and Senate may reach some agreement.

From Bloomberg:

The House may vote on its version of the tax cut bill as soon as Thursday, while the Senate continues to hammer out its take. Goldman Sachs Group Inc. economists said in a note Tuesday the debate is moving faster than they expected, boosting the odds that tax reform will be enacted by early next year to 80 percent from 65 percent.

First, you have to wonder how they come up with these numbers. An 80% chance of tax reform getting passed, revised upwards from 65%, just because the debate is moving faster than expected. Seriously?

Second, this may be a case of wishful thinking for Goldman Sachs. As reported by the Australian Financial Review, Goldman Sachs Group chief financial officer Marty Chavez said that,

The commodities unit is on pace for its worst year in the firm’s history as a public company. The quarter will also suffer from a difficult comparison to last year, when the results of the US presidential election spurred client activity…’

The article notes that Goldman Sachs’ revenue from trading stocks and bonds dropped 17%, driven by a 26% fall in fixed income trading.

But putting Goldman’s woes — and possible bias — aside, global markets are clearly beginning to doubt Trump’s chances of pushing through his signature tax cuts.

As those doubts grow, you can expect the ASX 200 to once more struggle to break through 6,000 points.

Or 5,998 points, for that matter. Because at the end of the day, 6,000 is just a number. Sure, it’s a nice round one. And as we have 10 fingers (hopefully), we like nice round numbers. Particularly ones ending in lots of zeros.

But placing some kind of mythical status on any index level is purely emotion based. And when it comes to trading stocks, you want to leave your emotion at the door.

That’s one of the great aspects of trading legend, Jason McIntosh’s Quant Trader service. His algorithmic trading system couldn’t care less about psychological levels.

Instead it coolly analyses almost every single stock on the ASX looking for key trends. And it does this every day.

Based on Jason’s own decades of experience trading stocks, Quant Trader’s algorithms quickly narrow the field to a selection of stocks most likely to keep rising…or falling.

Subscribers then get their daily ‘long’ or ‘short’ signals.

Some days there may be several signals. Other days there may be none. Either way, it’s up to subscribers to decide how many of the trades they wish to follow. (Jason recommends at least 20.)

For such a remarkably complex system, it’s extraordinarily simple for you to use. And extraordinarily effective.

How effective?

In the last financial year Quant Trader picked 16 of the 20 best performing stocks…out of a list of 2,400. All without a hint of greed or fear.

You can get all the details on Quant Trader here.

100 to 1 in the stock market

Over the past months, Port Phillip Publishing has run a few training seminars for our paid subscribers.

I hope you’ve signed up to some — or all — of those. If so, I trust you gained some valuable investing insight.

As a courtesy to our paying readers, we offer these online courses only to you. And at no cost.

One exciting — and risky — part of the market we haven’t covered in the seminars recently are microcaps.

These tiny companies can shoot the lights out with a single market breakthrough. You can see their share prices go up 10 and even 20 times in a matter of months…if they get things right. Of course, if they get things wrong, they can lose half or more of their value equally quickly

That’s why microcap trading isn’t for everyone. You need a healthy risk tolerance. And, well, a good dose of greed doesn’t hurt here either.

It’s one of the trickiest markets to navigate successfully. Which is why Sam Volkering and Kris Sayce — our preeminent microcap trading experts — decided it was time for a training seminar aimed at this market.

Part one of the three-part video event starts at 2:00pm AEST on Sunday, 19 November. (If you can’t make it, sign up in any case, as there will be a rebroadcast before parts two and three get aired.)

In part one Sam will walk you through exactly how he goes about identifying tiny stocks that could go up 1,000%…or more.

It’s the same strategy Sam used to make readers who followed the timing of his recommendations gains of 1,160% and 2,000%, on two single trades. I know that sounds incredible. But these are exactly the types of opportunities this risky end of the market presents.

Just have a look at the intraday results from today’s best performing microcap stocks below.



chart image

Source: Bloomberg
Click to enlarge

While the ASX 200 (representing the 200 largest stocks) is down 0.43% at time of writing, the returns from the top two tiny stocks would have seen you gain 176.92% and 100.00%…today.

Those are the stocks Sam Volkering aims to help you identify in the Microcap Trading Summit.

You can register here to reserve your front row virtual spot today.

Cheers,
Bernd