Market Round Up

We will be keeping this page regularly updated with Avalon's take on a hot topic, fund managers we think you might be interested in, or simply a market review.

We will also be selecting one fund manager a month who will submit market commentary on a topic of their choice and provide information about their range of funds.

If you have any comments or articles you would like to add please email us via the 'Contact us' section of the website and we will put the best ones up on the site.

Update January 2012

Psychinvest - provided by Paul Warner of Minerva Fund Managers

Our annual Psychinvest trendline predictions were fairly accurate at the beginning of the last year. Like a lot of our thinking the correction in August upset our view that markets would not have a substantial fall. We caught the predicted low at the end of January, the February low was inaccurate and occurred in March, but the April high was accurate. Our faith in the powers that be to ensure markets did well were severely dented in August. The central bankers took a step back, whilst the politicians both in Europe and in the US came forward and demonstrated their inability to be effective. In the last quarter the central bankers came back to support markets. It now looks like the ECB, under the new chairmanship of Mario Draghi, have joined the central bankers that are supporting the markets. Due to political constraints, it looks like they are using the liquidity via the banks to push markets upwards. After the Santa rally run-up in markets, we expect some consolidation, and a low around 23rd January. Our indicators suggest a high in the beginning of March. Several of our indicators then turn sharply downwards. We will have to keep a close vigil on what market levels are telling us as we approach that period. The resistance line on the graph opposite that goes from 5200 to 5400 this year can be traced back all the way to the lows in 1987. Due its longevity its accuracy is not so precise, but as you can see it is a strong line. We think it is possible, due to the positive GDP outlook in the US, for the FTSE to reach the trendline going from 5950 to 6100 over 2012 in March. We are cognisant of the fact that back in 1998 we said the FTSE would finally break out of its longterm range in 2012. Ignoring the US Fed induced liquidity final leg up in markets in 1999, that means staying above 6200. At this juncture it is hard to see how that will occur though.

Update September 2011

Psychinvest - provided by Paul Warner of Minerva Fund Managers 

The volatility in August needs to be put into some perspective, as many commentators were likening the period to 2008. Whilst the concentration of substantial daily moves was condensed into a very short period, the size of the moves (the biggest daily fall was 4.5% and daily rise 3.1%) did not compare with 2008, which had three days when the index fell over 7%, and four days when the index rose by more than 8%. In fact, 2010 was a better comparison as the FTSE fell 17.5% from 15th April to 1st July. This year it fell 17.3% from 7th July to 10th August.

There has been a lot of technical analysis talk about the FTSE making a dead cross, that is the 50-day moving average falling through the 200-day moving average. In July's Minerva Report last year we noted that of the 19 previous dead crosses experienced by the FTSE, only three heralded further big falls and that many were very close to the bottom in the market. One commentator suggested that only twice since 1996 were both moving averages pointing downwards like now, those being in 2000 and 2008, which was very bearish. In fact, on both these occasions the 200-day moving average was actually rising when the dead cross occurred.

Technically speaking when an index is below a falling 200-day moving average, it is in a bear market. The FTSE is now in that position, but it was also there in July last year. At the moment the market is making higher highs and higher lows which suggests that it is moving upwards and has reached its low for this year. However, Elliott Wave followers think there could be a fifth wave down. If that materialises, we would expect it to stop at 4800, which is the 50% level from the March 2009 low and the peak this year. It is also the Fibonacci 2.618 target created by the high in January and the low in March. The 50% retracement of the drop in August takes us back up to 5515.

 

Update April 2011

Psychinvest

The graph below, shows the Dow Jones Index now, compared to that in 1906. As you can see there is a strong similarity. Our thanks to Simon Ward, Henderson’s economist, who has been keeping a comparison of six-bears in the Dow.  The crash of 1907 was called the ‘Bankers Panic’. Like our recent financial crisis, the 1907 crisis culminated in the failure of a major financial institution, the Knickerbocker Trust company, New York city’s third largest. This was the crisis in which J P Morgan made his name, when he pledged his own money to shore up the banking system. It was this that triggered the creation of the Federal Reserve system. If the similarity continues, we can expect a correction in markets soon. Looking at the FTSE the market bounced off the 200-Day moving average, and is heading back to test the highs of January and February. This could give the opportunity to take profits pre May.

 

 

Update November 2010

Psychinvest - provided by Paul Warner of Minerva Fund Managers 

The markets have come a long way in anticipation of the Fed's QE2.  We would therefore expect a period of consolidation as markets have priced in the news.  Last month we heard the Germans suggest that rules should be written to enable countries to have an orderly restructuring of their debt within the Eurozone.  Apart from the widening of spreads on the peripheral Euro countries' debt.  Markets largely ignored this due to the impending QE2.  It is possible that they could turn their focus away from the ‘good' Fed news and look elsewhere.  However, we should be mindful of the actual liquidity that the Fed will start deploying and its long term nature.  It is unlikely that unemployment in the US will respond to QE.  So we have an open ended commitment, unless the new Republican politicians, some of whom are gunning for the Fed, start to cause waves.  It is also a long way off before anybody thinks about how QE will be unravelled.

 

The FTSE Index broke through the long term trend line that we mentioned last month and now looks to be heading to the next line, which is at 6000.  Last month we also mentioned we were at the 1.618 Fibonacci level from the high and low in August.  5994 is the next Fibonacci level of 2.618.  That would take the FTSE to 10% above its 200-Day Moving Average.  From 2003 through until last year, that was where the market consolidated.  At the moment however, it is hard to see a set back getting down further than the August high at 5400.

August 2010

A normal cyclical bull market has three stages.

Stage one is when participants decide that all the bad news and more has been priced in and that a recovery is on the horizon.

Stage two, where we are now, is when markets anticipate tightening. We have already seen QE being removed. This is a volatile period and can last for nearly a year. In this time period markets can easily rise or fall by 15% or more. However, the average fall from the beginning to the end of this phase, has historically been less than 10%.

The final phase will start when investors eventually believe that the global economy can absorb the tightening.

Back in March last year we told you about Reinhart and Rogoff's paper on Financial Crises. In that paper they say that on average markets fall 55% over 3.5 years, which suggests we have not seen the bottom yet.

On the FTSE we have seen a dead cross where the 50-day moving average falls below the 200-day moving average, which has made a lot of chartists suggest a new bear market has started. However, since the FTSE began there have been 19 dead crosses and only three have heralded further big falls. Many have actually been bottoms. We expect markets to drift higher over the summer, and fall in autumn.

 

Update April 2010

 

Matrix Group is seeking to capitalise on demand for Asia long-short strategies with the launch of its first Ucits III fund which is available on Avalon.

The Matrix Asia Ucits fund will be managed by Rupert Foster, who currently manages the Matrix Asia fund, an unregulated Cayman domiciled fund which has a similar investment objective to the Matrix Asia Ucits fund, which has returned 48.5% since it was launched in August 2008 with around three quarters of the volatility of the index

Update February 2010

Avalon are pleased to announce that we have access to the NEW Glendevon King Global Bond fund.

Glendevon King specialises in creating and managing bespoke investment portfolios for institutions, private banks, multi and single family offices and individuals. The new Global Bond Fund will allow retail investors to have access to the same expertise and rigour we apply to our private clients.

Update Jan 2010

Thames River have won the Best Multi-Asset Provider at the Professional Adviser Awards 2010

click here for more information

January 2010

At Avalon we are supporting Thames River Capital as our Fund Manager of the month. We have negotiated generous discounts with Thames River and are currently offering their range of Multi-Capital funds with 0% fund manager initial charge

More information about Thames River investments can be found here at the Avalon micro site.