Today’s blog has been inspired by the following contents of an email which I presumably received on the basis that I am a very important editor of a very important financial publication – Spreadbet Magazine.
What is to follow is of interest not only in itself, but also course in the wake of the ongoing crusade by the founder of Spreadbet Magazine – Richard Jennings, to persuade us that equities – apart from miners, are close to, or have reached, a top. I am not entirely convinced, but am sympathetic.
In the meantime however, it is worth reading the latest from the CFA. In fact, the email does not say what CFA actually stands for. For these purposes I am assuming the views expressed are from Chartered Financial Analysts and not the Cat Fancier’s Association (something also of which our “Dear Leader” is likely a member of, being a CFA and a cat lover!), although of course the latter are perfectly entitled to express their views on these matters.
“CFA UK Valuations Index* reveals that the number of investors and analysts that view developed market equities, government bonds and corporate bonds as overvalued, compared to Q3 2013, has increased. The change is most evident for government bonds and developed market equities.
The proportion of UK based investment professionals who believe that developed market equities are overvalued has increased in the last quarter with 44% of respondents rating developed market equities as either overvalued or very overvalued, compared to 37% in the last quarter. There has also been a decrease in those viewing the asset class as undervalued or very undervalued, from 27% in Q3 to 22% in Q4.
As has been the case for the last two years, government bonds remain the most overvalued asset class, with 78% of respondents rating them as somewhat overvalued or very overvalued, an increase of 5% from the last quarter. There has also been a 3% drop in the number of respondents who view the class as undervalued or very undervalued (6%) compared to last quarter. Corporate bonds are also still viewed as overvalued, with 66% of investment professionals viewing them as such, up from 64% in the last quarter.
Sentiment towards gold is broadly unchanged, with the proportion of investors viewing it as undervalued unchanged and those viewing it as overvalued increasing by 2% to 48%.”
Just looking at the markets involved here from a charting perspective, and I would say that the one where I would be most in agreement is that of bonds, with the T Bond in particularly looking vulnerable. While Gold may have foxed even the mightiest of traders in terms of the aftermath of a decade long rally, the fundamentals and the technicals regarding the T Bond look to be less tricky to call – especially if, as seems the case, interest rates will have to rise soon.
Looking at the daily chart and we have a situation with a very negative looking descending price channel, resistance well below the 200 day moving average falling at the 136 level and multiple resistance points in the RSI window below neutral 50 over the past couple of months. The risk now is that at least while the top of the channel at 130 caps the price is that we could see a target as low as 119 – the price channel floor and as soon as the next 3-4 months.
As far as the equities component of the CFA survey I have chosen to go for the Dax where in fact today we have a toppy look to the proceedings. This is said on the basis of the key reversal to the downside from a 9,620 peak as well as the recent sharp bearish divergence in the RSI window where the second higher December price peak was not matched by a higher oscillator trace. This should ensure some further downside even if it is not the end of the line for what has been an almighty ascent for leading German stocks since Q1 last year. That said, unless or until the Dax even falls below its 10 day moving average shown in green at 9,329 it may be that even the most bearish of traders might feel that going short here on anything more than a jobbing basis is a little over negative.