Advance support by VSA analysis

15 August 2016

Dear Fellow Investor,

To put the odds in our favour we need to be mindful of the economic background.

What is in the background ?  Presently it is  Easy money, QE, and rate cutting.

According to Bank of America global central banks have now cut rates 667-times since the collapse of Lehman Brothers in Sept ’08.  Last week New Zealand joined the bandwagon to cut rates. Malaysia may soon cut again while China, Australia, US  and Japan are on course to cut rates and print more money to push investors into risk assets.

The Swiss national bank is increasing equity holdings in the US and Europe. The Bank of Japan is buying Asian, European  and US equities. Costs are irrelevant as they can print more money. That is why equity prices, gold and commodities  are going higher.

Many prominent investors and CNBC talking heads  say we are in an equity  bubble as shares are massively overvalued.  Mark Faber suggests shares will drop 50 %.  Bill Gross warns of a massive share collapse. For a crash to happen the background must change. Interest rates must rise world wide and  inflation must return. That is not presently happening.

A precedent was the NASDAQ collapse in 1999- 2000. Notice the price chart with, support and resistance lines. Please read the commentaries as they are very instructive.

The NASDAQ in 1999-2000 advanced in a parabolic trend in a background of rising interest rates from 2 % to 6.5 %. Presently rates are not rising so it is safe to hold and buy quality shares/ gold and commodities .

By using simple trend tools such as support and resistance we will have advance warning. Our VSA analysis will help as time the exit. Red arrows will appear.

Last week, I took a position in Apple Computer at USD 108.17 as it is trading at a relatively  low valuation. The PE is now at 12.7 which is unusual for a technology stock. ( Microsoft is trading at a PE of  54)  Apple also pays a dividend of 2.3 % and has cash on the balance sheet.  Apple has strong institutional support including investor Warren Buffet.

In the height of the NASDAQ bubble Yahoo had a PE of 720. Cisco was at 230 while many other household names had PEs in the hundreds. I am not worried that Apple with a 12.7 PE  is overvalued.  

Invest well and grow your wealth, 

Bill

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