Imagine what the reaction around the world would be if in the last week one of the following had occurred:
We discovered the cure for cancer, landed on Mars, cancelled Brexit, stopped climate change, ended waste plastic, eradicated malaria, delivered world peace, discovered the gene for extending life?
Obviously it would be headline news and everyone would know about it, with world leaders lauding the event. Social media would go wild and there would be blanket coverage on the newswires. In fact, the possible gene drive solution to end malaria has recently received extensive coverage, and we are not even there yet.
The good news is that one of the above has happened, and more is the pity that it is work in progress on the rest.
Which one? Well, in a time of alleged Fake News where things that have not happened are reported as fact, it would appear we also have the opposite. It could be called Non News. One of the above has happened, has been reported and recorded on a legally binding newswire, and nothing.
Depending on the reaction to this article, I may or may not reveal which of the eight have happened. Clearly, most of them have not….
There have been plenty of false sunsets for the bull market in stocks, with numerous factors – including the 10th anniversary of the fall of Lehman Brothers being wheeled in as possible triggers. The current set up is no less a convincing excuse to be bearish, especially given the trade wars anxiety and soaring Italian bond yields.
As far as the nitty gritty of the technicals on the UK’s leading stock index, it can be seen how both the falling 50 and 200 day moving averages crossed down last week – the classic Death Cross.
Alas, this was the same set up as was seen in March. Then the market fell just 300 points, before soaring to new highs. It was not quite a false signal, but would have been quite painful for the bears if they were hoping the FTSE 100 was heading for an extended meltdown.
Perhaps learning the lesson of the early part of this year, it may be best to combine not only the death cross, but also a trendline or two. For instance, 7,000 marks the level of an uptrend line from the beginning of 2016. A weekly close this week below this round and psychological number, may be the best additional trigger to go for. Ideally, such a close would also be below the currently 6,866 2018 support below which the rounded top on the FTSE 100 really should take it back towards 6,000.
At this stage only back above last month’s 7,220 low really gets leading UK blue chips out of trouble.
There was a pie in the face for fans of sandwiches maker Greencore in March with reference to its Elephants’ Graveyard warning regarding its U.S. business early this year in March. Since this flushout the bulls have slowly but steadily got back in the saddle here at the Dublin based firm, albeit while looking over their shoulder for the bad news coming in threes legend that the stock market seems to specialize in.
Indeed, what has been of interest in the past few weeks is the way that the stock has allegedly been in play as a takeover target – almost running in parallel with Fever-Tree over the past month or so.
However, the ride here has not been as rocky, with the name of the game apparently being for patient traders to wait on a sustained clearance of the 200p zone. This came on Friday with a decent rise through the round number, and perhaps more importantly, a surge in volume, the highest buy side volume of the year to date.
Therefore, whatever one thinks of the rumour mill, perhaps not that much, we do have a technical setup on hand. This consists of the break higher through the top of a 2018 triangle formation. While squeamish people may wish to wait on 210p plus just to be sure, it does look as though provided there is no sharp U turn on Monday, we shall be treated to a retest of the main post mid 2017 resistance zone at 230p – 240p, with or without any M&A antics. The stop loss on the speculation would be back below the former 190p – 195p resistance zone.
The recent M&A speculation surrounding Fever-Tree, has been of interest, and not only for the various spellings and hypens of the company name itself. This has had everything. A company with almost total public recognition, a stellar share price run to ridiculously overpriced levels, and with puns etc, makes for great and easy journalistic copy. As far as the takeover playbook there has also been most of the aspects a classic story might offer.
For instance, Pepsi and Unilever have been mooted. However, Fevertree is far too dynamic and “early stage” for both companies, who tend to buy only when the brand in question is totally bombed out. In the case of Unilever, a company that cannot even decide where its HQ should be, is probably somewhat distracted currently. It would probably be 2028 before it has heard of Fevertree.
Then there was the comment in Digitallook last month suggesting that there could not be a bid for Fevertree, as FT Alphaville had poured cold water on the idea. To be fair, Alphaville specialize in copying and pasting other people’s analysis, and pouring cold water on other people in general, so probably would not know.
That leaves us with just a couple of near term positives. The first is that there has been a share price shakeout (something which could be the source of the bid speculation), and the p/e ratio now down to 70 takes us back from ridiculous to just about bearable. However, Mail on Sunday mention today notwithstanding, it would have to be someone very rich, or very keen to step up to the plate at Fevertree at the moment.
From a technical perspective, the barometer over the next few days will be the 200 day moving average, below which the stock fell below last week at 3,019p. Presumably, there will be a rally on Monday on the back of the latest coverage. The question is whether this can be sustained, or the takeover story is an attempt to mask the end of a great bull run for this stock market darling?
As is sometimes the case, the best way of getting a handle on a company is not to go how it describes itself, but rather the company which is invested in it. This point was illustrated on September 28 when All Star Minerals, who have over 5 million shares in NQ, talked about their “valuable asset.”
Key to this situation is both the move of NQ to AIM, which is by all accounts nearly complete, and news regarding first production from the Hellyer Gold Mine. In the case of the mine it is said that there will be imminent developments, as it is ahead of schedule on production.
Both of these factors should mean that the recent share price weakness in NQ Minerals is cast aside, especially given the way even ahead of all of this Australia based mining and exploration company has been mildly profitable.
In July it was able to announce two marketing and off take agreements lasting 5 years for lead and zinc, together with a $10,000,000 finance facility. All of this essentially secures the future of the group in a way that many of its peers can only dream of. Nevertheless, the market is still treating the company as if nothing had been achieved.
It has, with the implication that a re-rating or even interest from sector peers is already in the offing with talk this could lead to a 40p possible deal once on AIM.
Given the way that everyone and their dog makes calls on the major markets, and have so far got it wrong on the bear side over the past 10 years, joining this particularly losing herd does not appear to be sensible. However, after a decade, and given that we are fast approaching the end of the decade – when Crashes tend to happen (1929, 1987, 2008 etc), it seems wise to at least be on guard for cracks in the bull market. In fact, the obvious thing is to wait for the market to tell you, rather you attempting to dictate terms. For example, blaming the bond market, end of QE, EU crisis, trade wars, Donald Trump, Brexit et al. To this day, October 5 2018, they have all been wrong and all the experts have been wrong. But there is always tomorrow to get it right. If only because October is traditionally regarded as Crash month.
But in this instance, it is not the fundamentals that are dictating a correction for the stock market in general, and the Dow in particular. It is a chart pattern, the Rising Wedge. The end of this week has seen the U.S. benchmark break what is usually a reliable technical formation – largely on the basis of risk / reward, as well as being a sign of persistent selling pressure towards a certain zone. In this case it is 27,000, and 26,618, the January 2018 peak. Below this, and below the floor of the wedge, nominally at 26,600, we have a top in the market. While the bears may be hoping it is THE top, a return towards the 200 day moving average area of 25,000, which seems to be what will happen next does not qualify as a Crash, however tempting it is to call one after a decade long artificially induced bubble.