tactical trader

In July this year Rathbone’s Head of Asset Allocation, Robin Griffiths, produced his World Investment Strategy in which he reviewed the World’s financial markets using technical and fundamental analysis. This article provides extracts from this document that will be of paticular interest to traders.

We are having a heatwave

• Summer heat has not induced a soporific state in stock markets, on the contrary it has inspired an aggressive go-getting risk-taking trend to make more money.

• Money makes the world go round. There is a lot of it about and it does not wish to be in bonds. It is seeking higher risk but greater rewards in equities. Some like it hot.

• Of our “three coins in the fountain”, the Baltic Shipping Index and the price of oil are still negative, but the positive blessing has gone to the low yield on bonds giving the buying power to equities.

90% of all indices are above both 25 and 200 day moving averages. This is actually a slight deterioration on last month’s figures but is still strongly positive. The bull market is still in existence. The excitement recently has been caused more by an increase in trading activity and in breadth. The numbers of stocks in each market that seem to be moving up has increased. There is a definite tendency for investors to move away from cautious, defensive stocks like utilities towards more highly rated, supposedly faster growing companies. This reveals that investors are willing to take on more risk. Whether they will be proved correct is debatable, but that this is what they are doing is not? The main reason is that the risk free return that can be obtained from bonds seems too small. They are forced to seek better returns in equities.

Some economists think the soft patch that the US economy has found is temporary and there will be an acceleration out of it. Others believe that it is softer and deeper and will lead to relatively recessionary conditions next year. Secondly, it might turn out that the current yield on bonds is actually quite good, it seems to be modest. Our own road map projections are more in line with this view. It is entirely possible that I have misread the exact top level and timing of the present bull markets. In any event the top in British and European markets is not yet due. We think it very unlikely that the cycles in economic activity have suddenly stopped working and so see the present strength as a summer blow off that can make higher highs than have so far been achieved but that it is still probable that a top to the bull phase will be seen this year. Next year will see a retracement back to more attractive levels…