Travelling Technicals with Global Indices: Dow Jones Industrial Average

The world's most renowned stock index, the Dow Jones Industrial Average has a rich history of tracking stock performance having been published on the 26th May 1896 by its formulators financial journalist Charles Dow and statistician Edward Jones to study the price movements of industrial companies listed on the New York Stock Exchange that allowed for an additional format of analysis at a time when most analysts used the convention of fundamentals when assessing the degree of fair price of a company's value.

Many would say this heralded in the era of technical analysis as a legitimate form of the study of price movements that point the precise price where equilibrium could be found and then decipher whether the particular stock was overbought or oversold. Although most who use technical analysis do so in the hope of catching short term speculative moves in trading, the liquidity it generates through participants who use it plays a vital part in the stock market process.

The index tracks the 30 largest listed industrial companies listed on the New York Stock Exchange however the swell of companies listing as well as the changing economic dynamics in the US over the past century has slowly eroded the relevance of the index although it still tracks some of the world's biggest companies, a gauge that can be used in the assessment of the strength of global equities.

Listed below are the current constituents that feature in the Dow Jones Industrial Average with the longest listed company being General Electric in 1907 with previous stints before that and the latest inclusion of Apple in 2015.

Changes to the index don't take place regularly as modern indices do on a quarterly or biannual basis leaving it susceptible to becoming stagnant for a lengthy period of time.    

 

Let's have a look at the charts:

Quarterly

Given the index has a long spanning history its fitting to take the opportunity to observe previous rallies and selloffs with the chart shown following the period between 1988 till present.

Looking to the left hand side of the chart we see an impressive rally that began in the early 1990's that offered little resistance in the way of buyers with the outcome leading to a tremendous point accumulation that find a top at the height of the I.T Bubble of the late 1990's. 

This marks the transition from a trending market to an uncertain trading market that's encapsulated by two notable economic events that caught the market on the wrong footing, holding back the ease of flow with which the index sliced through old highs marching its way to the top.   

Immediately noticeable is the area of support just above 7 000 that provided the platform for fresh rallies to take off on a number of occasions. This support was built over a number of years reiterating the observation that the lack of change that happens in the index brings about stagnancy.     

From 2009 the market exhibited another flawless rally having being supported by the Federal Reserve who've used every monetary tool it has to resuscitated the US economy  with the result having gone down as one of the longest bull runs of all time. A rally with such power isn't created from inter yearly swing highs or lows but more so with an element of momentum to it. 

I've placed a 13 SMA and a MACD indicator onto the chart to find the levels of impulse the chart still possesses and whether there might be a chance that we see previous highs being taken out. The moving average still exhibits a degree of trendiness to its shape placing a positive edge in favour of the bulls here. However we do see the MACD histogram trending downwards. 

The price has tested the 13 SMA a number of times and has successfully managed to keep above that line but starting to wane off indicating potential to fall off. 

There's strong support at 16 000 that's been guarded well over the past two years which says it'll be a tough level to beat but in saying that we cannot forget to weigh up the grim prospects that lie ahead making me believe that this index may have reached a top. 

If the levels of 16 000 were to be taken out then we'd see a quick drop down to 14 000 from which we should find decent support in a previous resistance area. 

Weekly

A closer inspection of the sideway movement we saw on the quarterly shows us that the Dow Jones might well indeed be forming what looks to be a triple top formation. We've seen a large dome throughout 2015 that held support at the 16 000 level. We then saw a brief rally upwards only to be met with resistance at 18 000 before dropping off again.

Strange as it may seem, the all time highs have yet to be retested with the index but 18 000 looks to be a round number traders are using to stop and start rallies.

Currently the price sits close to the 18 000 level which does create some anticipation that a break could be imminent however we'd need to see enough momentum produced to push it over this barrier which seemingly doesn't show any evidence on the higher timeframes.

I've drawn a rectangular support box between the levels of 16 000 and 15 500. As mentioned above, upon closer inspection we can now see exactly where vulnerable points could lie with 15 500 the price to beat if we were to see the index come off here.

If that wasn't to happen its safe to assume that we could be headed into a consolidatory range so its important to note the price action that takes place at those levels for indications might very well show a potential buying area back to the top of the resistance of 18 000.
 

Risk ignorance is the biggest enemy of investing

If there's one thing being a part of the market has taught over the past six years I've participated in, it would be the humility of time spent earning my knowledge base that I use extensively on a day to day basis when approaching the market, having accumulated most of it through actively taking risk which sometimes paid off handsomely while other occasions left me doubtful of my abilities.

I can honestly say that when I first dived into the world of investing I had full confidence in my aptitude having completed a tertiary level education that majored in the subjects of risk and portfolio management, diversification, quantitative analysis, methods in valuing a company and much more other things concerning the study of investment.

Yet my first interactions with financial markets led me down the pathway of error every rookie makes when attempting to speculate my wealth to greater heights and that's underestimating the importance of time and information.

My first investments were placed in a highly risky area of the stock market, namely small cap companies or as they're otherwise known as penny stocks. These stocks are characterised by the fact that the firm listing is usually a start up with a wealth of ideas looking for funding to offer its products or services as a fully fledged operating enterprise giving some seriousness to the idea.

They also contain an element of uncertainty when delving into analysis of financial steadiness exhibiting traits of little margin for error when it comes to succeeding in penetrating the market with its products and services. Management is small enough to save on cost but then so the same goes for the overbearing size of ideas that require a wider headcount of staff to launch the company's strategies into the future.

Most times management doesn't have a large enough ownership stake in the company to convince investors and analysts to buy into their outlook making them feel that the directors are happy to get a full paid salary but aren't willing to put down their own precious capital implying a lack of commitment to the idea.  

Ignorance of #risk when #investing is risky business via @TMFHousel - https://t.co/f0GlvJiMrA pic.twitter.com/69dfUM3aRn

— Andrew Stotz, CFA (@Andrew_Stotz) May 22, 2016

I say this now having learnt the hard way of going through the dreadful  experience of watching my wealth more than HALF and praying for a miracle to crop up that would see at least my entry price matched to recover some of my bruised ego. But this wasn't to be the case as the wait only served to damage my confidence more by shredding up any hope I may have had when placing my irreplaceable capital to work in stocks that kept sinking into the abyss.

The story has a happy ending, I promise, but only once I plucked up the courage to admit that I had made a huge mistake in miscalculating the risk attached to this particular financial market. It's important to be reminded that although I refer to them as one part of the financial market rather than singling them out as bad instrument there are a few amongst us with greater insight and ability to invest and successfully profit from them.

It falls parallel with the old saying that goes "A good tradesman never blames his tools"

Those few amongst us that succeed in penny stocks don't do so because they're luckier or take bigger chances but more to the fact that they understand the risk involved when dealing in these instruments and then actively find ways to mitigate them thus placing a considerable advantage as opposed to people such as my own experience basing decisions on hearsay or impulse buying.

And the same applies when dealing with any other instruments in financial markets whether it be large cap stock, bonds, commodities or even derivative type transactions.

Understanding the risk attached to the investment is the single biggest priority before committing to the transaction. If you aren't acquainted with all the risks contained in that decision then you shouldn't be proceeding with it.

You'll probably say that I could say this due to hindsight and I'd counter by saying that the risk of getting it wrong from the get go is so much greater the smaller your knowledge, stressing the need to scale down your exposure to the potential of losing it all and accepting that the process of trial and error will inevitably be the expected mode of learning to a larger degree thus motivating you to take the leap knowing you might get it wrong but not so dangerously that it costs you your entire wealth.

The belief that making easy money trading the stock market should be discarded for it only holds true for fools who have yet recognize the falsehood of these marketing campaigns aimed at making the advertiser richer yet the subscriber poorer. The realization will only set in once his wealth has dissipated and the weight of failure must be carried with burdensome financial implications.

Is Saudi Arabia the real reason behind the rise in oil prices?

Given the past four months of a steady uptrend in oil prices one would think it certainly validates Saudi Arabia's decision to flood the market with cheap oil which in turn brought about huge price declines that discouraged US shale gas producers from competing on OPEC's turf. The coverage has been phenomenal when considering the infighting we've seen come out of the collusive oil body over memberships agreement or rather lack of cohesion in participating in a production freeze.

Iran's standoff with the de facto leader of OPEC has created the impression that tensions between the two nations might be reaching a boiling point that could spew over into the stability of supply in oil after Tehran has been taunting Riyadh with a series of threats focused on closing a strategic canal, Strait of Hormuz, in retaliation to any attacks on its sovereignty by the US and its allies.

The rife has largely taken attention away from those members, namely Venezuela and Nigeria, who've suffered economic distress as the result of low oil prices but are subsequently making their way back into news headlines as the disturbing outlook of their economies start to show the effects of being starved of oil revenues.

Saudi Arabia's oil strategy is finally paying off https://t.co/aonJUcJAC4pic.twitter.com/nRJUawTlh3

— Bloomberg (@business) May 27, 2016

Nigeria's government has been facing attacks from terrorist militants who are aggrieved by the presence of multinational oil corporations in a specific region as well as the independence of the Niger Delta. A group calling themselves the Niger Delta Avengers have tormented oil firms for a while with the latest act of sabotage of blowing up the main electricity supply point to a facility owned by Chevron serving as a commitment of more attacks to come if their demands aren't met.

This attack is just one of many that has plagued the oil-rich African nation with further worry to stress over as the losses incurred from an abnormally low oil price begins to break the back of the Central Bank of Nigeria's foreign currency reserves. The attacks have resulted in the country's oil production hitting a 20 year low which aren't healthy signs for a nation that's reliant on oil to fund its trade balance.

Although a small size of the overall oil market, the drop in output from this tense situation has given oil bulls impetus to stretch the rally further with renewed confidence that the supply glut that held back the oil price for many a months is starting to wane.

Niger Delta militant attack shuts down Chevron facility: company source #Nigeria https://t.co/tOyp8dOHlK pic.twitter.com/Pd5Gg8eeT5

— Reuters Africa (@ReutersAfrica) May 26, 2016

But even more so with evidence showing that the US shale gas industry might be on a brink of collapse. This wouldn't be the first time that speculation over the financial position of these alternate forms of energy companies has been so high with the fractiousness relationship between Saudi Arabia and the other members of OPEC overshadowing the bleak outlook.

In desperation to save themselves and the industry, US shale gas producers decided to offload its surplus production into the Liquified Natural Gas market with its targeted market being Japan and China who are the biggest consumers of the product.

However the move has only led to further despair with the prices of LNG decoupling from Brent Crude with analysts saying that the industry is about to plunge deeper into trouble with the market showing signs of contraction following the economic downturn in both Japan and China.

Spot #LNG price stays weak, breaks link to rising #crude, likely to boost industry tension. https://t.co/2jleTt4ETg pic.twitter.com/OOZ9aAEVsd

— Clyde Russell (@ClydeCommods) May 26, 2016

These outcomes all support the price of oil in the near term but nothing stops shale gas producers from re-entering the oil market now that prices have hiked sufficient enough to warrant it. Going into OPEC's bi-annual meeting next week, Saudi Arabia may feel confident in projecting that its won the price war yet it hasn't.

Shale gas producers may be fading away but the ones that get left behind are proving that they are ready and able to survive such a market by adapting their products to new avenues of tapping sales highlighting the degree of product flexibility.

This will inevitably remain the thorn of the side of OPEC and more important Saudi who's mission to remove competition from the oil market is looking tougher than what it expected.

Alibaba's SEC investigation stresses more to be done in China's Stock Exchanges

One of the big news stories I've been following in recent months is the happenings at the Chinese Securities Regulation Commission after the organisation dropped the ball in implementing a long term plan of deregulating Chinese equities that ended rather badly for the image of China as an investment destination having experienced months of violent stock market volatility that eventually spread to the rest of the world.

Under the chairmanship of Xiao Gang, the organisation succeeded in revealing the flaws in its own undertakings as well as the negligence with which it operated in by allowing unscrupulous companies list on stock exchanges with shady financials and backgrounds that would raise the hair on the necks of most global investors who've become accustomed to an accepted standard worldwide.  

On a number of occasions these issues were raised by media houses but to no avail until chaos set in with reputational damage inflicted at the highest possible levels. From there onwards the pressure to remove Gang ensued up to his dismal in January and being replaced with a better suited candidate in former Chinese Agricultural Bank chairman, Liu Shiyu.

You can read more about this shake up by following the link.

A few weeks back I decided to review how well Shiyu had done three months into his new job and concluded that a number of measures he was putting in place in terms of transparency of reporting together with a stricter criteria when issuing additional stock to shareholders were signs that the CSRC was on the mend and would benefit greatly from this boost in confidence.

#Alibaba is taking fire again...This time from the SEC over its #accounting methods: https://t.co/DFNhxJhoXx $BABA via @CRrileyCNN

— CNNMoney Investing (@CNNMoneyInvest) May 25, 2016

Needless to say the rot that set in under the tenure of Gang will inevitably be with investors for some time yet with the latest news out of Wall Street reporting that Alibaba, described as the Amazon of China, is being investigated by the Securities Exchange Commission over the methods it uses to report sales numbers from its hugely successful "Singles Day" campaign.

This isn't the first time doubt has been raised over the variability of actual versus reported growth numbers with many analysts saying the numbers are "cooked" to make the outlook shine brighter than what it seems.

Financial publication house Barron's dug its heels in when it fronted a story that said the company was poised to lose a further 50% market cap devaluation as was speculated by analysts in the industry. This led to founder and chairman Jack Ma to respond back harshly to this assessment of the company saying it was in the driving seat when it came to profiting from the Chinese internet boom and the fears some investors may have in relation to the deepest of the slowdown in China were unfounded.

It should be noted that the company's stock price performance since its listing has been poor given the fanfare it received on the first day it traded publicly on the New York Stock Exchange.

The latest news comes as another blow for the internet giant whose struggled to establish itself as a reputable company worth investing in at a time when Chinese stocks should be thriving from capital inflows with a mountain of opportunities that beckon which brings me to my next point.

Properly regulating Chinese equities not only has a positive impact on locally listed companies but also on those firms such as Alibaba by opening up the doors of possibilities to future investors whether they be based in London, Tokyo or even New York. The ill-equipped stock regulations in China has failed to prepare potential multinational companies to conform to international standards that directly lead to steady investments thus damaging their image.

Perhaps its harsh to judge the Chinese who lack expertise in this field but its also fair to say that its been afforded ample time and patience to implemented proper practices yet decidedly used the chance to fill bureaucratic posts for prominent members of its ruling party.

If government is committed to steady the hand of investors it needs to stress the priority of finding a balance where the interests of public funds are held in the highest regard and the dealings by the companies seeking capital are monitored with hawkeye vision to ensure sufficient investor confidence remains sustainable over the long term.    

Nigeria plans to drop its currency peg

I wrote a piece last week detailing the political risk that's being created as a result of the decline in oil prices with specific focus on Nigeria and Venezuela as good examples. I stated that both these countries had been over reliant on oil to generate fiscal revenues resulting in a disastrous outcome that's currently plaguing their respective economies.

Of Nigeria, I said that the lack of sufficient oil revenues was placing a cash drain on the finance ministry that would cripple the Nigerian government's efforts to ward off the insurgency of terrorist group Boko Haram who've sown a reign of horror throughout the West African country.

New information shows that the Nigerian government and finance ministry are four months behind on announcing the annual budget prompting many to believe that the nation could be headed into an economic contraction which isn't far fetched if you weigh up the severity of the foreign currency reserve depletion as a result of foreign firms demand for dollars far outstripping supply causing an imbalance in the accounts of the Central Bank of Nigeria.

A peg pipped against the US Dollar has failed to restrain the Naira from depreciating away from the pegged level of 200 with the 12 month forward rate Naira-Dollar being quoted as much 50-60% weaker than the peg.

Calls to drop the peg have been met with resistance from newly incumbent president Muhammadu Buhari who believes that the harshness of inflation that would flow into the economy as a result of a sharp depreciation would likely unhinge all the good work done in building up a solid foundation for the country's economy. Most critics believe Buhari didn't have a clear grasp of the developments happening in the oil market and thus over leveraged his bets of a bounce materialising at much higher levels. Again strong evidence of the over reliance on oil to generate government revenue.

Nigerian recession is imminent, central bank governor says https://t.co/RjqryCAqJo

— Bloomberg Africa (@BBGAfrica) May 25, 2016

But in a twist of events Central Bank of Nigeria Governor Godwin Emefiele said the bank would be operating its foreign currency market based on a flexible system that would allow the free market to dictate equilibrium, hinting at reforms that would help the nation prosper in an easier motion.

The move came as much of a surprise as it did a shock for most who had expected some type of drastic measure to be implemented to prevent further economic calamity descending into the levels of despondency. Nevertheless the reaction from all quarters of its financial markets pointed to a favourably vote of confidence in the move.

Before we see any normality return into the fray, Nigeria will experience a much anticipated recession that could've been prevented had the government not acted quicker in removing the currency peg yet the long term benefits that would accrue from its existence far outweigh any short term discomfort founded on the back of a sudden adaption to a shock to the system.

The risk that once added additional return no longer resides in the investment equation making the flow of capital less hesitant to place its economically beneficial substance that'll find its way freely into the financial system and channel itself to where its needed most, breathing life back into a good story to tell.

In retreat for Buhari, Nigeria prepares to let naira weaken https://t.co/XOmlzzX178

— Bloomberg Africa (@BBGAfrica) May 25, 2016

Travelling Technicals with Global Indices: FTSE 100

One of the many feats that was brought into this world by the British Empire was the Industrial Revolution that became formative in the one of the elements in the circular flow of economic activity namely production that improvised on the handcrafted form of manufacturing goods and services and stepped it up to mechanisation. 

You could argue that the need to raise capital to fund these new inventions that sped up the production line could have directly attributed to the prominence of stock exchanges around the world as we know them today. The relevance of this clearly puts a considerable amount of focus on the London Stock Exchange whose existence came about in 1801 which still features some prominent manufacturing companies in the world with an example of such; 

• Anglo American 
• SABMiller 
• BP (Formerly British Petroleum) 
• GlaxoSmithKline 
• Diageo 
• Rio Tinto 
• Rolls-Royce Holdings 
• Smith & Nephew
• Vodafone Group
• Standard Chartered 
• Tesco

All these companies have strong links to former colonies providing an integral part of keeping British industrial heritage alive in today's standing.  

Having charted a series of global equity indices over the past five months, I've found the analysis of the technicals to be indicative of the situation encompassing the country's economy with the FTSE 100 being no exception after facing a barrage of doubt over whether the British public will elect to remain or leave the European Union that contributes significantly to its economy. 

Let's get down to those charts: 

Quarterly

The most glaring characteristic that stands out for me on this chart is the 15 years of zero real returns that's left investors dissatisfied. The range between 6800 and 3600 are the points where aggressive buying and selling takes place as is seen from the three occasions stiff resistance has prevented the index from surpassing the highs. 

Otherwise we could say the ease with which the index bounces off or down is fairly consistent in its pathway except over the last three years where the price has failed not once but a few times at the top of the range which admittedly is concerning. 

The previous three times the price candles attempted the break, long tails were left behind indicating high volatility. 

Highlighted in the blue line is polarity which is going to play a crucial role in the weeks ahead in deciphering whether the index will remain stuck in a directionless volatility storm or if the next leg down might is imminent.  

Monthly

We head over to the monthly and the volatility we saw exhibited on the quarterly is shown again with a technical formation of a megaphone that's been in place for sometime. The shape has generated the volatility that it threatened to unveil however the level of 6000 remains strong support. 

The Brexit risk still remains the biggest event that could be the catalyst to see this index dropping lower but we'll need to see the lows of February 2016 being taken out first before we can speculate on how much further it could fall. 

Obviously an exit would be devastating to the British economy but it seems as though the polls might just be able to pull in the direction of a stay. That however still leaves us with possibilities over the direction after that. I suppose we could direct our thoughts towards the overall weakness of equities and align our ideas in that sense.  

Nordic countries flirt with prospects of closer ties

Whilst the merry-go-round of debate on how European policymakers should deal with an impending crisis rages on, the first signs of spillover effects from a souring economy are beginning to show up quite prominently in countries who reside on the continent with strong trade links to the EU but haven't conceded the control of their local currency to the economic union.

Nations such as Norway, Denmark, Sweden and Iceland all adopt their own currencies to trade relations with Europe with exception of Finland who make use of the Euro. We've seen the economic dilemma these four countries have found themselves in when dealing with a highly appreciative currency that's leaving them in the cold when it comes to exports.

The progressive and stable political environment together with smaller populations when compared to their European peers have led many to consider these economies as safe havens in times of great panic although they've been amongst the most experimental in terms of negative interest rate policy which many thought would've chased off overvalued currencies.

However being the most productive and innovative countries in Europe and then weighing this up to the situation nations in the EU are facing its not hard to see why they've found their own currency problems. One could say that the truest form of socialism is exhibited in the implementations of such policies in these countries with little to no hiccups that show through due to the high level of education held by most of its citizens that forms an imperative degree of understanding to the necessity of the system.

But in a system that conforms to both sides of the economic spectrum, the strongest attribute of capitalism still shines through heavily when it comes to considering the best opportunity to place savings seeking out returns with the least amount of risk. In saying this, when summing up the analysis in the paragraphs above, its fair to say that the attraction to Nordic shores outstrips the benefits of keeping savings at bay when considering the risks that's gradually building up to a fresh crisis in the EU.

A billionaire tycoon thinks Denmark, Norway and Sweden should be a single country https://t.co/9CRvH0nwqO /Yes, but no NORW football style!

— Steen Jakobsen (@Steen_Jakobsen) May 20, 2016

Suggestions that a new trade bloc between three of the biggest Scandinavian economies should be formed to compete for better trade benefits with the EU warrants the idea flawed when combing through the negative effects ALL of these countries are suffering from Europe due to the perceived similarities amongst themselves. Adopting a common currency will simply draw speculators to a central currency rather than individually as is the case presently but it certainly won't change the perception to a lesser degree.

Nordic countries are victims of their own good doing and their close proximity to Europe is proving to be toxic to their own growth. We cannot expect them to thrive when witnessing the mess that contaminates the European economy.

A move such as the one proposed would only work if the over reliance on trade between themselves and Europe were diluted by the expansion of trade relations with the US which is seemingly becoming the trend taking shape as we see Washington extending its hand of good offering in exchange for support against the forces that threaten to destabilise the European region, the latest being Russia.

Although the issue of Russia is just one example of how Washington plans to keep Europe united, it certainly recognises the powerful influence these leaders have on their counterparts. It also opens up access for the US to incredible technological advancements in the products and services offered by Nordic countries that push the boundaries of competitiveness closer to optimal efficiency, a characteristic that once featured brightly in the European context but subsequently overtaken by the evils of socialism.

With the Euro weakening against most other currencies and the Dollar strengthening overall, now seems to be the best time to seal the deal. Nordic countries are taking full advantage of this with their latest summit hosted at the White House being a signal of intent between leaders. Whether they take further initiative will depend on how grave the consequences in the EU become in the years that lie ahead but with vulnerability showing more and more by the day it could be sooner than we think.

Obama: US, Nordic nations agree sanctions against #Russia should continuehttps://t.co/B7A0A7iHHn @Reuters #Ukraine pic.twitter.com/bJOydi0eK9

— Oleh Kuts (@OlehKuts) May 13, 2016

Is the Danish central bank creating currency risk?

At the start of the week I decided to focus my attention on major currencies and the volatile climate they were exhibiting as well as the troubling situation most developed nation's central bankers are finding themselves in trying to reverse the years of expansive monetary policy measures that has produced ill-effects that are seemingly weighing down economic activity.

The monetary noose that hangs around these nations necks seems to be getting tighter with every consecutive week that passes as the trickling news flow slowly starts to build up momentum to turn this cash flush fanfare into a nightmare on Elm street.

Being aware that there are a number of countries mostly in Europe that implemented such extreme measures of sinking interest rates below zero before the ECB and BOJ joined the foray, it would make sense to find the nation that's had these measures in place the longest and assess whether there's been a level of success.

As luck would have it I found a handful of stories about the Danmark Nationalbank who currently holds the longest reign of interest rates in negative territory with the ongoing recording setting feat sitting at four years!!!

The funniest part is only last week Governor Lars Rohde cautioned those who wished to speculate against the central bank saying officials would unpack whatever measures were necessary to stop the Danish Krone from appreciating against the Euro. The reason for such a strong message is revealed in the fact that the DNB has placed a peg on the level it wants to protect the Krone from surpassing against the Euro.  

Don't bet against #Denmark’s central bank https://t.co/cDZcwbmWm2 via @PeterLevring pic.twitter.com/s2rm7Fkk1u

— Zoe Schneeweiss (@ZSchneeweiss) May 13, 2016

Tough talking didn't prevent a scare from happening early last year when the Swiss National Bank, who itself had a floor in place against the Euro, abruptly removed the peg in an unexpected move that created a toxic currency whirlwind of volatility that reverberated throughout the entire financial market.  At the time, the DNB defended its own peg bravely after speculation became rife that it could follow suit with the SNB and remove the floor.

However once things settled down the Krone began depreciating, helping it avoid the inevitable ascent the DNB hoped to ward off but this time it decided to use foreign currency reserves it had built up over years since negative interest rates hadn't assisted its objectives up until that point. 

It's imperative to understand that the reason the SNB removed the floor against the Euro is because the ECB was speculated to and has now begun a protracted quantitative easing program that would would sponge up all the foreign reserves the SNB had available which had fast depleted once speculation grew. The issue came in the nature of the communication between the SNB president Thomas Jordan and the public with the perceived level of trust towards the central bank amongst the highest out of all its peers.

Jordan's timing of the removal of the peg was left too late in the game and miscommunicated improperly that direct fault can be pointed at him and his colleagues for creating mass panic that left financial markets reeling.

Currency intervention an imminent risk in Denmark, Nordea says https://t.co/DT8mJYPwQ0 via @CHRWIENBERG pic.twitter.com/mo4WDNLMKJ

— Bloomberg Markets (@markets) May 20, 2016

If common sense prevails, the market would've realised that the mammoth monetary stimulus currently being effected by the ECB dwarfs all the monetary programs being meted out by Nordic countries including that of Denmark. These nations are simply too small to compete against monetary stimulus of this size and scale which means their local currencies get brushed aside by the waves of crisis-fearing money making its way to their shores in an effort to shelter wealth.  

This probably explains the markets skittish sentiment after Lars Rohde made comments refusing to concede his effort to the market and allow a free hand to decide appropriate equilibrium. It translates into the possibility of seeing another SNB type shock descending into market sphere's, adding risk at a time when major currency volatility is at its height.

The worrying foreign currency reserve drain that's occurred over the last year surely puts the writing on the wall for DNB officials or is this yet another case of attempting to cover up the flaws of a failed process that isn't working and probably won't be the saving grace of the world burdened with troubled economic times.

#Denmark Foreign Reserves have been shrinking for some months sending worries over whether the peg will be remove pic.twitter.com/atKWg44xsH

— Quinton Mendes (@CadeTradeR) May 20, 2016

Is the Fed correct in thinking rate hikes?

When the Fed finally lifted interest rates in the US for the first time in over a decade last year December the tone that was struck by the Fed was one of caution in its pursuit to normalise the interest rate cycle from an abnormally low rate for an extended period of time.  At the time I had written that although the Fed had envisioned to see its reference rate near 1.4% at the end of the year suggesting four rate hikes during the course of the year, it was highly unlikely that we would see that develop given the nature of the global economy as well as the converse pathway being followed by most of its developed counterparts.

The Fed didn't sideline this issue stating that the normalisation process would be taken in accord with the strength of the world economy knowing well that a steep climb in interest rates could destabilise the entire financial system. It's fair to assume that the Fed has stuck by its word by reconsidering a proposed hike in April saying that the outlook of the Chinese economy was waning on the global economy making it difficult for them to lift rates.

But yesterday the Fed's Minutes of Meetings for April were released showing that most FOMC members were ready to hike once again spooking the market into recess at the mere thought of it. The news came as somewhat of a surprise as many were expecting the hiking process to be further delayed to the first half of 2017.

Fed signals interest rate hike firmly on the table for June https://t.co/K25aq8kE1r pic.twitter.com/j2fe5xHXeM

— Reuters Top News (@Reuters) May 18, 2016

If it were to happen it would certainly set the trend for the divergence between developed nation's monetary policy which would indicate a departure from the current undertaking of economic coordination so as to insulate the world economy from shocks and place a concerted effort from all nations on finding a unified solution to economic hardship. A common theme that's cropped up often over the last while is the need to protect a nation's sovereignty giving further evidence that the economic pathway countries are about to endure upon requires solitary objectives as opposed to collective thought.

The move certainly provides short term relief for currencies such as the Japanese Yen that have suffered severely from policy mismatch with participates inflicting the opposite action the BOJ had expected them to after announcing an expanded and extensive stimulus program. The market has been unrelenting on countries engaging with negative interest rate policy with many warning the negative impact they will have if implemented.

This leads me to the first reason I believe the Fed isn't foolish in its decision to continue hiking rates as its escaped the trap of falling into the mindset of NIRP which could've thrown the US economy further into the abyss, instead relieving the reliance of the monetary policy by shifting economic policy decision towards fiscal decision makers. This issue has been spoken about from a number of institution who have said the functions of monetary policy have started to wear thin and the need for governments to restructure their economies a necessity.

Secondly the US economy although considered weak when looking back at previous years is much stronger relative to its peers currently, so when weighing up the pros and cons it would lean towards stabilising the economy rather than making it softer by delving deeper into negative territory with interest rates.  It's facing up to the headwind risk that's been created from abnormally low interest rates to be certain of normalised policy in the future, an aspect that doesn't feature at all in Europe and Japan.

If there were anyone that would be disappointed or despaired by the guidance it would be market participants who haven't adapted to this new way of economic cooperation or rather lack of. The sudden price moves that occur as a result of policy decoupling should be expected as the notion of paralleled policy enforcement no longer matches. It wouldn't be naive to think that such a move might aid the momentum of a new economic shock which I have no doubt, but we haven't reached a point where we can clearly assess the severity of such an event should it happen.

For now being aware of a changing tide is all that matters, its certainly going to make things interesting in the short term and more so over the long run.

Oil isn't only presenting an economic risk with its price decline

If you've been an avid reader of this blog you'd have noticed the topic of oil has come up often in my daily commentary with my belief that the development of this theme will not cease to exist for some time yet. I can recall commenting on the sudden drop in oil prices and subsequent bounce expressing my opinion that oil was a sector that would become a pool of interest in the next few years. Needless to say the commodity hasn't disappointed the skeptics who have been flooded with material to write about in their debates and arguments around its production.

Much of the focus this year has centred around the growing tensions between Saudi Arabia, the defacto leader of OPEC and its rival Iran who has recently been unshackled from international sanctions that prevented it from trading its most valuable product, oil, with the rest of the world.

However the last few days has seen that attention being taken away from the impending blow up of relations between both nations and directed towards supply interruptions that's seemingly fuelling (for a lack of the word) the price of oil in the last few weeks. We've seen the devastating wildfires in Canada halting a significant proportion of oil production due to the quickening pace with which the fire has spread that posed a risk of potentially huge damages if it reached oil fields but it looks as if authorities have got the situation under control.

Although the supply interruption from this event was grave enough to cause a spike in price, it's not the type of event that will be ongoing over the medium term. I stress this because if we are to see oil prices recover fully from the slump they've experienced we'll need to see a sustained situation that would support the price recovery.

In saying this and having closely followed the oil crises since its beginning in 2014, I've taken note of two important oil producers who were the first member nations in OPEC to make an appeal to Saudi Arabia to find resolve at the height of the plunge. Both Nigeria and Venezuela have borne the most economic damage following Saudi Arabia's decision to expand production in its efforts to push out US shale gas producers.

I've previously stated that if Saudi Arabia failed to get Iran to commit to an oil production freeze it could be seen as the former overlooking the defiance of the latter with the need for close cooperation being top priority when maintaining stability in a collusive agreement. The failure to do so would cause other nations to frown upon their weighting of views and possibly cause fissures between the relationship between OPEC and themselves.

This exact implication is what I believe to be happening in OPEC at the moment with both Nigeria and Venezuela stirring up fear amongst international investors over the economic dilemma each find themselves in with the outcome leading to oil production cuts.

LATEST: Shortages in Nigeria and anxiety about Venezuela are pushing oil prices higher. https://t.co/beRzanh0XB pic.twitter.com/6B0yeZTUsy

— Financial Times (@FT) May 16, 2016

Nigeria's cost curve means it requires higher prices to break even, a scenario that hasn't been present for some time. Together with this the added pressure of terrorist group Boko Haram's reign of villainous attacks on the Nigerian community in fighting for a wider acceptance of Muslim minority in the country.

However the problematic situation Nigeria finds itself in at present is as a direct consequence of suppressed oil prices, bleeding the country's foreign currency reserves to near zero causing economic despair as never seen before.

The change of guard in government is left stagnant in its progression as the new cabinet along with president Muhammadu Buhari grapple with a serious cash drain on fiscal accounts as most tax revenues are raised from oil income. Although tough talking in their way to winning the election, the party sits toothless in its defence against terrorism placing it on the back burner as higher priorities take precedent over everything else.  

But neglecting to defend its people, the country has become vulnerable to more terrorist attacks with the latest attacks taking aim at oil pipelines in an effort to sabotage the benefits of foreign receipts. The growing concern amongst the international community has led to a number of leaders, most notably the United States coming to the aid of Nigeria to stop the incursion of further attacks that could risk stability in the region.

UPDATED: #Oil disruptions in #Nigeria mount as @Shell declares 'force majeure' on Bonny https://t.co/oYeSMizIHx pic.twitter.com/IOi45TsOdm

— Javier Blas (@JavierBlas2) May 11, 2016

Venezuela has had a long history of disrupting foreign investment into its oil sector being a nation that holds the world's largest reserves. The countries insistence of stated owned oil assets has led to oil production being poorly developed, an often cited argument in the debate over whether stated owned production is the right economic body in producing black gold in the country.

The country's reliance of oil as a means to raise government revenue is even greater than that of Nigeria translating into a detrimental impact on the economy when the price of oil exhibits shocks that can't be smoothed out. The situation on the ground has become so unbearable that fresh water is being rationed and electricity outages are a common occurrence as government tries in vain to get a hold on an epidemic atmosphere hanging over the country.

Similarity exists between Venezuela and Nigeria in foreign reserves having been depleted however the extent of the crises differs in that the Venezuelan government has restricted the access of dollars from importers coupled with price controls meaning mass shortages of basic necessities such as food, medicine and even toilet paper! The government's unwillingness to loosen its hold on the economy has meant that tensions are rising to a point where rumours of unseating president Nicolas Maduro have rooted themselves in the public as clashes with security forces increases on escalated agitation.

Venezuela is falling apart and its military is terrifying people — via @vicenews https://t.co/bPlUbkvpZu pic.twitter.com/pc1xyUcAQE

— Business Insider (@businessinsider) May 18, 2016

In concluding, one needs to consider not only the economic risk an uncertain oil environment presents to oil producers but also the political instability that becomes born into the economies whose over reliance and ill-equipped government policies lead their nations into economic distress. OPEC's relevance might be fading slowly with petty squabbles but its impact on smaller nations of which its own policies were suppose to uplift them is suddenly tearing them apart.

Travelling Technicals with Global Indices: Swiss Market Index

With a modest population of just over eight million people, Switzerland's position in the world order remains amongst the top mostly because of the political neutrality the country holds as well as the loosely regulated financial sector that encourages plentiful capital inflows due to its image of being a tax haven for the wealthy. 

Nestled in the heart of Europe, the Swiss are known for their excellence in chocolates and cheeses but more notably their innovative ability in the fields of manufacturing and pharmaceuticals that play a vital role in ensuring a healthy trade balance that's the envy of other nations. The country has however suffered from protracted periods of appreciation in the Swiss Franc, it's local currency with the severity of sentiment having been tested in January 2015 when the Swiss National Bank president Thomas Jordan announced a surprise decision to remove a floor that had been placed on the Franc against the Euro stopping it from appreciating further.   

Besides this event, the nation has also found itself in the grasps of a battle to produce meaningful inflation following the lack of demand both locally and internationally which has eventually led the SNB to drop interest rates below zero (one of the first nations to do so) with imminent signs of continuing on this path as the latest economic data indicates the country is far from where it would like to be. 

The SIX Swiss Exchange in Zurich plays host to some recognisable multinational companies some of which are; 

• Glencore 
• Compagnie Financiere Richemont SA
• Credit Suisse Group
• Nestle SA
• UBS Group
• Swatch Group SA
• Novartis AG
• Zurich Insurance Group 

Let's get to the charts: 

Quarterly

An appealing chart at quick glance considering the volatile price moves that have been experience over the past decade. Although it must be noted that the timeframe is a quarterly, there remains distinct technical features that provide us with clues to what we can expect to see happen in the future. 

The index shot up to 9 500 during the year of 2007 followed by the slump most world markets went through occurring between 2008 and 2009. I've touched on this extensively saying that the similarity of technical damage incurred by market indices from the same event does stress the significance of its doing. The previous highs leading up to the bubble bursting played a pivotal role in dictating the direction of world stocks by providing overhead resistance that's stopped most indices from marching ahead and at the same time denting confidence when considering investment into equities. 

I made the resistance line of 9 500 bold because it marked an important level traders and investors needed to pass in order to be satisfied that the current bull run that's been in place since 2012 will remain intact and energetic enough to settle the index at higher levels. This hasn't materialised with the resultant action being the retest of the line of polarity highlighted in red. 

Again, I saw this as a crucial point in the bull run where it represented a step higher in its pursuit to the resistance level and higher.  The level of 7 500 was broken during 2008 but overcome five years later with the bulls setting themselves up for a good run. However observing the price action you'll notice the tails to the bottom were small then began expanding as the price got closer to 9 500. This would indicate heightened volatility at elevated levels spelling uncertainty. 

The area of interest will take place at 7 500, so don't be surprised if this level is well contested in the second half of the year. Depending on the sentiment world markets take on, it could prove either distressful or supportive of price going forward. 

Monthly

I've introduced a 50 SMA to clarify the bias price currently holds with the observation being critical in the tipping point of this chart. Price sits below the moving average having broken down in recent months. The moving average does however exhibit a positive gradient making things hard for traders to decipher the direction. 

Although the technical formation isn't perfectly aligned, the basis of the shape does help us understand what price action may be suggesting. The flat floor together with an upward slope along the highs building up to 9 500 confirms the volatile nature the quarterly chart had indicated, telling us that the level of uncertainty in this area remains high. 

The support between 8 200-8 300 has broken downward with price desperately trying to hold onto newly formed resistance. The RSI has generated a favourable indication for the bears by showing the momentum shifting below the 50 level after last being there in 2012. This suggests that the momentum from the sellers is much stronger than it had been while they were fighting for territory in the area between 8 200-9 500. 

 

The setup seems perfectly positioned for the trade with good risk to reward ratios. 

Major currency volatility is feeding from the sentiment of political uncertainty

Brexit might be fear-mongering the British public into the possibilities of a Eurozone without the participation of the UK, it's also stirring up a lot more than fierce debate over the strengths and weaknesses of remaining in the EU with market players beginning to look further than the June 23rd referendum date set down for voting to take place.

The pound has suffered dearly as a result of news flow pointing to the nation going either way when it comes to vote day, sowing the seeds of public discord amongst voters, not the ideal situation UK Prime Minister David Cameron would like to be in facing a possible party backlash should the vote favour heading to the exit door. Such a strong disagreement over the course of action the government should take doesn't make it easier for the Conservative Party after such vote has taken place with many expected to become disgruntled at the outcome whichever way it goes.

Added to this is the US presidential election set to take place in November of this year which itself is beginning to be drawn into the outlook of political uncertainty that has taken hold of global risk sentiment with some saying that it's creating a fluctuating pool of volatility in currency markets.

Part of the reason we seeing stark movements in currency valuations stems from the continuation by some in developed nation economies to extend its expansionary monetary programs through its central bankers causing a tsunami of liquidity that's finding it difficult to secure a home for investment and return.

Top currency traders warn White House race may echo Brexit chaos https://t.co/XNVLqqz5zP via @rachelevans_ny pic.twitter.com/p1hEiU0swB

— Bloomberg Markets (@markets) May 16, 2016

Both Europe and Japan have joined a number of crippled nation's suffering from appreciative valuations in their domestic currencies, dissuading foreign buyers from purchasing goods and services that contribute significantly to economic activity. The plan of action has been to venture interest rates into negative territory, a first for the world which hasn't been taken too kindly at its implementation.

Japan has been the most aggressive in stepping up its approach yet the desired effects that the BOJ would like to have seen come out of the situation has taken a turn for the worst with the Yen drastically strengthening as the placement of savings abroad no longer meet the prime objective of investment, which is to seek return. Japanese investors are starting to see their little returns made outside its border erode as its counterpart nations follow a similar monetary policy path, causing a mammoth inflow of Yen back into Japan.

The implication of such action has led to the Japanese Finance Ministry threatening intervention in the currency market if the appreciation doesn't stop. This obviously raised the hairs on the back of the necks of its fellow foreign finance ministers who feel that such a move would evoke the start of fresh currency wars.

Japan's Taro Aso repeats explicit threat of yen-selling intervention https://t.co/BDWPmwOSDv via @Reuters pic.twitter.com/ldhcTwILMy

— Dan Popescu (@PopescuCo) May 10, 2016

US Treasury Secretary Jack Lew reiterated that participating in overzealous currency devaluation would only help weaken the world economy instead of fulfilling each nation's self-serving currency goals. This was said in the light of Japan's finance minister Taro Aso edging closer to starting the process of currency intervention and ahead of the G7 summit taking place in Japan in just under two weeks.

It certainly sets the tone for what will be interesting discussions that will likely create a stalemate in terms of agreement around how world leaders will direct the economy in the right way. It's this uncertainty created by indecision that could heighten currency volatility further with the need to find common ground becoming the bone of contention.

Dollar struggles after U.S. Treasury secretary’s comments on currency wars https://t.co/HeKUPdMnFW

— MarketWatch (@MarketWatch) May 16, 2016

Alphabet ready to takeover the title of largest listed company

Three months ago I penned two articles (Who's the Apple of the markets eye? and Does Apple run a risk of falling behind the curve?) that detailed the demise of Apple as the world's largest listed company following reports that sales growth wasn't inspiring investors and fears had risen in the market that perhaps the tech giant of the noughties wasn't in the same comfortable position it had gotten use to after surpassing Exxon Mobil in 2011.

Much of the blame can be shouldered on management's failure to adequately invest in R&D that has led the company into a dry season in terms of new product offerings that hasn't maintained the same allure that drew consumers to previous gadgets launched in yesteryear.

The company reported its first ever quarterly drop in iPhone sales since first introducing the generational changing device to the world in 2007, alluding to the fact that the smartphone market was oversaturated and remaining bleak about the outlook for the second quarter of this year. Management also went on to say that it had concentrated on boosting investment in R&D after falling short for a number of years hoping their fortunes could be turned around with new products.

Analyst have marked a trend that's emerged in recent months that would suggest that the production of gadgets no longer holds staying power with aesthetics but rather the functionality in terms of operating systems and ease of use when it comes to the end user. This is evident in companies such as Alphabet (formerly called Google) and Facebook performing stronger than the broader market in the past few months.  

Apple falls below $90 as iPhone worries fester https://t.co/UgT6gGu6gV pic.twitter.com/1EU5LdCrnu

— Reuters Science News (@ReutersScience) May 13, 2016

More importantly though is the situation where Alphabet Inc. is on the cusps of knocking Apple off its perch at a time where the latter is facing headwinds that could blow it off course. An advantage Alphabet has over Apple is the technological innovation it prides itself in by investing considerable time and money in finding solutions to the most elementary problems with the assistance of computing technology.

And as much as most research and development of new ideas don't often find their way onto the market, the benefit of having a pool of products and services being churned out constantly gives Alphabet the edge over its competitors by supplying them with the latest technology at the speed of management's decision to commit long term to it, something Apple has lacked over the years.

We won't know officially when Alphabet will be classified as the world's largest listed company until its spent enough time above Apple, having experienced a brief spell earlier in the year only to suddenly fall out of bed. However with the strength in the trend backing Alphabet and sentiment changing against Apple one does get the feeling that Alphabet has the upperhand here and more likely to exceed previous records set by the latter in terms of market capitalisation.

As for Apple, it needs to go back to the drawing board and rethink the way it sees its business and how best to mould it around the changing environment by taking advantage of consumers evolving nature. I don't have any doubt that Apple won't feature in the future of technology simply because its built itself enough reputation to stand out amongst its competitors that it would be impossible for them not to lead the sector in the path of the most stylish expression of the latest gadgets but what will define them as the world's biggest listed company if they wanted to keep that title would come down to its ability to produce a perpetual money making machine, a feat that judging by the past is yet to be found.

How the relationship between Bonds and Gold casts a shadow on world prospects?

Central bankers attempts to smooth over a bumpy economic recovery has taken a new turn following the auction of long term bonds by Portugal, Spain, France and Belgium issuing debt securities with maturities of between 30-50 years in a bid to take advantage of the negative interest rate environment currently being meted out worldwide by many developed world economies.

A staggering $9 Trillion worth of bonds worldwide presently sits at yields below zero, a first for many in the financial industry in an experimental usage of negative interest rates in the hope that it would bring some life back to economies that are suffering from deflation and low economic growth.

Yet experts have warned central bankers that the flaws of implementing such extreme policy could have a dire effect on the outlook of the world economy for decades if the incorrect approach is not taken from government's in restructuring their economies after being afforded ample amount of time to do so, instead choosing to feed the social welfare addiction of its voters to continue flaming their own political greed.

Hindsight would suggest that extending the maturity of long term bonds adds an element of risk when purchasing these bonds which pushes the yield threshold above zero and into positive territory, a once fixed convention that never flirted with any hints of diverging to the pathway we've found ourselves on. The demand for these securities has attracted a substantial amount of attention from analyst who seemingly label this as investors last ditch effort to get their hands on favourably yields.

It's also indicative of the bond markets expectations that central bankers will continue to loosen their grip on monetary policy going forward with no signs of differing views from decision makers. When will the realisation sink in that the fantasy the world has been living in for the past eight years is slowly waking the dreamer by invoking the most terrible of nightmares?  

Investors Fleeing $9 Trillion of Negative Yields Fuel Bond Binge https://t.co/AWsW5OgZzd pic.twitter.com/2RrHsOSsgT

— Quinton Mendes (@CadeTradeR) May 12, 2016

We've heard controversy stir up when protestation was aimed at the ECB for taking the decision to scrap the €500 note, saying it made money laundering easier for criminals. Many haven't bought into this excuse with some saying the central bank wants to eliminate the use of physical cash so it can have greater control over the money flowing in and out of bank accounts, eventually forcing people to allocate their savings into assets or inadvertently spend it.

We also saw the Bank of Japan reporting that the demand for the highest denomination note ¥10 000 has surged by 6.9% year on year after the introductions of negative interest rates.

This points to the Japanese public opting to hold their savings in physical cash rather than be penalised for keeping it in the bank where it should supposedly be earning interest! Besides this fact, it would furnish an opportunity for a far lesser burdensome method of storing wealth to be utilized. That particular method which has stood the test of time is Gold...

A possible reason why we've seen the resurgence in the yellow metal is because investors feel that central bankers, being the last true saviours of the world economy, have depleted their ability to control the outcome and are scraping the bottom of the barrel for bamboozling solutions. As time bides the inevitable, the risks grow larger everyday with each passing day bringing forth new evidence of the extent of the contagion.

Making things easier and safer for investors to buy gold than was the case only a few years ago is the creation of exchange traded funds which actively buys and sells gold, storing it in vaults for safekeeping which represented most of the weight in demand. Delving further into the matter, one wouldn't be naive to miss the fact that demand from India and China, the largest consumers of Gold in the world, has shrunken due to a strike by jewelers in the former nation and a slowdown in the economy with the latter.

Yet the demand for Gold has still increased with the price registering a gain of 16% this quarter, the second highest on record since 2000. Moves on a scale like this don't blow into the market by chance, they form when there's a sentiment change which is exactly what's happening right now. The tornado may be blowing in but the storm chasers aren't riding until they can get close enough, a thought to ponder over when you consider how close we really are to the edge.

Gold demand surged to the second-highest ever in Q1: World Gold Council https://t.co/ozGCem0eTH pic.twitter.com/tqdonxjx87 MT @EdVanDerWalt

— BN Commodities (@BNCommodities) May 12, 2016

Are things looking better at China's stock market regulator?

With the onset of volatility grappling a directionless market at the moment, it doesn't quite compare to the hair raising periods most traders have experienced over the last year in financial markets. In attempt to pinpoint exactly where the troublesome environment grew from, traders wouldn't find it difficult to point in the direction of the Chinese equity bubble that's seemingly put the brakes on global equity valuations going higher.

At the time, August 2015 to be precise, there had been a protracted build up of negative sentiment flowing from China as to the raunch daily movements in stock prices that had taken place after an effort to liberalise the financial markets to be able to reach more participants had taken a wrong turn, sending investors into a flight of panic over the safety of their investments.

It appeared that former Chinese Securities Regulatory Commission Chairman Xiao Gang had overplayed his hand and allowed an excess of freedom for brokers to exploit individuals, most of these people inexperienced and ill-equipped to deal with financial instruments, by offering high levels of leverage that would offer them exposure at a fraction of the price thus creating a speculative frenzy to thrust valuations into the stratosphere.

This in effect caused wild price moves to develop once the CSRC decided to clamp down out of fear that it had caused an equity bubble to develop that could be devastating to the entire global financial system if it were to burst which at the time seemed highly probable given the extended rally.

The world noted this anomaly and took the que that now would be the best time to begin an anticipated selldown that had been expected to come some months before. All eyes were now squarely focused on the Chinese stock market, a position that didn't fit comfortably with government officials who prefer to hold their cards close their chests prompting them to enter the fray and halt the hemorrhage.

China moves to contain technology bubble https://t.co/nAEMhMk6oT

— CNBC (@CNBC) May 11, 2016

Pressure was on Gang to rectify his mistakes but it was too late and by the time it came to implement circuit breakers in January of this year, the signs were on the wall that his tenure as chairman of CSRC was coming to an end. The failure of the circuit breakers proved to be the end of Gang with Liu Shiyu taking over the reins.

At the time I wrote that Shiyu had a difficult task ahead in bridging the gap between the rules needed to be in place that would allow for functionality, marketability and transparency and the forces of supply and demand that would be harmed if too much intervention was placed in the market.

Three months into his new job and the emergence of the type of policy Shiyu will be bringing to the market is taking shape with the latest news that the CSRC will prevent companies that intend issuing new stock for the purpose of buying assets that don't form part of their core business from doing so in an effort to curb what many speculate to be a new bubble.

Opening up financial markets affords the companies looking for additional means of capital injection as much freedom as it does to the individual investor dictating over his financial freedom. However as we've witnessed with the newly founded Chinese investor, the level of aptitude hasn't matched the sophistication of their international counterparts.

This has led companies to neglect the business which forms part of its primary operations and find alternate ways of raising fresh cash from the market under the veil of hopeful prospects in industries that are benefitting from forthcoming positive sentiment due to their positioning in a transitive economy.

What confidence Shiyu measures give to the market is that public money is considered sacred, a juxtaposition from his predecessor who liberated investors but failed to foresee the shaky foundation companies issuing stock were standing on.

Although seen as more intervention rather than less, a contradiction to what authorities said wouldn't happen, I believe the move is in the right direction by emphasising the importance for companies listed on the exchange to be transparent and diligent when using funds raised from the public, a sign of progression when it comes to financial markets in China.

Hopefully this is just the beginning of great things to come from CSRC chairman Liu Shiyu who's started out on the right footing by calming fears and bringing order back into Chinese equities. However the challenges will come when global markets experience pressure from the lack of evidence of a healthy economic climate which would weigh down heavily due to China's part in the equation. The true test will be whether these officials stand steady in their convictions and if they've done enough to prevent a total collapse.

Travelling Technicals with Global Indices: IBEX 35

Apart from being a sunny holiday destination for most of Europe, Spain's economic activity and debt burden has taken an active interest from those predicting a catastrophic collapse of the EU should countries such as these not get a hold of their debt creating ways. At the time when Ireland, Greece and Portugal all flagged waning economies due to burdensome debt, Spain added to those woes saying it found itself in the same boat. 

In a touch and go situation, Spain was able to guide its way safely to certainty once more without collapsing its financial system which would've been disastrous for the entire world however the woods aren't clear yet and with the risk of Europe slipping into a deeper deflationary environment, the almost 100% Government Debt to GDP ratio doesn't settle down well with investors. 

Being regarded amongst the top active economy's in the world, the spotlight is often shone brightly on Spain as a measure of how serious things may be in Europe which explains the extended boost in confidence when the country was able to prevent a banking crises from occurring. 

Besides this, the country is known to be a mass producer of electricity generated from renewable energy placing them in pole position when it comes to the market for selling this technology onto nations increasingly seeking ways to eliminate carbon emission which has been steadily rising. They also boast engineering feats in the production of public transportation not only for itself but other countries across the world. It's also established itself as a huge player in the tourism sector which contributes a significant amount of value to the country's GDP. 

Let's get down to the chart: 

Monthly

Firstly what distinguishes this chart from those of its peers is the fact that the IT bubble of 2000 didn't mark a secular top as it has done for other markets in Europe. The all time highs was marked at the climax of the Financial Crisis. This is important because it suggests that certain sectors within the Spanish economy thrived during the period leading up to the all time highs being registered that were uncoupled from the mainstream activities of the world economy hinting at opportunities in sectors that have yet to set the trend in other markets with my thinking leaning towards electricity generation from renewable energy.  

Secondly we see the price action over the last seven years has been directionless reflecting a closer correlation to matters that affect both the world and the European economy. We see that the debt crisis weighed in heavily on the index and briefly traded underneath the lows made during the height of the Financial Crisis however buyer were able to find solid ground and put together an impressive rally back to the top. 

I do find the current pullback to be in line with world equities but at the same time confirming that the once opportunistic environment that presented itself to entrepreneurs might have drifted away from things as the focus gets drawn towards priorities. The 50 SMA probably gives the biggest clue to what we can expect in months to come...boring going sideways.  

Weekly

I've drawn two Weekly charts as there's two distinct technical patterns that stick out for me that I feel need a great deal of attention separately. The first weekly chart shows the mammoth rally that ensued from 2012 and the subsequent topping forming that materialised. The Head and Shoulder pattern in this chart is quite clear making it prone to having been watched over closely. 

The support level of 9500 was the key price that needed to be taken out before we could be certain of the bearish sentiment flowing into this index. That indeed happened and if we are to make a good observation we'll see that the move downwards unfolded very quickly which matches up to the analysis that the Head and Shoulder pattern was clear and followed closely. 

The series of lower lows and lower highs gives all the hallmarks of a downtrend and with the 50 SMA gradient trend looking familiar to a downward line, the bias is sitting in favour of the bears here. 

Another interesting point sits at the RSI where we see the indicator has tried but failed a number of times to breakthrough the 50 level. Generally speaking if the indicator is above the 50 level it would suggest a bullish tone but in this case its struggled to go above suggesting that the momentum is to the downtrend here. I've highlighted it a number of times and I'll do so again, take note of the neatness with which the indicator rejects the 50 level. 

The second weekly chart adds some predictive thought to the where the price could find itself in the coming months. We see a Bear Flag having formed that is yet to break to the downside. If it were to do that it would confirm the next leg down that could end up at 6500. 

Likelihood of this happening is increased dramatically if we take into account the analysis of the previous chart and incorporate it into this one. The throwback that's occurred has been experienced throughout global equity indices so it's not isolated, however over the past week we've begun to see a much more negative tone floating in with a risk off attitude. 

I would wait for a breakdown to occur and then confirmation which would occur on a weekly basis. The current global market environment has proven difficult to trade in so adding confirmation as a rule would definitely aid this setup tremendously. The problematic situation we find ourselves in is one where volatility is high yet direction is uncertain. 

However its my belief that this chart could be exhibiting a tinge of what the outlook for global markets could be headed into with a slow buildup into a news event that would bring down the market sufficiently to mark another step in the downtrend.