European Commission orders Apple Inc. to pay Republic of Ireland $13.5 billion

A heated debate has erupted between the Republic of Ireland and the European Commission after the latter revealed in an investigation that US tech giant Apple Inc. had abused it's status as a multinational corporation by booking its profits from European operations to its Irish based Apple Sales International company to unfairly benefit from the low tax rate charged by that country.

In concluding its investigation the European Commission ruled that Apple Inc underpaid $13.5 billion to the Irish ficus and ordered the California based tech company to pay the tax bill. Both the government of Ireland and Apple have expressed their intention to appeal the ruling.

Although a staggering amount, the implications of such a ruling relating to the taxation of large multinational corporations using countries like Ireland as a haven to pay less tax within its operations in the European Union could shift the playing fields in favour of fairness at the risk of a substantial divestment from these firms in the region.    

The argument for enforcing the ruling has won over many individuals who feel the necessity in shifting the tax burden away from citizens and onto entities who have a far greater ability to generate incomes than the masses. This comes at a time when questions around the integrated sustainability of the European Union mounts with debt piles accumulating at alarming rates.

But some critics say the EU is playing a dangerous game in chasing companies for unpaid taxes for short term gains whilst forgetting the wider impacts that will affect the economic state of play in the long term.

In this case both the Irish government and Apple have stated the relationship between them has mutually benefited both parties by providing employment and economic value creation for Ireland as well as a gateway into European territories for Apple to sell its products.

But is it enough to accept gains in economic value generation in exchange for tax breaks?

EU ruling on Apple reignites U.S. tax reform debate: https://t.co/ixwSKdPekf $AAPL pic.twitter.com/xmXeMDKcQQ

— Reuters Business (@ReutersBiz) August 31, 2016  

If speaking in the context of Ireland as a country on its own, it could very well be prosperous but the fact of the matter is Ireland is one piece in an integral puzzle that all adds up to form a free market which we know as the European Union where countries adopt a common currency yet still have a considerable degree of control over their sovereignty.

Enacting a country's right to elect a tax regime means a level of discretion when setting an appropriate rate to charge those being taxed whether it be individuals or companies. This translates into many different tax rates charged throughout the European Union thus creating a competitiveness in attracting foreign investment to its shores.

Apple was fully in its right to take advantage of the tax rate offered to it by Ireland even if it says it hadn't negotiated special terms in paying over its fair share. Sovereignty hasn't been surrendered although Ireland needs to abide by the rules imposed on it by the EU to stay inside.

But how consistent are those rules?

If truly committed to enforcement we could probably assume Greece would've been evicted out of the trade bloc long before the political chaos erupted onto the street of Athens. We could also say the propensity to stay within Europe for the UK could've been avoided had it not been for the lapse of security detail on European borders that compromises citizens safety.

Europe's big push to coerce member nations to give up their sovereignty is failing to convince nations of its worth if a common currency free market agreement hasn't worked. This is just another example of the EU's attempt to create fairness in how it sees it but neglects to take into account the different political will and beliefs that occur in each nation.  

It's highly unlikely it'll succeed in proving its case in this matter and will continue to create a divergence in tax rates charged amongst member nations that'll ultimately prove the concept of a united Europe is doomed to fail.  

Technical Tuesday: 3M Co.

Monthly

First observations would indicate that this stock wasn't an immediate favourite at the beginning of the bull run we've seen since 2009 but started putting together the foundations of its own rally as recent as four years ago. 

From that period up until the present day the performance of the price has been impressive to say the least with only one major pullback taking place at the start of 2015 but subsequently bouncing back strongly through two separate volatile occasions when all other stocks received a drubbing.   

This shows the buoyant interest in the stock given its inclusion in both the main US indices namely S&P 500 and Dow Jones Industrial Average.

To break through the previous highs, this stock needed the support from the RSI as a momentum indicator which happened with ease which stems from the indicator's enduring run its had in not dropping underneath the 50 mark in almost four years. This combined with a risk on environment in recent months has seen the price make fresh inroads in exploring in grounds.

However one should be mindful of the positioning of the stochastic which has drifted into overbought territory together with the length of the move that has a lot of upside and very little to the down.

Weekly

Price support in the region of $140 played a pivotal role in holding up momentum as we saw on the previous chart. The second rally back to resistance of $170 fooled many into believing price could remain in a consolidatory range but this was disproved when the buyers got the upper hand in recent weeks.

This probably explains the momentous rally into fresh all time highs although it is becoming harder for price to keep up the pace. The momentum trend line highlighted in black shows how waning demand is taking effect. Couple this with the histogram on the MACD fading lower and the signs aren't difficult to see.

The next likely move would probably be a short term pullback to the once resistance line of $170 for a retest. If successful in holding it's ground, price could very well climb past its all time highs and onwards to $200.

Interference in the stock market by Japanese government shows wary signs

Much of this year's economic debate has centred around global central banks and more so those operating in advanced economies who have taken to exhausting the limits of its policies to new extremes in introducing bold yet questionable moves in shifting interest rates below zero for the first time in recorded history in an effort to curb a decline in economic activity.

Besides this, another crucial function of monetary policy is the asset sales and purchases that take place as part of the process of decreasing or increasing the money supply respectively. However over the years since the Financial Crisis central banks have announced numerous rounds of purchases all of which has created a shortage of appropriate instruments to use when stimulating.

The Bank of Japan has faced this dilemma for some time and has resulted in it now owning over half of the listed Japanese Equity ETFs. Not only is this worrisome but the continuation of this policy measure provides doubt concerning the true valuation of equities considering the artificial demand stemming from these purchases.  

Furthermore Japanese equities aren't only finding favour from the BOJ but also the Government Pension Investment Fund of Japan, the world's largest pension fund. The fund shifted it's strategy almost two years ago by opting to focus it's accumulation into equities whilst squeezing out bonds, a decision that was largely influenced by Shinzo Abe's government who saw the frightening outflows from Japanese equity markets.    

Bank of Japan and Government Pension Investment Fund own largest shares in 474 of ~1970 cos. listed on Tokyo Stock Exchange: Nikkei

— zerohedge (@zerohedge) August 28, 2016

However the fund made headlines for all the wrong reasons recently when it reported a loss of $52 billion for the quarter ended June saying it had been affected by the aftershocks of Brexit but more importantly the strengthening of the Yen, a factor that's been troubling government's for some time, leaving many wondering if the government's efforts to prevent a fresh crisis had failed in its entirety.

Combine the two organisations stakes together and they register as the largest stockholder in approximately 25% of all companies listed on the Tokyo Stock Exchange.

There can only be one conclusion when confronted with the facts, Japanese citizens don't share the same confidence in the country or its economy as its government does. If they did the government wouldn't find the necessity to hold such a significant stake to hide the truth...

Consider for a moment the scale with which an unwinding of such investment would demand from interested buyers.

Perhaps an economy that doesn't suffer from a lack of structural reform that subsequently weighs down efforts by government to turnaround the situation yet falters the economy at every site of a recovery.    

The Closing Position: Wrap of this Week's Blogs

The Fed's indecision is making markets nervous

Technical Tuesday: Altria Group Inc.

The Fed is being pushed into finding scope with negative interest  rates

5 Steps to Becoming an Algo Trader

Are EU economic indicators a true reflection of Europe?

Are EU economic indicators a true reflection of Europe?

It's fair to say the questions of doubt over Eurozone leaders ability to steer the free economic zone clear of the dangers has been spoken ad nauseam from critics who insist the stark differences in ideology amongst member nations would lead to a break up. We've already seen the United Kingdom hold the first referendum asking its citizens to decide whether they wish to stay or leave the Eurozone Agreement.

But behind this current backdrop swirling through market sentiment is a tattered past littered with political discontent that's driven the major players within the European bloc to show face in light of market fears when divorce seems imminent. Needless to say each crisis produces an element of inconclusive resolve that's so much needed in finding a concrete solution around long term sustainability.

However the survival of this doomed currency union has only been kept alive with the aid of artificial economic stimulus in the form of a loose monetary policy involving consecutive rounds of quantitative easing that's only achievement being the presence of excess liquidity in the economy with hardly any uptick in activity.      

#Germany ≠ #France! German consumer #confidence rise to the highest level since at least 2005. pic.twitter.com/rEB915wmsw

— jeroen blokland (@jsblokland) August 26, 2016

The existing trend surrounding consumer confidence between the two biggest economies in the Eurozone, namely France and Germany, leaves many wondering how this indicator continues to defy logic besides the region being in perpetual crisis.

Although its important to note that the figures presented in the chart above have an oscillating nature by moving between negative and positive values with the position of the overall Eurozone consumer confidence index lying below zero indicating some degree of pessimism, the explicitly seen uptrend in both these charts leaves more questions than answers.

5 Steps in Becoming An Algo Trader

• Algorithmic trading is bad! 
• It's robot trading without supervision.
• It's gambling thinking you can make money from doing nothing.
• It's impossible to quantify human emotion.

So these are a few quotes one hears when the discussion of automated algorithmic trading comes up.However are these findings unjust?

Most of the time it's due to the fact that the individuals attempting to create these systems do not have the required training and experience.

Anyone can purchase a surgical blade and a mask, does that make them a Neurosurgeon?

Let's use the Neurosurgeon comparison.

Step 1

Firstly for any person wanting to become a doctor they need to come to grips with the human body. With such a wide body of knowledge in the medical field this requires hours of study in front of books familiarizing oneself with topics such as anatomy and chemistry .Same goes for the algo trader. Hours spent breaking down all the formulas to first principles. The algo trader needs to understand every formula so well that if x in the formula changes the consequences of the affects to the output of y are known. And yes there are thousands of formulas. 

Step 2 

Practical experience in a mock emergency room  to train how to deal with real life situations and assisting other qualified doctors. The algo trader needs to not only have a paper trading account but also needs to find a mentor to guide them. This mentor should have a good understanding of the underlying factors affecting markets and most importantly how to maintain composure in stressful situations. 

Step 3 
After qualifying the doctor will begin to practice as a general practitioner before specialising in surgery. They will treat various ailments and figure out which niche within the medical field that they feel most comfortable with. The algo trader should look at how to apply the skill sets they have acquired. Spending time on finding the instruments and sectors that best appeals to their interests. One will always need to understand the bigger picture and keep that knowledge refreshed.

Step 4
Specialisation into surgery and later focusing on Neuro surgery.
Only at this point does the algo trader start to put together his formulas and systems into an automated program.There are many ways to do this. One could be to outright code a system using a computer language such as c++ or delphi. Another option is to use software like matlab to put formulas into. When you get to this stage it is highly unlikely that you would want to use the standard formulas that generic systems can offer as you become specialised.

Step 5
Fellowship year for a specialist is becoming a must in the medical field.
The algo traders equivalent is understanding the backtesting drawbacks. Things such as curve fitting, limited data, statistical bias, real time slippage and execution cost factors all contribute heavily to profitability and it's of utmost importance to concentrate and understand them thoroughly.

Blog by:    Al the Algo Trader
Edited by: CadeTradeR

The Fed is being pushed into finding scope with negative interest rates

The search for yield in the current market environment has become an ever increasing theme that's gaining momentum from global central banks persistent decision to drastically rely upon the effects of fictitious money creation to kickstart the world economy. The unabating actions of these institutions has meant markets around the globe face the difficulty of finding decent returns and the prospects of being flooded by a wave of excess liquidity created in a monetary stimulating frenzy.

As the flow of money supply entering the global financial system eclipses the actual demand for it, investors are swept into seeking out riskier investments than usually accepted placing them with a grave dilemma to contend against. Either ignore the consequences of the risk or face having your money stagnate and in some cases drawn down when participating in negative interest rate deposits.  

ICYMI! The global high yield #spread has tightened by over 300(!) basis points since February this year. pic.twitter.com/EKTDjIzKhv

— jeroen blokland (@jsblokland) August 24, 2016

Debate has raged over whether Federal Reserve chair Janet Yellen, set to speak at the annual Economic Policy Symposium tomorrow in Jackson Hole Wyoming, will clear up any uncertainty regarding the bank's once ambitious belief of progressive hikes in the interest rate which has been halted by the emergence of economic distress outside its borders.

However as much as Fed officials try desperately to throw smokescreens in front of market participants by speaking of minatory prospects of interest rate hikes, markets aren't taking the bait and continue to drive developed nations yields further into negative territory.

The Fed realises that should it pursue further interest rate increases the gains obtained from those seeking out yield could ultimately gravitate into financial catastrophe leading many to believe the might of this trend will eventually forced the Fed to conform to the existing inclination on the part of other central banks such as Bank of Japan and the European Central Bank in feeding the market's mammoth appetite for stimulus and thus dismantling the possibility of normalisation in interest rates.  

Technical Tuesday: Altria Group Inc.

Quarterly 

This is a classic "bottom left top right" chart that's given stockholders phenomenal returns over a long term investment period. The performance over this time span using a simple linear price scale doesn't allow us to draw in a rigid uptrend. and would require a logarithmic price scale to identify at what points the long term trends lies. 

However I've placed two moving averages on top of the price data namely the 8 and the 21 as these give a good indication of the strength in the trend with the crossover occurring in the third quarter of 2010 and has consistently diverged away from each other since then. 

On a logarithmic price scale we see a much steadier uptrend in position with the time between the start to the subsequent retest of support taking five years to materialise with consolidatory price action responsible for the move. The fact we haven't seen a reasonable pullback suggests a difficulty in getting sellers committed which also points to a level of confidence in the business and management, a scarce but valuable characteristic to exhibit. 

Weekly

Continuing on the shorter term charts a similar picture emerges with a strong uptrend in place that's guided prices higher. A brief pause in momentum has taken hold of proceedings with still some way underneath the 21 moving average before price meets up with the uptrend again. This is likely to happen with secondary indicators pointing to a strong move upwards. 

The stochastic has worked off the overbought condition it found itself in while at the same time setting up bullish divergence that suggests the trend will continue. 

Verifying this effect, the MACD remains in the positive zone indicating a higher chance of the price rebounding back to all time highs and possibly further than that.  

The US Federal Reserve's indecision making markets nervous

Market participants were scarcely off their recent rebounded confidence at the start of the week heading into a crucial week for the US Federal Reserve whose annual Economic Policy Symposium to be hosted in Jackson Hole, Wyoming from the 25-27th August evolving into an uncertain distraction away from the focus on buoyancy driving markets higher.  

The annual symposium sees Fed officials from around the United States gathering in one place to discuss economic circumstances the country is absorbing as a result of monetary policy implemented throughout the year. This year's theme: Designing Resilient Monetary Policy Frameworks for the Future giving a good idea what might be on many officials minds.

Last week we saw the Fed release the FOMC minutes of the meeting that happened in July which highlighted a deep divide amongst members in deciding whether the US economy was strong enough to sustain an interest rate hike. Some prominent regional members such as William Dudley, president of the New York Federal Reserve expressed his view that the central bank couldn't wait much longer to implement the second round of rate hikes whilst relaying a tone that set the scene for an imminent increase expected in September.

Needless to say his thoughts weren't shared amongst all decision makers with half the participants opting for a stay of execution in favour of  more evidence from economic data regarding the strength of the economy.

Yellen’s speech at Jackson Hole set to dominate mood on Wall Street https://t.co/zyTWExtoO2 pic.twitter.com/ej5XYOfeys

— Yahoo Finance (@YahooFinance) August 22, 2016

I wrote an article about this dilemma the Fed had found itself in saying the split in opinion was creating uncertainty in markets which would be met with trepidation. I went further on to discuss two possible scenarios that could happen depending on the type of action the Fed decided to take saying it was likely for them to buckle under the pressure of global policy alignment that's become the norm over the past few decades and follow its developed nation peers in pushing for softer monetary conditions from a low base.

Yesterday we heard another prominent figure, vice chairman of the Federal Reserve Stanley Fischer reiterating Dudley's comments on the strength of the economy and necessity of an interest rate hike. He said the Fed's target's were close to being met on most economic indicators with positive remarks about employment but recognising the economy has done "less well"than hope for.

It's getting down to crunch time for the Federal Reserve to choose the direction of its course with both outcomes having major impacts in the long term scheme of things.

The Fed's integrity may have suffered in the months gone by since implementing the first interest rate hike in December while over confidently saying it expected to hike rates four times in 2016, a statement I had said showed the miscalculation of an influential policymaker.

This possibly provides an explanation why some FOMC members have come out strongly with the intention to hike conscientiously knowing how important integrity remains in building trust with the public in the decision it takes. The absence of such virtue evades policymakers from any conviction on the part of participants in finding relief in future intervention measures and thus a failure in its effectiveness.  

China isn't the only country in Asia

Part of the discussion surrounding the remarkable rebound in commodity prices this year has been the sustainability of these moves given the diminishing economic leverage of resource consuming China after woefully slumping back on its growth with more than expected intensity resulting in a lack of substance finding strength in the upward move.

The boom created in resources over the past two decades have largely stemmed from the massive infrastructure spend started by the Chinese government in transitioning its country's economic policy from an obsolete communism system into a one operating by the mechanisms of the free market.

China's transformation into an economic powerhouse has meant the spotlight not only being shone on its achievements but also on the scrutiny regarding continuity of this existing feat due to the scale of enormity attached to it.

In the last three years alone world leaders have grown ever more skeptical over China's ability to continue on its illustrious growing path when considering the latest and extensive overhauls policymakers have been introducing to the system in order to shield the nation from unwanted economic consequences such as debt traps.        

The world's biggest miner is looking beyond China for buyers https://t.co/kk4gVSpK6K pic.twitter.com/L00spSb5rQ

— Bloomberg Markets (@markets) August 19, 2016

Many global miners have been gutted by the development after initially following projections that indicated the demand for commodities would remain constant when peaked thus creating a reason to expand production capacity. Fast forward a few years later and these same miners are scrambling to consolidate their balance sheets by cutting back on burdensome debts and unprofitable operations in an effort to keep investors at bay.

However as the situation in China worsens commodity prices seem to get more resilient suggesting correlation between the two detaching with the latter branching into new forms demand to satisfy it's supply.

The pace of China's consumption of world resources has almost overshadow the other pockets of opportunity with India the likely front runner to overtake the Sleeping Giant as the new growth story. Unlike the remnants of conformity in China's economy, India has poorly functioning infrastructure and a disparaging wealth gap between the rich and the poor but bundles of potential when it comes to improving the lives of its people which numbers 1.3 billion!!!

Based solely on comparable populations, India could very easily compete at the same height as China once did.

Whilst drifting South of China we find countries who've laid in the wings for many years being easily overlooked due to size of their economies however when combining each nation's economic activity one is able to envision the scope of potential that could very well be where commodities find their demand.

As much as China's rise in the global economic ranks has yielded great strides in distributing the powers more fairly amongst the world one aspect has been forgotten. The enormous strides made by the Asian continent has translated into an ability to compete economically with the other continents such as Europe and the United States.    

US Federal Reserve continues to be under pressure

Minutes of the FOMC meeting that took place in late July showed members of the US Federal Reserve were cautious in their belief towards hiking interest rates for a second time since initially setting the trend in motion last year in December. Although there was a considerable amount of debate whether the US economy was fit enough to sustain a fresh hike, it was decided that more certainty in terms of members full agreement on the timing of the move would be necessary.

We saw remarks earlier in the week from New York Fed President William Dudley emphasising a number of points directly showcasing the strength of the economy whilst going on further to say an interest rate hike was still on the cards at the Fed's next FOMC meeting in September.

But as surprising as it may seem, markets hardly reacted to the enticement by Dudley instead remaining relentless in its view that the current progression from other central banks around the world in extending bond-buying programs while simultaneously exploring the "new" lower bounds of interest rates underneath zero percent was slowing down the Fed's ambitions.      

#Fed minutes this week may show why Yellen & co kept timing vague on next rate increase https://t.co/gw5pirYkWY pic.twitter.com/NmnIWAwiNv

— Bloomberg Economics (@economics) August 16, 2016

Inasmuch as the economic indicators relied upon by the Federal Reserve to make a decision constantly show positive signs within the US economy the issue of enforcing an interest rate becomes a different matter altogether with the alignment of countries economic policies over recent decades making pulling the trigger harder than it looks.

It requires a consensus from all other nations in following the direction of the move although not necessarily to the exact same timing as the other. If we looked at the current global monetary policy stance that's dominating headlines, it doesn't appear wise to apply discretion in the contrary direction which places the Fed's expected trajectory under scrutiny.

Should the Fed see a divergent policy appropriate it would mark the first signs of an uncoupling of a global understanding where the economic decision taken by an individual country no longer influenced by its impact or effects on its counterparts.

Or contrary to this we'll see a less stringent pathway of interest rate hikes with an eventual outcome of the Fed buckling under the pressure of a joint global effort to exploit monetary policy to its withers end till the point of financial catastrophe.    

The longer the Fed stalls hiking rates the more likely it'll fall prey to the second scenario because with every meeting that passes with no action registered a wave of doubtfulness will fill the thoughts of market participants who've already become accustomed to "easy" money to drive up asset prices higher and eager to test central bankers commitment further.    

Saudi Arabia showing signs of economic distress with low oil prices

The instability of oil prices in the last two years has meant bad times for many countries, especially those who are reliant on OPEC to interfere with the supply dynamics, suffering grave economic consequences as a result of lower but much needed revenue streams.

Chief culprit in the deliberate cascade of surplus oil finding its way into a demand-waning market has been Saudi Arabia whose steadfast conviction in budging out fresh competition cannot be discounted from the levels its gone to in ensuring difficulty for the newcomers entering a state of profitability.

However this hasn't come without cost as the world's largest exporter of oil has used its de facto position as leader of OPEC to influence market dynamics most often to the detriment of all parties involved in the collusive agreement with the economic pinch now hurting Saudi's fiscal budgetary plans that lie in jeopardy.    

As austerity bites in #SaudiArabia, a testing time for its prince https://t.co/M4e0hxNYTm @gccarey1 @DeemaAlmashabi pic.twitter.com/QYWEr9BRB8

— Javier Blas (@JavierBlas2) August 17, 2016

Probably the biggest reason for the US having a propensity to seek out alternative forms of energy stemmed directly from the fluctuant state of affairs in most OPEC countries that's dictated supply to the rest of the world meaning less control by external forces.

In turn Saudi Arabia and many of its counterparts have used the abundance of this scarce commodity as a strategic resource used to distribute prosperity to its citizens instead of allowing the free market to concentrate the wealth in the hands of a few greedy individuals. As commendable as this societal approach might sound it requires a domineering government administration which on most occasions involves a suppression of its citizens instead of their liberation.

Such has been the case in the kingdom of Saudi Arabia where its citizens have been fed with state benefits for many a decade in exchange for implicit support for its monarch. But this understanding is coming under threat as the war on oil price heats up and the longevity of extensive means of action in place extended further into the future than intended.

The flummoxed leaders of Saudi Arabia hadn't bargained for the length of time needed to eliminate competition, a goal that's hardly given any relief to the flourishing inventory of oil sitting in storage. Just last week I wrote a piece detailing Riyadh's efforts to fight back at US shale gas producers and went on to say that its plan had lost the definition of being a short term dilemma and had begun moving into the realms of longer term risks disturbing the forced order.  

Prince Mohammed bin Salman, the youthful deputy crown prince and second in line to the throne has been vocal about his radical plan to shape Saudi Arabia from its over reliance on oil as a main component in its economy to a more diversified spread of sectors as a bold change needed to secure its future although his arrogance and lack of diplomacy regarding leniency to fellow OPEC members in recovering economically from a global trade hiatus (the member being Iran) hasn't won him over many friends.

Backed into a corner, Salman needs to tread the waters carefully so as to not upset the kingdom's standing with its people but at the same time wastefully spend its time fighting a price battle that will presumably end up with the free market gaining some sort of control over oil supplies. If he isn't successful in convincing Saudis of his grand plan the country could very well see unrest descend into its streets and the power of the monarch stripped from its existence.

Technical Tuesday: Intel Corp.

Monthly

The long term uptrend looks an attractive proposition when considering the scope of movement that is possible for this stock with the price reversal that happened during the end of last year providing the strongest evidence of bias to the upside. Since reaching its highs in the beginning of 2015 the price has remained lethargic but exhibits traits of sufficient support just beneath $28. 

This has been highlighted by the horizontal red line that's acted as a robust buying areas on two separate occasions within a short span of time. On the first occasion the price rallied off the uptrend as mentioned in the previous paragraph but subsequently met resistance which forms a pivotal part in the progression of direction in the next move.  

Current price action is situated at this resistance zone leaving many wondering whether the return move back from the pullback might have reached its end. This wouldn't be far fetched if you incorporated the stochastic into your decision making where it lies in the overbought region however there are a number of other technical points that speak contrary to this analysis. 

Firstly you'll recognize a neatly formed inverted Cup & Handle formation at the top of the rally, a marked sign that the extended run might have become exhausted. This has proven true but only in the sense that we haven't witnessed much movement in either direction whereas one would've thought there could have been a signal of trouble below. 

Those who might've anticipated this may be stuck in the trade which could explain why the stock is currently stuck within another price range. It's important to note that there had been no confirmed break to the downside on a closing basis which might suggest the numbers participating in the short side of the trade might be few and far between. 

Should we see a break to the upside though it can be expected for price to rally hard given the position of the RSI where the indicator is set to break to its highest levels in almost two years. This signals an intention from the bulls to use momentum in driving price higher with the most obvious target being the all time highs. 

Weekly

Taking a closer look on the weekly charts it appears that a classic Head & Shoulder pattern has been in place for some time. The formation took a little over a year to form and broke to the downside in July last year but the move many bears had hoped for failed to materialise after a retest of the neckline proved weak with the bulls taking full advantage and driving prices higher. 

Coincidentally a nullification of such formation would require the price to reach above the highest high of either shoulder with the left shoulder being such in this particular case. Observing the rally off the support just underneath $28 as mentioned in the monthly analysis we now see the highs of the left shoulder provided stiff opposition to the bulls offensive. 

Following on from this a smaller technical formation of a Cup & Handle in relevance to the pattern just discussed gave bulls a sense of optimism again with a clean break through the top of the neckline and onwards to resistance which brings us to where price is situated presently. 

A similar occurrence in the stochastic as we saw on the monthly the indicator is overbought and headed downwards suggesting pressure on the buyers to perform but the RSI has produced a significant uptrend on the indicator that also confirms the buyer's intentions from the monthly. 

Two scenarios could play out here; either buyers succumb to the selling pressure and scale the price down to the $28 support level or they find a positive news story to leverage themselves over the top of the $35.50 resistance which would make $38 an attractive target. A move in either direction seems tentative so its certainly one to watch closely in the days ahead but my intuition tells me it could go to the upside. 

Japan's economy proving policymakers wrong

It wasn't long before the Japanese economy proved contrast to policymakers belief  that exceptional stimulus measures coupled with an experimental and untested use of interest rates below zero are necessary means to break out of decades long stagnation and deflation with the latest printed figures indicating the nation's economic activity only grew 0.2%  in the second quarter of 2016, a paltry increase that's bound to pressure the government to deliver expectedly.

Having written about the topic of Japan on numerous occasions my opinion has yet to change regarding the type of policies employed by both monetary and fiscal authorities who have failed to drive the economic progression towards a better outcome.

In recent weeks we heard a bold but skeptical plan hatched by Japanese prime minister Shinzo Abe to expand his government's budget in an effort to support the economy, a frequent past time that's featured more distinctly as evidence clearly points to policy failure having promised to save Japan from economic implosion.

Japan's economy stalls in April-June, casts doubts on Abe's policies https://t.co/AIGc6FpAlG

— Jennifer Ablan (@jennablan) August 15, 2016

His partner in crime Haruhiko Kuroda hasn't had luck either in convincing buyers in the Japanese Yen of the overstated strength they've poured into the currency in the last year. The devastating impact this is having on the country's export clearly shows up with relenting desire to derail future prospects.

However no confidence can be found when the actions of the Bank of Japan imitate that of its counterparts and vice versa with a "follow the leader" mentality attached closely with every desperate measure taken by developed world economies in a bid to save themselves. Actions which are spurring on fresh currency wars amongst each other.

If the scale of stimulus were to be increased to a larger amount than what we're witnessing currently we are certain of financial catastrophe that would overshadow the haunted past and when considering the extent to which policymakers are willing to extend monetary programs, the ease of which to reach this state is not out of grasp.

Once again it cannot be stressed enough that world leaders need to come to the realisation that the global economy doesn't require infinite amounts of money supply to move the dial but a closer look into the shifting dynamics that are having a greater effect on the economic cogs that motion the mechanisms of growth

Reflecting back a year after the PBOC Yuan devaluation

Calmness and confidence were the flavours of the day yesterday as the world used a moment of retrospection to remind itself of the events that happened a year ago when the People's Bank of China sudden devaluation of the Yuan marked the beginning of a financial volatility storm that blew away out of touch complacency and filled the air with fear.

Although the move helped bring about a correction in Chinese equity valuations that had drawn in so many deluded citizens hoping to cash in on the "never ending" stock craze casino, it hasn't driven it back enough for real investors to feel comfortable of a realistic outlook.

At the time I can recall making the suggestion that the weight of China in the global economic equation was truly felt by the shockwaves it sent throughout the world financial system that held it down for the next six months after it had happened. I still believe the day marked a point where China could no longer throw smokescreens in front of the market and expect it to go unnoticed.

The core of uncertainty emanated from the consistent interference from Chinese officials in various parts of the economy with many expecting such drastic action by the PBOC to imply greater intervention in the future. However the central bank must be applauded for staying its ground after realizing soon enough that such undertaking would tarnish the reputation of its fragile investment image that's suffered tremendously and possibly harm future prospects.

But the real test a year later is will they continue to abide by this stance of non-interference or will they take their chances and challenge the limitless might of the market as a whole?  

It's 9:16am in HK. Exactly a year ago, China devalued the yuan. Today's fixing 6.6255

Happy #Yuanniversary pic.twitter.com/nWB8k2v7AD

— David Ingles (@DavidInglesTV) August 11, 2016

Political risk back in the spotlight as possible bond default shocks

Arguably the strongest contender to make the biggest waves in financial markets in the second half of this year are negative yields on bonds which have gradually evolved from merely a concerned thought into a desperate situation described only by the panic acquisitions of similar instruments containing positive returns regardless of the risk attached to it that could very well overshadow the scale of catastrophe when compared to the Financial Crisis of 2008/09.

Late in July I wrote a piece about the rapid transmission of funds from bonds markets in the developed world in favour of fixed income securities in emerging markets that offer the very least of a positive yield. The reason being the protracted use of monetary stimulant in the form of negative interest rate policy in countries such as Japan, Switzerland and the European Union in bid to purge economic stagnancy setting in.

At the time I concluded the absence of rationality from investors when considering all risks embedded in an instrument was an alarming notion to contemplate yet the onset of such a view has already infected the current market sentiment with disastrous consequences.

A twig of sensibility should be heeded in the latest reports coming out of Mongolia where newly elected government officials have stated their intentions to avoid default on its country's debt at all costs. This after the Mongolian bond market saw a surge in demand for its fixed income securities from positive yield seekers finding refuge from the financial storm.    

Yield-seekers get reality check as Mongolia sounds alarm on economic crisis @natashadoff https://t.co/8ZPwmBW7SL pic.twitter.com/5iVYZaqBjz

— Emerging Markets (@BloombergEM) August 11, 2016

However they hadn't counted on an outcome such as this to occur which meant it sent shockwaves throughout the Mongolian financial market once it was heard. But surely how can one blame the prudence of government especially in times when austerity is needed? It's nonsensical.

The matter goes straight to back to what's been said earlier; the irrational investors as opposed to the norm of rationality has blurred the outlook of financial markets to such an extent that not all risks have been considered leaving investors vulnerable to being caught in sudden price changing events.

Political risks stemming from emerging markets have grown in frequency due to their interconnectivity with big brother China in reference to trade relations. The contraction of the Chinese economy has not only hardened the view of its citizens but also those who have suffered gravely as a result of a slump in trade with communist reforming nation.

Besides this, the economic outlook has shifted vastly from prosperity to despair translating directly into potential political shockwaves occurring from the dissatisfaction of citizens on its governments which isn't fully being accounted for in terms of risk. Mongolia might be the first but certainly won't be the last offering an inkling of what can progress if the issue of negative interest rate policy isn't addressed with true reflection of its impacts on the rest of the world.

Is Saudi Arabia up to its old tricks again?

When the thought of oil returning back into bear territory became too good to be true, the Russian Energy minister Alexander Novak swooped in to rescue deflated expectations by coyly suggesting that his nations were open to negotiations if fresh talks were to begin regarding the issue of oil production freezes but went on to say that elevated prices would likely provide producers with relief rather than resolve at this current time.

Prices immediately rose on the news with many speculating that OPEC might use an upcoming informal meeting to be held in September to thrash out the possibilities of it happening with intentions of finding a better approach  dealing with the matter than they had done previously when not all members, namely Iran, could be drawn to agreeing to conditions set down.

Russia sees no grounds for new talks on oil output freeze yet https://t.co/YwRoCVyiY9 pic.twitter.com/beswYepPAF

— Reuters Top News (@Reuters) August 8, 2016

But the prospects of this occurring in the not so distant future fell faster than a stone in water after de facto OPEC leader Saudi Arabia announced with much pleasure it had pumped out a record amount of oil for which it says was intended to cater for an increase in summer demand in the Middle East.

Riyadh may think this limp excuse may be useful in misleading the oil market relating to a downturn in prices where concerns have raged over demand being outstripped by abundant supply by falsely believing oil prices have bottomed, it does more to show the factionalism that cuts deep within the organisation following a series of disagreements as to the course of action needed to fight new competition.

This kind of statement that's hurriedly found its way into the news promptly after Alexander Novak comments of a possible freeze indicates Saudi Arabia's true feelings towards the issue. If it were to be brought up again it'll refuse to acknowledge a problem as it had done prior to its involvement that happened only because the Arab kingdom's finance's had suffered drastically as a result of the slump.

It's clear that Saudi Arabia's plan to rid the oil market of US shale gas producers is not one it sees itself warding off in the short term but rather a much  bigger threat that necessitates the argument for continuous attacks aimed reducing the profitability of their ventures, the most profound strategy being a deliberate effort to flood the market with cheap oil.

The news shouldn't be seen on the face value of it but rather a signal that tensions are rising amongst OPEC members again and possibly an indication that we'll see weak oil prices going into the end of the year.

Saudi Arabia Said to Pump Record Oil Output to Meet Summer Usage https://t.co/qr3U0NBmes

— Livesquawk (@Livesquawk) August 10, 2016

Technical Tuesday: Royal Dutch Shell PLC.

Monthly 

Firstly it must be noted that the stock chart used in this article derives its price from the Euronext stock exchange denominated in Euros. The reason why I've highlighted this aspect is because this stock is a multinational corporation with several listings elsewhere including the London and New York Stock Exchanges which would price the shares in the respective countries currency. 

In saying this by analysing the stock in Euros you might not yield the same sentiment if priced in another currency due to the relativeness of each currency to one another. 

Looking at the chart we see price has been stuck in a sideways motions within a considerably wide range over the last number of years. I've excluded the use of moving averages from it as the whipsaw movement of price would make the indicator ineffective. 

The price shows a strong correlation with general price movements in global equities up until 2014 when the price of oil peaked. The uptrend, marked in green, remained in place from its origins in 2009 to its failed attempt to break pass the previous high last set in 2007 which admittedly had the hallmarks of a trend with vigorous ability to set the outlook higher.    

However what we've seen afterwards is an unexpected failure coupled with a flurry of buyers scrambling to exit positions with the resultant outcome of the price reaching support marked out at the bottom of 2009 in relative quick succession with an exceedingly strong move off the lows that ended the slump.  

Lastly the RSI has breached underneath the 50 level suggesting momentum favouring the sellers. To add further evidence to this belief I've circled an area on the indicator where it tried to surpass the mark yet failed leaving behind trails of optimism. 

Daily 

In contrast to the monthly I've attached moving averages to the Daily over a period of one year as we've seen a great deal of swaying in the price. Immediately noticeable is the bounce off the lows registered in January following the sudden change in view regarding the supply & demand dynamics in the oil market. 

Although a distinct trend can be seen the distance between subsequent retests is far too long to establish any real threat to the downtrend which is why I classified the upward motion a bounce rather than an uptrend. 

This has caused the price trend to become vulnerable to heavy selloffs that have occurred in the last two weeks.  The ease with which price sliced down past the trendline indicates the sellers are still dominant in the current market environment. 

Added to this is a potential Head & Shoulder formation that normally appears at the end of a strong up move. The right shoulder has yet to form but judging by the position of the stochastic indicator, there's still space for price to move upwards before it gets into overbought territory. 

If price were to fall below the 200 day moving average (blue line) the sellers would take full advantage and commit an attack on the buyers that could inflict damage to their hope filled mindsets. 

US job numbers continue to grow as economy appears weaker

A closely watched gauge of economic performance often associated with the prospects of economic strength or weakness is the US non-farm payrolls that's captured much attention since overtaking a previous record set for the longest consecutive jobs gained in the labour force which last occurred in the late 1980's.

The current reading continues to surpass it's prior record by an ever increasing number of months as time passes leaving many analysts and commentators baffled at the sheer consistency of the measure over the past five years in contrast to the stagnancy of the United States economy.

One would've thought the paradoxical thought which refuses to acknowledge the direct relationship between employment growth translating into economic value might have raised the alarm bells for policymakers who continually believe the farcical numbers they broadcast.  

70...

As in 70 consecutive months of job growth, by far the longest streak in history. #payrolls pic.twitter.com/1aHcX5MCZS

— Charlie Bilello, CMT (@MktOutperform) August 5, 2016

You sense the irony in US indices breaking into higher territory off the back of this measure when the steadiness of trend in economic growth is hardly explicit.

The most probable cause for a spike in optimism relates to a lower than expected number US Federal Reserve officials would be satisfied with in its restless progression of rate hikes or even yet the possibility of rescinding it's barely formative strategy of normalisation under the pressure of following its peers in other developed economies of driving interest rates lower than zero.

Strange as it may sound, the Fed's doubt that 70 consecutive months of job gains isn't enough to be comfortable the economy is capable of handling another interest rate hike eludes to either a lack of confidence in the measure itself or quite simply using it as propaganda feed to abate the feeling of nervousness amongst the investment community. A frightening thought to ponder over considering it's stimulating nature of financial markets...

BREAKING: Nasdaq and S&P 500 close at record highs » https://t.co/TGMGUaWBm7 pic.twitter.com/n11XN0yRVd

— CNBC Now (@CNBCnow) August 5, 2016

US oil industry still bothered by debt piles

As the pick up in shale gas producers filing for bankruptcy grips oil production in the US a new concern is starting to emerge over the indebtedness of "Big Oil" after numbers suggest these firms have steadily become reliant on using cheap money to satisfy dividend payments to stockholders.

The distressed nature of the oil industry is such that firms need to see higher prices to be confident of obtaining the bounteous offerings the sector once gave to investors. However with the stability of oil supply becoming irregular following OPEC's commitment to disrupt new competition as well as the limited economic growth expected globally, one wonders if the optimism that's re-entered the prospects of the oil market might've stretched further than practicality.

When considering all commodity prices came under severe pressure over the last two years due to a larger than expected economic contraction from China, big oil firms were better placed relative to major mining players in terms of their balance sheets which can't be denied given the resounding margins made when oil prices sat at lofty levels close to $100.

In the article below it's suggested that oil majors could be forced into restructuring their books with the swells of debt growing by the year. If this were to happen on the scale we've seen happen with global miners it would most definitely shape up the industry to be leaner with efficiencies.

Besides this fact an underlying reality is setting the trend to the industry that's been absence for some time. The correlation between oil producers profits with the oil price determined by the collusive monopoly in the market OPEC has begun to decouple as the rivalry between global competitive firms intensifies.  

Oil giants' debt doubles to a combined $138 billion https://t.co/GxRpIN3kJP pic.twitter.com/vozqERo2K3

— Bloomberg (@business) August 5, 2016

BoE decision to drop rates will have major consequences

In the middle of July the Bank of England was expected to drop interest rates to a new all time low in its history but governor Mark Carney held off the destined move saying the impacts from Brexit had yet to show through in the economic data officials had used to guide them in their decision possibly showcasing some sort of integrity still left in a major central bank.

Three weeks later and the BoE now has a clearer picture to where the British economy is headed with many believing the latest set of economic indicators allow the central bank enough reason to lower the benchmark interest rate for the first time in seven years.

At the time I wrote an article detailing why I thought that a drop in interest rates in the UK would add further pressure on the US Federal Reserve who subsequently opted for normalisation of rates rather than continuation of quantitative easing measures to remain in place.

In years to come hindsight will afford us the lesson of realising that the Fed's decision to go against the majority of its significant counterparts could've possibly be the right course of action but the effects of globalisation together with the alignment of countries economic policies to steady the world's direction of activity might've played a hand in unhinging any common sense that would've entered the fray.

If the BoE does indeed cut rates it simply yields to the coercion from fellow central banks who protect torpid governments who fail to enact the necessary actions to revert an economic crisis of epic proportions from taking place.  

First UK interest rate #BoE cut in seven years expected | #Brexit pic.twitter.com/x98b2ghsJ4

— Andrea Aquaro (@AndreaAquaro) August 4, 2016

Technical Tuesday: Rio Tinto PLC

Monthly 

Identifying a trend on the long term chart came relatively easy with this stock which is clearly seen by the downtrend occurring from 2011 till present. We could extend the downtrend backwards towards the highs made in 2008 however I found the oscillations that happened after the bounce failed more orderly than the enormous moves up and down prior to that.

A bearish pattern of Head and Shoulders formed during the period of 2010 to the middle of 2012 but observation shows that the neckline only broke down in 2015 whilst price meandered about for some time. Once the level was broken the price immediately dropped promptly. 

The target hasn't been met and potentially lies around the GBP 12.50 region. The slump in price has resulted in a resurgence from bargain hunters who have subsequently driven the price higher again but as they continue to do so the expediency of their prosperous outlook from the depths of despair may be starting to wear thin. 

Digging deeper into the technical indicators the stochastic is setting up divergence which suggests the downtrend may remain intact together with the situation where the MACD continues to lie below zero indicating bearish sentiment built into the trend. 

Daily 

In contrast to the bearish tone on the monthly chart, the daily looks much more inviting to the bulls than what may be felt on the longer term charts. Outlined in the last year of trade we have an inverted Head and Shoulder pattern formed with a messy break to the upside. This could potentially hold back buyers for a little while longer who require more evidence of a reversal in fortunes for the global mining industry. 

Although noting this factor, there are a number of other supporting technical developments on this chart that could very well help lift sentiment in the coming months.

Firstly the position of price above both the 50 and 200 day moving average which will certainly place buyers at lower levels seeking a chance to join the momentum to the upside. Added to this the bullish signal generated when the 50 MA crossed over the 200 MA which is known as a golden cross. The usual course of action that follows this occurrence is a shift from bearish to bullish bias, an outcome we've seen happen thus far. 

And lastly the indicators situated below the price chart, namely the RSI and MACD, have been highlighted in the areas they've dominated in the past two years. Highlighted in red, both indicators stuck below their respective neutral levels which agrees with the negative sentiment we saw emerge in the sector. However recently we see both indicators being resilient above the neutral level suggesting a bullish undertone. 

A potential shakeup for the steel industry

Things seems to be heating up amongst global steelmakers following rumours of a potential merger between China's biggest producers in an effort to shore up the industry that's faced a barrage of attacks from its international competitors accusing the Chinese government of supporting the sector through loss making periods due to its mass employment generating ability.

China's steel industry is comprised of large to small scale producers, the bone of contention for some who say production is being encouraged regardless of the price of steel which by its own account remains under strain from the oversupply being exported onto the global market.

Although still rumours, if the information turns out to be true then it fully expresses the Chinese government's intentions of overhauling the steel industry to compete in a global market, an outcome that may give certainty to millions of Chinese steel workers but unsettle the dominance once had by major steel makers across the world who spent billions in capital expansion projects with the foresight of supplying the deficit of Chinese steel demand.  

With this in mind it's pertinent to note that these producers have tried to fight off China's inefficient producers with low cost margins from some of the most generous ore bodies in the world.

However a depleting price margin has meant the the cost needed to recover the capital spent in reaching this competitive advantage continues to escalate as the time required to pay it off extends further away from expectations with every decline in price.  

If China decides to go through with a consolidation of its steel industry then it'll continue to strangle the price of iron ore leading to more of the same...disequilibrium. Most major listed steel producers have barely survived the past three years of turmoil in the commodities markets that have brought on a vast amount of cash outflows from their balance sheets. China's restructuring will only serve to put more pressure on an industry already under strain.      

It's believed a sweeping overhaul of China's steel industry is being considered https://t.co/cILnKPxlC1 pic.twitter.com/ku1cO2gxiP

— Bloomberg (@business) August 1, 2016