I do a quick recap on 2017 and take a look at what 2018 will likely bring for investors in this months Charts on the Move video.
Understanding Support and Resistance
One of the most basic (and important) elements of Technical Analysis is support and resistance. They represent key junctures where the forces of supply and demand meet. In the financial markets, prices are driven by excessive supply (down) and demand (up). Supply is synonymous with bearishness and selling. Demand is synonymous with bullishness and buying. As demand increases, prices advance and as supply decreases, prices decline. When supply and demand are equal, prices move sideways (consolidate) as bulls and bears slug it out for control.
Resistance is the price level at which selling is thought to be strong enough to prevent the price from rising further.
Support is the price level at which demand is thought to be strong enough to prevent the price from declining further.
Taking a look at a post I made back in July of this year regarding Grainger, GWW, the chart illustrates that price was approaching a prior level of support. As such, I was expecting it to find a bottom and experience at minimum, a reversion to the mean bounce. Additionally, momentum would likely form positive divergence and be the wind behind any bounce. July’s chart is below
Fast forward 5 months ahead to now, taking a look at the same chart of Grainger updated with recent action we can see how price did find that bottom, it also formed positive RSI divergence and provided a very nice tradeable bounce opportunity.
In this case, GWW actually provided something much more than a tradeable bounce as it has gained more than 50% from the July bottom. Identification of key support and resistance levels is an essential ingredient to successful technical analysis. Even though it is sometimes difficult to establish exact support and resistance levels, being aware of their existence and location can greatly enhance analysis and forecasting abilities. If a security is approaching an important support level, it can serve as an alert to be extra vigilant in looking for signs of increased buying pressure and a potential reversal. If a security is approaching a resistance level, it can act as an alert to look for signs of increased selling pressure and potential reversal. The bottom line is if a support or resistance level is broken, it signals that the relationship between supply and demand has changed. A resistance breakout signals that demand (bulls) has gained the upper hand and a support break signals that supply (bears) has won the battle.
It's Coming, Are You Ready?
Automation may wipe out 1/3 of America’s workforce
In a new study that is optimistic about automation yet stark in its appraisal of the challenge ahead, McKinsey says massive government intervention will be required to hold societies together against the ravages of labor disruption over the next 13 years. Up to 800 million people—including a third of the work force in the U.S. and Germany—will be made jobless by 2030, the study says.
The bottom line: The economy of most countries will eventually replace the lost jobs, the study says, but many of the unemployed will need considerable help to shift to new work, and salaries could continue to flatline. "It's a Marshall Plan size of task," Michael Chui, lead author of the McKinsey report.
In the eight-month study, the McKinsey Global Institute, the firm's think tank, found that almost half of those thrown out of work—375 million people, comprising 14% of the global work force—will have to find entirely new occupations, since their old one will either no longer exist or need far fewer workers. Chinese will have the highest such absolute numbers—100 million people changing occupations, or 12% of the country's 2030 work force.
The details:
- Up to 30% of the hours worked globally may be automated by 2030.
- The transition compares to the U.S. shift from a largely agricultural to an industrial-services economy in the early 1900s forward. But this time, it's not young people leaving farms, but mid-career workers who need new skills. "There are few precedents in which societies have successfully retrained such large numbers of people," the report says, and that is the key question: how do you retrain people in their 30s, 40s and 50s for entirely new professions?
- Just as they are now, wages may still not be sufficient for a middle-class standard of living. But "a healthy consumer class is essential for both economic growth and social stability," the report says. The U.S. should therefore consider income supplement programs, to establish a bottom-line standard of living.
- Whether the transition to a far more automated society goes smoothly rests almost entirely "on the choices we make," Chui said. For example, wages can be exacerbated or improved. Chui recommended "more investment in infrastructure, and that those workers be paid a middle wage."
- Do not attempt to slow the rollout of AI and robotization, the report urged, but instead accelerate it, because a slowdown "would curtail the contributions that these technologies make to business dynamism and economic growth."
For Gold Bulls the Disappointment Continues
As you can see in the ratio chart (middle pane) below that gold’s out-performance against the SP500 came to an end in 2012 when the ratio broke both the upper red horizontal and blue uptrend line simultaneously. Since that time the SP500 has been kicking tail as it has outperformed gold by ~45%. We can also see that the ratio has been consolidating sideways since 2015, bouncing between the upper and lower channel providing gold bulls hope a turnaround was in the cards. Unfortunately, it was not to be as you can see support finally gave way to the down side last month.
Ratio charts are a great way to view relative performance but ultimately help decide which to commit your investment capital to (assuming achieving the best returns are what you desire). In the choice between gold or stocks, the chart is sending a strong message that stocks are the place to be. Like all trends this will eventually change, but until then there is no reason at this time to be (over)exposed to gold.
Stocks Rotate – Tech Under Pressure
As stocks continue to rotate, technology shares are now making the unloved list. Last 5 day relative performance is below.
