Correction or downward trend?

TransStock > Analysis > Correction or downward trend?

A number of catalysts caused the stock exchange to fall back a little faster than we are used to, after months of trending upward. The word ‘crash’ resurfaced, but luckily it did not come to full fruition. And yet, nothing really happened unless you started investing in January 2018. This is also a reason why you should enter the market gradually.

Compare this to retirement savings. Either you deposit the sum once per year, or you spread it via monthly contributions from your bank account.

 

Pressure on the negotiating table

The headwind from all sides notwithstanding, President Trump signed to tax certain imported products. He may have a point when it comes to China and it undoubtedly adds fire to the international negotiating table. The stronger the opposing wind, the better he can play his cards. He knows like no other how to put the pressure on the current NAFTA talks, and the current measures undoubtedly have an influence on the new qualifications for membership regarding TPP (Trans-Pacific Partnership). A meeting with the prime minister of Japan must be on the agenda.

 

Homework

Due to the uncertain international trade relations, the share profit of 2018 disappeared. Investors shy away from uncertainty!

This makes investing more determined and analysing shares interesting once more!

  • When stock markets rise, you have made your choices and ought to only (at the very most) replace the shares in your portfolio that do not move in the upward trend. 
  • When stock markets go down, it takes time and energy to, on the one hand, check which sectors and which shares keep best and, on the other, build up cash from shares that fall through their support.

If you keep the method above in check, you should have a few of your favorite shares on your wishlist, in alphabetical order. 

If the upward trend recovers, it is the time to buy. And you should be able to buy, because you sold the weaker shares that fell through an important support line during the decline. 

 

And are shares expensive or cheap?

On graph 1, you can see the upward trend of the S&P500. As long as the red support line stands, these are interesting levels to get in. A breakthrough brings us to the support of 2450 and subsequently 2200 points. 2200 points is the support level of the upward trend since March 2009. 

On the top right, you will see the increase of profits of American companies, followed by what it means in percentage (yield), and the last graph shows the imposed interest of the State. The percentual risk of shares quotes at the most 3% above this latest interest rate. 

(2% above the 10-year bond interest- see the graph in the previous entry)

If companies keep showing good numbers, the stock exchange quotes cheap.

 

America or Europe?

On graph 2, you can see the course of the market of Europe and that of America. It is clear that America performs much better over a period of two years.

 

Which sectors persevere?

For America, the following two sectors remain strong and, as such, favorite:

  • XLY: Consumer Discretionary
  • XLK: Technology

For Europe, these are:

  • EXH2: Financial Services
  • EXV3: Technologie (strong recovery at the start of March)

Strength of American sectors against the S&P500 stock market index

 

Strength of the European sectors against the eurStoxx 600 stock market index

 

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