UBS has been in the news recently due to its $2 billion trading loss by trader Kweku Adoboli. Meanwhile, its share price has tumbled 43% since touching $20 USD in the spring to finish last week at $11.25. But the revelation of the trading loss was not the cause of the crash. In fact, the warning signs first appeared six months ago.
Looking at a weekly chart of UBS shares, we see that a double-top formed with peaks in February and April of this year. Several pieces of evidence suggested that the market’s enthusiasm was much lower as the second peak formed. Volume was weak during the second run to $20, and a lower reading of RSI told us the market was becoming more uncertain. Also note that %b, like RSI, failed to reach the level at the earlier high.
The sharp drop in prices beginning in late July was not unique to UBS. Equity markets around the world suffered big losses, particularly bank stocks. And UBS still managed to underperform its peers during this time.
But we believe a tradable rally is underway. Last week’s price action traced out a beautiful “hammer” pattern in candlestick terms. And while prices did reach new lows, it was not a new low in %b, which can be a useful measure of momentum. We are looking for a bounce back to the $13.00 to $13.25 range, or approximately 15% up from last week’s close. If this bounce does occur it could be of the “dead cat” variety, however. The small “window” which formed a few weeks ago will function as an area of resistance. It may turn out to be only a pause in a longer down trend.
This blog has been on holiday for a bit. Has anything important happened recently?
Many investors like to look at the BRIC countries –Brazil,Russia,India,China– for investment opportunities. So today we will review the performance of Brazil’s stock exchange, known internationally as the Bovespa (BVSP).
Looking back three years, to the depths of the financial crisis, we see that the Bovespa index soared nearly 150% to a high of 73103 last autumn. Then the market slowly rolled over. The chart has been forming an interesting “price dome”, if we are permitted to make up a word for it. And now the market is now down 27% from last year’s high. So, for the last year, Brazil has hardly been a paradise for investors.
In specific conditions, we find that a 4-period RSI can tell us much about the health of a market. Notice how RSI(4) was regularly reaching 80 or 90 during the bull run in 2009. Even during corrections, the market found support when RSI fell to 30. When RSI started to be more erratic, the Bovespa’s strength waned. Eventually, the bears took control of the market and the 4-period RSI frequently visited numbers below 20. Any rallies were capped when RSI reached 70. We would like to see some readings in the 70-80 range as a sign that the bulls started to have more conviction.
One interesting point about the Bovespa – it has recently shown signs of strength versus the S&P 500. After a long period of under performance, BVSP has started to look better. On the last sub-chart below, you can see an inverse head-and-shoulders pattern in the relative strength of BVSP-S&P. If that neckline is broken, we could see the Bovespa beginning a new period of strength compared to the U.S. market.
We found (via The Big Picture) this excellent and very funny rant about one man’s visit to the Alaska State Fair and all the stoopid people he encountered.
I used to think there were alot of stupid people in the world, and then I realized that I am one of them. Nonetheless, this rant conjured up memories of a rant from Duckman. Enjoy.
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