STOCKTAKE:OVERSOLD European markets have gone on a tear of late with Spain's Ibex rising 22 per cent in a fortnight and Italy's Mib up 19 per cent. French and German indices also enjoyed double-digit bounces.
The Stoxx Europe 600 completed a so-called golden cross last Wednesday following this ascent – its 50-day moving average crossing above its longer-term 200-day average.
The golden cross has a strong long-term record in the US, but it’s far from infallible. Elsewhere, the golden cross in emerging market indices in May 2008 was followed by carnage, while the German Dax’s golden cross in February was far from timely.
Just seven weeks ago, the Stoxx Europe 600 recorded a “death cross”. Analysts say past instances where the two crossovers were separated by a couple of months have proved bullish over one and six-month periods.
Still, with Europe’s debt woes far from resolved, any ascent in coming months is not likely to be a straightforward one.
Lower US earnings may bode well
US OPERATING earnings are expected to be slightly lower than a year ago. Ironically, that may bode well for stocks.
Ned Davis Research examined earnings data going back to 1927 and found the SP 500 grew at an annualised rate of 12.4 per cent when quarterly earnings growth was less than 5 per cent and not worse than minus 20 per cent. When growth was between 5 per cent and 20 per cent, returns fell to 6.4 per cent. When earnings grew by over 20 per cent, returns dwindled to just 2.4 per cent.
This quarter has followed that pattern – SP 500 stocks have had average one-day gains of 1 per cent following their earnings reports.
Apple monitor predicts ‘leg-up’
THE “BIGGEST second-half product launches” in Apple’s history mean the next “major leg up” in its share price is nearing.
So say Topeka Capital Markets, whose “Apple monitor” tracks sales at leading Taiwanese suppliers to Apple. In July, it rose by 14 per cent – the biggest monthly sales increase on record.
Topeka estimates 50-60 per cent of sales from the companies in the monitor come from Apple, indicating a major ramp up in production. In June, the monitor revealed a surprise decrease in sales, not long before Apple said it had missed revenue targets.
An October iPhone 5 launch has long been expected, but Topeka now thinks an earlier debut is likely. An iPad mini is also likely in September, it reckons, helping drive the shares – currently $620 – over the $1,000 mark over the next year.
Facebook trading at 10 times its sales
FACEBOOK’S RECENT descent below $20 means the stock has nearly halved since floating at $38 last May.
The stock is cheaper now, but not cheap. It trades at 33 times 2013 estimated earnings, against 12 and 13 in the cases of Apple and Google respectively. It is trading at 10 times its sales, compared to Apple’s 3.9 and Google’s 4.9.
Growth stocks are tricky to value, and the stock may deserve a premium to its more mature tech rivals. But it faces another obstacle in coming months as bans on employee share sales begin to be lifted. On Wednesday, 268 million shares become eligible for sale. Over the next four months, some two billion shares will have been released for sale, creating a serious share overhang.
Fund trades written in the star signs
SHING Tat Chung is a designer and fund manager. An unlikely combination? Yes, but the Superstitions Fund is not your average fund. There are no fees, the minimum investment is £2, and it will use a superstitious robot to bet on the FTSE. Based on numerology and astrology, the fund will fear the number 13 and avoid trading on certain dates.
Launched on June 1st, it lost 9.5 per cent in its first two months, but investors are leaving their money for a year. Fingers crossed.
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