Contrarian investing opportunity

Greek lawmakers approved a package of economic changes and austerity measures earlier this month, allowing them to begin accessing a chunk of the country’s nearly $98 billion international bailout program. Under the terms of the bailout, Greece must pass certain laws and measures that, ironically, were supposed to have been passed years ago. Will this be a catalyst to some upside for their homeland equity markets? Let’s see what the charts have to say about this potential.

 

Technically, there is some potential that the Greek ETF (representing FTSE Greek 20) is in the process of breaking a downtrend.  This bearish trend has been in place for almost 2 years. Its no surprise that the ETF is finding support at around the 2012 lows. Some supporting technical evidence that suggest potential upside on this ETF include:

  • Divergence on MACD since early 2015 – a significant mid termed bullish signal
  • Rising momentum via RSI, Stochastics – short termed siganals
  • Dramatic increase in money flow – another significant mid termed bullish signal.
  • The recent break of the downtrend line at around $10/sh -yet another significant bullish signal

GREK

 

Some things that need to happen before GREK becomes a safer buy include:

  • A break above the (red line) 200 day MA that lasts for a week or (preferably) longer
  • A move above $12.50+ (last significant peak) if you are wanting the lowest risk trade
  • Volume to increase by 50% +/- from current levels on a rally through either of the above two levels

 

I would not view Greece or this ETF as a long termed play. The country has a long history of anti-austerity, anti-capitalism and an attitude of pro-socialism and entitlement (something that our own country, while still a long way off from Greece’s socialistic attitudes – needs to guard against). As such, and as with everything on the market with this ETF’s kind of historical volatility, I view any potential opportunity in the Greek market as a temporary trading opportunity.

Greece austerity protest

 

 

 

10 Comments

  • Hi Keith,

    Could I please ask for elaboration on the Accum/Distribution graphic. When I generate this chart through CIBC Investors Edge there is a scale on the right side, ranging from 25 million at the top of the scale, down to zero at the low end of the scale. I am not sure how to interpret the graph….. Does that mean that there is 25 million dollars of net in flow to the stock the stock? Some companies will show a positively sloping line, but be registering negative numbers on the right hand scale. Again, I am not sure how to interpret this.

    Thanks for your time and help in advance,,

    Chris

    Reply
    • Here is the Stockcharts site definition: Developed by Marc Chaikin, the Accumulation Distribution Line is a volume-based indicator designed to measure the cumulative flow of money into and out of a security. Chaikin originally referred to the indicator as the Cumulative Money Flow Line. As with cumulative indicators, the Accumulation Distribution Line is a running total of each period’s Money Flow Volume. First, a multiplier is calculated based on the relationship of the close to the high-low range. Second, the Money Flow Multiplier is multiplied by the period’s volume to come up with a Money Flow Volume. A running total of the Money Flow Volume forms the Accumulation Distribution Line. Chartists can use this indicator to affirm a security’s underlying trend or anticipate reversals when the indicator diverges from the security price.

      Reply
  • Two items seeking your perspective please.

    1) Both natural gas and unleaded gasoline are currently down in price as a commodity. As a betting person I would say that some time over the next two years, if not next 5 months both will be at higher prices as a direct commodity. If not that is good for us consumers so we win at the wallet. While this would not be a play for your portfolio, but for an investor that has excess cash at the moment and a longer time horizon to play in, might it not make sense to buy into these 2 commodities now and await a future price rise? We cannot predict when prices will rise so getting in now and waiting versus waiting for some future date as prices edge upwards may miss upwards opportunity. If I could get say 30% increase in these commodities over 2 years vs maybe 16-20% betting on the S&P 500 over 2 years, is that not a valid thought. It aligns with Gold investors who believe Gold must rise some time, they just don’t know when. For Gasoline there is UNG and natural gas has multiple ones including UNG.

    2) Using Cdn dollar hedged ETF’s versus unhedged? Clearly one can see the theoretical benefit of hedging. However there is a deep article at this website http://canadiancouchpotato.com/2014/03/06/why-currency-hedging-doesnt-work-in-canada/ that argues in practice it does not work in protecting your overall ROI. Market forces of equity change get offset by forces of currency change. The authors conclusion is “The evidence seems clear that hedging is a costly strategy that actually increases risk and frequently fails to offer a benefit even when the Canadian dollar appreciates.”

    I wonder if you have an opinion on both these topics?
    Daddyo

    Reply
    • Daddyo–
      Re buying the falling knife–I think its a risk to make an assertion that in 5 months (or whatever) nat gas, oil, gold, or anything else will almost certainly be higher. You could have said that after gas/gold etc’s strong long term selloff and bought say 6 months ago–and you would be lower or at best flat on the trade right now. For that reason- my discipline is to identify base breakouts or trendline breaks with supporting evidence to back that breakout before buying. I dont asset that a commodity or stock will with any certainty stop falling and reverse in any period of time. The system works for me, and keeps my clients safe–case in point, our October numbers will be released next week, and they will prove the validity of the discipline

      Re currency hedged ETF’s–my fundamental analyst Craig would agree with the couch potato article. However, in extreme movements that can catch you off guard, they can be worth the expense given the lower premium of the hedges. So call it a black-swan hedge, not a trend hedge if you buy these vehicles

      Reply
  • Maybe small caps is an upcoming topic. I recall the seasonal for small caps (Russell) is January?

    Here is a recent BNN comment. What are your thoughts on small caps? The “narrow range of performance” they refer to is that the actual price movement up and down? If so why is that characteristic significant?
    “According to work quoted by Raymond James, the narrow range of performance of the Russell 2000 small cap index is the tightest in 35 years and on a monthly basis, there have only been three other times since 1953 when the range has been more tight. More importantly, the history shows that post this kind of low dispersion trading, small caps have outperformed on average 21-31% on a forward one-year basis. Maybe it is time to look at small caps again. ”

    Thanks Daddyo

    Reply
    • I will do a blog on that–but re RJ’s research comment–they outperform only 21-31% of the time after such a tight range….um, call me dumb, but that means that 79% – 69% of the time they don’t outperform after such a pattern. This makes no argument for an “edge” right now–in fact, it might be an argument against buying them (unless the 69-79% of occurrences were “neutral performance” vs. large caps)- unless you misquoted their statistics?

      anyhow–I’ll blog on smallcaps soon–thanks for the input

      BTW–Come to the MoneyShow on Saturday-or go online to watch it live per the link on this blog-I will be presenting sectors and charts I like for the coming months

      Reply
      • Just spoke with Frances Horodelski who wrote the BNN morning comment you quote.
        She made a typo – she noted that she meant to say that the average RETURN on small caps was 21-31% according to RJ research, not the average out-performance.
        So now I am truly intrigued, and will offer some technical insight on the small caps in a blog next week–thanks Frances for straightening me out, and thanks Daddyo for bringing this up

        Reply
  • $TSX: THE WAY VALEANT IS UNWINDING ON THE INDEX RIGHT NOW AND WITH A MULTI-MONTH DECLINING TRENDLINE (MAY 2015 AT 15524 AND YESTERDAY AT 13750) DO YOU THINK WE WILL HAVE “APPARENT SUPPORT” AT 20 DMA (13763) OR 50 DMA (13612). AS GREG SCHNELL MENTIONNED LATELY, IS THE FINAL SUPPORT AT THE 12500 AREA (OR LOWER) FOR THE CANADIAN MARKET?

    GOOD DAY

    J.P.

    Reply
    • I hate making too many predictions surrounding the TSX–far too dependent on just a few sectors (materials, energy, banks/financials) and big name stocks like Valeant.

      Reply

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