Health Care

July 2018 Charts on the Move Video

US stock markets are leading the rest of the world higher.  The intermediate term rally in the dollar has either reversed or put the case for over-weighting foreign investments on hold. I think we muddle through the summer/autumn months and then rally into year-end.  Anyone thinking the same? 

July's Charts on the Move video can be viewed at the link below

https://youtu.be/lmdfJ5p16es

 

 

Nesting

When looking for investment opportunities, some of the most interesting setups can only be found when looking across multiple time frames and is why I find it a critical step. If something looks interesting short term but is in a long term downtrend, it is likely that opportunity will only be a winner if managed as a short term trade.  But when something develops in a short term view and is in alignment with the longer term, it not only increases the probability of success but also the expectation of large gains. These are borne out when a short term pattern is nested inside a much larger pattern.  A good example is what is occurring right now with Jazz Pharma, JAZZ.

The daily chart below shows price is ready to breakout above the neckline of this almost 10 month inverse head and shoulders pattern. Notice how price has held above the 200 day moving average, when its support was tested twice in April and May. When combined with the fact that RSI momentum is rising and is within the bullish zone, the weight of the evidence says a break above the blue horizontal neckline provides a compelling upside target in the 191 area above, some 19% higher.  This looks like a great set up.

bay area retirement planning fee only certified financial planner CFP weath manager - JAZZ - 5-14-18 daily.png

When looking at the same investment on a weekly time frame something very interesting stands out as you can see below. Nesting. The inverse head and shoulders pattern that I showed above (blue) is actually the right shoulder of the same but much bigger inverse head and shoulders (green) pattern. Notice how the blue (daily time frame) target just so happens to be at the prior 2015 high. This is not unusual. That is where resistance exists. Those that purchased at or near that level in the past and are still holding will provide a huge amount of share supply which will likely either slow or stop a quick move above that level. They are currently underwater and as such, the normal desire to “break even” will induce many to sell, even though now seems like a time to accumulate.

san ramon bay area retirement planning fee only certified financial planner CFP weath manager - JAZZ - 5-14-18 weekly.png

The upside target for the larger (green) pattern has an even more attractive target near 225, doubling the smaller pattern’s return. When nesting occurs like it has here, it sets up the possibility not only for greater returns for the opportunity but also extending its holding period, a benefit for those wanting to be less active. 

Regeneron – The End of the Bull?

Regeneron, REGN, makes a compelling example of allure of biotech stocks for investors. After breaking out higher in 2009 from a multi-year base, it’s stock went on to post gains of more than 5000% in 5+ years, peaking in August of 2015. Since that time, it has declined almost 50%, something difficult for buy-and-hold investors to experience, unless they got in real early and are still positive on their positions (which only makes it slightly less difficult).

Notice how in 2015 the stock eventually fell below its rising 200 day moving average, bounced off of (green) support and made one more attempt to move higher. That next move higher failed and made a lower high and has now broken below the black uptrend support and once again fallen below (a now falling) 200 day moving average.  Price sits at the bottom of support and a continued probe lower and hold below will likely be the trigger that REGN’s uptrend is done (as in put a fork in it) and to expect much lower future prices. Take note and memorize what has occurred as this is a classic long term topping pattern that most all investments mirror when their bull run eventually ends.     

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What You Want vs. What You Need

The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.” - John Maynard Keynes

 “Inflation is when you pay fifteen dollars for the ten-dollar haircut you used to get for five dollars when you had hair.” ― Sam Ewing

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We all understand the destructive effects of inflation has over time but what happens when inflation is as low as it has been over the past 20 years? What you say, inflation has not been low? Your personal experiences says otherwise? Our Government’s Bureau of Labor Statistics (BLS) begs to differ. Prices on average over the past 20 years has been 55.6% which works out to be an annualized rate of ~2.02%. One of the lowest 20 year periods …. Ever. So who’s right?

 The problem as we uncover when peeling back the onion, is how the BLS calculates its numbers. To avoid going down that rat hole into a hornets nest, it’s safe to say that inflation is the sum of the prices of things that are rising and the rest that are rising more. Unfortunately, as it works out, the things that you want are rising while the things you need are the things that are rising more. This has never been so apparent than in the most recent 20-year data presented in the chart below.

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 One scrutinizing the chart may point out that food and beverage prices (a need) have been rising at an “average” rate. The devil is in the details here too. Looking under the hood you will see the things that are healthier (unprocessed and natural foods) are rising at a much faster rate than things like fast food. Oh and while I do have some millennial readers, no, cellphone service is NOT a thing you need.

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."