The Chart Seminar
Comment of the Day

November 22 2010

Commentary by Eoin Treacy

The Chart Seminar

Eoin Treacy's view Delegates at last week's The Chart Seminar in London hailed from 12 different countries, reflecting Fullermoney's truly global reach. As ever with such a rich and diverse pool of experience, some hearty debates took place.

Not surprisingly, the Eurozone sovereign crisis was on many people's minds. This led to a discussion of, primarily, European banks. As with so much else in the global economy, those leveraged to Asian growth continue to outperform. Commodities also featured highly, not least because they have been among the better performing assets over the last few months.

Energy related investments were of particular interest to the delegates with the group examining, oil, natural gas, uranium etc as well as some related shares. With uranium in the process of breaking out of its base, uranium miners and prospectors are also completing relatively lengthy periods of underperformance, breaking upwards and displaying medium-term recovery potential.

Soft commodities had also clearly caught the imaginations of delegates and there were a number of discussions focusing on corn, wheat and cotton. Precious metals were also discussed with the conclusion remaining that while the medium to long-term potential was undiminished they were susceptible to reversions towards the mean, defined by the 200-day MA.

We looked at a large number of global consumer oriented shares from auto manufacturers, to technology to food processors and super markets. The dividend aristocrats theme of identifying global consumer oriented shares paying reliable dividends and offering access to the developing global middle class were popular with delegates. However, we also concluded that many such shares have performed spectacularly of late and are susceptible to a mean reversion which, once completed, would offer a more attractive entry point.

Since delegates provide all of the working examples, it is often interesting to observe what is not discussed. While we spent a good deal of time looking at individual commodities no one asked to see stock market indices such as Australia, Canada, South Africa or Latin America. Nor did we look at commodity related currencies. No one asked for ASEAN stock market indices. Given the leadership these have displayed over the last year I found this interesting. This probably reflects an underweight position among the delegates.

A number of delegates expressed disquiet with the competitive currency devaluation being pursued by various governments. No one asked to see a chart of a Treasury, Gilt or Bund price or yield.

So what can we conclude? Most commodities, with the exception of energy, have posted new highs or tested areas of previous resistance. A large number of the better performing sectors have become overextended relative to their 200-day MAs and are susceptible to mean reversion. Bond yields continue to rise but have not moved to such a stage where large numbers of investors hold short positions in bond futures. ASEAN and commodity producing Latin American markets remain regional and global leaders and while currently somewhat overextended relative to their means, they do not appear to have garnered the kind of investor interest that would reflect a frothy / manic peak.

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