This is a rather long entry: it will deal with the attributes of the zodiac snakes, the analogy on the markets, and potential trades throughout. (No, I have not used the CLSA Feng Shui Index, although it’s a great, graphically supported read that should provide ample comedy. Also, it is much more comprehensive and advanced than my post below.) First of all though, lets sum up what the Year of the Dragon finished up as:
Overall, the dragons soared on the wings of both diminishing risks and political intervention to ensure that ever higher skies were reached, except for in China, where the dragons awoke late to jolt the Shanghai Composite into a strong dragon year close.
The Nikkei 225 saw a very late-year flight given the Abe-administrations entry and the related swoon of the yen. US indices recovered quickly from their initial weakness to close into very great strength and finished the Dragon Year with the S&P and Dow roaring over 1 500 and very close to 14 000 respectively. Europe cast aside its fear of heights (in bond yields) and saw them plunge and also allowing a broader equity rally. (Please check back for some spread out updates on some of my better or worse calls and how I am positioning for this year in later posts.)
On the back of all this, what can we expect for the Year of the Snake?
Attributes – Snakes
The snake is predominantly an intellectual creature, weighting the time to strike yet adaptive to the environment being restive in the cold and hustling with the return of the heat. Snakes love the heat and thrive in the hot months switching effortlessly between the lazy enjoyment of soaking up the sun and of stalking prey. Colder months instead prove hard times for snakes, as their cold blooded nature instead drains them of the energy needed to either enjoy inactivity or being successful when active.
They are generally extremely focused creatures, pursuing their goals with a determination that borders on single-mindedness, while being generally lazy when there are few to no targets for it to pursue. Highly intellectual, wise, and solitary, they prize material goods and warm slowly to new people but willing to coil around them like possessions when they have finally done so. Furthermore, money is rarely on the snake’s mind – they simply have enough to not need to worry and it seems to materialize as needed.
Market implications of a Water Snake Year:
On the fundamental area, could the materialism be a spark of greater growth of the Chinese consumer markets? Furthermore, I doubt that market gains will be easily reversed although there could be a (very marginally) stronger consolidation pressure from any rallies. Again, the warming of the spring months just so happens to coincide with the political shift of the Chinese Communist Party, so watch out for a very interesting late spring! Water represents wealth and attainment, so as China warms up to the new summer and the water finally starts to flow, expect waves of wealth to reach the Chinese consumer. Similarly, there is likely to be continued pressure on the yen and the likely inflow of cash to the Greater China space leading up to a very likely consolidation of LDP power in the summer election in Japan could keep pouring more hot money into this geographical investment area. Any let-up of the hissing in the messy snakes’ nest that is US politics replaced by any actual policy action and more warm blooded digestion of the fact that there needs to be bipartisan compromise could also grant snake year investors quite high gains over the summer.
Overall, I expect decisive moves over the summer, which could well subside strongly as the winter returns and more uncertainty in both the US, Europe, Japan and China enters the field. The US will have to contend with its political mess at one point or another, and it feels increasingly like the fall will be “it”. Similarly, I highly doubt that the European debt crisis has stabilized enough to get us through a full year without strong headlines coming out. Japan will most likely be in the “sour spot” where Abe’s election does not yet lead to new policies, the BoJ won’t do anything for a few months, and the “buy the rumour, sell the news” mechanic can run full force. One might also wonder if the shine will come off the new Chinese leaders and market gains or inflation coming in and forcing a slight cooling down of the economy.
Reading into the Rattles – Predictions for the Snake Year:
Again, this is as far away from fundamental as I would ever like to stray. Personally though, I don’t believe in predictions of the astral, but I find it all to be very interesting and I like them very much, so here is my more numerical discussion. It is derived from such financially sound procedures as rolling comparison (between dice), the residual-in-coffee method, and discounted present value of dream dust, so please keep your eyes peeled and then promptly laugh it off.
Nikkei 225: 1H Water Snake – 14 444. Simply because of the numerology (association of 4 with “death” from the similarity of “shi” and “shine” in Japanese and the much closer link in Chinese.) After this, I expect a retracement back to the 13 000 level as a line in the sand. From here I do expect wild, yen- and earnings-driven swings somewhere between 13 000 and 15 000, so volatility will be up here in my view. Additional forceful monetary easing could see it push 17 000, but then we’re in “nana-land” fundamentally!
USD/JPY: 112 by June, simply since it reads “hyakku juni”. It would be a somewhat similar pace to what we have kept so far, and any retracements towards 104 could be highly likely. I would not be surprised to see it finish the year at 137 (50% up from today) if enough corporate and household cash leaves the nation.
Hang Seng Index: Initially, within the first new lunar month, I would expect the “five elements” to come together and crystallize into a 25 000 reading. This is similar to what I expect the Shanghai Composite to do based on this numerology alone. The resistance would then come in at 25 528 (based on 528 wordplay implying tough luck) possibly creating a quick fall towards 23 333 (implying market rebirth, after a very rough ride through the “death barrier” around 24 444 and 24 000). If, after this, a push past 25 954 (coupled harmonic long-lived elements) and 26 000 (doubled flow of thousands) occurring in the same day, it seems the stars will be aligned for a good push through the 27 000 (rising thousands) to consolidate at 28 888 level (great fortunes) just as the snake finds itself out of sunlight and needing to recover in its cave. It could be very likely that the effort of just staying awake at all will take such a great toll on the snakes, that a final hiss will drag the spirit of the snake down to 24 000 before handing over to the next animal. Still, the central forecast is a constricting grip and consecutive squeeze out of any volatility that finds its way into the market, to settle a hair above 26 000 before the snake recovers for its next return in 2025.
Any push above 30 000 would likely fuel further gains far and fast on the back of the “birthing of the myriads” but here the 34 000 level could provide significant verbal guidance confusion. On the other hand, if the 20 000 level is lost, there is a pretty annoying chance that the snake dives below 16 000 (however briefly) before finding its proper flow and elemental balance. This is of course because of the added benefit of the “double” or “coupled”implied by the leading 2.
China Indices: Leading Hong Kong in terms of time, and expect the constricting motions to start earlier given the split-tongue personalities of the Chinese politicians. for the Shanghai composite, for any repeating lucky numbers or zeroes, simply remove the last digit. For 25 954, the equivalent is 2 554.