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We hope you find the articles on our blog informative and helpful. You are always welcome to chat with us if you have any questions about your personal financial situation.

Oscillators as Indicators

We have discussed Oscillators as indicators that will depict oversold and overbought conditions over different time periods. Oscillators will vary in what they depict depending on the inputs. In general they will map the trend of a given stocks price movement but depending on the inputs you can amplify the trend or conversely you can soften the overall trend. For short term investors amplifying the trend may provide more accurate short term signals for either entry or exit points and likewise for long term investors reducing the sensitivity of the signal will more accurately depict the long term momentum in price cycles and growth. Longer term investment horizons allow for more underlying data and therefore technical analysis will provide more reliable information for interpretation and analysis than short term investment horizons.

If investors believe in the long term growth prospects of a stock or fund (basket of companies) then buying at those times when price oscillates to the lower bands of the stochastic oscillators numeric ledger, usually 0-20 (which signals oversold conditions) can be on approach to steadily acumulate a position over time. Investors looking to rebalance their portfolios on a stock or fund that has outperformed the market for years may look at a long term oscillator top range, usually above 80 (which signals overbought conditions) as one of many different signals to assess when to exit a portion of their position and re-balance their portfolio. The chart on the right shows Amazon's monthly stock price movements and points to 2 moments in time when the stochastic oscillator was at a low. If you believed in the long term growth prospects of Amazon, both these moments in time would have provided good entry points to accumulate stock.

Techincal analysis used in conjunction with macro analysis can provide a more balanced and objective perspective for purposes of portfolio management entry investment and rebalancing or selling decisions whether that is for an individual investor or asset manager over different time periods. Technical analysis is a tool which requires context  and experience to assess and use. That context is based on the investment goals of an investor or fund manager. 

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Technology Disruption in Finance and Everything Else!

We have talked about the blockchain in prior articles. Many people associate the "blockchain" with "Bitcoin" but the blockchain is far more than Bitcoin. Bitcoin is a counter financial cyclical innovation that arose directly after and as a result of the 2007/8 financial crash and depression. We refer to it here as counter-cyclical because it has a deflationary monetary supply built into the code. It is not subject to human, governmental or political motivations that can inflate the money supply to unprecedented levels of indebtedness - in a monetary experiment - that devalues the worth of the currency, causes inevitable inflation and arguably impacts those who are the least well off, the most, over the mid to long term. Bitcoin's supply is fixed and known. It is finite. It is often referred to as a "store of value" - the equivalent of digital gold, except more easily stored on a comparative basis, more liquid and transportable, not to mention an increasingly globally accepted currency and asset class in the westernized world.

Bitcoin is however just the tip of the iceberg of changes and innovations spurred by the blockchain that will sweep the world and impact every industry on the planet. The biggest disruption in finance in the last two hundred years is unfolding now. It will be commonplace soon to be able to send monies for free or fractions of a cent 24/7 to anyone in the world. Businesses will be able to accept payments for cents vs paying 2-4% in fees for every sale. Individuals can access fair market interest rates in exchange for depositing monies with crypto banks. You can do that right now. Yes, these do carry more risk but with over $250 billion dollars accessing the decentralized financial markets today these risks will become more manageable. Insurance products are already being created to manage this risk. This industry is still in its early evolutionary phase and as the products and technology mature so will the ease of use, accessibility and safety.

Another industry that is being reinvented on the blockchain is the gaming industry. In one year, Axie Infinity, a blockchain gaming company is generating more revenue than some of the largest gaming companies in the world. More, many more such ventures are coming. The economics or tokenomics of these ventures allows users to also interact financially whether it is to secure the network, purchase games, buy/sell various items within the gaming ecosystems, compete and generate income.

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China, Evergrande and The Boom & Bust Cycles of Capitalism

The recent headlines in the markets are all about China's "Evergrande" which may require a name change before the dust finally settles. China's quasi capitalist front - the business class - which is under the umbrella of Communism is under fire on many fronts. Let's discuss the economic front first. Evergrande - you may not have heard of the company until now - is China's largest property developer and has been a company at the forefront of China's economic boom and phenomenal new city development and expansion. As can be the case in an economy that has been booming and expanding for decades, it is easy for companies to lose sight that "booms" always come to an end. The economic cycles in Capitalist societies are inevitable, in spite of trillions in government "funding" intervention in the last decade. China is not a capitalist society - at least not culturally - and the interesting juxta-positon between capitalism and communism under one roof is playing itself out now with "Communism" asserting itself in ways that those who have heavily invested in china are now discovering to their detriment.

Evergande's booming business was fuelled by increasing debt and leverage. As can happen, that debt to debt servicing ratio was not properly managed and the banks - yet again - failed in their fiscal due dilligence and evaluation of the company. The US equivalent often cited in the media is "Lehman Borthers". The bottom line is that "Evergrande" is teetering and on the cusp of failure, unable to service its debt with no immediate convincing plan to lower its $300 billion debt mountain. It missed it's interest payment to bond holders yesterday - thursday September 23rd - and now has a 30 day grace period to make good on this or officially be in default. The writing is on the wall. It has effectively lost the little negotiation power it may have had. It's unlikely - not impossible - that the company will survive in its current "Evergrande" form. Will the chinese state intervene? Given the millions of livelihoods at stake and economic repercussions for the region, there is a high likelihood the government will intervene in some way. In wake of China's clamping down on "businesses" that have grown too big and too powerful for the State's liking and its emphasis on the welfare of the people, we see a strong possibility that state financial aid will come, but with caveats or demands that the company be broken into several companies and assets sold off to pay down bondholder and retail buyer debt.

As we have already mentioned, we believe it is unlikely that "Evergrande" will survive in its current form.

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What is a Head & Shoulders Pattern?

In this installment of our technical patterns education series, we will explore what is known as a "Head and Shoulders" pattern. This pattern can signal a shift in trend whether at the top of a price discovery trend or at the bottom (when it is referred to as an "inverse head and shoulders bottom" pattern).

As the name suggests, a head and shoulder pattern comprises of left shoulder that corrects only to move higher to form the "head" typically the highest price point in the prevailing price trend (or the lowest price point in the case of an "inverted head and shoulder bottom pattern" after which it will correct while only to rally again but not as high as the previous "head". This point marks a trend reversal, down in the case of a traditional head and shoulder pattern and up in the case of an inverted head and shoulders bottom pattern.

The chart to the left provides a classic example of a head and shoulders pattern whereas the chart below of Cisco in 2000-2001 shows how these can play out in real markets.

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A Window into Institutional Adoption of Digital Currencies

Institutional adoption of digital currencies and payment methods is on the rise. We are seeing a tectonic shift in the payments landscape along with the rise of Bitcoin. However, behind Bitcoin, blockchain companies and projects are looking to reinvent the way individuals and entire industries transact across the entire global industrial landscape.

One of the the core concepts behind blockchain is "trustless" transactions which essentially means transactions between two parties that are controlled by a piece of computer code "A smart contract" that is programmed to embody the transactional details and execute automatically. Essentially any "exchange" of property or digital property can be programmed accordingly removing the need or reliance on centralized parties or intermediaries to broker an exchange for fees. The movement to decentralised finance for example aims to remove "banks" and "brokers" as intermediaries allowing what is known as "peer" to "peer" transactions. Individual A can buy a stock or any asset directly from Individual B in a secure and trustless manner or Individuals can send monies "peer to peer" directly to one another without a bank as an intermediary.

Every transaction on the blockchain is recorded in a tamper proof ledger. No one can go back in time and modify the ledger which makes blockchain one of the most secure and transparent technologies in history to date.

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Hawley Advisors is an investment advisor, registered with the State of California. Any investment ideas or strategies on this website are for the purposes of education and general information only and should not be construed as specific investment advice. For more information about our firm please check the SEC Public Disclosure website: https://www.adviserinfo.sec.gov/

 

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