ASX 200: Correction to test 6000

The ASX 300 Banks index continues to test support at 7700. Declining Trend Index warns of medium-term selling pressure. Breach of support is likely and would signal a test of primary support at 7300.

ASX 300 Banks Index

The ASX 300 Metals & Mining index is also headed for a test of primary support, at 3400. A Trend Index peak at/below zero would warn of rising selling pressure and a primary down-trend.

ASX 300 Metals & Mining

Commodities are already in a primary down-trend but Australian stocks are partially cushioned by a weakening Aussie Dollar.

DJ-UBS Commodity Index

The ASX 200 found medium-term support at 6150 but this unlikely to hold. Bearish Divergence on the Trend Index warns of medium-term selling pressure. Expect a correction to test the rising long-term trendline at 6000.

ASX 200

I remain cautious on Australian stocks, holding over 30% cash in the Australian Growth portfolio.

East to West: Bonds & tariffs hurt developing markets and crude prices

10-Year Treasury yields are consolidating in a triangle below long-term resistance at 3.00 percent. Breakout above 3.00 would signal a primary advance, ending the decades-long bull market in bonds. This would have a heavy impact on developing economies, including China, with a stronger Dollar forcing higher interest rates.

10-year Treasury Yields

A Trend Index trough above zero would signal buying pressure and a likely upward breakout.

Crude oil prices, as a consequence of higher interest rates and the threat of trade tariffs, are starting to form a top. Bearish divergence on the Trend Index warns of selling pressure. Breach of support at $65/barrel would signal reversal to a primary down-trend.

Nymex Light Crude

Commodity prices are leading, breach of support at 85.50 already having signaled a primary down-trend.

DJ-UBS Commodity Index

China’s Shanghai Composite Index is in a primary down-trend. Trend Index peaks below zero warn of selling pressure. Breach of support at 2700 is likely. The long-term target is the 2014 low at 2000.

Shanghai Composite Index

Germany’s DAX is headed for a test of primary support at 11,800. Descending peaks on the Trend Index warn of secondary selling pressure. Breach of primary support is uncertain but would offer a target of 10,500.

DAX

The Footsie also shows secondary selling pressure on the Trend Index, warning of a test of primary support at 6900/7000.

FTSE 100

In stark contrast, North American tech stocks have made huge gains in the last four months, but are now retracing to test support. Breach of the rising trendline and support at 7400 would warn of a correction; a test of the long-term rising trendline at 7000 the likely target.

Nasdaq 100

The S&P 500 has also made new highs. Penetration of the rising trendline would warn of a correction to the LT trendline at 2800.

S&P 500

North America leads the global recovery, developing markets including China are falling, while Europe is sandwiched in the middle, with potential loss of trade from East and West if a trade war erupts.

From the AFR today:

President Donald Trump said he’s ready to impose tariffs on an additional $US267 billion in Chinese goods on short notice, on top of a proposed $US200 billion that his administration is putting the final touches on.

“….I will say this: the world trading system is broken.” Trump is “dead serious” in his determination to push China to reform its trade policies, [White House economic adviser Larry Kudlow] added.

Can’t say he didn’t warn us.

Gold stocks face selling pressure despite plunging Aussie Dollar

The Yuan continues to test support at 14.5 US cents.

CNY/USD

The Dollar Index recovered above support at 95. Respect of support would confirm another advance, with a long-term target of 103, but bearish divergence on the Trend Index still warns of selling pressure.

Dollar Index

Gold is testing resistance at $1200/ounce but Trend Index peaks below zero warn of strong selling pressure. Respect of the descending trendline would indicate another decline with a long-term target of the 2015 low at $1050/ounce.

Spot Gold in USD

The Australian Dollar is plunging, having broken short-term support at 72 US cents. Trend Index peaks below zero indicate strong selling pressure. Expect a test of the 2015/2016 low at 70 US cents.

Australian Dollar/USD

The falling Aussie Dollar may cushion local gold stocks, to some extent, from weaker gold prices but the All Ordinaries Gold Index (XGD) continues its downward path. Tall shadows on the last three candles flag selling pressure. Breach of short-term support at 4550 is likely and would offer a long-term target of 4000/4100.

All Ordinaries Gold Index

ASX 200: Banks & miners lead correction

The ASX 300 Banks index continues to test support at 7700 after respecting its new resistance level at 8000. Breach of support is likely and would signal another test of primary support at 7300.

ASX 300 Banks Index

The ASX 300 Metals & Mining index broke short-term support at 3600 and is headed for a test of primary support at 3400. A sharp fall on the Trend Index warns of selling pressure.

ASX 300 Metals & Mining

The ASX 200 is testing medium-term support at 6150. Bearish Divergence on the Trend Index warns of (secondary) selling pressure and breach of 6150 is likely. Expect a correction to test the rising long-term trendline at 6000.

ASX 200

I avoid commercial banks because of higher funding costs, falling credit growth and rising default risk. Also hold few mining stocks because of exposure to volatile commodity markets. I remain cautious on Australian stocks, holding over 30% cash in the Australian Growth portfolio.

East to West in three charts

The S&P 500 is making new highs while a rising Trend Index indicates buying pressure. Target for the advance is 3000.

S&P 500

China’s Shanghai Composite Index is in a primary down-trend. Trend Index peaks below zero warn of selling pressure. Breach of support at 2700 is likely and would offer a long-term target of the 2014 low at 2000.

Shanghai Composite Index

The Footsie broke support at 7600. Follow-through below 7500 warns of a correction to test primary support at 6900/7000.

FTSE 100

North America leads the global recovery, China is falling, while Europe is sandwiched in the middle, with potential loss of trade from East and West if a trade war erupts.

ASX 200 hesitant

The ASX 300 Banks index found support at 7700 and retraced to test its new resistance level at 8000. Respect is likely and would confirm another test of primary support at 7300.

ASX 300 Banks Index

The ASX 300 Metals & Mining index made a weak retracement to test 3750, suggesting strong selling pressure. Breach of short-term support at 3600 is likely and would test primary support at 3400.

ASX 300 Metals & Mining

The ASX 200 rallied above the 6300 watershed but selling pressure is evident in the tall shadow. Bearish Divergence on the Trend Index warns of selling pressure. Breach of 6200 is likely and would warn of a correction, testing 6000.

ASX 200

I am wary of banks because of higher funding costs, falling credit growth and rising default risk and cautious on Australian stocks, holding over 30% cash in the Australian Growth portfolio.

East to West: US rallies, China falls

The S&P 500 is testing its January high at 2870. A rising Trend Index indicates buying pressure. Follow-through is likely to test resistance at 3000.

S&P 500

A monthly chart of the NASDAQ 100 illustrates tech stock strength, with a rally from 4500 to 7500 in just two years. Breakout above medium-term resistance at 7500 is more likely, offering a target of 8000, while a correction would test support at 7000. Breakout from the triangle pattern on the Trend Index would indicate index direction.

Nasdaq 100

Canada’s TSX 60 index is also advancing. A rising Trend Index suggests buying pressure. Retracement that respects support at 960 is likely and would signal another advance, with a target of 1040.

TSX 60

China paints the opposite picture, with the Shanghai Composite Index testing long-term support at 2700. Trend Index peaks below zero warn of selling pressure and breach of support would offer a long-term target of the 2014 low at 2000.

Shanghai Composite Index

Hong Kong’s Hang Seng Index broke support at 28,000/28,500 offering a long-term target of 25,000.

Hang Seng Index

South Korea’s Seoul Composite Index found support above 2200. Retracement to test new resistance at 2350 is likely. A lot depends on progress in peace negotiations with North Korea.

Seoul Composite Index

Japan’s Nikkei 225 is consolidating between 23,000 and 24,000 suggesting uncertainty over fallout from a threatened US-China trade war.

Nikkei 225

India is more on the periphery of current trade disputes, with the Nifty continuing its advance toward a target of 12,000.

Nifty

In Europe, Dow Jones Euro Stoxx 600 continues to reflect uncertainty, with long-term consolidation below 400. Breakout would signal a fresh advance but don’t hold your breath. It could take a while.

Dow Jones Euro Stoxx 600

The Footsie is retracing to test support at 7500 but respect is likely and would offer a target of 8000.

FTSE 100

North America clearly leads the global recovery, while Asia lags. Europe is sandwiched in the middle, with potential loss of trade in the East and West if a trade war erupts.

Thucydides once wrote “When one great power threatens to displace another, war is almost always the result.” In his day it was Athens and Sparta but in the modern era, war between great powers, with mutually assured destruction (MAD), is most unlikely. What we are witnessing is negotiation to define rules for peaceful coexistence in the 21st century. A lack of clear rules increases the risk of miscalculation and rapid escalation to a hard conflict.

Absent the willingness to use military force, the country with the greatest economic power is in the strongest position to set the rules.

War is a matter not so much of arms as of money.

~ Thucydides (460 – 400 B.C.)

ASX 200 hurt by banks, miners and politics

After a false break above 8100 the ASX 300 Banks index completed a bull trap with reversal below 7900. Expect a test of primary support at 7300.

ASX 300 Banks Index

Resources stocks continued their correction, with the ASX 300 Metals & Mining index finding short-term support at 3600. Follow-through is likely and would test primary support at 3400, with fears of a US-China trade war undermining commodity prices.

ASX 300 Metals & Mining

The ASX 200 retreated below its new support level at 6300. Political upheaval may have contributed but penetration of the rising trendline would warn of a correction (already signaled by bearish Divergence on the Trend Index).

ASX 200

I remain wary of banks because of higher funding costs, falling credit growth and rising default risk and cautious on Australian stocks, holding over 30% cash in the Australian Growth portfolio.

S&P 500 volatility falls

The Philadelphia Fed Leading Index at 1.42 for June 2018 maintains a healthy margin above the 1% level that would warn of a potential slow-down.

Philadelphia Fed Leading Index

The picture reinforces a steeply-climbing Freight Transportation Index, indicating strong economic activity.

Freight Transportation Index

Concerns that the economy may over-heat, spiking inflation, are not reflected in strong growth in average hourly earnings. The Fed has done a good job of containing money supply growth, with growth in the broad money supply (MZM plus time deposits) closely tracking nominal GDP.

Nominal GDP and Money Supply Growth

Credit and money supply expansion at faster rates than nominal GDP have in the past flagged an overheating economy and higher inflation, leading to a recession when the Fed attempts to curb inflation.

We are in stage 3 of a bull market but there are few signs that the economy will slow or earnings will fall.

The S&P 500 respected its new support level at 2800, confirming an advance to 3000. Declining Twiggs Volatility (21-day) signals that market risk is low and we can expect business as usual.

S&P 500

The NASDAQ 100 continues to warn of a correction, with bearish divergence on Twiggs Money Flow. This is secondary in nature, because of the indicator’s position relative to the zero line, but could test support at 7000.

Nasdaq 100

China threatened by loss of US trade

The threat of a US-China trade war has rattled investors, with the Shanghai Composite Index breaking primary support at 2700 to signal another decline. Trend Index peaks below zero warn of strong selling pressure. Long-term target is the 2012 to 2014 lows at 2000.

Shanghai Composite Index

Hong Kong’s Hang Seng Index is also under the pump, breaking support at 28,000 to warn of another decline.

Hang Seng Index

Copper prices, a good barometer of the Chinese economy, are also falling. Breach of $6,000 offers a target of $5,500/tonne.

Copper S1

The Yuan has fallen almost 10 percent, testing support at 14.5 US cents. Failure of the PBOC to support the Yuan (by selling some of their $3 trillion of foreign reserves) may cushion the economic impact in the short-term but only invites further escalation from the Trump administration.

Chinese Yuan/USD

There is no easy way out. Trump clearly has the upper hand in trade negotiations.