S&P 500 and Europe: Likely to blow over

Question: Is the outcry in Europe going to tip the S&P 500 into a correction?

Answer: The outcome is uncertain. While there is a strong case for giving depositors and bondholders a haircut, the timing — so soon after an inconclusive Italian election — could not be worse. But let’s see what the market are saying….

Longish tail on the S&P 500 shows buying support at the close. Mild bearish divergence (mild because TMF has leveled out rather than falling sharply) on 21-day Twiggs Money Flow indicates medium-term selling pressure. We are likely to see retracement to the first line of support — at the previous high of 1525/1530 — but only breach of this level and the rising trendline would warn of a correction. Target for the current advance is 1600*.

S&P 500 Index

* Target calculation: 1525 + ( 1525 – 1475 ) = 1575

VIX Volatility Index remains low — near its 2005 lows at 0.10. Breakout above 0.20 would be a warn of rising uncertainty.
VIX Index
The FTSE 100 exhibits an even longer tail, but bearish divergence on 21-day Twiggs Money Flow also indicates medium-term selling pressure. Reversal below the latest rising trendline (6400) would warn of a correction, while breakout above 6550 would continue the advance to 6800*.
FTSE 100 Index

* Target calculation: 6400 + ( 6400 – 6000 ) = 6800

The DAX showed even greater resilience, closing back above 8000. Follow-through above 8100 would signal a fresh primary advance. Rising 21-day Twiggs Money Flow indicates medium-term buying pressure.
DAX Index

Conclusion

There is bound to be some turbulence but markets are showing resilience and the storm is likely to blow over.

9 Replies to “S&P 500 and Europe: Likely to blow over”

  1. It may do this if that happens or it may not happen if it does this.It could go sideways or even up and down,but it will happen one way or another.

    1. Every day: it may go up or it may go down. All that varies is the probability. One may be more likely than the other or less. That is what is called “an edge” — when the odds are stacked in your favor — and why casinos are worth billions while the punters leave without their shirts.

  2. Hope springs eternal. I’m pleased to see you quote a great unionist, Eric Hoffer, a member of the ILWU. I love it!

  3. I don’t understand why you’ve drawn that particular trend-line on the FTSE 100 TMF chart. It only touches at two places and is therefore highly unreliable. The much more significant trend-line is the flat resistance line at 20%.

  4. Your conclusions are similar to 2 technical guys I follow;
    -1 is looking for a Intermediate wave iv pullback to almost 1485 before Intermediate wave V zooms up to 1600’ish to complete this current uptrend.
    -The other is looking for Major [4] to complete in the lower 1500’s before Major [5] takes off towards 1600’ish to complete this current uptrend.
    Then both seem to say that once SPX hits the 1600’ish target around May, it will correct about 8% back to 1485’ish during the second half of 2013.

  5. Twiggs: Can it be useful to include downside targets, similar to your upside ‘indications’ for S&P, FT and DAX? Refer also my 19/03/2013 related comment under your current ASX 200 trading dairy. Thanks.

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