10-Year Treasury yields broke resistance at 2.50% as bond-holders offload their positions. Expect weak retracement to test the new support level at 2.00%, but recovery above 2.50% is likely and would signal a long-term advance to test resistance at 4.00%. Breakout above 4.00% would end the 31-year secular bear-trend. Rising yields reflect market expectations that the economy will recover, enabling the Fed to curtail further quantitative easing.
The S&P 500 broke support at 1600 and is undergoing a correction to test the long-term rising trendline at 1500. Twiggs Money Flow reflects moderate selling and the primary up-trend looks secure.
My concern is: can the US withstand negative sentiment from global markets? The rising VIX is not yet cause for alarm, with the market shrugging off the last foray above 20, but a spike above 25 would warn of elevated risk.
The TSX Composite broke support at 11900/12000 to signal a primary down-trend. Falling 13-week Twiggs Money Flow continues to warn of selling pressure. Expect a test of the 2012 low at 11250.
The FTSE 100 is testing the rising trendline and support at 6000. Bearish divergence on 13-week Twiggs Money Flow warns of a reversal. Failure of support at 6000 would strengthen the signal.
Germany’s DAX is headed for a test of the long-term trendline and primary support at 7400/7500. Bearish divergence on 13-week Twiggs Money Flow continues to warn of selling pressure. Breach of 7400 would signal reversal to a primary down-trend.
Colin….I have never responded before and I have recieving your emails for years…I think the work you do is simply excellent and your insights greatly appreciated by me ….keep up your good work and thank you
Simon Hosking
Thank you
I can’t argue with your analysis of the U.S. price data. It looks like interest rates are headed north and the stock markets moves both up and down look suggestive of economic recovery. But the picture in the U.S. economy is entirely different. Commodities are weakening. Europe and most emerging markets are in dismal shape. Australia is following China south. U.S. exports are sagging. Employment remains dismal with about 10% unemployment if changes in the workforce are included along with those leaving the workforce. Maybe we don’t have deflation but we certainly have lessening inflation now. The FED has predicted a better second half in each of the last 4 years only to have the economy slow in the latter half of the year. If I look at Japans history, GDP went up and down rapidly over the last 30 years and I wonder whether the US is going to experience the same seesaw growth with no real improvement. If so, the FED will likely continue substantial purchases although maybe not $85 B per month.
I agree there are still fundamental flaws in the US economy and recovery will be slow, prolonging the Fed taper. Housing demand will fall as rates rise. Unemployment is likely to remain high. Banks still need to raise more capital. Falling commodity prices are driven by China, however, and should not be taken as a negative reflection of US performance. And deflationary effects of private credit contraction will be largely mitigated by Fed QE. Unfortunately there are no adults in the room. What is lacking is bold economic management to drive a robust recovery.
Colin, you put your finger on the real problem. Who is going to fix what is wrong. Thanks
With no adults in the room — and no strong economic management — we are likely to stumble from one crisis to the next. We only have ourselves to blame: we elected them after all. The solution lies along the path of the Swiss system, with participative government balanced by direct democracy through frequent referendums. But things have to get really bad before someone will show the courage to throw the lawyers and moneylenders out of the temple.