Summary:
- Europe retreats as the Ukraine/Russia crisis escalates.
- S&P 500 displays milder selling pressure and the primary trend remains intact.
- VIX continues to indicate a bull market.
- China’s Shanghai Composite is bullish in the medium-term.
- ASX 200 may experience a secondary correction, but the primary trend displays buying support.
European leaders are waking up to the seriousness of the menace posed by Russia in the East, summed up in a recent Der Spiegel editorial:
Europe, and we Germans, will certainly have to pay a price for sanctions. But the price would be incomparably greater were Putin allowed to continue to violate international law. Peace and security in Europe would then be in serious danger.
Vladimir Putin will not alter course because of a light slap on the wrist. President Obama is going to have to find Teddy Roosevelt’s “big stick” — misplacement of which is largely responsible for Russia’s current flagrant disregard of national borders. And Europe is going to have to endure real pain in order to face down the Russian threat in the East. Delivery of French Mistral warships, for example, would show that Europe remains divided and will encourage the Russian bear to grow even bolder.
Russian Deputy Prime Minister Dmitry Rogozin said, however, that he doubted France would cancel the deal, despite coming under pressure from other Western leaders: “This is billions of euros. The French are very pragmatic. I doubt it [that the deal will be canceled].”
— The Moscow Times
The whole of Europe is likely to have to share the cost of cancelling deals like this, but it is important to do so and present a united front.
Markets reacted negatively to the latest escalation, with Dow Jones Europe Index falling almost 6% over the last month. 13-Week Twiggs Momentum dipped below zero after several months of bearish divergence, warning not necessarily of a primary down-trend, but of a serious test of primary support at 315. Respect of 325 and the rising trendline would reassure that the primary trend is intact.
The S&P 500 displays milder selling pressure on 13-week Twiggs Money Flow and the correction is likely to test the rising trendline and support at 1850/1900, but not primary support at 1750. Respect of the zero line by 13-week Twiggs Money Flow would signal a buying opportunity for long-term investors. Recovery above 2000 is unlikely at present, but breakout would offer a (long-term) target of 2250*.
* Target calculation: 1500 + ( 1500 – 750 ) = 2250
CBOE Volatility Index (VIX) spiked upwards, but remains low by historical standards and continues to suggest a bull market.
China’s Shanghai Composite Index broke resistance at 2150, suggesting a primary up-trend, but I will wait for confirmation from a follow-through above 2250. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Reversal below 2050 is unlikely at present but would warn of another test of primary support at 1990/2000. The PBOC is simply kicking the can down the road by injecting more liquidity into the banking system. That may defer the eventual day of reckoning by a year or two, but it cannot be avoided. And each time the problem is deferred, it grows bigger. So the medium-term outlook may be improving, but I still have doubts about the long-term.
* Target calculation: 2000 – ( 2150 – 2000 ) = 1850
The ASX 200 is likely to retrace to test the rising trendline around 5450, but 13-week Twiggs Money Flow holding above zero continues to indicate buying support. Recovery above 5600 is unlikely at present, but would present a target of 5800*. Reversal below 5050 would signal a trend change, but that is most unlikely despite current bearishness.
* Target calculation: 5400 + ( 5400 – 5000 ) = 5800
“Vladimir Putin will not alter course because of a light slap on the wrist. President Obama is going to have to find Teddy Roosevelt’s “big stick” — misplacement of which is largely responsible for Russia’s current flagrant disregard of national borders.”
— On the contrary, the world is in turmoil today precisely because of Teddy’s Roosevelt’s big stick pursuit of the Monroe Doctrine. From the Middle East and Sub-Saharan Africa to South-West Asia, Latin America and now Eastern Europe, the common factor in the trouble spots is the US, not Russia. Besides, Roosevelt brandished his big stick against weak underdeveloped Latin American countries for the most part and got away with it for that reason. Any attempt by Obama to emulate him against the second largest nuclear power in the world today will have a rather different outcome. Besides, this touching concern about ‘flagrant disregard of national borders’ will be more credible had it surfaced with Iraq, Libya,Syria, Pakistan, Kosovo and multiple other countries in the past couple of decades. Even, indeed, with Ukraine, which is now Europe’s Spook Central after the regime change which kicked off this confrontation with Russia.
The world has had enough of the empire’s death and violence. Responsible journalism should desist from egging it on towards a nuclear confrontation. Far from being the empire’s crowning achievement, it can become its tombstone. A war with Russia will not leave anyone in the world untouched, no matter how far and safe they feel they are. Anyone who thinks ratcheting up economic war cannot lead to military war is history-challenged. Better to remember Einstein and save the sticks for World War IV.
See “War is a harsh teacher” – Jeremy McInerney
Thanks for ‘Market musings’ – can’t agree at all with last two of the author’s summation observations ( the ones you state: ‘ And his summation of the current state of affairs at the end is worth close attention’ ). Can it really be accepted that : ‘Bubbles are not all bad’ and ‘Doing nothing is often the best response to a bubble’?.
Is the article’s summation recommended because ‘we are talking to our book here’?
Many respected market commentators are calling the markets ‘bubble-like’ …… are you really advocating that, given the risks, we don’t become defensive, or even outright defensive. with portfolio management.
Failing observation of the former, are we then not just simply gambling …… with others’ money ?
The easiest trap any commentator can fall into is confirmation bias: searching for facts to support a point of view rather than evaluating facts (for and against) to test a point of view. I posted this comment in March:
Earlier I commented that I was extremely concerned by the negative outlook from a number of respected commentators, when all our our market indicators were registering low risk indicative of a bull market. This spurred me to investigate the claims of several of these commentators. I was concerned that we may have overlooked something in the design of our system. But I could find nothing in any of their analysis, even that of Jeremy Grantham, for whom I have great respect, which makes me want to revise our view of the market.
I think the author himself answers your other question: