- We are at the September quarter-end and can expect stock weakness to continue into October
- The Dollar is rising
- Gold and crude oil are falling
- European stocks are bearish
- Asian stocks are bearish despite China showing strength
- US stocks reflect a bull market
Dow Jones Europe Index is testing primary support at 320. Breach would signal a down-trend. Follow-through below 315 would confirm. Penetration of the rising trendline and 13-week Twiggs Momentum peak below zero both strengthen the bear signal.
* Target calculation: 320 – ( 340 – 320 ) = 300
Dow Jones Asia Index broke primary support at 3200 despite bullishness on the Hang Seng and Shanghai Composite. Expect a test of support at 3000 (at the rising trendline). Reversal of 13-week Twiggs Momentum below zero would further strengthen the bear signal. Follow-through below 3000 would confirm a primary down-trend.
* Target calculation: 3100 + ( 3100 – 2800 ) = 3400
Shanghai Composite Index, however, continues to test resistance at 2350. Breakout would confirm a primary up-trend. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure.
Bear in mind that Dow Asia and Dow Europe are priced in USD and reflect strength in the US Dollar as well as weakness in local markets — though the two are closely connected.
The S&P 500 is consolidating around the 2000 level in a broadening wedge formation. Do not be surprised if the index rallies early next week, to test medium-term resistance at 2020. Fund managers are normally willing to support the market at quarter-end and lock in quarterly performance bonuses. But this is likely to be followed by weakness in October as they sell off non-performing stocks and increase cash holdings until new opportunities present themselves. Breakout below the broadening wedge — and penetration of both support at 1950 and the (secondary) rising trendline — would warn of a correction. A large volume spike from triple-witching hour on September 19th, however, has exaggerated weakness on Twiggs Money Flow. Breakout above 2020 would signal a fresh advance.
* Target calculation: 2000 + ( 2000 – 1900 ) = 2100
CBOE Volatility Index (VIX) remains in the low range (below 20) typical of a bull market.
The ASX 200 is testing support at 5300/5350. Penetration of the rising trendline warns of a correction to 5000. Declining 13-week Twiggs Money Flow, below zero, after a long-term bearish divergence, also signals weakness. Breach of 5300 would confirm a test of 5000. Recovery above 5550 is unlikely, but would suggest another test of 5650.
* Target calculation: 5650 + ( 5650 – 5350 ) = 5950
The rising wedge in the S&P has to break sooner or later. The retracement on Friday into minor resistance on Friday suggests that the market could easily drop beneath Monday’s lows.
This is a broadening wedge “<” rather than a rising wedge “>”.