Better than expected US jobs data and strong German factory orders helped to rally markets Friday. Also, ECB chief Mario Draghi’s Thursday announcement is seen as supporting broad-based asset purchases (QE) early in 2015. A long-term view of major markets may help to place current activity in perspective.
The S&P 500 continues a strong advance, with rising 13-week Twiggs Money Flow indicating medium-term buying pressure. Long-term and medium targets coincide at 2250* and we should expect further resistance at this level.
* Target calculation: 1500 + ( 1500 – 750 ) = 2250; 2050 + ( 2050 – 1850 ) = 2250
CBOE Volatility Index (VIX) continues to indicate low risk typical of a bull market.
Germany’s DAX broke resistance at its earlier high of 10000, suggesting a further advance. Recovery of 13-week Twiggs Momentum above zero indicates continuation of the up-trend. The long-term target is 12500*, though I cannot see this being reached until tensions in Eastern Europe are resolved.
* Target calculation: 7500 + ( 7500 – 2500 ) = 12500
The Footsie is testing long-term resistance at 6900/7000. Respect of the zero line by 13-Week Twiggs Money Flow indicates long-term buying pressure. Breakout above 7000 would signal a fresh primary advance, with a long-term target of 10500*.
* Target calculation: 7000 + ( 7000 – 3500 ) = 10500
China’s Shanghai Composite Index broke resistance at 2500 and is likely to test the 2009 high at 3500. Rising 13-week Twiggs Money Flow indicates strong (medium-term) buying pressure.
Japan’s Nikkei 225 Index is testing resistance at its 2007 high of 18000. 13-Week Twiggs Money Flow respecting the zero line indicates long-term buying pressure. Breakout would signal another primary advance. A long-term target of 28000* seems unachievable unless one factors in rising inflation and continued devaluation of the yen.
* Target calculation: 18000 + ( 18000 – 8000 ) = 28000
Weak ASX 200 performance is highlighted by the distance below its 2007 high of 6850. Falling commodity prices have retarded the recovery and are likely to continue for some time ahead.
The 2005-2008 Australian commodities boom was squandered, damaging local industry and hampering the current recovery. Norway successfully weathered a similar commodities boom in the 1990s, protecting local industry while establishing a sovereign wealth fund that is the envy of its peers. Their fiscal discipline set a precedent which should be followed by any resource-rich country looking to navigate a sustainable path through a commodities boom and avoid the dreaded “Dutch Disease”.
Respect of support at 5000 would indicate the primary up-trend is intact — but declining 13-week Twiggs Money Flow indicates selling pressure. Reversal of TMF below zero or breach of support at 5000/5150 would warn of a down-trend.
* Target calculation: 5000 + ( 5000 – 4000 ) = 6000
The daily chart shows a slightly improved perspective. 21-Day Twiggs Money Flow oscillating around zero signals indecision. Recovery above 5400 would suggest the correction is over. But reversal below 5200 is as likely and would warn of a test of primary support at 5120/5150.
“The 2005-2008 Australian commodities boom was squandered…’
Hi Colin,
I’ve heard statements like that more times than I care to admit about the many booms and busts I’ve lived through. They even made a T shirt about one, which nearly everyone in Aberdeen was wearing in 1987*.
And in this case, as previous, I don’t really understand who squandered it, or how? In the most recent one, do you mean the Labor party who played fast and loose with general revenue, as they always seem to consider it their mandate to do; or do you mean the high salaried direct employees in the boom who sent most of their dough to Germany in return for Audis, Mercs and BMWs? Or maybe the WA State Govt, who have champagne tastes on a beer budget? Or is it all of the above – in which case isn’t that just good old self-interest at work?
Notwithstanding the Norway model, which requires visionary leadership, and therefore unlikely to even reach the debating table here, I suppose I’m asking what else would we do next time (whoever ‘we’ will be next time)? Or is the feeding trough always too deep and tasty to let people look up and contemplate such longer visions? Maybe progress has to be the messy unplanned uproar it always has been. At the start of the year we were the darling of the Ball, now we’re the wall flower. Maybe that’s the dance – two steps forward; one step back.
In essence, what could we teach future leaders today so they don’t squander the booms of tomorrow?
*T-Shirt: Lord please send us another boom and we promise not to piss it away this time.”
Hi Frank,
The boom would have started under Howard and ended under Labor. Neither showed any inclination to follow Norway’s example.
Tip for the next boom: elect a government whose definition of long-term is beyond the next election.
To give credit where due, Costello did establish the Future Fund. But too little too late.
Yes, I agree; in my opinion Costello was the best treasurer, and possibly the most honourable Minister (as judged from my million miles away, media delivered perspective) that Australia’s had. I was very sorry to see him go.
12 month relative performance portrayed: Momentum and ASX 200
Are dividends/interest received excluded from the Momentum performance ? If not, should you not rather reflect the ASX Accumulation Index performance?
Dividends are excluded.
Using Total Return (Accumulation) enhances comparison between stocks, sectors or indices, but not analysis of a single stock or index.
Colin, if you were to take a bet without any examination of the charting patterns, would you take insurance against further short-term ( one-two months ) falls? – that is, what does your ‘gut’ suggest given today’s (Tuesday ) price action in Asian / Australian markets. Please, while I accept the difficulty this question will pose, your yes/no answer would be respected – treating it as a ‘side bet’ against a possibility – insurance, one may say, Thanks.
I guess I could have made a lot of money trading against my gut instinct. Systematic analysis has proved its worth, basically because gut reactions are unreliable.