Author: ColinTwiggs

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Aussie & Euro rally, but for how long?

The Aussie Dollar continues to pressure primary support at $0.8650. 13-Week Twiggs Momentum below zero indicates a primary down-trend. Respect of resistance at $0.89 would strengthen the signal. Breach of primary support would confirm, offering a target of the 2010 low at $0.80.

Aussie Dollar

* Target calculation: 87 – ( 94 – 87 ) = 80

The Euro retraced to test its new resistance at $1.28. Declining 13-week Twiggs Momentum (below zero) confirms a strong down-trend. Respect of resistance would warn of another decline, while breach of medium-term support at $1.25 would target the 2010/2011 lows of $1.20.

Euro/USD

* Target calculation: 1.28 – ( 1.40 – 1.28 ) = 1.16

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Crude targets $75

Nymex Light Crude is headed for a test of major support at the 2011 low of $75/barrel after breaking support at $92/barrel. 13-Week Twiggs Momentum (below zero) already signals a down-trend. Brent Crude has also broken primary support, but is maintaining a premium of $5 to $10 per barrel.

Nymex WTI Crude

* Target calculation: 92 – ( 110 – 92 ) = 74

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Bears eye gold

Gold is testing resistance at $1250/ounce after a two-week retracement. 13-Week Twiggs Momentum (below zero) continues to indicate a primary down-trend. Respect of resistance at $1250 would confirm this. And breach of primary support at $1180 would offer a long-term target of $1000*.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

Silver has already broken long-term support, signaling another primary decline. Gold is likely to follow.

Gold Bugs Index, representing un-hedged gold stocks, is also testing long-term support (at 190). Breach of support would strengthen the bear signal for gold.

Gold Bugs Index

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Treasury yields plunge

The yield on ten-year Treasury Notes broke primary support at 2.00%, plunging to a low of 1.86% in the morning before recovering to 2.10% at the close. Expect strong support at 2.00*. 13-Week Twiggs Momentum (below zero) has been warning of a primary down-trend for some time. Recovery above 2.30 is unlikely at present.

10-Year Treasury Yields

* Target calculation: 2.30 – ( 2.60 – 2.30 ) = 2.00

Falling inflation expectations are behind the drop, with the 5-year inflation breakeven rate — 5-year treasury yields minus the 5-year TIPS rate — making a new 2-year low.

5-Year Inflation Breakeven Rate

A falling dollar suggests that domestic purchases are driving the surge in Treasury prices, rather than international buyers. The Dollar Index is testing its new support level at 84.50. Respect would confirm a primary advance with a target of 89*. Rising 13-week Twiggs Momentum continues to indicate a healthy (primary) up-trend. Failure of support at 84.50 is unlikely, but breach of the secondary trendline would warn of a correction to the primary (trendline).

Dollar Index

* Target calculation: 84 + ( 84 – 79 ) = 89.00

Low interest rates strengthen demand for gold as they reduce the carrying cost.

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Why Australian Consumers Are Happy With Their Finances But Aren’t Spending | Business Insider

From Greg McKenna:

There is a lot of focus on the wealth of Australians through property and super but many Australian households and Australian households in aggregate are still carrying a large amount of debt. A stock of debt which must be repaid with a flow of earnings no matter how wealthy they might be on paper.

So consumers are more confident about their finances and their financial future but they aren’t spending — yet.

Something that puzzles me is why household debt as a percentage of disposable income is constant. If consumers have accelerated their credit card and mortgage debt repayments, surely this figure should be falling.

Read more at Here's The Best Explanation Of Why Australian Consumers Are Happy With Their Finances But Aren't Spending | Business Insider.

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Jean Tirole: How to regulate monopolies

Catherine De Fontenay and Sven Feldmann discuss Nobel prize-winner Jean Tirole’s work on how to regulate monopolies:

If the regulator imposes a rigid price cap, the firm has an incentive to operate efficiently and minimise costs; but since the regulator does not know the firm’s overall costs, the firm may either be very profitable or at the brink of bankruptcy depending on where the price cap was set. To avoid this problem regulators moved to regulating the rate-of-return the firm is allowed to earn based on what is deemed a “reasonable” rate of return on the firm’s investments.

But as a result the firm no longer has an incentive to operate efficiently—indeed, additional capital investments raise the cost-base on which the rate of return is calculated and thus increase the firm’s total profits. In the context of the Australian electricity grid this phenomenon is known as “gold-plating”. Thus each of these two forms of regulation addresses one problem while exacerbating the other….

This is a common problem in dealing with public utilities and even with departments within government. Absence of competition bedevils the process. Fixed price caps lead to poor quality service, while cost-plus pricing introduces an incentive to inflate expenses. The challenge is to balance the two incentives: negotiate low-margin, cost-plus pricing but with incentives for service quality and efficiency.

Read more at Nobel economics prize winner an economist and a gentleman.

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The Islamic State: Linking extremism to ill-treatment of women

From David Rothkopf:

Each year, the World Economic Forum produces a Global Gender Gap report. In 2013, it tracked 136 countries on the education, economic empowerment, health, and political empowerment of women. Consider the world’s hot spots for extremism. Some, like Somalia, Libya, and Afghanistan, don’t even make the list. But of those that do, Nigeria ranks 106, Bahrain is 112, Qatar is 115, Kuwait is 116, Jordan is 119, Turkey is 120, Algeria is 124, Egypt is 125, Saudi Arabia is 127, Mali is 128, Morocco is 129, Iran is 130, Syria is 133, Pakistan is 135, and Yemen is dead last at 136……

Not only do countries that treat women badly do badly economically, politically, and socially, but countries in which extremist ideologies have taken root frequently treat women worst of all. In each case they have twisted their religious and cultural inheritances to promote practices that are abhorrent and indefensible, or they simply fail to recognize the rights or the promise of the women and girls among them. This has been taken to extraordinary extremes by groups like the Islamic State. In its slickly produced online English-language magazine, Dabiq, the group defends its enslavement of Yazidi girls and women and the taking of them as concubines by arguing that the practice is a “firmly established aspect of the Sharia.”

I have no doubt that extremism fosters the ill-treatment of women. The more vexing question is: what fosters extremism? Poverty, politics or religion? Fareed Zakaria suggests that the common denominator is religion.

Read more at How Malala Can Help Defeat the Islamic State.

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ASX and Aussie Dollar rally

The Australian Dollar found support at $0.8650/$0.8700. Respect of resistance at $0.8900, however, would suggest another decline. 13-Week Twiggs Momentum below zero warns of a primary down-trend. Breach of primary support at $0.8650 would offer a target of $0.80*.

AUDUSD

* Target calculation: 0.87 – ( 0.94 – 0.87 ) = 0.80

The ASX 200 rallied in line with short-term buoyancy on the Aussie Dollar. Bullish divergence on 21-day Twiggs Money Flow and recovery above zero indicates medium-term buying pressure. But the trend remains down and failure of (short-term) support at 5120 would warn of a test of primary support at 5000/5050. Breach of the declining trendline is unlikely, but would suggest that the correction is ending. Follow-through above 5350 would confirm.

ASX 200

* Target calculation: 5350 – ( 5650 – 5350 ) = 5050

The ASX 200 VIX continues to indicate low risk typical of a bull market.

ASX 200

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US stocks: Broad selling pressure

The S&P 500 broke through support at 1900, offering a target of 1800*. Decline of 21-day Twiggs Money Flow below zero warns of medium-term selling pressure. Recovery above 1910 is unlikely at present, but would suggest a bear trap.

S&P 500

* Target calculation: 1900 – ( 2000 – 1900 ) = 1800

CBOE Volatility Index (VIX) broke above 20%, but still indicates moderate risk. A break above 30% would suggest elevated risk.

VIX Index

Dow Jones Industrial Average is testing support at 16300. Breach would indicate a test of the (primary) rising trendline. Bearish divergence on 13-week Twiggs Money Flow continues to warn of selling pressure. Recovery above 16500 is less likely, but would suggest another rally.

Dow Jones Industrial Average

The Nasdaq 100 broke support at 3850. Follow-through below 3750 would confirm a target of primary support at 3400*. Divergence on 13-week Twiggs Money Flow indicates selling pressure. Respect of support at 3750 is unlikely, but recovery above 3850 would suggest another rally.

Nasdaq 100

* Target calculation: 3750 – ( 4100 – 3750 ) = 3400

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