ColinTwiggs, Author at the patient investor

June 27, 2014

S&P 500 unfazed

Summary:

S&P 500 continues a primary advance.
China respects primary support.
ASX 200 continues to signal weakness.
Momentum investors need to hold positions.

The S&P 500 retraced to test its latest support level at 1950 after a downward GDP revision for the first quarter. Respect indicates medium-term buying pressure — also evidenced by rising 21-day Twiggs Money Flow. Follow-through above 1970 would confirm a test of 2000*. Reversal below 1950 is unlikely, but penetration of the secondary trendline would warn of a correction.

S&P 500

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

The CBOE Volatility Index (VIX) remains low, indicative of a bull market.

S&P 500 VIX

The Shanghai Composite Index respected primary support at 1990/2000. 21-Day Twiggs Money Flow oscillating above zero indicates buying support, but this may be due to the managed “soft landing”. What we do know is that a fall below zero would definitely signal selling pressure. Breach of support would signal a decline to 1850*. The primary trend is expected to continue its downward path, but further ranging between 2000 and 2150 is likely. An abrupt fall is a fairly remote possibility.

Shanghai Composite

* Target calculation: 2000 – ( 2150 – 2000 ) = 1850

The ASX 200 made a false break above 5470, but 21-day Twiggs Money Flow below zero warns of medium-term selling pressure. Breach of support remains likely and would indicate a correction to 5300. The long-term trend, however, remains upward. Support at 5300/5400 would offer a great entry point for long-term investors. Recovery above 5470 is unlikely at present, but would signal a test of resistance at 5550.

ASX 200

* Target calculation: 5400 + ( 5400 – 5000 ) = 5800

I repeat my warning from last week: Momentum investors should not attempt to time secondary corrections and need to endure the present volatility in order to reach their intended investment goals.

June 27, 2014

Middle class is drowning in debt, hobbling the economy | Rex Nutting

From Rex Nutting at MarketWatch:

For decades, economic growth in America was driven by a powerful and sustainable force: increased consumption paid for by the rising incomes for middle-class and working-class Americans.

But somewhere around 1980, that model broke down. Wages flattened out, but consumption didn’t. Americans cut back on their savings, and took on more debt — mostly mortgage debt — to satisfy their needs and desires.

It’s not a sustainable model, but it did persist for nearly 30 years until the credit bubble burst in 2007. Millions of Americans lost their jobs, and millions lost their homes when the credit spigot was shut off, forcing average families to cut back on their consumption and live within their means once again.

And now, with the economy only partially healed, it seems we’re going back to the lend-and-spend economy that failed us before.For the past six or seven years, most of what the Federal Reserve has done to fix the problem has been focused on getting the credit spigot turned back on: cutting interest rates and hectoring banks to start lending again, even though demand for loans was weak….

June 27, 2014

Russell shake-up likely to drive heavy volume at Friday’s close | Reuters

From Reuters:

Investors can expect a surge in volume at the close of trading on Friday, when Russell Investments announces the annual rebalance of its series of indexes that will affect more than $5 trillion in assets…..Credit Suisse anticipates about $42 billion will trade on Friday as a result of the reconstitution, which will make it one of the biggest trading days of the year in terms of dollar volume.

June 27, 2014

Middle class is drowning in debt, hobbling the economy | Rex Nutting

From Rex Nutting at MarketWatch:

For decades, economic growth in America was driven by a powerful and sustainable force: increased consumption paid for by the rising incomes for middle-class and working-class Americans.

But somewhere around 1980, that model broke down. Wages flattened out, but consumption didn’t. Americans cut back on their savings, and took on more debt — mostly mortgage debt — to satisfy their needs and desires.

It’s not a sustainable model, but it did persist for nearly 30 years until the credit bubble burst in 2007. Millions of Americans lost their jobs, and millions lost their homes when the credit spigot was shut off, forcing average families to cut back on their consumption and live within their means once again.

And now, with the economy only partially healed, it seems we’re going back to the lend-and-spend economy that failed us before.For the past six or seven years, most of what the Federal Reserve has done to fix the problem has been focused on getting the credit spigot turned back on: cutting interest rates and hectoring banks to start lending again, even though demand for loans was weak….

June 27, 2014

Bank of England throws egg all over RBA, APRA | | MacroBusiness

Of all of the financial systems in the world, Australia’s is most similar to the UK. Of all of the restrictive housing planning systems in the world, Australia’s is most similar to the UK. Of all of the house price boom and bust cycles in the world, Australia’s is most similar to the UK. The Bank of England also practices inflation targeting though its cap is 2%. The UK and Australia share a similar economic model reliant upon external borrowing to fund consumption and low export-to-GDP ratios but the main difference is that the UK economy is a more diverse mix of value-adding sectors with a much higher contribution from manufacturing.

But today there is one very new difference. The UK has announced it will henceforth practice macroprudential regulation to control its housing cycles and prevent them from hollowing out the economy…..

June 27, 2014

US inflation: Will the recent uptrend persist?

From Elliot Clarke at Westpac:

…it seems as though these price movements have not been driven by demand. This is particularly true for food services, which has seen growth in consumption volumes fall from 5.3% in November to –0.6% in May. Housing and utility demand has remained highly volatile, but there was no evidence of a ‘break out’ move in this component of personal consumption in early 2014, and growth has since slumped back to 0.2%. This is not to say that rents have not contributed materially to the level of housing inflation in recent years; more below.

This then points to an exogenous shock being to blame for the recent jump. Further, the coincident nature of the inflation uptrends for food and housing services alludes to a common cause: the cost of energy. The 6.1% gain in total PCE energy prices from April 2013 to May 2014 corroborates this belief. To the extent that shifts in energy costs typically prove temporary, this inflationary impulse will likely dissipate in coming months – leaving aside current geopolitical concerns.

June 26, 2014

The tragic record of American policy in the Middle East | BillMoyers.com

Investigative journalist Charles Lewis, author of 935 Lies: The Future of Truth and the Decline of America’s Moral Integrity tells Bill Moyer:

An outrageous thing happened. We lost $2 trillion. More than 100,000 people died. Folks are going to be maimed for life in the tens of thousands… And no one has ever acknowledged that this [Iraq] was a war on a lark. It was a complete war of choice, because a certain little faction wanted to do it and they orchestrated it… Did they make statements that weren’t true? The answer is yes…

A complicit partner, he says, is a media “intent on preserving the status quo …and never offending the ruling elite”.

Washington Post’s Walter Pincus:

More and more the media become, I think, common carriers of administration statements and critics of the administration….We’ve sort of given up being independent on our own.

June 26, 2014

ASX 200 still plagued by indecision

The ASX 200 found support at 5380/5400. Recovery above 5470 would break the descending trendline, suggesting that the correction is over — and a test of resistance at 5540/5560 likely. But 21-day Twiggs Money Flow whipsawing around zero indicates indecision. Respect of (or a false break above) 5470 would suggest correction to 5300.

ASX 200

* Target calculation: 5550 + ( 5550 – 5400 ) = 5700

ASX 200 VIX making new lows, however, indicates a bull market.

ASX 200

June 26, 2014

Aussie Dollar threatens breakout, Euro tests support

The Aussie Dollar continues to test resistance at $0.94. Recovery of 13-week Twiggs Momentum above zero suggests continuation of the up-trend, testing resistance at $0.97. Reversal below $0.92 is unlikely at present, but would warn of a decline to the band of support between $0.87 and $0.89.

Aussie Dollar

The Euro respected primary support at $1.35 and the rising long-term trendline. Recovery above $1.37 would suggest a rally to $1.39/$1.40, but descending 13-week Twiggs Momentum crossed below zero, warning of weakness. Breach of $1.35 would signal a decline to $1.31*.

Euro/USD

* Target calculation: 1.35 – ( 1.39 – 1.35 ) = 1.31

June 26, 2014

Gold rallies as the Dollar weakens

Overview:

Treasury yields weaken
The Dollar weakens
Gold rallies

Interest Rates and the Dollar

The yield on ten-year Treasury Notes is headed for another test of primary support at 2.50 percent. Follow-through below 2.40 would would signal a decline to 2.00 percent*. 13-Week Twiggs Momentum continues below zero, indicating weakness. Recovery above the descending trendline is unlikely at present, but would suggest another attempt at 3.00 percent.

10-Year Treasury Yields

* Target calculation: 2.50 – ( 3.00 – 2.50 ) = 2.00

The Dollar Index retreated below resistance after a false break above 80.50. Recovery above 80.50 would suggest an advance to 81.50, but respect of zero by 13-week Twiggs Momentum warns of continuation of the primary down-trend.

Dollar Index

Gold

A weaker Dollar helped gold break its descending trendline, ending the correction. Expect a test of $1400. Whipsawing of 13-week Twiggs Momentum around the zero line, however, indicates indecision and reversal below zero would warn of further weakness. Retreat below $1280 would warn of a test of primary support at $1200.

Spot Gold