ColinTwiggs, Author at the patient investor

August 3, 2013

S&P 500 follows through

The S&P 500 followed through above resistance at 1700, indicating an advance to 1800*. Bearish divergence on 21-day Twiggs Money Flow suggests selling pressure, but this is not as pronounced on the weekly chart and a peak above the May high would negate this. Reversal below support at 1675 remains unlikely, but would warn of another test of primary support at 1560.

S&P 500 Index

* Target calculation: 1680 + ( 1680 – 1560 ) = 1800

The Dollar Index is testing resistance at 82.50. Breakout would indicate the correction is over, suggesting an advance to 84.50. A 63-day Twiggs Momentum trough above zero would strengthen the signal.

Dollar Index

We received some bad data for gold from our Forex & Precious metals data supplier. Here is the corrected chart and our revised comments:

Spot Gold

* Target calculation: 1200 – ( 1350 – 1200 ) = 1050

Gold continues to test support at $1300/ounce. Breach would suggest another test of primary support at $1200, while failure of primary support would offer a target of $1050*. Dollar Index breakout above 82.50 would strengthen the bear signal. Recovery above 1350 is less likely, but would indicate continuation of the rally to $1400/ounce.

July 31, 2013

China exports

Shipping rates for container vessels remain at depressed levels, close to the lows of 2009, according to the The Harper Petersen Index from ship brokers Harper Petersen & Co. This reflects the depressed level of global trade in manufactured goods. Major exporters like China are the most severely affected.

Harper Petersen Index

July 31, 2013

Gold consolidates as dollar and commodities fall

Gold is consolidating in a narrow range between $1300 and $1350/ounce. Penetration of the descending trendline indicates that a bottom is forming. Reversal below $1300 would suggest another test of primary support at $1200, but breakout above $1350 is as likely and would target $1400.

Spot Gold

A rally to $1400 would test the long-term descending trendline as shown on the monthly chart.

Spot Gold

Spot silver has made a weaker rally over the last month and breakout below the rising flag would warn of another decline, with a target of $16.50*. Declining silver would be a bearish sign for gold.

Spot Gold

* Target calculation: 19.5 – ( 21.5 – 18.5 ) = 16.5

Dollar Index

The Dollar Index found short-term support at 81.50. Penetration would indicate a test of primary support at 80.50. Recovery above 82.50 is unlikely, but would suggest the correction is over. Another 13-week Twiggs Momentum trough above zero would indicate the primary up-trend is intact. Breakout above 84.50 is some way off, but would signal an advance to the 2009/2010 highs around 90.00.
Dollar Index

* Target calculation: 84 + ( 84 – 79 ) = 89

Crude Oil

Nymex WTI light crude is retracing after a sharp rally and is likely to find support between $98 and $100/barrel. Expect the spread with Brent crude to narrow as the US recovery outstrips Europe.

Brent Crude and Nymex Crude

* Target calculation: 98 + ( 98 – 86 ) = 110

Commodities

Copper is testing long-term support at $6800/ton. Follow-through below $6700 would confirm another primary decline.
Dow Jones UBS Commodities Index
Commodity prices are primarily driven by Chinese demand. With the Shanghai Composite Index testing its 2012 low (1950), breakout would signal a decline to its 2008 low (1660) and drag commodity prices lower. Dow Jones-UBS Commodity Index breach of long-term support at 125/126 would confirm, targeting its 2009 low at 100*. Not good news for Australian resources stocks, even if the impact is cushioned by a falling Aussie Dollar.

Dow Jones UBS Commodities Index

* Target calculation: 125 – ( 150 – 125 ) = 100

July 29, 2013

Asia retreats but ASX 200 soldiers on

Japan opened sharply lower on Monday, with Dow Jones Japan Index testing its long-term rising trendline at 75. Failure of support at 69 would signal a primary down-trend.

Dow Jones Japan Index

The Nikkei 225 is similarly testing its rising trendline. Declining peaks on 13-week Twiggs Money Flow indicate selling pressure. Failure of support at 12500 would signal a primary down-trend. Recovery above 15000 is unlikely but would test 16000.

Nikkei 225 Index

China’s Shanghai Composite Index continues to test long-term support at 1950. Breakout would signal a primary decline, with a target of the 2008 low at 1660. Reversal of 13-week Twiggs Money Flow below zero warns of selling pressure. Respect of 1950 is unlikely, but would indicate a rally to 2150.

Shanghai Composite Index

India’s Sensex found resistance at 20200, retreating toward its rising trendline. Penetration of the trendline would warn the trend is weakening, while failure of support at 18500 would signal a primary down-trend. Rising troughs on 13-week Twiggs Money Flow, however, indicate moderate buying pressure. Respect of support at 19000 would suggest another primary advance; confirmed if resistance at 20200 is broken.

BSE Sensex Index

* Target calculation: 20000 + ( 20000 – 18000 ) = 22000

The ASX 200 is consolidating in a narrow flag above the new support level at 5000. Upward breakout is likely and would signal a test of the May peak at 5250. Oscillation of 21-day Twiggs Money Flow around zero indicates hesitancy. Reversal below 4850 is unlikely, but would warn of another test of primary support at 4650.

ASX 200 Index

* Target calculation: 5250 + ( 5250 – 4650 ) = 5850

The ASX 200 Volatility Index below 15 also indicates low market risk — a bullish sign.
ASX Volatility Index

July 28, 2013

Europe: DAX and FTSE hesitant

Germany’s DAX is retracing, but as long as it respects medium-term support at 8000, the primary advance is intact. Breakout above resistance at 8500 would offer a long-term target of 9500*. A 21-day Twiggs Money Flow trough above zero would strengthen the signal. Reversal below 8000 is unlikely, but would warn of another test of primary support at 7700.
DAX Index

* Target calculation: 8500 + ( 8500 – 7500 ) = 9500

The FTSE 100 displays selling pressure, with 21-day Twiggs Money Flow retreating below zero. Reversal below 6500 would warn of another correction. Respect of 6500 is unlikely but would indicate an advance to 6900/7000.
FTSE 100 Index

* Target calculation: 6750 + ( 6750 – 6000 ) = 7500

Italy’s MIB Index is heading for a test of 17500 after breaking resistance at 16000. Repeated troughs above zero on 13-Week Twiggs Money Flow suggest a healthy up-trend.

Spain’s Madrid General Index broke resistance at 800, indicating a rally to 900. Long-term 13-week Twiggs Money Flow recovered above zero but remains weak. Reversal below 760 is unlikely, but would warn of a test of the 2012 low at 600.

July 28, 2013

How urban Chinese workers helped cause the great recession | Quartz

Hillary Rosner describes how the inflow of savings from China contributed to the US sub-prime crisis:

“The foreign reserve holdings of U.S. Dollars,” the researchers write, “which had been at less than 11% of U.S. GDP prior to 2000, grew rapidly after 2002; in fact they almost doubled over the 5-year period from 2002 to 2007.”

July 28, 2013

S&P 500 support but TSX bearish

The S&P 500 ran into resistance at 1700, but long tails on the last two days indicate support at 1675. Follow-through above 1700 would offer a target of 1800*. The 21-day Twiggs Money Flow trough above zero indicates a healthy up-trend, but a lower peak than May would warn of selling pressure. Reversal below support at 1650 is unlikely, warning of another test of primary support at 1560.

S&P 500 Index

* Target calculation: 1680 + ( 1680 – 1560 ) = 1800

The VIX below 15 indicates historically low market risk.

VIX Index

Canada’s TSX 60 VIX is similarly bullish.

TSX 60 VIX Index

The TSX Composite Index encountered resistance below 12900, however, and declining 13-week Twiggs Money Flow warns of continued selling pressure. Respect of 12900 would indicate another test of 11750. Breakout above 12900 is less likely, but would offer a long-term target of 14000*.

* Target calculation: 13000 + ( 13000 – 12000 ) = 14000

July 25, 2013

Forex: Euro strengthens, Loonie and Aussie weaken

The Euro continues to test medium-term resistance at $1.32. Respect of primary support at $1.27 is likely, following bullish divergence on 13-week Twiggs Momentum. Breakout above $1.32 would strengthen the signal, while follow-through above $1.37 would confirm a fresh advance, offering a target of $1.50. Reversal below $1.27 is unlikely, but would warn of a primary down-trend.

Euro/USD

* Target calculation: 1.37 + ( 1.37 – 1.27 ) = 1.47

The greenback continues to test resistance at ¥100 against the Yen. Follow-through above ¥101.50 would suggest a new advance, while breakout above ¥104 would confirm, offering a target of ¥114*. Reversal below ¥98.50 is unlikely, but would warn of a test primary support at ¥94.

USD/JPY

* Target calculation: 104 + ( 104 – 94 ) = 114

Canada’s Loonie respected support at $0.94, suggesting a rally to test resistance at parity against the greenback. The monthly chart displays long-term selling pressure, however, and another test of primary support at $0.94 is likely. Breakout would warn offer a target of $0.84*. Declining 13-week Twiggs Momentum already suggests a primary down-trend.

Canadian Loonie

* Target calculation: 0.94 – ( 1.04 – 0.94 ) = 0.84

A monthly chart of the Aussie Dollar displays a similar pattern against the greenback, with a broad top followed by breakout below primary support at $0.95. Support at $0.90 provides temporary respite, but the long-term target is $0.80*. Again, declining 13-week Twiggs Momentum indicates a primary down-trend.

Aussie Dollar

* Target calculation: 0.95 – ( 1.10 – 0.95 ) = 0.80

The Aussie/Kiwi cross has exceeded its target of $1.15*, steady decline on the weekly chart reflecting the impact of falling commodity prices. Breakout above the descending trendline would indicate a rally to test resistance at $1.21, but that seems a way off with the decline in 13-week Twiggs Momentum accelerating.

Aussie/Kiwi Dollar

* Target calculation: 1.21 – ( 1.27 – 1.21 ) = 1.15

July 24, 2013

Gold rises as the dollar falls

Gold broke resistance at $1300/ounce, penetration of the descending trendline indicating that a bottom is forming. Reversal below $1300 would suggest another test of primary support at $1200. Respect of support at $1300 and breakout above $1350 is unlikely, but would target $1400.

Spot Gold

Dollar Index

The Dollar Index is headed for a test of the rising trendline after a false break above 84.00. Respect of the trendline would indicate the primary up-trend is intact, while reversal below 80.50 would warn of a primary down-trend. Bearish divergence on 13-week Twiggs Momentum indicates trend weakness. Recovery above 84.50, however, would signal an advance to 90.00*.
Dollar Index

* Target calculation: 84 + ( 84 – 79 ) = 89

Crude Oil

Nymex WTI light crude is in a primary up-trend, with the current retracement likely to find support around $100/barrel. Rising Nymex crude prices reflect a stronger US economy. Expect the spread with Brent crude to narrow. Target for the current Nymex advance is the 2012 high of $110/barrel*

Brent Crude and Nymex Crude

* Target calculation: 98 + ( 98 – 86 ) = 110

Commodities

The Shanghai Composite Index continues to consolidate above its 2012 low (of 1950). Failure would signal a decline to its 2008 low (at 1660). China is the primary driver of commodity prices and decline of the Shanghai Index would drag prices lower. Dow Jones-UBS Commodity Index reversal below long-term support at 126 would confirm, targeting the 2009 low at 100*. Not good news for Australian resources stocks, even if the impact is cushioned by a falling Aussie Dollar.

Dow Jones UBS Commodities Index

* Target calculation: 125 – ( 150 – 125 ) = 100

July 23, 2013

EconoMonitor » Beijing’s New Leaders Are Right to Hold Back

Michael Pettis argues that China cannot stimulate its economy out of trouble:

There are still bulls out there who insist that China is out of the woods and making a strong recovery, for example former Deputy Governor of the Reserve Bank of Australia, Stephen Grenville, who argues in his article strangely titled China doomsayers run out of arguments:

“The missing element from the low growth narrative is that unemployment would rise, provoking a stimulatory policy response. China would extend the transition and put up with low-return investment recall that when unemployment was the issue, Keynes was prepared to put people to work digging holes and filling them in rather than have unemployment rise sharply. To be convincing, the low-growth scenario needs to explain why this policy response will not be effective.”

It seems to me that the reason why simply “provoking a stimulatory policy response” won’t help China has been explained many times, even recently by former China bulls. Of course more stimulus will indeed cause GDP growth to pick up, as Grenville notes, but it will do so by exacerbating the gap between the growth in debt and the growth in debt-servicing capacity. Because too much debt and a huge amount of overvalued assets is precisely the problem facing China, it is hard to believe that spending more borrowed money on increasing already excessive capacity can possibly be a useful resolution of slower Chinese growth.