The ASX 200 Index continues to signal medium-term selling pressure with 21-day Twiggs Money Flow respecting the zero line (from below). Reversal below 4180 would suggest (and below 4150 confirm) a correction to test primary support at 4000.
Canada: TSX 60
Canada’s TSX 60 index found support at 700. 13-Week Twiggs Money Flow, holding above zero, continues to indicate buying pressure. Recovery above 720 would signal a primary advance to 790*.
* Target calculation: 720 + ( 720 – 650 ) = 790
Europe: Signs of a revival
Europe shows signs of a revival. Dow Jones Europe Index is testing resistance at 260. Breakout would signal a primary up-trend. Respect of the zero line by 13-week Twiggs Money Flow indicates long-term buying pressure. Target for the advance would be 310*.
* Target calculation: 260 + ( 260 – 210 ) = 310
FTSE 100 Index shows even stronger buying pressure on 13-week Twiggs Money Flow. Expect the correction to respect support at 5600, followed by an advance to 6100.
* Target calculation: 5700 + ( 5700 – 5200 ) = 6200
US markets pause in anticipation of March sell-off
US markets are anticipating a quarter-end sell-off in the second half of March, driven by the tax season and Spring-cleaning of fund balance sheets. The S&P 500 Index continues to test resistance at 1370. Breakout would signal the start of another primary advance, with a target of 1450*. Reversal below 1350, however, would warn of a correction, testing support at 1300 and possibly 1250.
* Target calculation: 1300 + ( 1300 – 1150 ) = 1450
The Nasdaq 100 reached its initial target of 2650 and is due for a correction. Bearish divergence on 21-day Twiggs Money Flow indicates medium-term selling pressure. Expect retracement to test support at 2400.
* Target calculation: 2400 + ( 2400 – 2150 ) = 2650
Dow Jones Transport Index has retraced over several weeks to test support at 5000. Respect would signal another attempt at 5600, while failure would indicate that momentum is slowing.
* Target calculation: 5000 + ( 6000 – 4500 ) = 5500
Ray Dalio on global deleveraging, growth and inflation
Ray Dalio, founder and co-chief investment officer of Bridgewater Associates, speaks with Matthew Bishop, US business editor and New York bureau chief for The Economist:
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Forex: Euro and Yen weaken while Rand recovers
The Euro is retreating to test medium-term support at $1.30 on the weekly chart. Failure would mean a fall to primary support at $1.25/$1.26. 63-Day Twiggs Momentum holding below zero reinforces the primary down-trend.
* Target calculation: 1.25 – ( 1.35 – 1.25 ) = 1.15
Pound Sterling is ranging between $1.5650 and $1.6000 against the greenback. Upward breakout would signal a primary up-trend but 63-Day Twiggs Momentum below zero continues to warn of the opposite.
The dollar respected the new support level at 80 Japanese Yen. Breakout above ¥82 would confirm the primary up-trend, with an initial target of ¥85.
* Target calculation: 80 + ( 80 – 75 ) = 85
The Aussie Dollar continues to test support at R8.00 South African Rand. Failure would offer an initial target of R7.50, at the rising trendline. Momentum is falling sharply and reversal of 63-day Twiggs Momentum below zero would warn of a primary down-trend.
Aussie Dollar, Canadian Loonie and commodities
The CRB Commodities Index retreated from resistance at 325. Failure of medium-term support at 310 would signal a test of primary support at 295. Respect of the zero line (from below) by 63-day Twiggs Momentum indicates continuation of the primary down-trend.
Lower commodity prices weakened the Aussie Dollar, with a fall below $1.06 warning of a correction to the long-term (green) rising trendline. 63-Day Twiggs Momentum remains strong, however, and recovery above $1.08 would confirm a primary up-trend.
Canada’s Loonie was helped by rising crude prices and recovery above $1.01 would confirm the primary advance to $1.06*.
* Target calculation: 1.01 + ( 1.01 – 0.96 ) = 1.06
Gold weakens
Spot Gold broke medium-term support at $1700 to signal another correction, with an initial target of $1600. Breach of this level and the rising trendline would warn that the long-term up-trend is slowing. Reversal of 63-day Twiggs Momentum below zero would also suggest a primary down-trend.
Introduction of repos or short-term deposits by the Fed, to offset the effects of long-term bond purchases, would dampen inflation expectations and reduce the allure of gold for investors. It would also strengthen demand for the dollar.
Breakout of the Dollar Index above 80.00 would signal an advance to 82.00 and confirm the primary up-trend. The long-term target remains at 85.00*.
* Target calculation: 80 + ( 80 – 75 ) = 85
Brent crude headed for $145
The long-term, monthly chart shows Brent crude testing resistance at $125/barrel. Breakout would signal an advance to the 2008 high of $145. With 63-day Twiggs Money Flow (above zero) flagging a primary up-trend, respect of resistance is unlikely but would indicate another test of the rising green trendline, above $110.
* Target calculation: 125 + ( 125 – 100 ) = 150
I warned in May last year that every spike in crude oil prices over the last 40 years has been followed by a recession. Reading an article today by James Hamilton, he maintains that:
“There is a good deal of statistical evidence… that an oil price increase that does no more than reverse an earlier decline has a much more limited effect on the economy than if the price of oil surges to a new all-time high.”
I can find no evidence to support this, especially when two spikes below the 1980 high of $40/barrel — in 1990 and 2000 — both resulted in recessions:
US Gasoline and Fuel Oil Expenditure (as a percentage of Total Personal Consumption) gives an even clearer picture of the relationship between crude oil prices and recessions.
Every spike in Gasoline and Fuel Oil Expenditure over the last 40 years has been followed by a recession — even the twin spikes in 1980 and 1981. One possible exception is the 2002-2006 rise which was only followed by recession in late 2007. This was the era of the “Greenspan bubble” when interest rates were held at low levels for an inordinate length of time, fueling the global financial crisis in 2007/2008. I guess most of us would have settled for a milder recession in 2005.
The weight of evidence favors another recession following the latest oil price spike, though the Fed should have sufficient ammunition to postpone this until after the election.
Fed Weighs ‘Sterilized’ Bond Buying if It Acts – WSJ.com
JON HILSENRATH: Federal Reserve officials are considering a new type of bond-buying program designed to subdue worries about future inflation if they decide to take new steps to boost the economy in the months ahead. Under the new approach, the Fed would print new money to buy long-term mortgage or Treasury bonds but effectively tie up that money by borrowing it back for short periods at low rates. The aim of such an approach would be to relieve anxieties that money printing could fuel inflation later, a fear widely expressed by critics of the Fed’s previous efforts to aid the recovery.
Transactions like those under the third scenario are called “reverse repos.” A related program called “term deposits” also ties up short-term money held by banks. The effect of this approach is the same as Operation Twist: The Fed would hold more long-term bonds and investors and banks would get more short-term holdings in exchange.
via Fed Weighs ‘Sterilized’ Bond Buying if It Acts – WSJ.com.