Author: ColinTwiggs

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Weak Asian markets warn of continued selling pressure

Dow Jones Japan Index is testing long-term support at 50.00. 13-Week Twiggs Money Flow oscillating around zero indicates uncertainty; reversal below zero would warn of rising selling pressure. Breakout below 4800 would offer a target of 35.00*.

Dow Jones Japan Index

* Target calculation: 50 – ( 65 – 50 ) = 35

The Nikkei 225 Index is headed for a test of 7000* after breaking support at 9000 on the weekly chart.

Nikkei 225 Index

* Target calculation: 9000 – ( 11000 – 9000 ) = 7000

Dow Jones South Korea Index is consolidating between 360 and 410 on the daily chart. 21-Day Twiggs  Money Flow below zero warns of strong medium-term selling pressure. Downward breakout would offer a target of 290*.

Dow Jones South Korea Index

* Target calculation: 360 – ( 430 – 360 ) = 290

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DAX key reversal; FTSE rally fades

Germany’s DAX Index shows a strong key reversal [R] on the weekly chart. Expect a rally, but we are in a bear market and resistance at 6500 is likely to hold. Reversal below 5400 would warn of another down-swing.

DAX Index

* Target calculation: 5500 – ( 6500 – 5500 ) = 4500

The FTSE 100 fell at Monday’s open, but the weekly chart displays a particularly volatile consolidation edging higher. Breakout above 5400 would indicate a test of 5600/5700. Again, we are in a bear market; respect of resistance is likely and would warn of another test of 4800.

FTSE 100 Index

* Target calculation: 5000 – ( 5600 – 5000 ) = 4400

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Bear rally and triple-witching

A narrow range with large volume often acts like a compressed spring — absorbing buying pressure before launching a sharp move in the opposite direction. The spike in volume [W] on Dow Jones Industrial Average was due to triple-witching hour on Friday, but we should nevertheless be wary of a fall below 11400, which would indicate another test of 10600.

Dow Jones Industrial Average

* Target calculation: 11000 – ( 12000 – 11000 ) = 10000

The weekly chart of S&P 500 shows a similar bear rally. Expect a test of 1250/1260. But 63-day Momentum below zero reminds that the index is in a primary down-trend; a peak below the zero line would warn of another down-swing.

S&P 500 Index

* Target calculation: 1125 – ( 1250 – 1125 ) = 1000

NASDAQ 100 Index displays a particularly strong rally, but this remains a bear market. Expect strong resistance at 2400. Failure of support would offer a target of 1700*.

NASDAQ 100 Index

* Target calculation: 2050 – ( 2400 – 2050 ) = 1700

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Does the Euro Have a Future? by George Soros | The New York Review of Books

The German public still thinks that it has a choice about whether to support the euro or to abandon it. That is a mistake. The euro exists and the assets and liabilities of the financial system are so intermingled on the basis of a common currency that a breakdown of the euro would cause a meltdown beyond the capacity of the authorities to contain. The longer it takes for the German public to realize this, the heavier the price they and the rest of the world will have to pay.

via Does the Euro Have a Future? by George Soros | The New York Review of Books.

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Aussie Dollar tests trend channel

The Australian Dollar is testing the lower border of its long-term (Raff Regression) trend channel against the greenback on a weekly chart. Expect strong support at parity. Recovery above $1.075 would suggest a rally to test the upper channel around $1.20*, while failure would warn of reversal to a primary down-trend.

AUDUSD

* Target calculation: 1.10 + ( 1.10 – 1.00 ) = 1.20

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Chart of the Day: Decoupled from reason – macrobusiness.com.au

First, from long term successful commodity trader Peter Brandt:

It has come to be known as the “risk-on/risk-off” or “all-one-market” phenomena in global markets. It is a situation where seemingly unrelated markets have taken on an historically high correlation. Individual markets seem to be the proxy for all other markets.

I have witnessed periods in the past when unusually strong correlations existed for months and months. But, I have never experienced the level of correlation we have lived with as traders since 2008.

via Chart of the Day: Decoupled from reason – macrobusiness.com.au

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More on bank funding vulnerability – macrobusiness.com.au

Note the rather large spread that’s opened up between the market’s expectations for the official cash rate and the BBSW rate.

…………To make the point about how unusual this situation is, let’s take a look at the spread over a longer time frame……. As you can see, the GFC is the only other period where this spread has blown out in this way.

………..The US and Great Britain, which led the interbank seizure in the last crisis, have risen mildly. Of the Western markets, only Australia and Europe have spiked in a way resembling the GFC.

via More on bank funding vulnerability – macrobusiness.com.au

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RBNZ throws cold water on RBA – macrobusiness.com.au

What should be clear…… is that the growth in Australian housing values has been funded, to a large extent, by foreign borrowings, much of it short-term.

A key risk going forward is that the banks’ ability to refinance their borrowings rests with the willingness of foreign investors to continue to lend them money. But in times of heightened risk-aversion – such as the impending European debt crisis – foreign investors can become nervous and less inclined to continue extending credit, which could leave Australia’s banks, house prices, and broader economy exposed to a sudden funding freeze.

via RBNZ throws cold water on RBA – macrobusiness.com.au

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Rate cuts are coming – macrobusiness.com.au

The recent seasonal adjustments to the CPI and the reduction in the level of underlying inflation blunts the force of the RBA’s recent argument about inflationary pressures. But, absent an offshore catalysing event, that alone won’t make them cut rates.

Rather I think that household retrenchment and saving will lower economic activity in the economy and that the RBA has overplayed the extent that the mining boom induced income will wash through the Australian economy.

Increasingly, we are getting confirmation of this theory. Unfortunately, we are seeing Australians lose jobs at an increasing rate. Data released yesterday by Westpac on consumer unemployment expectations suggests this is going to get worse.

via Rate cuts are coming – macrobusiness.com.au

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