The ASX 200 rally stalled at 5500. Declining 21-day Twiggs Money Flow indicates rising selling pressure. Breakout above 5500 would complete a bear trap, indicating a primary advance to 5800*. But reversal below 5400 would signal another test of primary support at 5150.
Germany’s DAX is retracing to test support at 10200. The DAX has formed a narrow line (or consolidation) between 10200 and 10800 over the last quarter. Declining Twiggs Money Flow is typical during a consolidation and does not have much significance unless it crosses below zero. Breakout will signal future direction, either an advance to 11500* or a test of support at 9000.
* Target calculation: 10500 + ( 10500 – 9500 ) = 11500
The Footsie (FTSE 100) is again testing support at 6700. Declining Twiggs Money Flow warns of selling pressure. Breach of 6700 is likely and would warn of a correction to 6500.
The Dollar Index paused in its advance and is likely to retrace to test the new support level at 100. Target for the advance is 107*.
* Target medium-term: 100 + ( 100 – 93 ) = 107
Gold paused in its primary decline, in response. The target is unchanged at the December 2015 low of $1050/ounce. Retracement that respects the resistance level at $1200 would strengthen the bear signal.
Wisdom, in short, whose lessons have been represented as so hard to learn by those who were never at her school, teaches us only to extend a simple maxim universally known and followed even in the lowest life, a little farther than that life carries it. And this is not to buy at too dear a price.
Now, whoever takes this maxim abroad with him into the grand market of the world, and constantly applies it to honors, to riches, to pleasures, and to every other commodity which that market affords, is, I will venture to affirm, a wise man; and must be so acknowledged in the worldly sense of the word: for he makes the best of bargains, since in reality he purchases everything at the price of a little trouble, and carries home all the goods I have mentioned, while he keeps his health, his innocence and his reputation, the common prices which are paid for them by others, entire and to himself.
~ Henry Fielding: The History of Tom Jones, a Foundling (1749).
Probably the most important lesson one can ever learn: wealth and success are important, but not as important as your health, your family, your friends and your reputation.
Having backed off some other campaign pledges, it’s unclear if Trump will end up slapping punitive tariffs on China – and Beijing has signalled some optimism he will be more pragmatic in office. Still, the message from China is that any move to tax Chinese imports would bring retaliation. The US economy would take a hit and America would damage its longstanding ties with Asia.
“China wouldn’t like to see that happen,” Fu Ying, who chairs the foreign affairs committee of the legislature and was a vice-foreign minister until 2013, said of the US imposing punitive tariffs. “But if so happens, it won’t be one-way traffic,” she said last week in Beijing.
That’s where I think the former vice-foreign minister is wrong. China has rigged the game so that trade with the US is largely one-way traffic.
Container imports and exports at the Port of Los Angeles (FY 2016) highlight the problem. More than 57% of outbound containers are empty. Container shipping represents mainly manufactured goods, rather than bulk imports or exports, and the dearth of manufactured exports reflects the trade imbalance with Asia. Even the container statistic understates the problem as many outbound containers contained scrap metal and paper for processing in Asia, rather than manufactured goods.
Source: China turns to ‘The Art of War’ as Donald Trump signals battle on trade
From Alex Barker:
Some British ministers reckon that Europe will eventually realise there are negative consequences for all sides from a hard, sharp Brexit. One is the competitive threat posed by a UK unbound. Dubbed the “Singapore model”, this is a scenario of British tax and regulatory “dumping” that European capitals fear. Britain is too big, too close and too similar an economy to not worry about being undercut…..
The second is the City of London. This remains Europe’s main financial hub and a hard exit could raise costs for corporate Europe and inflame weaknesses such as Italian banks.
David Davis, Brexit minister, has noted that more EU companies request a financial-services passport to operate in the UK than vice versa….
US stocks are buoyant on hopes that a Donald Trump presidency will benefit business, with major indexes flagging a bull market. But promises come first, the costs come later. While I support a broad infrastructure program and the creation of a level playing field in global markets, the actual execution of these ideas is critical and should not be allowed to be hijacked by the establishment for their own ends.
Erection of trade barriers is a useful negotiating position but is unlikely to be achieved without enormous damage to the global economy. As long as your trading partners think you are crazy enough to do it, they may be more amenable to establishing fair ground rules for international trade. If they don’t believe the threat, they will be happy to continue on their present path. So Trump walks a fine line between reassuring his allies and the domestic market, while keeping others guessing about his intentions.
Before we get carried away with hopes and expectations, however, we need to evaluate the current state of the economy in order to assess the current potential for growth.
Let’s start with the negatives.
Construction spending is slow, at about three-quarters of pre-GFC (and sub-prime) levels. It will take more than an infrastructure program to restore this (though it is a step in the right direction). What is needed is higher growth expectations for the economy.
Industrial production is close to its pre-GFC peak but has been declining since 2014.
Job growth is slowing. Decline below 1.0 percent would be cause for concern.
Rail and freight activity also reflects a slow-down since 2015.
The Philadelphia Fed’s broad-based Leading Index has also softened since 2014. Decline below 1.0 percent would be cause for concern.
One of my favorite indicators, this graph compares profit margins (per unit of gross value added) to employee costs. There is a clear cycle: employee costs (per unit) fall after a recession while profits rise. As the economy recovers and approaches full capacity, employee costs start to rise and profits fall — which leads to the next recession. At present we can clearly see employee costs are rising and profit margins are falling.
It will be difficult for corporations to continue to grow earnings in this environment. Business investment is falling.
Plowing money into stock buybacks rather than into new investment may shore up corporate performance for a while but hurts construction and industrial production. Turning this around is a major challenge facing the new administration.
Retail sales are rising as increased employee compensation costs lift consumer confidence. Solid November sales with strong Black Friday numbers would help lift confidence even further.
Light vehicle sales are also recovering, a key indicator of consumers’ long-term outlook.
Rising sales and infrastructure investment are only part of the solution. What Donald Trump needs to do is prime the pump: introduce a fairer tax system, minimize red tape and reduce political interference in the economy, while enforcing strong regulation of the financial sector. Not an easy task, but achieving these goals would help restore business confidence, revive investment, and set the economy on a sound growth path.
In the short run, the market is a voting machine
but in the long run it is a weighing machine.~ Benjamin Graham: Security Analysis (1934)
The ASX 200 is testing resistance at 5500. Rising Money Flow indicates selling pressure has ended. Breakout above 5500 would complete a bear trap, indicating a primary advance to 5800*.
ASX 300 Banks Index followed through above 8000 after a brief retracement respected the new support level. Target for the primary advance is 8800*. A further secondary correction to test the new support level at 8000, however, should not be ruled out. A Twiggs Money Flow trough above zero would strengthen the bull signal.
* Target medium-term: 8000 + ( 8000 – 7200 ) = 8800
India’s Sensex found support at 26000, this week’s long tail suggesting buying pressure. Declining Twiggs Money Flow still signals selling pressure, however, and breach of 26000 would indicate a test of 25000.
Support levels are fairly weak all the way down to 23000 because of the absence of strong corrections during the March to September 2016 advance.
