In November I observed that US electricity production had remained stagnant since 2008. Basically, manufacturing had stalled. The December 2015 decline to 95 shows a far more worrying event: manufacturing is now shrinking.
Decline of the ISM Manufacturing PMI Composite Index below 50 tends to bear this out. But a secular decline would be far more serious than your common-or-garden-variety cyclical contraction.
My newsletters on December 10th and January 14th warned of the approaching storm across global markets. The Dow Jones Industrial Average has now broken primary support at 16000, signaling a primary down-trend. Reversal of 13-week Twiggs Money Flow below zero, indicating selling pressure, strengthens the warning. Target for the decline is 14000*.
* Target calculation: 16000 – ( 18000 – 16000 ) = 14000
S&P 500 breach of primary support at 1870 confirms the Dow signal. The long tail on the latest candle indicates the continued presence of buyers (highlighted by rising 21-day Twiggs Money Flow). Expect retracement to test the new resistance level but respect is likely and follow-through below 1850 would be the final nail in the coffin. The medium-term target is 1700* but long-term, expect a test of 1500.
* Target calculation: 1900 – ( 2100 – 1900 ) = 1700
CBOE Volatility Index (VIX) testing 30 suggests elevated risk.
Bonds have benefited from the flight to safety, with 10-year Treasury Yields closing below 2.0%. Follow-through below 1.90% would suggest a test of the 2015 low at 1.65%.
Gold likewise rallied to $1100 per ounce. But falling oil prices and low inflation are likely to undermine any long-term demand for gold as a store of value.
Prompted by a question from Hailoh on IC forum:
“Down for sure, but in what stages? Without a Lehman failure there may not be the impetus for a dramatic plunge towards the end.”
The S&P 500 is testing primary support at 1850/1870. Decline of 6-month Twiggs Momentum below zero warns of a primary down-trend. I am a great believer in chart symmetry and breach of 1870 would most likely result in a decline to 1500, the next major support level.
This could still prove to be a false alarm — as in 1998, 2010 and 2011 — but charts like bellwether transport stock Fedex suggest otherwise.
Also the 10% year-on-year declining profit margins for Q3 2015. A 20% year-on-year fall for Q4 2015 would confirm.
My newsletter on December 10th, warned of The Gathering Storm across global markets. A month later, concern over China is sapping investor confidence. Several exchanges signal a primary down-trend and more are approaching the tipping point.
The Dow Jones Global Index broke primary support at 300, warning of a decline to 260*. Follow-through below 290 confirms the signal — and a primary down-trend. A 6-month Twiggs Momentum peak below zero strengthens the signal.
* Target calculation: 300 – ( 340 – 300 ) = 260
Declining profit margins proved a reliable indicator of recent recessions. The 10% year-on-year decline in Q3 is an early warning. Data for Q4 2015 is not yet available. A year-on-year fall of 20% would suggest that recession is imminent.
The S&P 500 is headed for a test of primary support at 1870. Declining 21-day Twiggs Money Flow below zero warns of selling pressure. Breach of 1870 would confirm a primary down-trend. Respect of support is unlikely but would suggest another bear rally.
* Target calculation: 1900 – ( 2100 – 1900 ) = 1700
CBOE Volatility Index (VIX) is rising. Breakout above 30 would warn of elevated risk.
Canada’s TSX 60 broke support at 750, confirming a primary down-trend. 13-Week Twiggs Momentum peaks below zero strengthen the bear signal. Target for the decline is 700*.
* Target calculation: 800 – ( 900 – 800 ) = 700
Germany’s DAX is headed for a test of primary support at 9400. Reversal of 13-week Twiggs Money Flow below zero warns of selling pressure. Breach of support would signal a decline to 7500*.
* Target calculation: 9500 – ( 11500 – 9500 ) = 7500
The Footsie again breached 6000, warning of a primary down-trend. Declining 13-week Twiggs Money Flow below zero strengthens the signal. Follow-through below 5800 would confirm. Target for the decline is 5000*.
* Target calculation: 6000 – ( 7000 – 6000 ) = 5000
The Shanghai Composite Index crossed below 3000 for the first time since August. Declining 21-day Twiggs Money Flow warns of medium-term selling pressure. Follow-through below 2900 would confirm another (primary) decline, with a target of 2400*.
* Target calculation: 3000 – ( 3600 – 3000 ) = 2400
Japan’s Nikkei 225 is back testing primary support at 17000. The peak at zero on 13-week Twiggs Momentum warns of a primary down-trend. Breach of support would confirm.
* Target calculation: 17500 – ( 20000 – 17500 ) = 15000
India’s Sensex breached primary support at 25000. 13-Week Twiggs Money Flow peaks below zero indicate a primary down-trend. Expect retracement to test the new resistance level at 25000 but respect is likely. Target for the decline is 23000*.
* Target calculation: 26500 – ( 30000 – 26500 ) = 23000
The ASX 200 breached primary support at 5000, signaling another decline. Follow-through below 4900 would confirm. Declining 13-week Twiggs Money Flow below zero indicates selling pressure. Target for a decline is 4600 (medium-term), or 4000* in the long-term.
* Target calculation: 5000 – ( 6000 – 5000 ) = 4000
Bellwether transport stock Fedex, in a primary down-trend, warns of slowing economic activity in the US. The 6-month Twiggs Momentum peak below zero flags a strong down-trend. Breach of support at 130.00 would warn of another decline — and worsening economic climate.
European equivalent Deutsche Post AG (DPW.DE), owner of DHL, also warns of declining economic activity. Breach of support at 23.00 would warn of another decline.
The ASX wagon is clearly hitched to the Chinese growth engine. When China slows and commodity prices fall, the ASX is sure to follow.
The Shanghai Composite Index is simply a barometer of the main show, which is Chinese real estate and infrastructure investment. Chinese stocks are again falling, with the index headed for a test of primary support at 3000. Rate rises in the US are likely to increase capital outflows from China. The PBOC’s massive foreign currency reserves act as a buffer but have already been depleted by half a trillion Dollars. Loosening the peg against the Dollar may soften the immediate impact on reserves. But a falling Yuan is likely to further encourage capital outflows.
The ASX 200 broke primary support at 5000. Reversal of 6-month Twiggs Momentum below zero signals a primary down-trend. Follow through below 4900 would confirm the decline, with long-term support at 4000*.
* Target calculation: 5000 – ( 6000 – 5000 ) = 4000
Spot Gold recently recovered above $1100, suggesting a short rally fueled by concern over China. The gold-oil ratio, however, soared to 33, signaling that gold is highly overbought relative to Brent Crude. Last time the gold-oil ratio reached 30 was 1988 — when the Iraq-Iran ceasefire eased global crude shortages — and before that when the Saudis substantially hiked crude oil production in 1985. Any gold rally is likely to be short-lived — with stubborn resistance at $1200/ounce — and followed by a test of support at $1000/ounce*.
* Target calculation: 1100 – ( 1200 – 1100 ) = 1000
The last time (2008) that Brent Crude reached these lows, gold fell to $700/ounce.
The best golf instruction video ever made — from the maestro himself.
From Marek Dabrowski at Bruegel:
……the depth of the oil-price shock looks comparable with that of the second half of 2008 and early 2009. However, while the 2008-2009 shock resulted from a temporary liquidity crisis caused by the Lehman Brothers bankruptcy, the current shock seems to be underpinned by more fundamental demand- and supply-side factors.
On the demand side, there are the observed slowdowns of emerging-market economies, effects of energy-saving policies in developed and developing countries, and the gradual tightening of US monetary policy, which reduced the appetite for speculative purchases of oil and other commodities. In speaking about the demand side, we mean massive investment in new oil-production capacities, including shale oil, in the last two decades (Dale, 2015), the declining market power of the OPEC cartel and development of alternative energy sources.
Consequently, the lower level of oil prices could reflect a new market equilibrium and could last longer than the short-term price declines of 1998-1999 and 2008-2009. The current situation is more reminiscent of the dramatic oil price adjustment observed in the mid-1980s, after which low prices dominated for more than a decade. If this scenario is repeated now, all net oil exporters will face inevitable challenges of both macro- and microeconomic adjustment in the long term.
…..Overall, countries that conducted prudent macroeconomic policies and built-up large fiscal buffers in boom years (Gulf countries, Norway, Brunei Darussalam) have had more room to manoeuvre in choosing the right policy response to the price shock, compared to those that had smaller or no reserves. In particular, they could employ countercyclical fiscal policy to mitigate the effect of lower prices (see above).
I am sure most Australians can relate to this conclusion.
Source: The impact of the oil-price shock on net oil exporters | Bruegel
From Russian independent journalist Arkady Babchenko:
If you asked me to characterise the “Russian World” (Russky mir) in one word, I would not hesitate to call it infantilism. This term best describes the current state of Russian society.
Infantilism is, first and foremost, the inability to take responsibility for one’s own actions; the inability to draw causal links and to understand that such-and-such actions lead to such-and-such consequences.
……The absolute lack of understanding of the value of life is just as infantile.
It is not acceptable for adults to inflate a frog with a straw, to decapitate a puppy, to pound residential neighbourhoods with weapons of indiscriminate destruction, or to shoot down passenger jets with surface-to-air missiles…..
……All I can say is that we can confirm that the experiment of dumbing down a whole nation has been brought to a successful completion.
Read more at Infantilism as Russia’s Official Ideology | Free Russia Foundation
