Author: ColinTwiggs

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Bear market – brief respite

North America

The S&P 500 is retracing to test short-term support at 2000. Failure would warn of another test of support at 1870, while respect would indicate continuation of the bear rally to test resistance at the high of 2130. Bullish divergence on 21-day Twiggs Money Flow indicates (medium-term) buying pressure. The market remains bearish, however, having broken primary support at 2000, and respect of 2130 would warn of another test of support at 1870.

S&P 500 Index

* Target calculation: 2000 + ( 2000 – 1870 ) = 2130

The CBOE Volatility Index (VIX) below 20 indicates market risk is easing. We need to remain vigilant for the next few weeks. At least until we see a peak below 20.

S&P 500 VIX

NYSE short sales remain subdued.

NYSE Short Sales

Dow Jones Industrial Average similarly retraced to test support at 17000 on the weekly chart. 13-Week Twiggs Money Flow holding above zero indicates buying pressure. Respect of support would again indicate a rally to test the previous high (18300), failure would warn of another test of primary support at 16000.

Dow Jones Industrial Average

Canada’s TSX 60 respected resistance at 825. Reversal below 800 would warn of another decline; breach of 775 would confirm. Weak 13-week Twiggs Momentum, below zero, signals the market is still bearish.

TSX 60 Index

* Target calculation: 775 – ( 825 – 775 ) = 725

Europe

Germany’s DAX remains weak, with the index retracing to test support at 10000 and 13-week Twiggs Money Flow below zero. Reversal below 10000 is likely and would warn of another decline; follow-through below 9500 would confirm. Recovery above 10500 is unlikely but would indicate continuation of the bear rally.

DAX

The Footsie is more resilient, with 13-week Twiggs Money Flow holding above zero. The index respected resistance at 6500 and is retracing to test short-term support at 6250. Respect is more likely and would suggest another test of 6500. Reversal below 6000 is unlikely, but would confirm the primary down-trend.

FTSE 100

Asia

The Shanghai Composite Index rallied off government-enforced support at 3000. But the rally is likely to be short-lived and recovery above 3500 unlikely.

Dow Jones Shanghai Index

Hong Kong’s Hang Seng Index is retracing to test support at 22500 after a similar bear rally. Respect of 22500 would indicate another test of 24000, but breach of support is more likely and would warn of another test of primary support at 21000.

Hang Seng Index

Japan’s Nikkei 225 encountered resistance at 18500. Gradual decline on 13-week Twiggs Money Flow suggests a secondary correction, with long-term buying pressure continuing. Recovery above 19000 would indicate another test of 21000.

Nikkei 225 Index

* Target calculation: 19000 + ( 19000 – 17000 ) = 21000

India’s Sensex is retracing to test support at 26500. The 13-week Twiggs Money Flow trough above zero, however, indicates strong buying pressure and respect of support at 26500 would indicate continuation of the rally. Reversal below 26000 is unlikely, but would confirm a primary down-trend.

SENSEX

Australia

The ASX 200 retreated from resistance at 5250/5300. Rising 13-week Twiggs Money Flow, however, indicates medium-term buying pressure. A higher trough above 5000 would strengthen the signal. Breakout above 5300 would signal continuation of the bear rally to test the descending trendline. The bear market continues despite recent support and breach of 5000 would confirm a primary down-trend.

ASX 200

* Target calculation: 5000 – ( 5400 – 5000 ) = 4600

 

Being powerful is like being a lady. If you have to tell people you are, you aren’t.

~ Margaret Thatcher

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Bear Rally

North America

Construction activity continues to advance. The graph below shows Total US Construction Spending adjusted for inflation (Core CPI). Spending is substantially below the 2004 to 2007 property bubble but equates to the earlier Dotcom era. The steep rise suggests that rate increases will be necessary to prevent another bubble.

US Construction Spending adjusted by Core CPI

The S&P 500 is testing resistance at 2000. Bullish divergence on 21-day Twiggs Money Flow indicates (medium-term) buying pressure. Recovery above 2000 would signal a relieving rally, with a target (from the double-bottom pattern) of 2130*. The market remains bearish and respect of 2130 would warn of another test of primary support at 1870.

S&P 500 Index

* Target calculation: 2000 + ( 2000 – 1870 ) = 2130

The CBOE Volatility Index (VIX) below 20 indicates market risk is easing. We need to remain vigilant for the next few weeks as VIX can be prone to false breaks.

S&P 500 VIX

NYSE short sales are subdued.

Dow Jones Industrial Average is similarly testing resistance at 17000 on the weekly chart. Breakout would offer a similar target of 18300. Recovery of 13-week Twiggs Money Flow above zero indicates buying pressure. Reversal below 16000 is unlikely, but would confirm a primary down-trend.

Dow Jones Industrial Average

Canada’s TSX 60 recovered above the former primary support level at 800. Follow-through above 820 would signal a relieving rally. Weak 13-week Twiggs Momentum, below zero, warns the market is still bearish.

TSX 60 Index

* Target calculation: 820 + ( 820 – 750 ) = 890

Europe

Germany’s DAX remains weak, with 13-week Twiggs Money Flow below zero. Recovery above 10500 would indicate a bear rally. Only follow-through above 11000 would signal that the down-trend is over.

DAX

The Footsie proved more resilient, respecting support at 6000 with 13-week Twiggs Money Flow holding above zero. Breakout above 6300 indicates a relieving rally, while follow-through above the descending trendline would suggest that the correction is over. Reversal below 6000 is unlikely, but would confirm the primary down-trend.

FTSE 100

Asia

The Shanghai Composite Index continues to test government-enforced support at 3000. Recovery above 3500 is most unlikely.

Dow Jones Shanghai Index

Hong Kong’s Hang Seng Index rallied to test resistance at 22500, while 13-week Twiggs Money Flow recovered above zero. Follow-through above 22500 would indicate another test of 24000. But this remains a bear market and reversal below 22500 would warn of another decline.

Hang Seng Index

Japan’s Nikkei 225 respected primary support at 17000. Gradual decline on 13-week Twiggs Money Flow suggests a secondary correction. Recovery above 19000 would indicate another test of 21000.

Nikkei 225 Index

* Target calculation: 19000 + ( 19000 – 17000 ) = 21000

India’s Sensex followed through above resistance at 26500, indicating a bear rally. Strong buying pressure, signaled by a 13-week Twiggs Money Flow trough above zero, suggests a reversal. Breakout above 28500 would confirm. Reversal below 25000 is unlikely, but would confirm a primary down-trend.

SENSEX

Australia

A monthly chart of the ASX 200 shows the significance of the 5000 support level.

ASX 200 monthly

Rising 21-Day Twiggs Money Flow on the daily chart indicates medium-term buying pressure. Breakout above 5300 would offer a target of 5700. But expect stiff resistance between 5200 and 5300 — already flagged by a tall shadow on today’s candlestick. Breach of 5000 is unlikely at present, but would confirm a primary down-trend.

ASX 200

* Target calculation: 5000 – ( 5400 – 5000 ) = 4600


More….

Crude: Another bear rally

Gold down-trend continues

Sen. John McCain on Russia’s airstrikes in Syria

Paddleboarding with whales

Deleveragings go on for about 15 years. The process of raising debt relative to incomes goes on for 30 or 40 years, typically. There’s a last big surge, which we had in the two years from 2005 to 2007 and from 1927 to 1929, and in Japan from 1988 to 1990, when the pace becomes manic. That’s the classic bubble. And then it takes about 15 years to adjust.

~ Ray Dalio, Bridgewater Associates

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Crude: Another bear rally

Crude futures (Light Crude November 2015 – CLX2015) are testing resistance at $50 per barrel. Respect is likely and would indicate another test of support at $40. Breach of medium-term support at $44 would confirm. Failure of $40 would offer a (long-term) target of $30*. Recovery above the descending trendline and resistance at $52 per barrel is unlikely, but would suggest that a bottom is forming.

WTI Light Crude November 2015 Futures

* Target calculation: 40 – ( 50 – 40 ) = 30

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Gold down-trend continues

Treasury yields remain weak, with the 10-year yield continuing to test support at 2.0 percent. Declining interest rates improve demand for gold but the weak inflation outlook has the opposite effect.

10-Year Treasury Yields

The Dollar Index is ranging between 93 and 98. Flight to safety could drive the Dollar up (and yields downward) but a Chinese sell-off of foreign reserves — to support the Yuan and/or stimulate their economy — would drive the Dollar down (and yields up).

Dollar Index

Spot gold is testing resistance at $1150 per ounce. Breakout would indicate a bear rally to $1200. Reversal of the primary down-trend is unlikely, however, and breach of $1100 would offer a target of $1000/ounce*. Declining 13-week Twiggs Momentum, with peaks below zero, continues to signal a strong down-trend.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

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Gold and Treasury yields decline as inflation weakens

US inflation. Core CPI is hovering below 2.0 percent but the 5-year inflation breakeven (5-year Treasury yield minus TIPS yield) suggests that inflation will fall. The recent slow-down in average hourly manufacturing earnings growth (production and non-supervisory employees) may just be statistical noise, but decline of either of these signals below 1.0% p.a. would be cause for concern.

5 Year Inflation Breakeven

Treasury yields remain weak, with the 10-year yield testing support between 1.85 and 2.0 percent.

10-Year Treasury Yields

The Dollar Index continues to range between 93 and 98. Falling inflation would favor an upward breakout. But flight to safety could drive the Dollar up (and yields downward). The biggest factor that may the Dollar down (and yields up), however, would be a Chinese sell-off of foreign reserves (largely Treasury investments) — to support the Yuan and/or stimulate their economy.

Dollar Index

Spot gold is likely to test primary support between $1080 and $1100 per ounce. Declining 13-week Twiggs Momentum, with peaks below zero, signals a strong down-trend. Breach of primary support would offer a target of $1000/ounce*.

Spot Gold

* Target calculation: 1200 – ( 1400 – 1200 ) = 1000

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Bears out in force

Bears continue to dominate equity markets. Patches of support are visible across North America, Europe and Asia but this is likely to be a secondary rally rather than a trend change.

The Russian bear is also playing up. This time in Syria. Senator John McCain sums up the escalating crisis in the Middle East in this 15-minute video.

North America

The S&P 500 respected support between 1870 and 1900, rallying toward another test of resistance at 2000. The 21-day Twiggs Money Flow peak just above zero continues to indicate (medium-term) selling pressure. Recovery above 2000 is unlikely, but would signal a relieving rally. Breach of support at 1870 would confirm the primary down-trend.

S&P 500 Index

* Target calculation: 1900 – ( 2000 – 1900 ) = 1800

The CBOE Volatility Index (VIX) holding above 20 indicates elevated market risk.

S&P 500 VIX

NYSE short sales remain subdued.

Dow Jones Industrial Average is testing support at 16000. Long tails on the last two weekly candles and recovery of 13-week Twiggs Money Flow above zero indicate strong support. Breach of 16000 would confirm a primary down-trend but we are likely to see a (secondary) bear rally beforehand.

Dow Jones Industrial Average

Bellwether transport stock Fedex continues to warn of a contraction in economic activity.

Fedex

And retail sales growth remains subdued.

Retail Sales and Core CPI

A long tail on Canada’s TSX 60 indicates continued support despite the breach of 790. Declining 13-week Twiggs Momentum below zero indicates a primary down-trend. Recovery above 820 is unlikely, but would suggest a bear trap.

TSX 60 Index

* Target calculation: 800 – ( 900 – 800 ) = 700

Europe

Germany’s DAX signals a primary down-trend, but appears to have found secondary support at 9500. Recovery of 13-week Twiggs Money Flow above zero would suggest a bear rally.

DAX

The Footsie found strong support at 6000, with long tails and 13-week Twiggs Money Flow recovering above zero. Penetration of the descending trendline is unlikely but would warn of a bear trap. Breach of support at 6000 is more likely and would confirm the primary down-trend.

FTSE 100

Asia

The Shanghai Composite Index continues to test government-enforced support at 3000. Recovery above 3500 is most unlikely. Breach of 3000 would warn of another sharp sell-off.

Dow Jones Shanghai Index

Hong Kong’s Hang Seng Index broke support at 21000, confirming the primary down-trend — signaled earlier by 13-week Twiggs Money Flow.

Hang Seng Index

Japan’s Nikkei 225 is testing primary support between 16500 and 17000. Gradual decline on 13-week Twiggs Money Flow suggests a secondary correction, but reversal of 13-week Momentum below zero warns of a primary down-trend. Breach of 16500 would confirm.

Nikkei 225 Index

* Target calculation: 17500 – ( 19000 – 17500 ) = 16000

India’s Sensex found support at 25000 before testing resistance at 26500. 13-Week Twiggs Money Flow trough above zero indicates strong buying pressure. Recovery above 26500 would warn of a bear trap. Reversal below 25000 is less likely, but would confirm the primary down-trend.

SENSEX

* Target calculation: 25000 – ( 26500 – 25000 ) = 23500

Australia

The ASX 200 also shows solid support at 5000, with rising 21-Day Twiggs Money Flow indicating medium-term buying pressure. Recovery above 5200 would indicate a bear rally. Breach of 5000 remains likely, however, and would confirm the primary down-trend.

ASX 200

* Target calculation: 5000 – ( 5400 – 5000 ) = 4600


More….

Gold and Treasury yields decline as inflation weakens

Sen. John McCain on Russia’s airstrikes in Syria

Japan abandons Fed-style inflation targeting and targets GDP growth instead

Deflation supercycle is over as world runs out of workers | Telegraph

Australia: Latest SMSF statistics | FINSIA

I think anybody who is a great investor, a good investor, a successful investor has to be a person who can be both aggressive and defensive….. have enough fear to have the caution. But you can’t let the fear control you.

~ Ray Dalio, Bridgewater Associates

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Sen. John McCain on Russia’s airstrikes in Syria

Shades of Churchill in 1938:

Winston Churchill, denouncing the Munich Agreement in the House of Commons, declared:

“We have suffered a total and unmitigated defeat … you will find that in a period of time which may be measured by years, but may be measured by months, Czechoslovakia will be engulfed in the Nazi régime. We are in the presence of a disaster of the first magnitude … we have sustained a defeat without a war, the consequences of which will travel far with us along our road … we have passed an awful milestone in our history, when the whole equilibrium of Europe has been deranged, and that the terrible words have for the time being been pronounced against the Western democracies: “Thou art weighed in the balance and found wanting”. And do not suppose that this is the end. This is only the beginning of the reckoning. This is only the first sip, the first foretaste of a bitter cup which will be proffered to us year by year unless by a supreme recovery of moral health and martial vigour, we arise again and take our stand for freedom as in the olden time.”

On 3 October 1938, Churchill added:

“England has been offered a choice between war and shame. She has chosen shame, and will get war.”

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Japan abandons Fed-style inflation targeting and targets GDP growth instead

Scott Sumner quotes Marcus Nunes:

Japanese Prime Minister Shinzo Abe vowed on Thursday to raise gross domestic product by nearly a quarter to 600 trillion Japanese yen ($5 trillion), pledging to refocus on the economy after the passage of controversial security bills that eroded his popularity. Abe unveiled the plan at a news conference marking his election to a second three-year term as ruling Liberal Democratic Party leader and hence, premier. Abe stopped short, however, of setting a timeframe for the new GDP target, which could raise doubts about the goal.

System-based rules targeting (nominal) GDP growth are likely to deliver more stable and consistent economic performance than the discretionary monetary policy followed by the Fed. No matter how smart the people on the FOMC, they are reacting to imperfect data in a complex world. Many decisions, in hindsight, prove to be late. Sometimes with disastrous consequences.

For a detailed discussion, see Marcus Nunes: The “Rules debate” once again.

Read more at Japan adopts an NGDP target, Scott Sumner | EconLog | Library of Economics and Liberty

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