Author: Colin Twiggs

Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He founded PVT Capital (AFSL number 546090), which provides income and growth strategies to wholesale clients. Colin also co-founded Incredible Charts and writes the popular Patient Investor newsletter. Using a top-down approach, Colin identifies macro trends in the global economy and then combines fundamental and technical analysis to evaluate opportunities in sectors that stand to benefit. Focusing on interest rates and financial market liquidity as primary drivers of the economic cycle, he warned of the 2008/2009 and 2020 bear markets well ahead of actual events.
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Sterling falls

Sterling retracement respected resistance at $1.58  and the pound is now headed for a test of primary support at $1.53*. Reversal of 63-day Twiggs Momentum below -5% would warn of a downward breakout, offering a target of $1.43.
Pound Sterling/USD

* Target calculation: 1.58 – ( 1.63 – 1.58 ) = 1.53

The fall against the euro is even more dramatic. The brief rally to $1.18 was snuffed out and short-term support at €1.15 is not secure. Expect a test of the 2011 low at €1.10.
Pound Sterling/USD

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Aussie Dollar tests trendline

The Aussie Dollar retreated above its former support level at $1.03 on the daily chart. Breakout above $1.04 — and the declining trendline — would indicate a bear trap, while reversal below $1.03 would test primary support at $1.015. Retreat of 63-day Twiggs Momentum below zero would favor a down-swing.

Aussie Dollar/USD

* Target calculation: 1.03 – ( 1.06 – 1.03 ) = 1.00

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Euro tests support

The Euro retreated below its new support level at $1.35 on the weekly chart. Expect a test of $1.32 and the rising trendline. Respect would indicate a primary advance with a target of $1.42*. Rising 63-day Twiggs Momentum (above zero) suggests continuation of the primary up-trend. Failure of support at $1.32, however, would indicate a bull trap — with a target of $1.27.

Euro/USD

* Target calculation: 1.37 + ( 1.37 – 1.32 ) = 1.42

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Cause of the 2007/8 crash and threatened double-dip in 2010

Here is the smoking gun. Note the sharp contraction in the US monetary base before the last two recessions and again in 2010. Monetary base (M0) is plotted net of excess bank reserves on deposit with the Fed, which are not in circulation. The Fed responded after the contraction had taken place, instead of anticipating it.

Monetary Base minus Excess Reserves

The long-term problem is that the monetary base should not be expanding at 10 percent a year. More like 3% to 5% — in line with real GDP growth.

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Dollar Index weakens

The Dollar Index is testing primary support at 78.50. Breach would signal a down-swing with a target around 75*. Twiggs Momentum oscillating below zero suggests further weakness. Recovery above 81, however, would indicate that the down-trend is over.

US Dollar Index

* Target calculation: 78.5 – ( 81.5 – 78.5 ) = 75.5

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Time for U.S. to Disengage from North Korea Crisis | Cato Institute

Doug Bandow suggests:

Washington should begin contemplating, within earshot of Beijing, getting out of the way of its allies if the North continues to develop nuclear weapons. The message to China should be: if your client state continues its present course, you may face a nuclear-armed Japan. If that happens, blame your buddies in Pyongyang.

Read more at Time for U.S. to Disengage from North Korea Crisis | Doug Bandow | Cato Institute.

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Commodities declining

63-day Twiggs Momentum is forming another peak below zero, warning of further downside on the Dow Jones-UBS Commodity Index. Reversal below -5% would strengthen the bear signal. Failure of support at 136 would warn of another test of the 2012 low at 126. Recovery above 144 is unlikely but would suggest a rally to 152.

US Dollar Index

* Target calculation: 150 + ( 150 – 125 ) = 175

Rising commodities — other than gold and oil where other factors need to be considered — would suggest a recovering global economy and further gains for stocks in the year ahead. A fall in commodities, however, would warn of slack global demand and a more bearish outlook for stocks.

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Gold weakens while crude rises

Gold is undergoing a correction on the weekly chart. Breach of support at 1625 would indicate another test of primary support at $1525. Retreat of 63-day Twiggs Momentum below zero warns of a primary down-trend. Recovery above $1700 per ounce, however, would indicate that the correction is over.

Spot Gold

Crude oil, however, is rising, with Brent Crude breaking resistance at $117/barrel to signal a primary up-trend. Twiggs Momentum rising above zero already suggests an up-trend. Recovery of Nymex WTI above $99/barrel would confirm.

US Dollar Index

* Target calculation: 116 + ( 116 – 106 ) = 126

Normally gold and crude move together. A divergence would be highlighted by the gold-oil ratio (below). A decline to 10 is normally taken as buying signal, but in recent years fluctuations have been a lot narrower — between 12 and 18.
Spot Gold

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ASX 200 passes first test

The ASX 200 passed its first test after breaking long-term resistance at 5000. The index retraced to test the new support level [test #1] in the first hour of trading today but rallied strongly thereafter. Respect of support strengthens the breakout signal but expect further tests in the weeks ahead. Respect in the Daily and Weekly time frames would confirm the primary advance, with a long-term target of 6000*.

ASX 200 Index

* Target calculation: 5000 + ( 5000 – 4000 ) = 6000

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Fed's 2007 Transcripts Show Shift to Alarm | WSJ.com

2007 Fed transcripts show that tremors in the US financial system were initially treated with complacency before shifting to alarm. Janet Yellen, then president of the Federal Reserve Bank of San Francisco, was one of the few who showed an understanding of the magnitude of the growing crisis. JON HILSENRATH and KRISTINA PETERSON at WSJ report:

“I still feel the presence of a 600-pound gorilla in the room, and that is the housing sector,” [Ms. Yellen] said in June 2007. “The risk for further significant deterioration in the housing market, with house prices falling and mortgage delinquencies rising further, causes me appreciable angst.”

By December, she was pushing the Fed to respond aggressively. She noted that the financial system’s problems were happening in the “shadow banking system”—that is, not in traditional banks but rather in bond markets and derivatives markets where hedge funds, investment banks and others traded mortgages and other financial instruments. “This sector is all but shut for new business,” she warned.

Read more at Fed's 2007 Transcripts Show Shift to Alarm – WSJ.com.

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