Colin Twiggs, Author at the patient investor

October 25, 2012

Forex: Aussie Dollar, Euro, Pound Sterling and Canada's Loonie

The Aussie Dollar (daily chart) is headed for another test of resistance at $1.04 against the greenback. A 63-day Twiggs Momentum trough above zero suggests a primary up-trend. Breakout above $1.04 would offer a target of $1.06*.

Aussie Dollar/USD

* Target calculation: 1.04 + ( 1.04 – 1.02 ) = 1.06

The Euro (weekly chart) is testing resistance at $1.32. Recovery of 63-day Twiggs Momentum above zero suggests a primary up-trend. Breakout above $1.32 — and penetration of the descending trendline — would confirm, offering an immediate target of the 2012 high at $1.35.

Euro/USD

* Target calculation: 1.32 + ( 1.32 – 1.28 ) = 1.36

Pound Sterling (weekly) rallied off primary support at €1.225/€1.23 against the euro. Breach would complete a head and shoulders reversal with a target of $1.18*. Reversal of 63-day Twiggs Momentum below zero suggests a primary down-trend. Expect a test of resistance at $1.26 followed by another attempt at primary support.

Pound Sterling/Euro

* Target calculation: 1.23 – ( 1.28 – 1.23 ) = 1.18

Canada’s Loonie (daily) is consolidating between $1.00 and $1.01 (USD). Downward breakout — and penetration of the rising trendline — would warn of another test of primary support at $0.96. But 63-day Twiggs Momentum is bullish and a trough above zero would suggest an advance to the 2011 highs at $1.06.

Canadian Loonie/Aussie Dollar

Colin Twiggs

Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He co-founded Incredible Charts and writes the popular Trading Diary and Patient Investor newsletters.

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

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.
He founded PVT Capital (AFSL No. 546090) in May 2023, which offers investment strategy and advice to wholesale clients.

October 24, 2012

Gold and commodities fall

The Dollar Index is consolidating between 79 and 80. Upward breakout would test resistance at 81.00/81.50 — penetration of the descending trendline indicating the correction has ended — but the primary trend is downward and breach of support at 79 would signal another decline. A 63-day Twiggs Momentum peak below zero would strengthen the bear signal.

US Dollar Index

* Target calculation: 79 – ( 81 – 79 ) = 77

Inflation expectations are easing, with spot gold undergoing a correction since breaking support at 1750. Expect short-term support at 1700 and penetration of the descending trendline would indicate another test of $1800 per ounce*. A 63-day Twiggs Momentum trough above zero is likely — and would signal a primary up-trend, while breakout above $1800 would confirm.

Spot Gold

* Target calculation: 1650 + ( 1650 – 1500 ) = 1800

The DJ-UBS Commodity Index also reflects an easing inflation outlook, breaking medium-term support at 145 to signal a correction. 63-Day Twiggs Momentum is unlikely to remain above zero but a shallow trough would be a bullish sign.

DJ-UBS Commodity Index

Brent Crude is also falling, having broken support at $108 per barrel. Expect a test of $100. Reversal of 63-day Twiggs Momentum below zero would strengthen the bear signal.

ICE Brent Crude Afternoon Markers

* Target calculation: 108 – ( 117 – 108 ) = 99

Nymex WTI Light Crude is similarly headed for a test of primary support at $76/$78 per barrel. The 63-day Twiggs Momentum peak below zero warns of a primary down-trend.

Nymex WTI Light Crude

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 24, 2012

Philadelphia Fed: September up-turn in state coincident indicators

September readings for the Philadelphia Fed survey of state coincident indicators are now out. The 3-Month Index has turned to follow the Monthly Index upward. Reversal of the Monthly Index below 80, however, would be cause for concern.

Philadelphia Fed State Coincident Indicators Diffusion Indexes

When we look at the index over the last 30 years, down-turns of the Diffusion Index below 50 normally precede a recession. The only false signal (so far) was the recent 2011 dip of the Monthly Index (DI1) to 20 and the 3-Month Index (DI3) to 46.

Philadelphia Fed State Coincident Indicators Diffusion Indexes

The Federal Reserve Bank of Philadelphia calculates monthly coincident indexes for each of the 50 states. The coincident indexes combine four state-level indicators to summarize current economic conditions in a single statistic: nonfarm payroll employment, average hours worked in manufacturing, the unemployment rate, and wage and salary disbursements deflated by the consumer price index (U.S. city average). The trend for each state’s index is set to the trend of its gross domestic product (GDP), so long-term growth in the state’s index matches long-term growth in its GDP.

For further details of Diffusion Index performance in predicting recessions, read Marking NBER Recessions with State Data by Jason Novak (2008).

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 24, 2012

'The Chicago Plan' criticism by Marshall Auerback

Marshall Auerback wrote a short piece criticizing the recent IMF study of the “Chicago Plan” first put forward by professors Henry Simons and Irving Fisher in 1936.

“Now there are some good things about a 100% reserve backed banking system. To the extent that we require all institutions to hold liquid reserves of equal value to their deposits then the fear of a bank run is eliminated.

But you would have massive credit constraints and, in the absence of a countervailing fiscal policy that promoted more job growth and higher incomes, there would be the equivalent of a gold standard imposed on private banking which could invoke harsh deflationary forces.”

What he seems to miss is that 100% reserves would be required against demand deposits (checking accounts) and not against savings or time deposits. All that an efficient capitalist system needs is financial intermediaries who can channel savings into credit. It is not essential for them to have the ability to create ‘new money’.

“Note that the current practice is that loans create deposits. Clearly, under a 100-percent reserve system, all credit granting institutions would have to acquire the funds in advance of their lending.”

That is true. And requiring 100% reserves against demand deposits would restrict banks ability to make loans without holding reciprocal savings/time deposits or share capital and reserves. In effect they would be prevented from creating new money by making loans where they don’t have deposits. That is the whole purpose of the proposal: to prevent rapid credit expansion by banks.

“The truth is that the debt explosion that has brought the World economy to its knees was not the fault of private sector credit creation per se.”

Really? What else but private sector credit fueled the housing bubble? The debt explosion was encouraged by lax regulation but the financial sector is far from blameless for its actions.

via ‘The Chicago Plan’ does not deserve to be revisited. – Macrobits by Marshall Auerback.

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 23, 2012

Quote of the day

Win or lose, everybody gets what they want out of the market.
Some people seem to like to lose, so they win by losing money.

~ Ed Seykota

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 23, 2012

Australia: ASX 200 test of 4400

The ASX 200 is retracing to test support at 4400/4450. Respect would confirm a primary advance to 4900*. But correction in US markets is likely and would cause a breach of the ASX 200 rising trendline. Respect of 4250, however, would still indicate a healthy up-trend — as would a 13-week Twiggs Money Flow trough above zero.

ASX 200 Index

* Target calculation: 4450 + ( 4450 – 4000 ) = 4900

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 23, 2012

Asian market update

China’s Shanghai Composite Index is testing medium-term resistance at 2150. Breach of the descending trendline would suggest that a bottom is forming. Bullish divergence on 63-day Twiggs Momentum also indicates that the down-trend is weakening.

Shanghai Composite Index

* Target calculation: 2150 – ( 2500 – 2150 ) = 1800

India’s Sensex continues to test its new support level at 18500. Follow-through above 19000 would confirm the primary up-trend. Rising 13-week Twiggs Money Flow (above zero) indicates buying pressure.

Sensex Index

* Target calculation: 18.5 + ( 18.5 – 16.0 ) = 21.0

Japan’s Nikkei 225 is headed for another test of resistance at 9200. Breakout would indicate a rally to 10200. Oscillation of 13-week Twiggs Money Flow below zero, however, continues to warn of selling pressure. Respect of 9200 would indicate another test of primary support at 8500.

Nikkei 225 Index

* Target calculation: 9200 + ( 9200 – 8200 ) = 10200

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 23, 2012

Europe and FTSE testing resistance

Dow Jones Europe Index continues to consolidate between 250 and 265, testing primary resistance. Upward breakout would signal a primary advance to the 2011 high at 310. A 63-day Twiggs Momentum trough above zero would strengthen the signal. Reversal below 250, however, would warn of another correction.

Dow Jones Europe Index

* Target calculation: 260 + ( 260 – 210 ) = 310

The FTSE 100 is similarly consolidating below 6000. Rising 13-week Twiggs Money Flow (above zero) indicates buying pressure. Expect strong resistance at 6000/6100. Breakout would offer a long-term target of 6750*.

FTSE 100 Index

* Target calculation: 6000 + ( 6000 – 5250 ) = 6750

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 23, 2012

Canada: TSX60 edging lower

The TSX 60 is edging lower and likely to test its medium-term trendline around 680. Another 13-week Twiggs Money Flow trough above zero would signal a primary up-trend. Breakout above 725 would confirm.

TSX 60 Index

* Target calculation: 725 + ( 725 – 640 ) = 810

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.

October 23, 2012

US: S&P 500 correction

The S&P 500 broke support at 1420, following a trend channel breakout, both signaling a correction. Reversal of 21-day Twiggs Money Flow below zero warns of renewed (medium-term) selling pressure — a peak below zero would strengthen the signal. Breach of 1400 would further strengthen the signal.

S&P 500 Index
The Dow Jones Industrial Average similarly broke support at 13300 on the weekly chart. Bearish divergence on 63-day Twiggs Momentum indicates a weakening up-trend; reversal below zero would warn of a primary down-trend. Breach of support at 13000 — and the primary trendline — would warn that a top is forming. Recovery above 13650 is unlikely at present but would indicate an advance.

Dow Jones Industrial Average

* Target calculation: 13000 + ( 13000 – 12000 ) = 14000

Colin Twiggs

Using a top-down approach, Colin identifies key macro trends in the global economy before evaluating selected opportunities using a combination of fundamental and technical analysis.