Colin Twiggs, Author at the patient investor

July 23, 2012

Australia: ASX 200 in retreat

The ASX 200 index retreated sharply Monday, following bearish performance in the US on Friday. Downward breakout from the rising channel would indicate another primary down-swing, with a target of 3800*. Reversal below 3990 would confirm.

ASX 200 Index

* Target calculation: 4000 – ( 4200 – 4000 ) = 3800

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.

July 23, 2012

Asia: China, Japan bearish

Japan’s Nikkei 225 index is headed for another test of long-term support at 8000/8200 on the monthly chart. The latest peak below zero on 13-week Twiggs Money Flow warns of strong selling pressure. Failure of support would signal another test of the 2008/2009 lows at 7000.

Nikkei 225 Index

China’s Shanghai Composite Index is testing its 2011 low at 2150 on the weekly chart. Failure would indicate a decline to 1800*. 63-Day Twiggs Momentum below zero continues to warn of a primary down-trend. Recovery above 2250 remains unlikely, but would suggest another rally to 2500.

Shanghai Composite Index

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

India’s Sensex is retracing to test support on the weekly chart. Respect of 17000 would indicate a rally to 18500, but 63-day Twiggs Momentum oscillating in a narrow range around zero suggests a ranging market and another test of primary support at 15800/16000 remains as likely.

Sensex Index

Singapore’s Straits Times Index is testing resistance at 3040. Recovery of 63-day Twiggs Momentum above zero suggests that the primary up-trend is intact, and breakout would signal an advance to 3300*, but a ranging market is more likely.

Singapore Straits Times Index

* Target calculation: 3000 + ( 3000 – 2700 ) = 3300

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.

July 23, 2012

Europe: Selling pressure

Dow Jones Europe Index is testing the long-term descending trendline at 240 but 13-week Twiggs Money Flow failure to cross above zero warns of strong selling pressure. Breakout below primary support at 210 would indicate a decline to 180*.

Dow Jones Europe Index

* Target calculation: 210 – ( 240 – 210 ) = 180

Narrowing 63-Day Twiggs Momentum (around zero) on the FTSE 100 suggests a ranging market. Respect of resistance at 5750 would test primary support at 5250, while breakout would indicate an advance to 6000.

FTSE 100 Index

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.

July 23, 2012

Canada: TSX 60 hesitancy

Short, overlapping candles indicate hesitancy on Canada’s TSX 60 index. Reversal below the lower channel at 650 would warn of another primary down-swing — confirmed if primary support at 640 is broken. Respect of the lower channel, however, would indicate a rally to the upper channel border. 21-Day Twiggs Money Flow is rising but breach of the trendline would warn that buying pressure is easing.

TSX 60 Index

* Target calculation: 640 – ( 680 – 640 ) = 600

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.

July 23, 2012

S&P 500 and Nasdaq remain bearish

The S&P 500 remains in a slow up-trend as indicated by narrow oscillation of 63-day Twiggs Momentum above zero. A fall below zero, or downward breakout from the trend channel would warn of another correction. In the long term, breakout above 1420 is unlikely, but would signal an advance to 1570*.

S&P 500 Index Weekly Chart

* Target calculation: 1420 + ( 1420 – 1270 ) = 1570

The Nasdaq 100 is in a similar trend channel on the weekly chart. Respect of resistance at 2660 would suggest another test of primary support at 2440. Reversal of 13-week Twiggs Money Flow below zero would warn of a primary down-trend.

Nasdaq 100 Index

Bellwether transport stock Fedex also displays an upward trend channel on the weekly chart but remains bearish after completion of an earlier double top formation. Reversal below the former neckline at 88.00 would strengthen the bear signal, while failure of primary support at 84.00 would confirm.

Fedex

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.

July 23, 2012

Why Your Brain is Killing Your Portfolio – WSJ.com

All the participants [in a study by researchers from California Institute of Technology, New York University and the University of Iowa] played a game in which they sampled four slot machines. They were free to play whichever machine they thought would give the biggest payoff. What they didn’t know was that the payoffs from each machine varied unpredictably.

The neuroscientists found that the two control groups tended to make their next bet based largely on how much a slot machine had paid off on the two most recent bets….

via Why Your Brain is Killing Your Portfolio – WSJ.com.

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.

July 19, 2012

Falling Interest Rates Destroy Capital | Keith Weiner | Safehaven.com

The guiding principle of accounting is that it must paint an accurate and conservative picture of the current state of one’s finances. It is not the consideration of the accountant that things may improve. If things improve, then in the future the financial statement will look better! In the meantime, the standard in accounting (notwithstanding the outrageous FASB decision in 2009 to suspend “mark to market”) is to mark assets at the lower of: (A) the original acquisition price, or (B) the current market price.

There ought to be a corresponding rule for liabilities: mark liabilities at the higher of (A) original sale price, or (B) current market price. Unfortunately, the field of accounting developed its principles in an era where a fall in the rate of interest from 16% to 1.6% [1981 to 2012] would have been inconceivable. And so today, liabilities are not marked up as the rate of interest falls down.

via Falling Interest Rates Destroy Capital | Keith Weiner | Safehaven.com.
Comment:~ Keith Weiner makes an interesting point. Consider two companies. Both have liabilities of $500, but one pays interest at 5% and the other at 10% a year. The balance sheet of the company paying 10% would reflect a greater liability if valued at current interest rates. The counter-argument is that balance sheets often reflect historic costs and companies are more often valued using earnings/cash flow that would recognize the difference in interest charges.

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.

July 19, 2012

Three Converging Factors May Slash Economic Growth By 71% | Daniel Amerman | Safehaven.com

An excellent historical analysis of this issue can be found in the working paper, “Debt Overhangs: Past and Present”, which was published by the National Bureau of Economic Research in April, 2012. Authored by Carmen Reinhart, Vincent Reinhart and Kenneth Rogoff, it examines 26 different “debt overhangs” that have occurred around the world since 1800, with “debt overhang” being defined as public debt exceeding 90% of GDP for at least five years…..What Reinhart, Reinhart and Rogoff found was that the average duration of a debt overhang was 23 years, and that the end result was a 24% reduction in the size of national economies, compared to what they would have been if they had grown at their average growth rates when not crippled by large government debts.

via Three Converging Factors May Slash Economic Growth By 71% | Daniel Amerman | Safehaven.com.

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.

July 19, 2012

Dems Play Hardball, Threaten a New Recession

Josh Boak: Republican control of the House has left Democrats with the choice of either agreeing to continue the lower rates for wealthier Americans, or watching as they all expire and the country plunges back into a downturn. The Democrats would now prefer to hazard the hard landing. Their gambit depends entirely on the danger of a financial shock severe enough to force GOP lawmakers to back down, yet not so overpowering that it triggers a vicious slump…..

via Dems Play Hardball, Threaten a New Recession.

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.

July 19, 2012

Forex: Euro, Pound Sterling, Canadian Loonie, Australian Dollar, South African Rand and Japanese Yen

The Euro retraced to test its new resistance level at $1.23. Respect would confirm a decline to test the 2010 low at $1.19*. Declining 63-day Twiggs Momentum continues to signal a strong down-trend. Breach of the 2010 low would become likely if the ECB indicated an intention to directly or indirectly purchase government bonds — and would suggest long-term weakness.

Euro/USD

* Target calculation: 1.23 – ( 1.27 – 1.23 ) = 1.19

Pound Sterling’s up-trend against the Euro is accelerating, with steep advances followed by short corrections. Rising 63-day Twiggs Momentum confirms. Target for the current advance is €1.295*.

Pound Sterling/Euro

* Target calculation: 1.255 + ( 1.255 – 1.215 ) = 1.295

Canada’s Loonie continues to weaken against the Aussie Dollar but long-term bullish divergence on 63-day Twiggs Momentum (and breach of the descending trendline) warns of reversal to an up-trend. Breakout above parity would confirm.

Canadian Loonie/Aussie Dollar

The Aussie Dollar broke resistance at $1.03 USD and is headed for a test of $1.05*. Recovery of 63-day Twiggs Momentum above zero would suggest a primary up-trend, but we first need a correction to form a higher low (trough).

Aussie Dollar/USD

* Target calculation: 1.03 + ( 1.03 – 1.01 ) = 1.05

The Aussie Dollar is testing resistance at R8.50 South African Rand after respecting support at R8.30. Breakout would offer a target of R8.70*.

Aussie Dollar/South African Rand

* Target calculation: 8.50 + ( 8.50 – 8.30 ) = 8.70

The Australian Dollar/Japanese Yen is a good reflection of global risk tolerance. Euphoric highs of 2007 were followed by blind panic in 2008/2009 before settling into a mid-range oscillation between ¥72 and ¥90 — suitable for range traders. The higher low in 2012 reflects a more bullish stance but we are a long way from breakout above ¥90. 63-Day Twiggs Momentum oscillating around zero mirrors the uncertainty.

Aussie Dollar/Japanese Yen

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.