Author: 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.
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Air cargo volume indicator points to weakening of industrial activities

10 August, 2012, 1:53. Posted by Zarathustra

Nomura has a Air cargo volume index (as we first mentioned here), which correlated with global industrial activities pretty with (correlation = 0.84).

Nomura: Industrial Production and Air Cargo Volume

via Air cargo volume indicator points to weakening of industrial activities.

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Dollar up-trend continues, gold finds support, commodities range widely

The US Dollar Index is testing support at 81.50/82.00. Respect of support and the rising trendline would confirm the primary up-trend is intact, offering a target of 86.00*. Breakout above 83.50/84.00 would confirm the advance. In the longer term, expect a test of the 2010 high at 88.50. Oscillation of 63-day Twiggs Momentum above zero indicates a healthy up-trend. Failure of support at 81.50 is unlikely, but would warn of a trend reversal.

US Dollar Index

* Target calculation: 82 + ( 82 – 78 ) = 86

With the Dollar Index in a primary up-trend, Spot Gold would be expected to commence a primary down-trend. Declining 63-day Twiggs Momentum (below zero) indicates a primary down-trend but strong buying support at $1530/ounce has kept consolidation (on the weekly chart) between $1530 and $1650 per ounce. Breakout below primary support at $1530 would offer a target of $1300*. Recovery above $1650 is unlikely but would indicate an advance to $1800.

Spot Gold

* Target calculation: 1550 – ( 1800 – 1550 ) = 1300

Spot silver shows similar consolidation to gold, between $26 and $30 per ounce. Breakout will indicate future direction.

Spot Silver

 

CRB Commodities Index is testing its descending trendline; follow-through above $305 would warn that a bottom is forming — and test 325. Recovery of 63-Day Twiggs Momentum above zero would also suggest a trend change. However, reversal below 295 — and respect of zero by TMO — would indicate another test of 265.

CRB Commodities Index

Brent Crude is testing resistance at $115, having penetrated its descending trendline to suggest that a bottom is forming. Reversal below $108 would signal another test of support at $90/$100. 63-Day Twiggs Momentum below zero continues to indicate a primary down-trend; a peak below zero would strengthen the signal.

ICE Brent Crude Afternoon Markers

Nymex WTI Light Sweet Crude diverged from Brent Crude but is similarly testing resistance, at $93/barrel. Long-term oscillation of 63-day Twiggs Momentum around the zero line suggests a ranging market — between $75 and $110 — but a peak below zero would change that.

Nymex WTI Light Sweet Crude

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Nanex ~ High frequency traders at work [video]

High Frequency Traders (HFT) jam thousands of quotes in MasterCard stock at the millisecond level on May 16, 2012.
From Eric Hunsader – Nanex

Entire video shows about 5 seconds of time, slowed so you can see what goes on at the millisecond level.
Each box represents one exchange. The SIP (CQS in this case) at the bottom shows the National Best Bid/Offer.

Watch how much Best Bid/Offer changes in a fraction of a second. The shapes represent quote changes which are the result of a change to the top of the book at each exchange. The time at the top of the screen is the time of the last quote or trade update in Eastern Time HH:MM:SS:mmm (mmm = millisecond).

Every exchange must process every quote from the others — for proper trade through price protection. This complex web of technology must run flawlessly every millisecond of the trading day, or arbitrage (HFT profit) opportunities will appear. If any of the connections are not running perfectly, High Frequency Traders can profit from the price discrepancies that result. It is easy for HFTs to cause delays in one or more of the connections between each exchange.

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New Research Busts High-Frequency Trading and Dark Pool Myths — CMCRC

Press Release: Capital Markets Cooperative Research Centre

CMCRC, the Australian independent academic centre for capital market research, has found that high-frequency trading (HFT) actually benefits capital market structures and performance, while dark pools may have damaging effects.

Speaking at an event in Beijing, Professor Frino outlined his research that showed that HFT activity adds real liquidity to markets and has no impact on price volatility — surprising findings, as HFT has regularly been accused of negatively impacting these measures of market quality.

“High frequency traders now account for more than 50 percent of trading volume in some global markets, whereas seven years ago it was virtually absent from markets,” Professor Frino said. “Alongside this trend is an explosion in so-called ‘dark pools,’ in which investors are executing their trading in invisible or non-transparent markets. Dark pools are making trading on exchanges less relevant.”

via New Research Busts High-Frequency Trading and Dark Pool Myths — CMCRC – Yahoo! Finance.

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BBC News – High-frequency trading and the $440m mistake

By Tim Harford

……There are two rather more predatory strategies. One is called algo-sniffing. Here, a super-fast computer tries to find other computers going about their everyday business of buying or selling shares, and figures out what they’re going to do and when.

The algo-sniffer can then get ahead of the game and exploit the slower computer. And of course you could have algo-sniffer-sniffers and algo-sniffer-sniffer-sniffers in a high-frequency arms race. No wonder speed can be so important.

And finally, a particular sub-category of the algo-sniffer is the spoofer, which deliberately makes fake offers designed to lure other computers to show their hands, then cancels the offers. Spoofing might be illegal, or at least against the rules of stock exchanges, but it’s hard to prove that it’s going on.

Andrew Haldane, executive director for financial stability at the Bank of England:

“What we have out there now is this complex array of multiple mutating interacting machines, algorithms. It’s constantly developing and travelling at ever higher velocities. And it’s just difficult to know what will pop out next. And that’s not an accident waiting to happen, that’s an accident that has been happening with increasing frequency over the last few years.”

via BBC News – High-frequency trading and the $440m mistake.

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Plans for curbs on high-speed share trading | The Australian

ASIC deputy chairman Belinda Gibson says automated trading needs robust controls. The corporate watchdog has blamed high-frequency trading for a big jump in the number of issues referred for investigation in the June half-year.

“This type of trading, and algorithms generally, continue to be of concern,” Ms Gibson said. “The measures we are proposing will strengthen our protection against the type of disruption we have recently seen in other markets.”

via Plans for curbs on high-speed share trading | The Australian.

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French High Frequency Trading Tax Enters Into Force

By Ulrika Lomas, Tax-News.com, Brussels
14 August 2012

France has enacted a tax on high frequency trading, at a flat rate of 0.01%. This move coincides with a similar draft law under consideration in Germany……Market makers are expressly exempt.

via French High Frequency Trading Tax Enters Into Force.

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How High Frequency Trading Robots Are Creating a Bumpy Ride for Main Street – NASDAQ.com

By Barbara Cohen

While HFTs may argue that they bring liquidity to the Market, they cannot dispel the concerns that liquidity comes at a very high price to investors – increased volatility. In a report issued in September 2011, associate professor Frank Zhang of Yale University stated that once an instrument’s share volume exceeds 50%, trading becomes basically a “hot potato,” as HFTs trade the same positions, passing them back and forth amongst themselves. Inter-firm trading all but eliminates “Price Discovery,” determining share price by normal supply and demand factors, such as news events or positive/negative earnings releases.

Inter-firm high frequency trading also wreaks havoc for Main Street investors because of “cross spreading.” So many liquid stocks, such as BAC and MSFT, now execute in milliseconds, resulting in extreme “competition” for Main street investors. Queues to enter and exit are significantly longer, with hundreds of shares waiting to execute. Long queues force Main Street investors into the vulnerable position of having to buy at the offer or sell at the bid, a trading method known as “crossing the spread.”

via How High Frequency Trading Robots Are Creating a Bumpy Ride for Main Street – NASDAQ.com.

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Asia: India recovers but China & Japan bearish

India’s Sensex broke resistance at 17500, signaling a primary up-trend. Expect an advance to 18500*. Rising 13-week Twiggs Money Flow — above zero — indicates strong buying pressure.

Sensex Index

* Target calculation: 17.5 + ( 17.5 – 16.5 ) = 18.5

NSE Nifty is testing resistance at 5350. Breakout would confirm the Sensex primary up-trend. Rising 63-Day Twiggs Momentum is promising but we need a trough above zero to signal a strong up-trend. Target for the breakout would be 5650*.

NSE Nifty Index

* Target calculation: 5350 + ( 5350 – 5050 ) = 5650

Understanding Momentum

Momentum is an oscillator, so you would expect equal peaks if the trend is constant. If oscillating above zero, it would be a constant up-trend; below zero, a constant down-trend; with zero at the mid-point, a ranging market. Divergence should ideally show a clear transition from one to the other or at least a sharp difference in the height of peaks or troughs. A trendline drawn under rising momentum will indicate that momentum is accelerating; a trendline break would indicate slowing acceleration — not necessarily a reversal.

Japan’s Nikkei 225 index is testing resistance at 9000 but 13-week Twiggs Money Flow continues to warn of strong selling pressure, with a peak below zero. Breakout above 9000 is unlikely, but would signal an advance to 10000. Failure of support at 8200 would indicate another test of the 2008/2009 lows at 7000*.

Nikkei 225 Index

* Target calculation: 8000 – ( 9000 – 8000 ) = 7000

China’s Shanghai Composite Index retreated below support at 2150; follow-through below 2100 would indicate a decline to 2000*. Declining 63-day Twiggs Momentum continues to signal a primary down-trend.

Shanghai Composite Index

* Target calculation: 2250 – ( 2500 – 2250 ) = 2000

Hong Kong’s Hang Seng Index is more bullish, consolidating above resistance at 20000. Follow-through would indicate an advance to 22000*.  Recovery of 63-Day Twiggs Momentum above zero would suggest a primary up-trend.

Hang Seng Index

* Target calculation: 20 + ( 20 – 18 ) = 22

Singapore’s Straits Times Index is similarly consolidating above former resistance at 3040. Rising 63-day Twiggs Momentum — above zero — indicates the primary up-trend is intact. Calculated target is 3300* but the trend channel suggests resistance at 3200.

Singapore Straits Times Index

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

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Slower Growth in Asia Brings Down Stocks – NYTimes.com

By THE ASSOCIATED PRESS

Published: August 13, 2012

Stocks fell Monday as evidence piled up that the global economic slowdown was hurting Asia.

Japan’s economy grew in the second quarter at a 1.4 percent annual rate, slower than many analysts had expected. Last week, China released dismal figures on retail sales and exports in July. Traders were disappointed that Beijing failed to introduce stimulus measures over the weekend……

via Slower Growth in Asia Brings Down Stocks – NYTimes.com.

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