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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S&P 500 engulfing candle

Monday’s engulfing candle [R] on the S&P 500 warns of reversal to re-test support at 1270. Respect of the zero line (from below) by 21-day Twiggs Money Flow would indicate strong medium-term selling pressure. Failure of support would offer a target of 1200*.

S&P 500 Index

* Target calculation: 1270 – ( 1340 – 1270 ) = 1200

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Authoritarian Rulers Get Subtler: Putin, Chavez, China's Chiefs – WSJ.com

WILLIAM J. DOBSON: A handful of retrograde, old-school dictatorships have managed to limp into the 21st century. They are the North Koreas, Turkmenistans and Equatorial Guineas of the world. But they represent dictatorship’s past….

Today’s smarter dictators, by contrast, understand that in a globalized world, the more brutal forms of intimidation—mass arrests, firing squads, violent crackdowns—are best replaced with more subtle forms of coercion.

Rather than arrest members of human-rights groups, Russia’s Vladimir Putin deploys tax collectors or health inspectors to shut down dissident groups. In Venezuela, Hugo Chávez ensures that laws are written broadly and then uses them like a scalpel to target groups that he deems a threat….

via Authoritarian Rulers Get Subtler: Putin, Chavez, China's Chiefs – WSJ.com.

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Berlin is ignoring the lessons of the 1930s – FT.com

Germans must understand that bank recapitalisation, European deposit insurance and debt mutualisation are not optional; they are essential to avoid an irreversible disintegration of Europe’s monetary union. If they are still not convinced, they must understand that the costs of a eurozone break-up would be astronomically high – for themselves as much as anyone.

After all, Germany’s prosperity is in large measure a consequence of monetary union. The euro has given German exporters a far more competitive exchange rate than the old Deutschmark would have. And the rest of the eurozone remains the destination for 42 per cent of German exports. Plunging half of that market into a new Depression can hardly be good for Germany.

via Berlin is ignoring the lessons of the 1930s – FT.com.

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S&P 500: It's all on the price chart

All indicators do is highlight information that is already visible on the price chart. That is why you need to be careful making decisions based solely on an indicator — because when you summarize (information) you sacrifice. 63-Day Twiggs Momentum displays a bearish divergence, with declining peaks over the last two years while the index has been rising. Careful study of the price chart reveals the same information: a healthy trend should display symmetrical, equally-weighted corrections and advances, you can tell momentum is slowing when advances are weaker and corrections stronger. A trend reversal would only be clear on the monthly chart if the S&P 500 crossed below support at 1100, but declining momentum should warn well in advance that it is forming a top. Recovery above 1400 is unlikely, but would signal that the trend has regained momentum — especially if the Fed introduces QE3.

S&P 500 Index

The Nasdaq 100 is also losing momentum, but slightly. Respect of support at 2400 would indicate a healthy up-trend.  Likewise a trough above zero on 63-day Twiggs Momentum.

Nasdaq 100 Index

* Target calculation: 2800 + ( 2800 – 2400 ) = 3200

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Canada: TSX 60 head and shoulders

Canada’s TSX 60 Index threatens to complete a large head and shoulders reversal with a break below support at 640. The first shoulder is in April 2010 and the second in March 2012. The recent iceberg on 63-day Twiggs Momentum warns of a primary down-trend. Failure of support would offer an immediate target of 560* and a long-term target of 460*.

TSX 60 Index

* Target calculation: 640 – ( 720 – 640 ) = 560; 640 – ( 820 – 640 ) = 460

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Basic economics: Aggregate Demand

This lesson introduces the macroeconomic concept of Aggregate demand.

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Forex: Australia – be careful what you measure

The Aussie Dollar rallied strongly off support at $0.96 against the greenback, on the back of strong GDP numbers. Expect a test of the declining trendline around $1.02. A peak below zero on 63-day Twiggs Momentum, however, would warn of a strong primary down-trend.

Australian Dollar/USD

Be careful what you measure!

Australian Real GDP may have grown by 1.3 percent for the first quarter, but as Stephen Koukoulas points out: Nominal GDP (before adjustment for inflation) only grew by 0.3 percent. The cause of the Real GDP surge is a sharp fall in the GDP price deflator, used to adjust for inflation. Falling prices may be welcomed by the consumer but they warn of a deflationary contraction — as in 2008/9 when nominal GDP fell by 5.0 percent.

Australian GDP

In the long-term, the Australian Dollar normally follows commodity prices. At present the CRB Commodities Index is falling sharply and the Aussie is likely to follow.

CRB Commodities Index/Australian Dollar

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Forex: UK and Europe

The Euro retraced to test resistance at the former primary support level of $1.26. The peak that respected the zero line on 63-Day Twiggs Momentum warns of a strong primary down-trend. Respect of resistance would strengthen the signal, indicating a test of the 2010 low at $1.20.

Euro/USD

Pound Sterling is correcting after strong appreciation against the Euro. Expect a test of the rising trendline around €1.21/€1.22. Penetration would warn of weakness, but respect and/or a 63-Day Twiggs Momentum trough above zero would indicate a healthy primary up-trend.

Pound Sterling/Euro

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Stronger dollar, weaker commodities: gold, copper and crude

The US Dollar is in a primary up-trend, the Dollar Index having broken resistance between 81 and 82. Retracement is likely to test the new support level; respect of 81 would confirm a healthy up-trend. Respect of the zero line by 63-day Twiggs Money Flow would likewise strengthen the signal.

US Dollar Index

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

Spot gold is also testing a new support level — this time on the daily chart — after breaking resistance at $1600/ounce. Penetration of the declining trendline suggests that the down-trend is weakening, but 63-day Twiggs Momentum remains firmly below zero. Follow-through above $1640 would strengthen the bull signal — as would recovery of Momentum above zero — but failure of $1600 would re-test $1540.

Spot Gold

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

Other commodities have reacted negatively to the stronger dollar, suggesting that gold will continue its downward path. Copper is in a clear down-trend, headed for a test of the 2011 low at 6800.

Copper Grade A

Brent crude broke its mid-2011 low at $100/barrel, offering a long-term target of $75*.

ICE Brent Afternoon Markers

* Target calculation: 100 – ( 125 – 100 ) = 75

Nymex WTI Light Crude is similarly headed for a test of long-term support at $75/barrel.

Nymex WTI Light Crude

CRB Commodities Index is similarly headed for a test of support at 250. The peak below zero on 63-day Twiggs Momentum warns of a strong primary down-trend. First, expect retracement to test resistance at 295; respect would confirm the down-trend.

CRB Commodities Index

* Target calculation: 290 – ( 330 – 290 ) = 250

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Stiglitz, Conard Debate Income Inequality

Some sweeping generalizations from Stiglitz and Conard denial that the Fed was architect of the 2007/2008 asset bubble but some interesting insights from both parties.

http://youtu.be/U4T2aqZyM9w

Edward Conard, a former managing director at Bain Capital LLC, and Nobel Prize-winning economist Joseph Stiglitz, talk about the U.S. economy and income inequality. They speak with Betty Liu on Bloomberg Television’s “In the Loop.”

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