Colin Twiggs, Author at the patient investor

June 4, 2012

US: S&P 500 and Nasdaq break support

The S&P 500 broke medium-term support at 1290/1300 with a strong red candle on the back of weaker job numbers. A 21-Day Twiggs Money Flow peak below zero warns of selling pressure. Expect a test of primary support at 1150.

S&P 500 Index Daily Chart

On the weekly chart, Nasdaq 100 is headed for support at 2400 after breaching 2480. Penetration of the rising trendline warns that the primary up-trend is weakening. Reversal of 63-day Twiggs Momentum below zero would strengthen the signal, suggesting a primary down-trend.

Nasdaq 100 Index

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.

June 3, 2012

US banks face squeeze

Rising short-term interest rates (represented by 3-month Treasury yields on the chart below) caused negative yield differentials in 2006/2007 which led me to warn of an economic down-turn. Yield differentials are calculated by subtracting short-term (3-month) yields from long-term (10-year) yields. Banks borrow mostly at short-term rates and lend at long-term rates, generating a profitable interest margin. But when the yield differential turns negative, bank interest margins are squeezed, forcing them to contract lending. A lending contraction shrinks consumption + investment and sends the economy into a tail-spin.

Ten-Year Treasury Yield and Differential with Three-Month Yields

Negative yield differentials (or yield curves) are normally caused by rising short-term rates as in 2006/2007, but now we are witnessing the opposite phenomenon. Short-term rates are near zero, but falling long-term rates are starting to squeeze the yield differential from the opposite end. The situation is not yet desperate but a further decline in long-term yields would shrink bank interest margins. Fed initiation of QE3, purchasing additional long-term Treasuries, is likely to drive long-term rates lower and exacerbate the problem. The resulting contraction in bank lending would cause another economic down-turn.

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.

May 31, 2012

EconoMonitor » U.S.-China Trade War in the Offing?

China wants to develop what it sees as key industries by giving Chinese companies a leg up in both the Chinese and global market. Its trading partners don’t want to see their firms placed at a disadvantage, and in several cases have challenged Chinese policies. China is challenging them right back, arguing that those countries do the same thing, and that people who live in protectionist glass houses shouldn’t throw stones. If they do, China can match them “tit for tat.” (A similar battle involving cross-accusations and threats between the EU and China began unfolding this week — you can read about it here).

There’s a critical difference, though, between China and its trade partners. They all may both have policies that can be called protectionist, but they come from different starting points. In the U.S., trade restrictions and subsidies tend to be the exception to the rule, and when they do occur, are usually transparent. There’s a public approval process and an overt policy that can be challenged at WTO. In China, restrictions and subsidies are pervasive, due to the large state role in the economy, and often hard to pin down.

via EconoMonitor : EconoMonitor » U.S.-China Trade War in the Offing?.

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.

May 31, 2012

Clarke and Dawe – A Great Man in a Crisis

“Bob Carr. Australian Foreign Minister.” Originally aired on ABC TV’s 7.30: 03/05/2012:

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.

May 31, 2012

Clarke and Dawe – Australian Political Scientist

An irreverent look at Australian politics.

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.

May 31, 2012

Bair: Regulators Should Tighten Volcker Rule – WSJ.com

Jamila Trindle: Regulators should push derivatives out of federally backed banks and tighten the Volcker rule, former Federal Deposit Insurance Corp. Chairman Sheila Bair said Thursday.

“Don’t let insured deposits fund that activity,” Ms. Bair said at a roundtable on the Volcker rule held by staff of the Commodity Futures Trading Commission.

via Bair: Regulators Should Tighten Volcker Rule – 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.

May 31, 2012

Forex: Australia and Canada

Falling crude oil and commodity prices are likely to depress resource-rich currencies. Canada’s Loonie found support at $0.97 but 63-Day Twiggs Momentum below zero warns of a primary down-trend. Failure of $0.97 is likely and would test the primary level at $0.94/0.95.

Canadian Dollar

* Target calculation: 0.95 – ( 1.01 – 0.95 ) = 0.89

The Aussie Dollar is testing primary support at $0.96/0.97. Declining 63-day Twiggs Momentum (below zero) warns of a primary down-trend. Failure of support at $0.96 would offer a long-term target of $0.84*.

Aussie Dollar

* Target calculation: 0.96 – ( 1.08 – 0.96 ) = 0.84

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.

May 31, 2012

Forex: UK and Europe

The Euro broke primary support at $1.26 against the greenback. A peak below zero on 63-day Twiggs Momentum indicates continuation of the primary down-trend. Expect a test of the 2010 low at $1.19/$1.20.

Euro/USD

* Target calculation: 1.26 – ( 1.35 – 1.26 ) = 1.17

Pound Sterling is consolidating between €1.2350 and €1.2600 against the euro. Reversal below the lower trend channel would warn of a correction, while breakout above €1.2600 would signal continuation of the primary advance. Completion of a bearish divergence on 63-Day Twiggs Momentum would strengthen a bear signal.

Pound sterling/Euro

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.

May 31, 2012

Commodities lead stocks lower

The CRB Commodities index is headed for a test of the 2010 low of 250. A 63-day Twiggs Momentum peak below zero warns of a strong primary down-trend. Divergence from the S&P 500 index warns that stocks are likely to fall, following commodities down — at least to their 2011 lows.

CRB Commodities Index

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

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.

May 31, 2012

Crude: Brent and WTI Light

Brent Crude is headed for a test of primary support at $100/barrel. Failure would indicate a long-term decline to $75/barrel*. 63-Day Twiggs Momentum below zero already warns of a primary down-trend.

ICE Brent Afternoon Markers

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

Nymex WTI Crude below $90/barrel, signals a primary down-trend. 63-Day Twiggs Momentum below zero strengthens the signal. Expect a test of the 2011 low at $75/barrel — similar to Brent Crude.

Nymex WTI Light Crude

* Target calculation: 92 – ( 110 – 92 ) = 76

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.