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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Securities Technology Monitor – Quote Stuffing Aims to Slow Rivals

Mao Ye, Chen Yao and Jiading Gai of the University of Illinois at Urbana-Champaign found that “exogeneous technology shocks that increase the speed of trading from microseconds to nanoseconds dramatically increase” order cancellation rates and found “evidence consistent with quote stuffing.”

“As speed is of value to a trader, it is almost equally valuable to slow his competitors down,” the researchers said in their paper The Externality of High Frequency Trading.

via Securities Technology Monitor – Quote Stuffing Aims to Slow Rivals.

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Richard Koo: Where do we go from here?

How austerity will prolong the recession.

Richard Koo, Chief Economist, Nomura Research Institute at the Closing Panel entitled “Overhangs, Uncertainty and Political Order: Where Do We Go From Here?” at the Institute for New Economic Thinking’s (INET) Paradigm Lost Conference in Berlin. April 14, 2012.

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Ron Paul v. Paul Krugman: Austrian v. Keynesian

Aired on Bloomberg TV 4-30-2012 Ron Paul vs Paul Krugman Debate

Paul Krugman is simply wrong about needing the government to set interest rates. The market would do a better job of managing demand and supply. Where government is needed is to regulate the banks and prevent excessive debt growth by the banks.

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Paul Krugman on austerity

It is not often I agree with Paul Krugman. This is one of the few.

….not that I am in favor of big government.

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Australia: ASX 200 at primary support

The ASX 200 is testing primary support at 3980/4000. Failure would confirm the primary down-trend signaled by downward breakout from the large ascending triangle (August to May) and reversal of 63-Day Twiggs Momentum below zero. Declining 13-week Twiggs Money Flow (below zero) indicates strong selling pressure.

ASX 200 Index

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Hong Kong, India and Singapore

Dow Jones Hong Kong Index is headed for primary support at 360. Failure would confirm the primary down-trend signaled by 63-day Twiggs Momentum below zero.

Straits Times Index

India’s Sensex is testing support at 16000/15800. Failure would mean another test of primary support at 15000/15200. Reversal of 13-week Twiggs Money Flow below zero indicates selling pressure. Failure of primary support would offer a target of 12000*.

BSE Sensex Index

* Target calculation: 15 – ( 18 − 15 ) = 12

Dow Jones Singapore Index broke medium-term support at 222, indicating a test of primary support at 208/210. Reversal of 13-week Twiggs Money Flow below zero indicates selling pressure. Failure of primary support would offer a target of 190*.

Straits Times Index

* Target calculation: 210 – ( 230 − 210 ) = 190

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UK & Europe warn of primary down-trend

The FTSE 100 is testing medium-term support at 5250. Failure would mean another test of primary support at 5000/5050. Declining 63-Day Twiggs Momentum (below zero) indicates a primary down-trend. Failure of primary support would confirm.

FTSE 100 Index

Germany’s DAX broke medium-term support at 6200, penetration of the rising trendline warning that the up-trend is weakening. Expect a test of primary support at 5400. Reversal of 63-day Twiggs Momentum below zero suggests a primary down-trend. Failure of primary support would confirm.

DAX Index

The broader Dow Jones Europe Index is already testing primary support at 210. Declining 13-week Twiggs Money Flow (below zero) indicates strong selling pressure. Expect failure of support to signal a primary down-trend.

DAX Index

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Gold rallies

Spot gold rallied late Friday, breaking the first line of 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. Retracement that respects new support at $1600 would strengthen the bull signal, however, as would recovery of Momentum above zero.

Spot Gold

* Target calculation: 1500 – ( 1800 – 1500 ) = 1200

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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

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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.

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