Author: Colin Twiggs

Colin Twiggs is a former investment banker with almost 40 years of experience in financial markets. He founded PVT Capital (AFSL number 546090), which provides income and growth strategies to wholesale clients. Colin also co-founded Incredible Charts and writes the popular Patient Investor newsletter. Using a top-down approach, Colin identifies macro trends in the global economy and then combines fundamental and technical analysis to evaluate opportunities in sectors that stand to benefit. 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.
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Australia: ASX 200

A monthly chart of the ASX 200 shows how the index tends to peak ahead of the CRB Commodities Index and Australian Dollar but then fall in step with them from there on. The ASX 200 was first to reverse direction in 2011 but commodities now lead the way. Expect Australian stocks — and the Aussie Dollar — to follow commodities lower. Breach of primary support at 3850 would offer a target of 3200*.

ASX 200, CRB Commodities Index, AUDUSD - Monthly Chart

* Target calculation: 3800 – ( 4400 – 3800 ) = 3200

On the daily chart, breach of support at 3980/4000 would signal a test of primary support at 3850. Reversal of 21-day Twiggs Money Flow below zero, warning of medium-term selling pressure, increases the likelihood of a downward breakout.

ASX 200 Index

* Target calculation: 4000 – ( 4150 – 4000 ) = 3850

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China and Hong Kong

China’s Shanghai Composite Index broke support at 2250, signaling resumption of the primary down-trend. Declining 63-day Twiggs Momentum (below zero) strengthens the signal.

Shanghai Composite Index

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

Wait for a break below 880 on the Shenzhen Composite Index to confirm the Shanghai signal. Reversal of  13-week Twiggs Money Flow below zero would indicate selling pressure.

Shenzhen Composite Index

Hong Kong’s Hang Seng Index respected resistance at 20000. Reversal below 18000 would indicate a decline to 16000*. A peak below zero on 63-day Twiggs Momentum would strengthen the bear signal.

Hang Seng Index

* Target calculation: 18000 – ( 20000 – 18000 ) = 16000

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Japan, India and Singapore

Dow Jones Japan Index retreated from resistance at 50 and is headed for a re-test of support at 46. Failure would signal a decline to 42*. 13-Week Twiggs Money Flow below zero indicates selling pressure and a peak below zero would warn of a strong down-trend.

Dow Jones Japan Index

* Target calculation: 46 – ( 50 – 46 ) = 42

India’s Sensex penetrated its declining trendline but almost immediately encountered resistance at 17000. Bullish divergence on 13-week Twiggs Money Flow indicates strong support and breakout above 17000 would suggest a primary advance — confirmed if the peak at 18500 is bested. Reversal below 15800, however, would warn of a decline to 15000*.

BSE Sensex Index

* Target calculation: 16000 – ( 17000 – 16000 ) = 15000

Singapore’s Straits Times Index is testing resistance at 2900. Respect of zero by 63-day Twiggs Momentum warns of continuation of the down-trend; breach of support at 2700 would confirm, offering a target of 2500*.

Singapore Straits Times Index

* Target calculation: 2700 – ( 2900 – 2700 ) = 2500

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US and Canada: bull trap?

The S&P 500 retracement breached support at 1330, indicating a false breakout. Reversal of 21-day Twiggs Money Flow below zero would warn of a bull trap, while breach of support at 1270 would confirm another decline — with a target of 1160*.

S&P 500 Index

* Target calculation: 1260 – ( 1360 – 1260 ) = 1160

Nasdaq 100 monthly chart shows an intact up-trend despite slowing momentum. Respect of support at 2400 (and the zero line by 63-day Twiggs Momentum) would indicate another primary advance.  Penetration of the rising trendline, however, would warn that a top is forming.

Nasdaq 100 Index

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

Canada’s TSX 60 shows similar weakness, on the daily chart, to the S&P 500. Rising 21-day Twiggs Money Flow, however, indicates support at 640. Respect would suggest that a bottom is forming — strengthened if the index recovers above the declining trendline. Breach of support, on the other hand, would signal a decline to 600*.

TSX 60 Index

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

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UK and Europe

The FTSE 100 monthly chart shows how the up-trend since 2009 has lost momentum, forming a large top. Reversal below 4800 would complete the reversal, offering a target of 3500*. Recovery above 6000 is unlikely but would indicate resumption of the up-trend.

FTSE 100 Index

* Target calculation: 4800 – ( 6000 – 4800 ) = 3600

Germany’s DAX shows a similar loss of momentum on the monthly chart. Breach of medium-term resistance at 6000 would indicate another test of 5000. Recovery above 7200 is unlikely.

DAX Index

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Anna Schwartz, monetary historian

Anna Schwartz died aged 96 last week. Often called the “high priestess of monetarism” she co-authored the classic A Monetary History of the United States, 1867-1960 with Milton Friedman in 1963. Mrs. Schwartz joined the National Bureau of Economic Research in New York in 1941 and continued to work there for more than 70 years. She leaves a lasting legacy.

If you investigate individually the manias that the market has so dubbed over the years, in every case, it was expansive monetary policy that generated the boom in an asset. The particular asset varied from one boom to another. But the basic underlying propagator was too-easy monetary policy and too-low interest rates …..

~ Anna Schwartz, as quoted in the Wall Street Journal, October 2008.

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Quantitative easing and the (lack of) responses in bond yields

…When the Fed was performing quantitative easing, treasury yields rose as the economy recovered and inflation expectation rose. On the other hand, treasury yields fall when the Fed was not performing quantitative easing as the period without quantitative easing coincided with the weakening of the economy as well as the deterioration of the Euro Crisis.

10-Year Treasury Yields

via Quantitative easing and the (lack of) responses in bond yields.

Comment:~ Quantitative easing (QE) expands the stock of money in the economy as the government, through its agent the Fed, issues new banknotes (or equivalent deposits) in payment of goods and services. The resulting inflation would drive up yields.

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Bernanke Acknowledges Treasury Strategy at Odds With Fed Policy – WSJ

Kristina Peterson and Jon Hilsenrath: The Fed’s [Twist] program is designed to work by taking long-term bonds off the market, nudging investors into riskier assets, such as stocks, that could help boost the economy. The problem is that while the Fed has been snapping long-term bonds off the market, the Treasury Department has been ramping up its issuance of long-term debt to take advantage of historically low long-term rates. Since October 2008, the average maturity of outstanding marketable Treasurys has climbed by nearly 32%, reaching almost 64 months in May, the agency said earlier this month. That’s its highest level in a decade.

via Bernanke Acknowledges Treasury Strategy at Odds With Fed Policy – Real Time Economics – WSJ.

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Moody's Downgrades Morgan Stanley, Other Banks – WSJ.com

Moody’s Investors Service dealt a fresh blow to the financial sector, downgrading more than a dozen global banks to reflect declining profitability in an industry being rocked by soft economic growth, tougher regulations and nervous investors. The move hit five of the six biggest U.S. banks by assets, including Morgan Stanley, which had mounted a campaign to persuade Moody’s not to cut its rating by three notches. It was downgraded instead by two.

…it also cut the ratings of giant European banks with substantial trading operations, including Deutsche Bank AG, Barclays PLC and HSBC Holdings PLC.

via Moody’s Downgrades Morgan Stanley, Other Banks – WSJ.com.

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A tilt in Australian liberalism | MacroBusiness

Houses and Holes: As I have noted in the past that, for the most part, Australian political economy is divided pretty simply into two teams. On one side you have a kind of bastardised social liberalism in which trade union thugs wield power via the Labor Party and are supported by a cultural community of Irish-Catholic derived “battlers”. On the other side, you have an equally bastardised neo-liberalism in which corporations wield power via the Liberal Party and are supported by a cultural community of English-Protestant derived “bludgers”. Whether the members of either team are from Vietnam, Israel, Lebanon or Lapland, rich or poor is irrelevant. This is our tribal political culture……

via A tilt in Australian liberalism | | MacroBusiness.

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