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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Apple AAPL correction

Apple with its massive market capitalization holds significant sway over the Nasdaq 100. Its monthly chart reflects a strong bull trend, with 63-day Twiggs Momentum holding above zero since early 2009, before a massive 50%+ gain over the last 3 months. Bearish divergence on 13-week Twiggs Money Flow warned of strong resistance and the stock is now signaling a correction.
Apple Monthly Chart

Are we going to see a short correction followed by another surge, or is this a full-blown correction back to the long-term rising trendline?  The daily chart already shows a bullish hammer candlestick, hinting at reversal.

Apple Daily Chart

When we break the day down into 30 minute candles, however, we can see retracement encountered a new resistance level at $575. Breakout would indicate a rally to $600, but not necessarily the end of the correction, while reversal below support at $568/$570 would signal another decline and test the lower trend channel around $550.

Apple 30 Minute Candlesticks

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EconoMonitor » Distributional Impacts of Monetary Policy

…Higher than expected inflation will indeed create some winners and losers:

However, the biggest losers are creditors who are almost by definition wealthy, since people owe them money. If a creditor has lent out $100 million at 2 percent interest (e.g. buying a 10-year U.S. or German government bond) and the inflation rate rises from 2 percent to 4 percent, this creditor has lost an amount equal to 100 percent of his expected income or 2 percent of his wealth. This is a far larger loss than any worker could experience as a result of this increase in the inflation rate.

Who would be the winners?

Also, most workers are debtors to some extent. They are likely to have mortgage debt, credit care debt, student loan debt and or car debt. A higher rate of inflation means that they can repay this debt in money that is worth less than the money they borrowed.

via EconoMonitor : EconoMonitor » Distributional Impacts of Monetary Policy.

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Watch out! Is the Fed pushing us into another bubble? – Fortune's deals blog Term Sheet

The Fed’s actions have kept Treasury bond prices high (while keeping the government’s interest costs low), but the fundamentals do not support the high valuations, given the fiscal mess we are in. Sooner or later, the bond bubble will burst. History has shown that a structurally weak economy combined with a fiscally irresponsible government propped up by accommodative central-bank lending always ends badly.

….The biggest beneficiaries of loose money, are our profligate elected officials who refuse to come to grips with budget deficits and an exemption-laden tax code. As long as Treasury can borrow cheaply to paper over the real problems, politicians can demagogue about overspending (GOP) or undertaxing (Democrats) while dodging their responsibility to work together to fix our problems.

via Watch out! Is the Fed pushing us into another bubble? – The Term Sheet: Fortune’s deals blog Term Sheet.

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Ex-Fed Kohn: 'Huge Risk' US Won't Take Steps On Debt, Deficit By Year End

NEW YORK -(Dow Jones) – There is a real danger U.S. authorities won’t take the necessary steps to fix the country’s debt and deficit problems between the elections and the end of this year, former Federal Reserve Board Vice Chairman Donald Kohn said Monday. “What’s required to put the fiscal deficit on a sustainable path are some difficult decisions having to do with entitlement spending and taxes in the United States,” Kohn said at the Europlace forum……. Kohn added the U.S. political system has become “soap opera-ized” with such a huge gulf between the country’s political parties there is a real risk debt and deficit will continue to grow past the end of this year.

via Ex-Fed Kohn: ‘Huge Risk’ US Won’t Take Steps On Debt, Deficit By Year End.

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Canada: TSX 60

Canada’s TSX 60 index found support at 675. Follow-through above 700 would suggest the correction is over, while 21-day Twiggs Money Flow respecting zero would strengthen the signal. Target for a fresh primary advance would be 775*. Failure of support at 675, however, would warn of another test of primary support at 650.

Index

* Target calculation: 725 + ( 725 – 675 ) = 775

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US: S&P 500 and Nasdaq 100

The S&P 500 continues to test support at 1350/1370 after penetrating its rising trendline. Recovery above 1400 would indicate another advance, but declining 13-week Twiggs Money Flow warns that support is likely to fail, with a correction to 1300. In the longer term, respect of 1300 would indicate the primary up-trend is intact, while failure would signal trend weakness.

S&P 500 Index Weekly Chart

The Nasdaq 100 breached its (secondary) rising trendline, indicating a correction back to the primary trendline at 2500. Declining 13-week Twiggs Money Flow indicates selling pressure, but respect of the zero line would suggest that the primary up-trend is intact, presenting a possible buying opportunity for the more adventurous.

Nasdaq 100 Index

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Fedex tests double top neckline

Bellwether transport stock Fedex recovered above the neckline at $88, after completing a double top reversal, but continues to test support at that level.  Reversal below $88 would confirm a primary down-trend, warning of slowing activity in the broader economy. Declining 13-week Twiggs Money Flow indicates continued selling pressure.

Fedex

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UK & Europe: Madrid tests major support level

The monthly chart of the Madrid General Index shows the index testing support at its 2009 low of 700. 13-Week Twiggs Money Flow crossing below zero warns of selling pressure. Failure of support would signal a decline to 600*.

Madrid General Index

* Target calculation: 750 – ( 900 – 750 ) = 600

France’s CAC-40 found support at 3150 after a sharp correction on the weekly chart. Declining 13-week Twiggs Money Flow — and last week’s gravestone candlestick — warn of selling pressure. Failure of support is likely and would suggest another test of primary support at 2800.

France CAC-40 Index

Germany’s DAX is also undergoing a correction but found stronger support at 6500. 13-Week Twiggs Money Flow continues to indicate long-term buying pressure. Respect of support, indicated by follow-through above 6800 would signal a primary advance to 7900*. Failure of support at 6500 is unlikely and would warn that the primary up-trend is weakening.

DAX Index

* Target calculation: 7200 + ( 7200 – 6500 ) = 7900

The FTSE 100 remains in a descending broadening wedge pattern. Upward breakout would indicate an advance to the earlier peak of 6000. Recovery of 21-day Twiggs Money Flow above zero would strengthen the signal, while respect of the zero line (from below) would warn of continued selling pressure. Reversal below 5720 would indicate another test of primary support at 5600.

FTSE 100 Index

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Warwick McKibbin on Australian interest rates and the fate of manufacturing

Professor Warwick McKibbin from ANU on the Australian economy, interest rates, the RBA and the fate of manufacturing:

Hat tip to Houses and Holes at Macrobusiness.com.au.

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Multiculturalism, segregation and the road to ruin

I just read an article about the joys of multiculturalism and how all Australians should strive to “show the world what a truly multicultural society could be.”

“Multiculturalism” is such a nice-sounding, inoffensive word that we may be forgiven for picking it up without really examining its implications. A multicultural society is also a fragmented society, divided along ethnic, religious, language or cultural lines and represents a breakdown in cohesion. Taken to its extreme, individual groups will claim the right to self-determination — another nice-sounding word, this time conjured up by spin doctors of South Africa’s apartheid era — a euphemism for promoting the interests of one group without consideration for the impact on others.

I find it ironic that Simon van der Stel, a Dutch governor of the Cape colony had in the early 18th century created a blueprint for a cohesive society. When Dutch settlers were swamped by French Protestants fleeing from persecution in Catholic France, he recognized the dangers of creating a fragmented society. His solution was to allocate farms in a checkerboard fashion, interspersing Huguenots among existing settlers, with the provision that all school lessons and official business be conducted in Dutch. Within a generation the two cultures had successfully integrated. Dutch remained the official language while the culture was enriched by a strong French influence still prevalent today, especially in the wine industry.

We need to similarly recognize the dangers of multiculturalism and strive for a truly integrated society with a unique Australian culture, tolerant of all religions and enriched by the infusion of many different cultures.

Segregation of schools on religious, ethnic or language lines encourages fragmentation of our society. The present state school system in Australia needs to be reformed after a healthy, open debate — in order to discourage segregation.

Australia’s strength in times of adversity has come from its unique culture. While that culture is evolving, and will continue to do so, we should ensure that it remains unified. Unity and openness are our strength.

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