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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Non-mining Australia “in recession” last quarter | MacroBusiness

Leith van Onselen considers that Australia’s non-mining economy may be in recession based on two consecutive quarters of negative growth in state final demand:

The blanket statement that Australia grew close to trend in 2012 not only obfuscates the fact that the current growth rate is well below trend and declining even further but also hides the fact that the majority of the population are living in regions which are in recession. That paints a totally different picture than the political spin coming from the Government.

Read more at Non-mining Australia “in recession” last quarter | | MacroBusiness.

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CIC President Warns Japan on Currency Devaluation – WSJ.com

LINGLING WEI writes from Beijing:

The president of China’s giant sovereign-wealth fund warned Japan against using its neighbors as a “garbage bin” by deliberately devaluing the yen, joining a growing number of Chinese officials sounding alarms about a potential currency war.

Read more at CIC President Warns Japan on Currency Devaluation – WSJ.com.

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Volcker: Wall Street Kills Regs By Running Out the Clock

Josh Boak at Fiscal Times writes:

…..So when Volcker declared on Monday that the financial regulation system is broken, it’s time to sound the alarm. The gist of his complaint is that Dodd-Frank was passed in the middle of 2010, yet many of its biggest regulations have not been finalized and there is no end in sight.

“I know it’s a complicated bill. I know the markets are complicated,” Volcker said at a conference for the National Association for Business Economics. “Two-and-a-half years later you can’t have a regulatory apparatus that’s devised by the most important piece of legislation in recent years? That suggests something is rather wrong. Something is dysfunctional.”

Read more at Volcker: Wall Street Kills Regs By Running Out the Clock.

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ASX 200: Large caps strong while small caps decline

The ASX 200 continues to test support at 4980/5000 on the weekly chart. Breakout above 5100 would offer a medium-term target of 5500*. Rising 13-week Twiggs Money Flow indicates strong buying pressure. Reversal below 4980 is unlikely but would warn of a correction.
ASX 200 Index

* Target calculation: 5000 + ( 5000 – 4500 ) = 5500

ASX small-caps are still doing badly, with the ASX 50 [$XFL] out-performing the $XSO (ASX Small Ords) by a substantial margin. The opposite of what one would expect in a bull market: treat it as a caution. The current $XSO down-swing should test the lower channel at 2300, presenting a buy opportunity for swing traders.

ASX 200 Index

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Asia: Japan advances while India & China retreat

Japan’s Nikkei 225 Index broke its 2010 high of 11500, indicating continuation of the primary advance to 12000*. Bearish divergence on 13-week Twiggs Money Flow warns of selling pressure. Expect a correction to test the new support levels at 11000, possibly 10000.

Nikkei 225 Index

* Target calculation: 10000 + ( 10000 – 8000 ) = 12000

India’s Sensex broke support at 19000, warning of a correction to the primary trendline at 18000. The sharp fall on 13-week Twiggs Money Flow, following a bearish divergence, confirms strong selling pressure.

Sensex Index

* Target calculation: 19 + ( 19 – 18 ) = 20

Singapore’s Straits Times Index retreated from resistance at 3300. Expect support at 3200; failure would warn of a correction. Another trough above zero on 13-week Twiggs Momentum would suggest that the primary up-trend is intact. Breakout above 3300 would offer a target of the 2007 high at 3900*.

Straits Times Index

* Target calculation: 3300 + ( 3300 – 2700 ) = 3900

Hong Kong’s Hang Seng Index correction is headed for a test of secondary support at 22000 but is still some way above the primary trendline — and support — at 21000. A 13-week Twiggs Momentum trough above zero would suggest a healthy primary up-trend.
Hang Seng Index

* Target calculation: 22 + ( 22 – 18 ) = 26

China’s Shanghai Composite is also on the retreat, testing secondary support at 2250. Failure would indicate a down-swing to primary support at 1950/2000. Reversal of 13-week Twiggs Momentum trough below zero would warn of another primary decline, with a long-term target of 1500*.
Shanghai Composite Index

* Target calculation: 2000 – ( 2500 – 2000 ) = 1500

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Europe: DAX selling pressure continues

Germany’s DAX is consolidating between 7500 and 7900. Bearish divergence on 13-week Twiggs Money Flow still warns of selling pressure. Failure of 7500 would indicate a correction to test the rising trendline — around support at 7000.

DAX Index

* Target calculation: 7500 + ( 7500 – 7000 ) = 8000

The Italian MIB Index broke support at 16000. Following the earlier trendline break this warns of a primary reversal. Confirmation would come from breach of primary support at 15000. Reversal of 63-day Twiggs Momentum below zero would strengthen the signal. Respect of primary support would still not mean that trouble is over, as a lower peak followed by failure of primary support may follow.
FTSE MIB Index

The FTSE 100 displays a rising flag on its weekly chart, below resistance at 6400. Upward breakout would offer a target of 6800*. Downward breakout is unlikely but would signal a correction. Another 13-week Twiggs Momentum trough above zero would indicate strength in the primary up-trend.

FTSE 100 Index

* Target calculation: 6400 + ( 6400 – 6000 ) = 6800

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Rate cuts: Short-term benefit, long-term pain

Shane Oliver at AMP recently tweeted:

Why rate cuts help household spending: 1/ Aust hholds have approx $750bn in deposits but $1700bn in debt….

…so a 1% rate cuts makes depositors $7.5bn worse off, but borrowers $17bn better off. The net gain for households is $9.5b !

Reason #2 as to why rate cuts help. Depositors r less likely to change spending on rate changes than borrowers (families with mortgage)

He is right that rate cuts stimulate household spending, but that is not the only consideration. Rate cuts also stimulate borrowing and expansion of the money supply — leading to asset bubbles and inflation. They further force savers/investors to take greater risks in the scramble for yield, leaving them exposed if the bubble collapses. If only we could let market forces of credit supply and demand determine the rate — and resist the urge to tinker.

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Canada: TSX buying pressure

Long tails on the TSX Composite weekly chart indicate medium-term buying pressure. Breakout above 12800 would signal a fresh advance, while follow-through above 12900 would confirm. Reversal below 12600 is unlikely but would warn of a correction. Rising troughs on 13-week Twiggs Money Flow indicate long-term buying pressure and a primary advance. The long-term target would be 15000*.

TSX Composite Index

* Target calculation: 13000 + ( 13000 – 11000 ) = 15000

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S&P 500 and Nasdaq selling pressure

The S&P 500 is oscillating between 1485 and 1530. I avoided using the word “consolidating” because that implies a degree of calm. Far from it. Bearish divergence on 21-day Twiggs Money Flow continues to warn of medium-term selling pressure. Reversal below 1485 and the rising trendline would indicate a correction. Breakout above 1530 is less likely but would offer a target of 1575*.

S&P 500 Index

* Target calculation: 1530 + ( 1530 – 1485 ) = 1575

On the monthly chart we can see that a correction below the secondary trendline would target primary support and the primary trendline between 1350 and 1400. A 63-day Twiggs Momentum trough above zero would indicate continuation of the up-trend, while retreat below zero would suggest a primary reversal.
S&P 500 Index
The VIX Volatility Index remains close to recent lows at 0.15. This does not provide much long-term reassurance: the VIX was at similar levels in May 2008. Breakout above the recent high at 0.20 would be a warning sign.
VIX Index
The Nasdaq 100 displays a bearish divergence on both 63-day Twiggs Momentum and long-term (13-week) Twiggs Money Flow. Reversal below the rising trendline would strengthen the signal. While breach of primary support at 2500 would signal a reversal.
Nasdaq 100 Index

* Target calculation: 2500 – ( 2900 – 2500 ) = 2100

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