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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Canada: TSX retreats

The TSX Composite retreated from resistance at 12800. Reversal of 21-day Twiggs Money Flow below zero warns of selling pressure. Breakout below 12650 would confirm a correction. Expect support at 12500.

TSX Composite Index
Rising troughs on long-term (13-week) Twiggs Money Flow, however, suggest that a base is forming. Breakout above 13000 would indicate a primary advance, offering a target of 15000*.
TSX Composite Index

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

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S&P 500 still cautious

The S&P 500 is testing short-term resistance at 1525 on the daily chart. Breakout would signal an advance to 1550. Bearish divergence on 21-day Twiggs Money Flow, however, warns of retracement to the rising trendline.

S&P 500 Index

The quarterly chart warns us to expect strong resistance at the 2000/2007 highs of 1550/1575. Recovery of 63-day  Twiggs Momentum above 10% would increase likelihood of an upward breakout — with a target of 1750* — while retreat below zero would suggest a primary reversal.
S&P 500 Index

* Target calculation: 1550 + ( 1550 – 1350 ) = 1750

The Nasdaq 100 is testing resistance at 2800 on the monthly chart. Breakout would suggest a primary advance to 3200* but bearish divergence on 13-week Twiggs Money Flow warns of a reversal. Breach of the rising trendline would strengthen the signal.
S&P 500 Index

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

I repeat my warning of the last few weeks:

These are times for cautious optimism. Central banks are flooding markets with freshly printed money, driving up stock prices, but this could create a bull trap if capital investment, employment and corporate earnings fail to respond.

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Russian video of meteorite explosion

Published on 15 Feb 2013
Video Courtesy: Roman Belchenko

A meteorite explosion was seen from different regions of Russia and even from abroad – as far away as Kazakstan, where a dashboard camera belonging to Roman Belchenko captured meteorite fall. The meteorite shattered over several major cities, including Chelyabinsk, where the blast waves blew out windows and disrupted mobile service.

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Industry policy cannot offset the Australian dollar | MacroBusiness

Houses & Holes at Macrobusiness writes:

Adding a couple of $100 million to industry innovation support is just not going to cut it. Our authorities should do exactly what the rest of the world is doing. Go to the G20 and join the chorus of indignity directed at currency manipulation, come home and drive down using every available tool. That is essentially what the recommendations of the Manufacturing Taskforce aimed at doing. If you think nothing can be done, ask yourself, why are we the only ones not doing it?

Read more at Industry policy cannot offset the Australian dollar | | MacroBusiness.

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Sweden has reformed its welfare state to deliver both efficiency and equity | EUROPP

Will Tanner writes:

At face value, the Swedish welfare state is an unlikely poster child for sustainable government. In 2011-12, government spending was 53.1 per cent of GDP, paid for by taxes on the average worker of 42.7 per cent. The country’s “cradle to grave” social security system has long been used as evidence that government can and should be bigger, not smaller. Despite this, the Swedish state is showing policymakers the world over how to deliver high quality services at low cost.

Read more at Sweden has reformed its welfare state to deliver both efficiency and equity – the UK should learn from its example. | EUROPP.

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U.S.-EU Trade Deal: Obama Makes Risky Bet on Europe’s Future | Fiscal Times

David Francis writes:

The U.S. and European Union together already account for nearly half of global GDP and a third of global trade flows, with some $2.7 billion worth of goods and services exchanged daily. [A trade agreement] …..would increase trade between the partners by $120 billion within five years, according to a study by the U.S. Chamber of Commerce. At the same time, it would add some $180 billion to U.S.-EU gross domestic product. Estimates put forth by the European Commission suggest a new trade pact could increase annual GDP by 0.5 percent in the EU and 0.4 percent in the U.S. by 2027.

Read more at U.S.-EU Trade Deal: Obama Makes Risky Bet on Europe’s Future | Fiscal Times.

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Sterling falls

Sterling retracement respected resistance at $1.58  and the pound is now headed for a test of primary support at $1.53*. Reversal of 63-day Twiggs Momentum below -5% would warn of a downward breakout, offering a target of $1.43.
Pound Sterling/USD

* Target calculation: 1.58 – ( 1.63 – 1.58 ) = 1.53

The fall against the euro is even more dramatic. The brief rally to $1.18 was snuffed out and short-term support at €1.15 is not secure. Expect a test of the 2011 low at €1.10.
Pound Sterling/USD

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Aussie Dollar tests trendline

The Aussie Dollar retreated above its former support level at $1.03 on the daily chart. Breakout above $1.04 — and the declining trendline — would indicate a bear trap, while reversal below $1.03 would test primary support at $1.015. Retreat of 63-day Twiggs Momentum below zero would favor a down-swing.

Aussie Dollar/USD

* Target calculation: 1.03 – ( 1.06 – 1.03 ) = 1.00

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Euro tests support

The Euro retreated below its new support level at $1.35 on the weekly chart. Expect a test of $1.32 and the rising trendline. Respect would indicate a primary advance with a target of $1.42*. Rising 63-day Twiggs Momentum (above zero) suggests continuation of the primary up-trend. Failure of support at $1.32, however, would indicate a bull trap — with a target of $1.27.

Euro/USD

* Target calculation: 1.37 + ( 1.37 – 1.32 ) = 1.42

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Cause of the 2007/8 crash and threatened double-dip in 2010

Here is the smoking gun. Note the sharp contraction in the US monetary base before the last two recessions and again in 2010. Monetary base (M0) is plotted net of excess bank reserves on deposit with the Fed, which are not in circulation. The Fed responded after the contraction had taken place, instead of anticipating it.

Monetary Base minus Excess Reserves

The long-term problem is that the monetary base should not be expanding at 10 percent a year. More like 3% to 5% — in line with real GDP growth.

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