The ASX 200 rallied after a strong showing in US and Chinese markets. Recovery above 5550 would suggest an advance to 5750. Completion of another 13-week Twiggs Money Flow trough above zero would strengthen the signal. Reversal below the rising trendline now appears unlikely, but would warn of a test of primary support at 5050.
* Target calculation: 5550 + ( 5550 – 5350 ) = 5750
Retreat of the ASX 200 VIX below 15 suggests low risk typical of a bull market.
From Greg McKenna:
The AFR reports ….the Australian Bankers Association CEO Steven Munchenberg said the banks are “concerned that if some of the statements in the interim report – that Australia’s capital is middle of the road, that housing is a systemic risk – are allowed to remain unchallenged and are then taken out of context that is going to cause us a lot of future grief”.
Munchenberg says the Inquiry hasn’t calculated the capital ratios correctly.
“The approach was simplified and didn’t take into account the complexities and nuances of how capital is determined in Australia, including deductions required by APRA and some of the areas where APRA has adopted a more conservative approach, and as a result underestimated the amount of capital in Australia relative to overseas”, he told the AFR.
Forget the nuances and comparisons to the plight of other banks. Australian banks need to almost double their capital and adopt a more conservative approach to home mortgage lending if they are to withstand future shocks. 3 to 5 percent capital against total exposure doesn’t get you very far. The history of low mortgage failures over the last 3 decades, in an expansionary phase of the credit market, is unlikely to be repeated during a contraction.
Read more at Australia's Major Banks Say The Murray Enquiry Used The Wrong Numbers To Calculate Capital | Business Insider.
Summary:
Dow Jones Europe Index is testing the primary trendline and support at 315. 13-Week Twiggs Momentum below zero already warns of a primary down-trend. Breach of primary support at 315 would confirm. Respect of primary support and recovery above 330, however, would suggest that the primary trend is intact.
Germany’s DAX continues to test primary support at 9000. A long tail on Friday suggests short-term support. Failure of support would warn of a decline to 8000*, while respect would suggest another test of 10000.
* Target calculation: 9000 – ( 10000 – 9000 ) = 8000
The S&P 500 found support at 1900 and recovery above 1950 would indicate another advance. The latest decline on 13-week Twiggs Money Flow is relatively small and recovery above its July high would suggest that buyers have taken control. Failure of 1900, however, would warn that the primary trend is slowing.
* Target calculation: 1500 + ( 1500 – 750 ) = 2250
CBOE Volatility Index (VIX) spiked upwards, to between 16 and 17, but remains low by historical standards and continues to suggest a bull market.
China’s Shanghai Composite Index encountered selling pressure below resistance at 2250, with tall wicks/shadows on the last two weekly candles and a sharp fall in 13-week Twiggs Money Flow. Reversal below 2150 would warn of another test of primary support at 1990/2000. Follow-through above 2250, however, would confirm a primary up-trend.
* Target calculation: 2000 – ( 2150 – 2000 ) = 1850
The ASX 200 is heading for a test of support at 5350/5400 and the primary trendline. Direction will largely be influenced by the US and Chinese markets, but reversal of 13-week Twiggs Money Flow below zero — after long-term bearish divergence — would warn of strong selling pressure. Recovery above 5550 is unlikely at present, but would suggest another advance. Reversal below 5050 is also unlikely, but would signal a trend change.
* Target calculation: 5400 + ( 5400 – 5000 ) = 5800
From Chris Pash:
Credit Suisse’s Equity Strategist Hasan Tevfik says the cost of debt is very low relative to the cost of equity….This means that few equities are being added to the Australian market because companies are using cheap debt, rather than going to their investors or shareholders, to raise cash for expansion or investment.
This is not a healthy sign — when companies use cheap debt, rather than equity, to fund acquisitions. Artificially low interest rates distorting companies’ WACC (weighted average cost of capital) could lead to poor investment decisions.
Read more at Credit Suisse: This Is Why The ASX Will Hit 6000 By The End Of The Year | Business Insider.
The ASX 200 found short-term support, with a long tail at 5500, but there are no significant volumes to indicate a concentration of buyers. Expect further weakness unless the Dow and S&P 500 reverse direction overnight. The monthly chart below portrays a long-term view, from 2007 to the present. Three factors stand out:
Respect of support at 5400 and the secondary trendline would signal continuation of the current strong primary trend. Breach would signal a test of primary support. Failure of primary support remains unlikely. But bearish divergence on 13-week Twiggs Money Flow warns of selling pressure. The indicator often dips below zero in a weak trend, but reversal below zero after a large divergence would be a strong bear signal. One cannot, however, anticipate this. TMO could just as easily recover above the descending trendline, signaling that buyers are back in control.
* Target calculation: 5550 + ( 5550 – 5350 ) = 5750
Two questions for Australian investors:
If your answer to both questions is NO, then why would you consider selling when we invert the price scale? The chart is the ASX 200 index. Use View >> Invert Price Scale, or Ctrl+I shortcut key to invert the chart.
* Target calculation: 5550 + ( 5550 – 5350 ) = 5750
The chart below is not inverted. The ASX 200 VIX tends to behave inversely to the index. A value of 12.2 suggests low risk typical of a bull market.
The Australian Dollar is retracing to test support at $0.92. Respect would indicate that buyers continue to dominate. Recovery above resistance at $0.94 would suggest an advance to $0.97. Follow-through above $0.945 would confirm. Breach of $0.92 remains unlikely, but would warn of a test of primary support at $0.8650/$0.87.
From Miranda Brownlee:
A higher Australian dollar and slower economy are expected to result in subdued corporate earnings in the upcoming reporting season, according to Prescott Securities….. equity specialist Travis Adams said despite this, he still expects earnings per share growth across the market of around seven to eight per cent.
Read more at Struggling economy to hit profits – InvestorDaily.
Summary:
European leaders are waking up to the seriousness of the menace posed by Russia in the East, summed up in a recent Der Spiegel editorial:
Europe, and we Germans, will certainly have to pay a price for sanctions. But the price would be incomparably greater were Putin allowed to continue to violate international law. Peace and security in Europe would then be in serious danger.
Vladimir Putin will not alter course because of a light slap on the wrist. President Obama is going to have to find Teddy Roosevelt’s “big stick” — misplacement of which is largely responsible for Russia’s current flagrant disregard of national borders. And Europe is going to have to endure real pain in order to face down the Russian threat in the East. Delivery of French Mistral warships, for example, would show that Europe remains divided and will encourage the Russian bear to grow even bolder.
Russian Deputy Prime Minister Dmitry Rogozin said, however, that he doubted France would cancel the deal, despite coming under pressure from other Western leaders: “This is billions of euros. The French are very pragmatic. I doubt it [that the deal will be canceled].”
— The Moscow Times
The whole of Europe is likely to have to share the cost of cancelling deals like this, but it is important to do so and present a united front.
Markets reacted negatively to the latest escalation, with Dow Jones Europe Index falling almost 6% over the last month. 13-Week Twiggs Momentum dipped below zero after several months of bearish divergence, warning not necessarily of a primary down-trend, but of a serious test of primary support at 315. Respect of 325 and the rising trendline would reassure that the primary trend is intact.
The S&P 500 displays milder selling pressure on 13-week Twiggs Money Flow and the correction is likely to test the rising trendline and support at 1850/1900, but not primary support at 1750. Respect of the zero line by 13-week Twiggs Money Flow would signal a buying opportunity for long-term investors. Recovery above 2000 is unlikely at present, but breakout would offer a (long-term) target of 2250*.
* Target calculation: 1500 + ( 1500 – 750 ) = 2250
CBOE Volatility Index (VIX) spiked upwards, but remains low by historical standards and continues to suggest a bull market.
China’s Shanghai Composite Index broke resistance at 2150, suggesting a primary up-trend, but I will wait for confirmation from a follow-through above 2250. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Reversal below 2050 is unlikely at present but would warn of another test of primary support at 1990/2000. The PBOC is simply kicking the can down the road by injecting more liquidity into the banking system. That may defer the eventual day of reckoning by a year or two, but it cannot be avoided. And each time the problem is deferred, it grows bigger. So the medium-term outlook may be improving, but I still have doubts about the long-term.
* Target calculation: 2000 – ( 2150 – 2000 ) = 1850
The ASX 200 is likely to retrace to test the rising trendline around 5450, but 13-week Twiggs Money Flow holding above zero continues to indicate buying support. Recovery above 5600 is unlikely at present, but would present a target of 5800*. Reversal below 5050 would signal a trend change, but that is most unlikely despite current bearishness.
* Target calculation: 5400 + ( 5400 – 5000 ) = 5800
The ASX 200 broke resistance at 5590/5600 and is set for a further advance. Recovery of 13-week Twiggs Money Flow above the descending trendline would confirm long-term buying pressure. Convergence of targets, calculated for different time frames, at 5750/5850 also strengthens the signal:
Reversal below 5540 is most unlikely, but would warn of a correction.
ASX 200 VIX near 10 continues to indicate a bull market.
The Australian Dollar is consolidating in a narrow range below resistance at $0.94, suggesting an upward breakout. Only concerted action by the RBA would be likely to counter this. Follow-through above $0.945 would confirm a rally to $0.97. Reversal below $0.92 is most unlikely, but would warn of a test of primary support at $0.8650/$0.87.
The ASX 200 retracement respected support at 5540/5560. Breakout above 5590 would confirm an intermediate target of 5700* for the advance. Rising 21-day Twiggs Money Flow indicates medium-term buying pressure. Reversal below 5540 is unlikely, but would warn of a correction.
* Target calculation: 5540 + ( 5540 – 5380 ) = 5700
