The ASX 200 broke resistance at 5500, signaling a primary advance to 5800*. A 13-week Twiggs Money Flow trough above zero indicates buying pressure. Reversal below 5450 is unlikely, but would warn of a correction.
* Target calculation: 5400 + ( 5400 – 5000 ) = 5800
The ASX 200 broke its rising trendline and short-term support to signal a correction. Declining 21-day Twiggs Money Flow indicates short-term selling pressure (a trough that respects zero would be a bullish sign). Breach of 5290/5300 would warn of a test of primary support at 5050. Failure of primary support is unlikely, but would signal a down-trend. Recovery above 5460 is also unlikely at present, but would signal a fresh advance.
* Target calculation: 5450 + ( 5450 – 5300 ) = 5600
ASX 200 VIX is rising, but continues to indicate low risk typical of a bull market.
The Aussie Dollar remains strong, consolidating at $0.94 despite ASX weakness. Bullish divergence on 13-week Twiggs Momentum signals a primary up-trend, but we may see the RBA intervene to prevent this. The RBA may need to follow the RBNZ, with macro-prudential controls, to take the steam out of the housing market (setting a maximum LVR percentage, for example) if further rate cuts become necessary.
* Target calculation: 0.93 + ( 0.93 – 0.91 ) = 0.95
Compulsory and tax-advantaged superannuation has the effect of inflating funds flowing into the financial sector, said the submission [to the Financial System Inquiry].
“We note an emerging body of research concluding that beyond a threshold level, financial sector size and growth have a negative association with stability, economic growth and productivity,” Regnan said.
Read more at Murray must target 'intermediation' – InvestorDaily.
Before we examine the US and Australian markets, please take a look at the two charts below and tell me whether the trend is up or down. If you have a five-year old or six-year old handy, try asking them.
And the second one:
The trend on both is clear. If we invert the charts, you will recognize the S&P 500:
The S&P 500 breach of support at 1840 warns of a secondary correction and a sharp fall on 13-week Twiggs Money suggests selling pressure similar to the correction in late 2012. But the primary trend is up.
Likewise the ASX 200. The index retreated from 5500 and follow-through below 5380 would warn of a secondary correction. But 13-week Twiggs Money Flow oscillating above zero indicates buying pressure and the primary trend remains upward.
Momentum stocks are experiencing a sell-off, but our strategy is to hold existing positions. Attempting to time entries and exits in secondary corrections erodes performance. None of our market filters indicate elevated risk and we are confident that this is a bull market.
A simple reflection of the weekly trend on major markets using Ichimoku Cloud. Candles above the cloud indicate an up-trend, below the cloud indicates a down-trend, while in the cloud reflects uncertainty. From West to East:
S&P 500
Footsie
DAX
ASX 200
Nikkei 225 is testing primary support at 14000 and looks a bit weaker
While China is holding above primary support at 1950/2000 but shows no clear trend
Overall, there is a strong case for a bull market.
Stephanie Armour and Ryan Tracy discuss the new leverage ratio that the eight biggest US lenders will be required to meet:
The eight bank-holding companies would have to hold loss-absorbing capital worth at least 5% of their assets to avoid limits on rewarding shareholders and paying bonuses, and their FDIC-insured bank subsidiaries would have to keep a minimum leverage ratio of at least 6% or face corrective actions. That is higher than the 3% agreed upon under global standards, which U.S. regulators have seen as too weak.
[FDIC Chairman Maurice] Gruenberg said leaving the leverage ratio at 3% for large banks “would not have meaningfully constrained leverage during the years leading to the crisis.” He said the rule “may be the most significant step we have taken to reduce the systemic risk posed by these large complex banking organizations.”
Banks are pushing back against the new ratios required by the Fed, FDIC and the Office of the Comptroller of the Currency.
Banks have balked at the leverage ratio, saying it will curtail lending and saddle them with more costs that leave them at a competitive disadvantage against foreign banks with lower capital requirements. Banks will have to hold that capital as protection for every loan, security and asset they hold, not just those deemed risky.
As a general rule, share capital is more expensive than debt, but that may not be the case with highly leveraged banks if you remove the too-big-to-fail taxpayer subsidy. Improved capital ratios would lower the risk premium associated with both the cost of capital and the cost of debt, offering a competitive advantage over foreign banks with higher leverage.
I would like to see APRA impose a similar minimum on Australia’s big four banks which currently range between 4% and 5%.
Read more at Big Banks to Get Higher Capital Requirement – WSJ.com.
Despite a broad sell-off across global markets, the ASX 200 has stood firm, rallying into the close for the last two days. Low volumes indicate an absence of sellers, but expect strong resistance at 5450/5460. Breach of the rising trendline would warn of another test of support at 5300 and possibly a stronger correction. Breakout above 5450/5460 remains as likely and would signal an advance to 5600*. Primary support at 5050 does not at this stage appear threatened and the index remains in an up-trend.
* Target calculation: 5450 + ( 5450 – 5300 ) = 5600
A rising Aussie Dollar may be contributing to ASX resilience. Performance over the last quarter looks a lot stronger if measured in US Dollars or Japanese Yen. Breakout of the Aussie Dollar above $0.93 suggests a rally to $0.95*.
* Target calculation: 0.93 + ( 0.93 – 0.91 ) = 0.95
The weekly chart presents a more complete picture. Breach of the descending trendline and recovery of 13-week Twiggs Momentum above zero (after a strong bullish divergence) both suggest that a bottom is forming, but we are a long way from commencing an up-trend.
The Asia-Pacific region reacted to Friday’s sell-off in US markets, with the Nikkei and Hang Seng currently down 1.5% and 1.2% respectively. The Shanghai exchange is closed for a public holiday, while India’s DJ15 is down 0.67%. The ASX 200, however, rallied towards the close, losing only 0.17%.
The monthly chart of Japan’s Nikkei 225 continues to display a large bearish divergence on 13-week Twiggs Money Flow, warning of long-term selling pressure. Reversal below 14000 would signal a primary down-trend. Recovery above 15000 is as likely, however, and would indicate another advance.
* Target calculation: 15000 + ( 15000 – 14000 ) = 16000
A monthly chart shows the Shanghai Composite Index on the flight path for a soft landing. Successive falls over the past 5 years have all exceeded the previous trough by roughly 200 points and this seems unlikely to change for the foreseeable future. The problem with a managed descent is that it is likely to endure for a lot longer than a short sharp crash. Breach of primary support at 1950 would therefore offer a target of 1800.
Hong Kong’s Hang Seng Index on the other hand displays a large bullish ascending triangle. A 13-week Twiggs Money Flow trough at zero indicates buying pressure Breakout above 24000 would signal a primary advance. Reversal below the rising trendline is unlikely, but would warn of reversal to a primary down-trend.
* Long-term target calculation: 24000 + ( 24000 – 17000 ) = 31000
India’s Sensex encountered resistance at 22500 and is likely to retrace to test 22000. Respect would signal an advance to 23000*. Bearish divergence on 13-week Twiggs Money Flow, however, warns of short/medium-term selling pressure. Reversal below 21500 is unlikely, but would indicate another correction.
* Target calculation: 21500 + ( 21500 – 20000 ) = 23000
The ASX 200 proved surprisingly resilient, rallying toward the close. Rising 21-day Twiggs Money Flow indicates medium-term buying pressure, but expect strong resistance at 5450/5460. Breakout above 5450/5460 would signal an advance to 5600*. Respect of resistance or a false break, however, would warn of another test of support at 5300 and possibly a stronger correction. Primary support at 5050 does not at this stage appear threatened and the index remains in an up-trend.
* Target calculation: 5450 + ( 5450 – 5300 ) = 5600
ASX 200 VIX below 12 continues to indicate low risk typical of a bull market.
The ASX 200 rally appears more tentative than North American markets. Expect strong resistance at 5450/5460. 21-Day Twiggs Money Flow holding above zero, however, indicates a healthy long-term trend. Breakout above 5450/5460 would signal an advance to 5800*. Breach of the rising trendline, however, seems as likely, and would warn of another test of support at 5300 and possibly a stronger correction.
* Target calculation: 5400 + ( 5400 – 5000 ) = 5800
ASX 200 VIX below 12 indicates low risk typical of a bull market.
The ASX 200 continues to rally, but today’s weak close indicates resistance. 21-Day Twiggs Money Flow holding above zero, however, indicates longer term buying pressure. Breakout above 5450/5460 would signal an advance to 5800*. Weakness from China or the US, however, could drive the ASX lower. Failure of support at 5290/5300 would signal a stronger correction and possible test of primary support at 5050.
* Target calculation: 5400 + ( 5400 – 5000 ) = 5800
ASX 200 VIX near 12, however, indicates low risk typical of a bull market.
