The ASX 200 broke out of its narrow flag, indicating an advance to 5250. Rising 21-day Twiggs Money Flow supports the signal. Reversal below 5000 is unlikely, but would test medium-term support at 4850. The ASX 200 Volatility Index ($XVI) remains below 15 — a bullish sign.
* Target calculation: 5250 + ( 5250 – 4650 ) = 5850
Japan opened sharply lower on Monday, with Dow Jones Japan Index testing its long-term rising trendline at 75. Failure of support at 69 would signal a primary down-trend.
The Nikkei 225 is similarly testing its rising trendline. Declining peaks on 13-week Twiggs Money Flow indicate selling pressure. Failure of support at 12500 would signal a primary down-trend. Recovery above 15000 is unlikely but would test 16000.
China’s Shanghai Composite Index continues to test long-term support at 1950. Breakout would signal a primary decline, with a target of the 2008 low at 1660. Reversal of 13-week Twiggs Money Flow below zero warns of selling pressure. Respect of 1950 is unlikely, but would indicate a rally to 2150.
India’s Sensex found resistance at 20200, retreating toward its rising trendline. Penetration of the trendline would warn the trend is weakening, while failure of support at 18500 would signal a primary down-trend. Rising troughs on 13-week Twiggs Money Flow, however, indicate moderate buying pressure. Respect of support at 19000 would suggest another primary advance; confirmed if resistance at 20200 is broken.
* Target calculation: 20000 + ( 20000 – 18000 ) = 22000
The ASX 200 is consolidating in a narrow flag above the new support level at 5000. Upward breakout is likely and would signal a test of the May peak at 5250. Oscillation of 21-day Twiggs Money Flow around zero indicates hesitancy. Reversal below 4850 is unlikely, but would warn of another test of primary support at 4650.
* Target calculation: 5250 + ( 5250 – 4650 ) = 5850
The ASX 200 Volatility Index below 15 also indicates low market risk — a bullish sign.
The Euro continues to test medium-term resistance at $1.32. Respect of primary support at $1.27 is likely, following bullish divergence on 13-week Twiggs Momentum. Breakout above $1.32 would strengthen the signal, while follow-through above $1.37 would confirm a fresh advance, offering a target of $1.50. Reversal below $1.27 is unlikely, but would warn of a primary down-trend.
* Target calculation: 1.37 + ( 1.37 – 1.27 ) = 1.47
The greenback continues to test resistance at ¥100 against the Yen. Follow-through above ¥101.50 would suggest a new advance, while breakout above ¥104 would confirm, offering a target of ¥114*. Reversal below ¥98.50 is unlikely, but would warn of a test primary support at ¥94.
* Target calculation: 104 + ( 104 – 94 ) = 114
Canada’s Loonie respected support at $0.94, suggesting a rally to test resistance at parity against the greenback. The monthly chart displays long-term selling pressure, however, and another test of primary support at $0.94 is likely. Breakout would warn offer a target of $0.84*. Declining 13-week Twiggs Momentum already suggests a primary down-trend.
* Target calculation: 0.94 – ( 1.04 – 0.94 ) = 0.84
A monthly chart of the Aussie Dollar displays a similar pattern against the greenback, with a broad top followed by breakout below primary support at $0.95. Support at $0.90 provides temporary respite, but the long-term target is $0.80*. Again, declining 13-week Twiggs Momentum indicates a primary down-trend.
* Target calculation: 0.95 – ( 1.10 – 0.95 ) = 0.80
The Aussie/Kiwi cross has exceeded its target of $1.15*, steady decline on the weekly chart reflecting the impact of falling commodity prices. Breakout above the descending trendline would indicate a rally to test resistance at $1.21, but that seems a way off with the decline in 13-week Twiggs Momentum accelerating.
* Target calculation: 1.21 – ( 1.27 – 1.21 ) = 1.15
China’s Shanghai Composite Index continues to test long-term support at 1950. Breakout would signal a primary decline, with a target of the 2008 low at 1660. Reversal of 13-week Twiggs Money Flow below zero warns of rising selling pressure. Respect of 1950 is unlikely, but would indicate a rally to 2150.
Japan’s Nikkei 225 found resistance at 15000, but the primary trend is upward and retracement that respects the rising trendline would suggest another advance. Declining peaks on 13-week Twiggs Money Flow would indicate selling pressure. Follow-through above 15000 would test the earlier high at 16000.
India’s Sensex is testing resistance at 20200. Breakout would signal an advance to 22000*. Recovery of 13-week Twiggs Money Flow above its May peak indicates buying pressure. Respect of resistance at 20200 is unlikely, but would re-test the rising trendline.
* Target calculation: 20000 + ( 20000 – 18000 ) = 22000
The ASX 200 is consolidating in a narrow band below resistance at 5000 — a bullish sign suggesting a test of the May peak at 5250. Highs of 5000 in 2010 and 2011 give this level additional significance and breakout would indicate an advance to 5850*. Follow-through above 5250 would confirm. Reversal of 21-day Twiggs Money Flow below zero merely indicates short-term selling pressure. Reversal below 4850 is unlikely, but would warn of another test of primary support at 4650.
* Target calculation: 5250 + ( 5250 – 4650 ) = 5850
Leith van Onselen posts this chart comparing housing wealth to disposable income. Australia and New Zealand are the worst offenders, with ratios close to 5:1, while the US never reached 3:1 even at its sub-prime peak.
The Euro continues to test medium-term resistance at $1.32 on the weekly chart. Breakout above $1.32 would suggest a primary advance, with a target of $1.40* — confirmed if resistance at $1.34 is broken. But oscillation of 63-day Twiggs Momentum around zero does not indicate a strong trend and respect of resistance remains as likely.
* Target calculation: 1.34 + ( 1.34 – 1.28 ) = 1.40
The greenback recovered above long-term support at ¥100 against the Yen, indicating continuation of the advance, with a target of ¥114*. Follow-through above ¥101.50 would confirm. Reversal below ¥100 is unlikely, but would warn of a test primary support at ¥94; confirmed if support at ¥98.50 is broken.
* Target calculation: 104 + ( 104 – 94 ) = 114
Canada’s Loonie broke resistance at $0.96, suggesting a rally to the descending trendline and resistance at $0.98 against the greenback. Reversal below $0.96, however, would warn of another test of support at $0.9450. 63-Day Twiggs Momentum declining while below zero reflects a healthy primary down-trend.
The Aussie Dollar is consolidating below medium-term resistance at $0.93 against the greenback. Breakout would signal a rally to the primary trendline at $0.96. But the primary trend remains downward and respect of $0.93 would re-test $0.90. The long-term target remains at $0.80* against the greenback. The RBA favors a softer dollar to cushion the impact of falling commodity prices.
* Target calculation: 0.95 – ( 1.10 – 0.95 ) = 0.80
The impact of the declining resources sector is reflected in the primary down-trend on the Aussie/New Zealand Dollar cross. AUDNZD is approaching its target of $1.15 and breakout above the descending trendline would indicate a rally to test resistance at $1.21. But respect of $1.21 would be likely, suggesting another downward leg on the Aussie/Kiwi cross.
* Target calculation: 1.21 – ( 1.27 – 1.21 ) = 1.15
Adam Peterson writes the Canadian housing bubble is headed for a “slow-motion” crash:
My gravest concern is that Canada is fast approaching a 5:1 home-price-to-income ratio, a benchmark achieved by the U.S. at the peak in 2006. Since the correction, the U.S. ratio now hovers at approximately 3:1.
To compound the problem, household debt in Canada has breached 150 per cent of income and continues in the wrong direction; households are not cushioned against a blow.
Australian household debt is also hovering around 150% of disposable income.
While the price-to-income ratio varies between 4 and more than 6 depending on whether you use national averages or median data.
Read more at Canadian housing bubble looks ripe for popping | Toronto Star.
China’s Shanghai Composite Index continued its rally on Monday, headed for a test of 2150. Last week’s tall shadow (or candlewick) indicates selling pressure. Respect of resistance is likely and reversal below 1950 would signal a primary decline, with a target of the 2008 low at 1700. Reversal of 13-week Twiggs Money Flow below zero would strengthen the bear signal.
Last week’s dragonfly doji on Japan’s Nikkei 225 also indicates selling pressure, but the higher close hints this may have been resolved. Monday’s open is flat and reversal below last week’s low would warn of another test of primary support at 12500. Penetration of the rising trendline or a lower peak on 13-week Twiggs Money Flow would warn of trend weakness, while breach of primary support at 12500 would signal reversal. But that is some way off and follow-through above 15000 would suggest another advance; confirmed if resistance at 16000 is broken.
India’s Sensex is headed for another test of resistance at 20200. Breakout would signal an advance to 22000*. Recovery of 13-week Twiggs Money Flow above its May peak would indicate healthy buying pressure. Respect of resistance at 20200 is unlikely, but would re-test the rising trendline.
* Target calculation: 20000 + ( 20000 – 18000 ) = 22000
The ASX 200 is consolidating below resistance at 5000. Narrow consolidation is a bullish sign, but reversal below 4850 would warn of another test of primary support at 4650. Breakout above 5000 remains likely and would indicate an advance to 5850* — confirmed if resistance at 5250 is broken. Breach of primary support is unlikely, but would signal a primary down-trend. Oscillation of 21-day Twiggs Money Flow above zero would indicate healthy buying pressure.
* Target calculation: 5250 + ( 5250 – 4650 ) = 5850
Yalman Onaran and Jesse Hamilton at Bloomberg report on a new joint proposal by the Federal Deposit Insurance Corp., Federal Reserve and Office of the Comptroller of the Currency:
The biggest U.S. banks, after years of building equity, may continue hoarding profits instead of boosting dividends as they face stricter capital rules than foreign competitors.
The eight largest firms, including JPMorgan Chase & Co. (JPM) and Morgan Stanley (MS), would need to retain capital equal to at least 5 percent of assets, while their banking units would have to hold a minimum of 6 percent, U.S. regulators proposed yesterday. The international equivalent, ignoring the riskiness of assets, is 3 percent. The banks have until 2018 to fully comply.
The U.S. plan goes beyond rules approved by the Basel Committee on Banking Supervision to prevent a repeat of the 2008 crisis, which almost destroyed the financial system. The changes would make lenders fund more assets with capital that can absorb losses instead of using borrowed money. Bankers say this could trigger asset sales and hurt their ability to lend, hamstringing the nation’s economic recovery.
While the authors term the new regulations “harsh” on bankers and likely to freeze bank lending, existing lax capital requirements give bankers a free ride at the expense of the taxpayer. Their claims are baseless:
So why are bankers squealing so loudly? In a nutshell: bonuses. Higher capital requirements and no free ride at taxpayers’ expense would mean that shareholders claim a bigger slice of the pie, with less left over for management bonuses.
For a detailed rebuttal of bankers’ claims see Anat Admati and Martin Hellwig.
The big four Australian banks should take note. They currently maintain between 4.1% (CBA) and 4.5% (WBC) of capital against lending exposure. Raising the ratio to 6.0% would require 33% to 50% new capital.
Read more at U.S. Banks Seen Freezing Payouts Under Harsh Leverage Rule – Bloomberg.
The dollar fell sharply against the Euro and Sterling. The Euro jumped from primary support at $1.28 to medium-term resistance at $1.32. Breakout above $1.32 would suggest a primary advance, with a target of $1.40* — confirmed if resistance at $1.34 is broken. But oscillation of 63-day Twiggs Momentum around zero does not indicate a strong trend and respect of resistance is just as likely.
* Target calculation: 1.34 + ( 1.34 – 1.28 ) = 1.40
Pound Sterling is weakening against the euro, breach of medium-term support at €1.16 suggesting a test of primary support at €1.1350 on the weekly chart. A 13-week Twiggs Momentum peak below zero would indicate a strong primary down-trend. Breach of primary support would offer a target of the 2011 low at €1.10.
The greenback retreated below support at ¥100 against the Yen. Recovery above ¥100 would indicate continuation of the advance, with a target of ¥114*. Respect of the new resistance level, however, remains as likely and would warn of a test primary support at ¥94.
* Target calculation: 104 + ( 104 – 94 ) = 114
Canada’s Loonie broke resistance at $0.96, suggesting a rally to the descending trendline and resistance at $0.9850 against the greenback. Reversal below $0.96, however, would warn that all bets are off and another test of support at $0.9450 is likely. 63-Day Twiggs Momentum oscillating below zero indicates a healthy primary down-trend.
The Aussie Dollar penetrated its secondary descending trendline, suggesting a rally to test the primary trendline at $0.96. But first we need a break of resistance at $0.93, while follow-through above $0.94 would strengthen the signal. Respect of resistance, however, would warn of another test of immediate support at $0.90, while the long-term target remains at $0.80* against the greenback. The RBA is not averse to this: they need a softer dollar to cushion the impact of falling commodity prices.
* Target calculation: 0.95 – ( 1.10 – 0.95 ) = 0.80
