Gold and commodities fall as bonds rise

Gold is testing short-term support at $1450. Breach would be likely to penetrate the rising trendline, indicating another test of primary support at $1320. Reversal below $1400 would warn of a further down-swing. Breach of $1320 would confirm, with the next major support level at the 2008 high of $1000.

Spot Gold

* Target calculation: 1550 – ( 1800 – 1550 ) = 1300

The Gold Bugs Index, representing un-hedged gold stocks, is falling rapidly. The index behaves like a leveraged gold instrument. Fixed costs of extraction make miners extremely sensitive to relatively small fluctuations in the gold price — which is why many miners hedge. The index is headed for a test of its 2008 low, which equated to a spot price of $700/ounce. I am not predicting that gold will fall below its cost of production, variously estimated at between $900 and $1150 per ounce, but expect further weakness.
Gold Bugs Index
My bullish outlook for gold is fading (into the future) as deflationary pressures faced by central banks grow.

Treasury Yields

Money continues to flow into bonds — reflecting a lower inflation outlook — and further outflows from gold are likely. Ten-year treasury yields broke support at 1.70% — prior to 2012 the lowest level in the 200 year history of the US Treasury — and a test of the all-time low at 1.40% is likely.

Dollar Index

Crude Oil

Brent Crude is headed for a re-test of its former support level at $106/barrel. Respect is likely and would offer a target of $92*. Nymex WTI recovered above $90/barrel, but further weakness is expected. Reversal below $90 would warn of a swing to the lower trend channel around $84 . Falling crude prices are a healthy long-term sign for the economy, but indicate falling demand and medium-term weakness.

Brent Crude and Nymex Crude

* Target calculation: 99 – ( 106 – 99 ) = 92

Peter Glover and Michael Economides in The Coming Arab Winter write:

Within just a few years of it taking off, the US shale gas and oil industry is enabling America to become increasingly self-sufficient with imports from the Middle East greatly reduced. The US is closing in on eclipsing Saudi energy production capacity. The 2012 edition of the IEA’s World Energy Outlook says America will surpass Saudi as the world’s biggest oil producer by 2020; such is the rate of current US oil development it could well be before then.

According to one recent report, the dramatic expansion of US production could push global spare oil capacity to exceed 8 million barrels per day. At that point OPEC could lose its ability to set or influence prices and global oil prices could drop sharply. While that would take a heavy toll on many Western energy producers, it would prove disastrous for OPEC’s member states.

The peak oil myth is discredited. Expect long-term weakness in crude prices as the US, China, Australia and elsewhere ratchet up shale gas production.

Commodities

Commodity prices continue to diverge from stocks, with the Dow Jones – UBS Commodity Index headed for primary support at 125. Breach would warn of a decline to the 2008 low of 100. Declining 13-week Twiggs Momentum, below zero, warns of a down-trend; reversal below the 2012 low of -15% would strengthen the signal. Stock prices are precariously high in relation to commodities. Recovery of US housing is unlikely to drive a massive construction boom as there must still be significant over-supply of existing units.

Dow Jones UBS Commodities Index

Australia: Why The Stock Market Has Been Bulletproof To Bad Economic News | Business Insider

Sam Ro quotes Gerard Minack in Business Insider:

To summarize: 1) we’ve seen this before, 2) we think the slowdown is temporary, 3) we think significant weakness will trigger stimulus, and 4) we think fiscal austerity is now less likely.

Still, Minack is pretty sure this resilience can’t hold for too much longer.

Read more at Why The Stock Market Has Been Bulletproof To The Bad Economic News | Business Insider Australia.

Asia: Singapore breakout, ASX 200 selling pressure

Singapore’s Straits Times Index broke long-term resistance at 3300, signaling an advance to the 2007 high of 3900*. Troughs above zero on 13-week Twiggs Momentum strengthen the signal.
DJ Shanghai Index

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

India’s Sensex followed through above resistance at 19000. Breach of the descending trendline would indicate a primary advance to 22000*. 13-week Twiggs Money Flow below zero, however, signals selling pressure and reversal below 19000 would warn of another test of primary support at 18000.
BSE Sensex Index

* Target calculation: 20000 + ( 20000 – 18000 ) = 22000

China’s Shanghai Composite is again testing medium-term support at 2150. Failure of support would warn of a decline to test primary support at 1950/2000. Reversal above 2250, however, would penetrate the descending trendline, indicating another test of 2500.
Shanghai Composite Index

Japan’s Nikkei 225 continues to climb, with a steeply rising 13-week Twiggs Money Flow indicating strong buying pressure. Target for the advance is 15000*.
Nikkei 225 Index

* Target calculation: 11500 + ( 11500 – 8000 ) = 15000

The ASX 200 is testing resistance at 5150. Breakout would offer a target of 5400*, but bearish divergence on 13-week Twiggs Money Flow warns of selling pressure. Failure of support at 4900 would signal a reversal.
ASX 200 Index

* Target calculation: 5150 + ( 5150 – 4900 ) = 5400

Forex: Aussie consolidates while Sterling surprises

The euro is consolidating between $1.30 and $1.32. Upward breakout is more likely and would test the high of $1.37. Reversal below $1.30 would warn of another decline, to around $1.24*. In the long-term, breakout above $1.37 would signal a primary advance to $1.50. A 13-week Twiggs Momentum trough at the zero line would reinforce this.

Euro/USD

* Target calculation: 1.28 – ( 1.32 – 1.28 ) = 1.24

Pound sterling surprised with a reversal above resistance at $1.53. Follow-through above $1.54 would suggest an advance to around $1.58, while retreat below $1.52 would signal a down-swing to $1.43*. Declining 13-week Twiggs Momentum, below its 2011 lows, strengthens the bear signal.

Sterling/USD

* Target calculation: 1.53 – ( 1.63 – 1.53 ) = 1.43

The Aussie Dollar rallied off primary support at $1.015. Narrow fluctuation of 63-day Twiggs Momentum around zero suggests a ranging market. Respect of support suggests another test of $1.06.

Aussie Dollar/USD

Canada’s Loonie found support above $0.97 against the greenback, suggesting another test of $0.99. Breach of the rising trendline, however, would indicate another down-swing.

Canadian Dollar/USD

The greenback is testing resistance at ¥100 against the Japanese Yen. The 30-year down-trend of the dollar is over. Breakout above ¥100 is likely, and would suggest an advance to the 2007 high at ¥125*.

USD/JPY

* Target calculation: 100 – ( 100 – 75 ) = 125

The Fed, ECB and BOJ are all printing money and debasing their currencies. The US dollar, although taking on water, is viewed as the safest — because it is sinking slower than the others. There are signs the Fed is likely to slow quantitative easing in the next 6 to 12 months.

ASX 200 correction over

The ASX 200 rallied strongly after breaking resistance at 5020. Breach of  the March high at 5150 is likely and would signal an advance to 5400*. A 21-day Twiggs Money Flow peak below zero would warn of strong selling pressure.
ASX 200 Index

* Target calculation: 5150 + ( 5150 – 4900 ) = 5400

The monthly chart offers a long-term target of 6000*.
ASX 50 Index

* Target calculation: 5000 + ( 5000 – 4000 ) = 6000

Nikkei and ASX 200 rally, while China & Europe weaken

Respect of support at 1540 and the bottom trend channel indicates a S&P 500 rally to test 1600 and the upper channel line. Failure to break resistance at 1600 would warn of a correction as signaled by mild bearish divergence on 21-day Twiggs Money Flow.

S&P 500 Index

* Target calculation: 1350 + ( 1350 – 1100 ) = 1600

The FTSE 100 also respected support, at 6220, but a tall shadow on Monday warns of selling pressure. Reversal of 21-day Twiggs Money Flow below zero would strengthen the signal and breach of support (6220) would signal a test of the primary trendline at 6000.
FTSE 100 Index

* Target calculation: 6220 – ( 6420 – 6220 ) = 6020

Germany’s DAX broke medium-term support at 7500. A 21-day Twiggs Money Flow peak at zero warns of selling pressure. Follow-through below 7400 would signal a test of primary support at 7000. Recovery above 7600 is unlikely, but would test the descending trendline at 7700.
DAX Index

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

India’s Sensex broke resistance at 19000. Respect of support at 18000 and the rising trendline indicates the primary trend is intact. Mild bullish divergence on 21-day Twiggs Money Flow signals buying pressure. Expect consolidation or short retracement, but follow-through above the descending trendline at 19200 would indicate an advance to 20000.
BSE Sensex Index

* Target calculation: 19000 + ( 19000 – 18000 ) = 20000

China’s Shanghai Composite is testing medium-term resistance at 2250. Breakout would penetrate the descending trendline, indicating the correction is over.
Shanghai Composite Index
Unfortunately the Dow Jones Shanghai Index respected the descending trendline Tuesday, indicating another down-swing to the lower trend channel.
DJ Shanghai Index

Japan’s Nikkei 225 is the star performer, when measured in Yen. Sharp rallies, with frequent gaps, followed by short retracements indicates a strong up-trend. As does 21-day Twiggs Money Flow oscillating clear above the zero line.
Nikkei 225 Index

The ASX 200 met some resistance at 5020, but rising 21-day Twiggs Money Flow indicates buying pressure and breakout would signal a test of 5150.
ASX 200 Index

* Target calculation: 5025 + ( 5025 – 4900 ) = 5150

The magic pudding state – The Drum Opinion (Australian Broadcasting Corporation)

Benjamin Herscovitch writes:

It seems many of us have been taken in by the conceit that the welfare state can offer never-ending free lunches. We expect governments to offer more social security payments, health care, education, etc., all the while assuming that we will not have to pay for it. It is time to let go of the delusion of a magic pudding welfare state and get our expectations for social services in line with our willingness to pay for them.

Read more at The magic pudding state – The Drum Opinion (Australian Broadcasting Corporation).

Forex: Euro finds support while Sterling, Aussie and Loonie fall

The euro respected primary support at $1.26 on the monthly chart. Follow-through above $1.32 would indicate another test of $1.37, while breakout above $1.37 would signal a primary advance to $1.50. A trough above zero on 13-week Twiggs Momentum would reinforce this. Reversal below $1.26, however, would signal a down-swing to $1.20.

Euro/USD

* Target calculation: 1.35 + ( 1.35 – 1.20 ) = 1.50

Pound sterling respected resistance at $1.53 against the dollar, confirming a down-swing to $1.43*. Declining 13-week Twiggs Momentum, below its 2011 lows, strengthens the signal.

Sterling/USD

* Target calculation: 1.53 – ( 1.63 – 1.53 ) = 1.43

The Aussie Dollar fell sharply, headed or a test of primary support at $1.015. Narrow fluctuation of 63-day Twiggs Momentum around zero suggests a ranging market. Respect of support would suggest another rally to test $1.06.

Aussie Dollar/USD

Canada’s Loonie respected resistance at $0.99 against the greenback. The primary trend is down and breakout below $0.97  would indicate another decline, while breach of $0.96 would strengthen the signal. Respect of $0.96, however, would suggest an advance back to the 2012 high of $1.03; strengthened if resistance at $0.99 is broken.

Canadian Dollar/USD

The greenback is testing resistance at ¥100 against the Japanese Yen. The 30-year down-trend of the dollar is over. Breakout above ¥100 is likely, after brief consolidation/retracement, and would suggest an advance to the 2007 high at ¥125*.

USD/JPY

* Target calculation: 100 – ( 100 – 75 ) = 125

The Fed, ECB and BOJ are all printing money and debasing their currencies. It is a case of which boat is sinking the fastest, and the US dollar, although taking on water, being viewed as relatively safe. The fall of gold reveals the market view that the Fed is likely to tail off quantitative easing in the next 6 to 12 months.

ASX 200: Correction continues

The ASX 200 opened sharply lower following a steep fall on US markets overnight. Respect of resistance at the 5000 level confirms the correction signaled earlier. A 21-day Twiggs Money Flow peak below zero would warn of strong selling pressure.
ASX 200 Index

The ASX 50 monthly chart shows that even correction back to 4500 would not disrupt the primary up-trend and may present a buying opportunity for investors. Breach of support at 5000 would confirm the correction, but a trough above zero on 13-week Twiggs Money flow (and above 4500 on the index) would signal the primary trend is intact.
ASX 50 Index