From David Llewellyn-Smith:
…..restocking is the only thing going on here, enhanced by recent Chinese stimulus. It will pass in due course leaving enormous oversupply and far too large Chinese inventories.
….Not only is iron ore going below $30, it’s going below $20 soon enough. This year we’ll see more supply from Minas Rio, Sino, Roy Hill, India and Vale as Chinese demand falls sharply with a swing in the market of 100mt towards greater surplus.
China’s PBOC made its move against the hedge funds on Monday, while many hedge fund managers were enjoying a long weekend in the Hamptons. With more than $3 Trillion of foreign reserves, this is a fight that the PBOC is likely to win, provided it stands firm. Hedge funds betting on a collapse of the Yuan can leverage their positions, but that makes them vulnerable to margin calls. Driving the Yuan below 6.50 to the Dollar may force some to cover their shorts, which would further strengthen the beleaguered currency.
China’s sell-off of foreign reserves has caused the Dollar to fall, in the midst of a flight to safety. Retracement that respects resistance at 97.50/98.00 would indicate a decline to test primary support at 93.00. Decline of 13-week Twiggs Momentum below zero warns of a primary down-trend.
Flight to safety has spiked demand for Gold. Expect retracement to test support between $1150 and $1200/ounce. But respect of either level would confirm a trend reversal (after recovery above $1200 completes a higher trough).
Federal Reserve chair Janet Yellen before the House Financial Services Committee:
“…..As is always the case, the economic outlook is uncertain. Foreign economic
developments, in particular, pose risks to U.S. economic growth. Most notably,
although recent economic indicators do not suggest a sharp slowdown in
Chinese growth, declines in the foreign exchange value of the renminbi have
intensified uncertainty about China’s exchange rate policy and the prospects for
its economy.This uncertainty led to increased volatility in global financial markets and, against the
background of persistent weakness abroad, exacerbated concerns about the outlook for
global growth. These growth concerns, along with strong supply conditions and high
inventories, contributed to the recent fall in the prices of oil and other commodities. In
turn, low commodity prices could trigger financial stresses in commodity-exporting
economies, particularly in vulnerable emerging market economies, and for commodity-
producing firms in many countries. Should any of these downside risks materialize,
foreign activity and demand for U.S. exports could weaken and financial market
conditions could tighten further…..”
…No rate rises any time soon.
Batten down the hatches, the storm is here.
Nymex WTI Light Crude futures (March 2016) are testing support at $30 per barrel. There is no indication that this is the bottom and breach of $30 would be likely to test $20 per barrel.
* Target calculation: 30 – ( 40 – 30 ) = 20
Long-term interest rates are falling, with 10-year Treasury yields headed for another test of primary support at 1.5 percent. Breach of 1.7 percent would confirm. The flight from stocks is driving up Treasuries (and yields lower).
Flight to safety is (normally) synonymous with a strong Dollar, so the weakening Dollar Index is a surprise.
China must be selling off Dollar reserves to support the Yuan and restore confidence.
Too late, I’m afraid. That horse has bolted. Loss of confidence in the Yuan is driving demand for gold, with the spot metal rallying to $1200 per ounce. Resistance at the former support level makes retracement likely, but a trough that respects $1100 or narrow consolidation below $1200 would suggest reversal (to an up-trend). Breach of $1200 would offer a target of $1300*.
* Target calculation: 1200 + ( 1200 – 1100 ) = 1300
After forming a lower peak at 18000, Dow Jones Industrial Average is testing primary support at 16000. 13-Week Twiggs Momentum peak at zero warns of a primary down-trend. Breach of support would offer a target of 14000*.
* Target calculation: 16000 – ( 18000 – 16000 ) = 14000
The S&P 500 displays a similar pattern, testing primary support at 1850, with a 13-week Twiggs Momentum peak at zero. Breach of support would offer a target of 1500*.
* Target calculation: 1850 – ( 2150 – 1850 ) = 1550
A monthly chart shows VIX rising for another test of 30. Oscillation between 20 and 30 flags elevated market risk.
Australia’s ASX 200 retreated below primary support at 5000, signaling a primary down-trend. A 13-week Twiggs peak below zero already warns of a decline. Today’s close at 4832 confirms, offering a short-term target of 4600* and a long-term target of 4000*.
* Target calculation: 4850 – ( 5050 – 4850 ) = 4650; 5000 – ( 6000 – 5000 ) = 4000
Investors who plan to hold stocks through a possible down-turn should stop watching daily prices and listening to news reports. It will only weaken your resolve. I am comfortable with holding stocks with strong dividend streams, but wary of holding growth stocks as they normally suffer the biggest losses.
For traders this is a time of dangerous opportunity. Either shorting sectors likely to be worst hit or waiting for opportunities to buy gold stocks.
Only when the tide goes out do you discover who’s been swimming naked.
~ Warren Buffett
Rallies on the Dow and S&P 500 reflect a more positive outlook for the US economy. But the FTSE 100 has followed China’s Shanghai Composite and India’s SENSEX into bear territory, while Germany’s DAX, Japan’s Nikkei 225 and Australia’s ASX 200 threaten key support levels. There is very little to cheer about at present.
Dow Jones Global Index is testing resistance at the former primary support level of 290. Respect is likely and breach of 270 would confirm another decline. 13-Week Twiggs Momentum peaks below zero flag a strong primary down-trend.
* Target calculation: 290 – ( 320 – 290 ) = 260
Dow Jones Industrial Average recovered above primary support at 16000 but respect of 17000 is likely and would warn of another decline. Breach of 16000 offers a target of 14000*. 13-Week Twiggs Money Flow oscillating around zero indicates uncertainty.
* Target calculation: 16000 – ( 18000 – 16000 ) = 14000
The S&P 500 recovered above 1900, while rising 21-day Twiggs Money Flow indicates short-/medium-term buying pressure. Expect a test of 2000 but breakout is unlikely. Breach of support at 1900 would signal another decline, with a (medium-term) target of 1700*.
* Target calculation: 1900 – ( 2100 – 1900 ) = 1700
CBOE Volatility Index (VIX) continues to range between 20 and 30 reflecting hesitancy — and the potential to react quickly to bad news.
Canada’s TSX 60 also retraced to test resistance at 750. Respect is likely and breach of 700 would offer a target of 650*. Declining 13-week Twiggs Momentum peaks below zero indicate a strong primary down-trend.
* Target calculation: 700 – ( 750 – 700 ) = 650
Germany’s DAX is testing primary support at 9500. Peaks below zero on 13-week Twiggs Momentum warn of a primary down-trend. Follow-through below 9300 would confirm.
* Target calculation: 9500 – ( 11500 – 9500 ) = 7500
The Footsie retreated below 6000, signaling a primary down-trend. 13-Week Twiggs Momentum peaks below zero further strengthen the signal. Long-term target for a decline is 5000*.
* Target calculation: 6000 – ( 7000 – 6000 ) = 5000
Support has given way on the Shanghai Composite Index, strengthening the primary down-trend signaled last August when 13-week Twiggs Momentum crossed below zero. Target for the decline is 2400*.
* Target calculation: 3000 – ( 3600 – 3000 ) = 2400
Japan’s Nikkei 225 Index is testing primary support at 17000. Breach is likely and would confirm the primary down-trend signaled by 13-week Twiggs Momentum below zero.
* Target calculation: 94 – ( 106 – 94 ) = 82
Two failed swings on India’s Sensex (failing to reach the upper trend channel) warn of increasing selling pressure. Declining 13-week Twiggs Momentum peaks below zero confirm this. Follow-through below 24000 would offer a target of 22500*.
* Target calculation: 25000 – ( 27500 – 25000 ) = 22500
The ASX 200 staged a short rally today but sentiment remains bearish and respect of the recent high at 5050 would warn of another decline. Bullish divergence on 21-day Twiggs Money Flow indicates medium-term buying pressure but the weight of global bear markets is likely to sap any enthusiasm. Reversal below 4850 would offer a medium-term target of 4650*, or 4000* in the long-term.
* Target calculation: 4850 – ( 5050 – 4850 ) = 4650; 5000 – ( 6000 – 5000 ) = 4000
The largest sector, Banks, is already in a primary down-trend, having been singled out for particular attention by the bears. Breach of support at 7500/7600 would warn of a decline to 6600*.
* Target calculation: 7600 – ( 8600 – 7600 ) = 6600
Markets are fundamentally volatile. No way around it. Your problem is not in the math. There is no math to get you out of having to experience uncertainty.
~ Ed Seykota
We are witnessing a flight to safety as money flows out of stocks and into bonds, driving 10-year Treasury yields as low as 1.88 percent. Breach of support at 2.0 percent suggests that another test of primary support at 1.5 percent lies ahead.
What makes this even more significant is that it occurred while China is depleting foreign reserves — quite likely selling Treasuries — to support the Yuan. Heavy intervention in the past few weeks to prevent further CNY depreciation against the Dollar may well show recent estimates of a further $0.5 Trillion outflow in 2016 to be on the light side.
China is caught in a cleft stick: either deplete foreign reserves to support the Yuan, or allow the Yuan to weaken which would fuel further selling and risk a downward spiral. Regulations to restrict capital outflows may ease pressure but are unlikely to stem the flow.
Chinese sales of Dollar reserves have slowed appreciation of the Dollar Index. Cessation of support for the Yuan would cause breakout above 100 and an advance to at least 107*.
* Target calculation: 100 + ( 100 – 93 ) = 107
Gold has also benefited from the flight to safety, rallying to $1150/ounce. The rally may well test $1200 but resistance is expected to hold. Respect would suggest a decline to $1000/ounce*; confirmed if support at $1050 is broken. Continued oscillation of 13-Week Twiggs Momentum below zero flags a strong primary down-trend.
* Target calculation: 1100 – ( 1200 – 1100 ) = 1000
The ASX wagon is clearly hitched to the Chinese growth engine. When China slows and commodity prices fall, the ASX is sure to follow.
The Shanghai Composite Index is simply a barometer of the main show, which is Chinese real estate and infrastructure investment. Chinese stocks are again falling, with the index headed for a test of primary support at 3000. Rate rises in the US are likely to increase capital outflows from China. The PBOC’s massive foreign currency reserves act as a buffer but have already been depleted by half a trillion Dollars. Loosening the peg against the Dollar may soften the immediate impact on reserves. But a falling Yuan is likely to further encourage capital outflows.
The ASX 200 broke primary support at 5000. Reversal of 6-month Twiggs Momentum below zero signals a primary down-trend. Follow through below 4900 would confirm the decline, with long-term support at 4000*.
* Target calculation: 5000 – ( 6000 – 5000 ) = 4000
I would have expected a gold rally in response to the falling Dollar but the response is so far muted.
The Euro leapt 3.08% last Thursday, December 3rd, in response to a weaker-than-expected stimulus package from the European Central Bank.
The Dollar Index, with a 57.6% weighting against the Euro, fell 2.26%.
Other factors also weaken the Dollar. The Peoples Bank of China is selling off reserves to support the falling Yuan. This is likely to continue as capital outflows from China maintain pressure on the currency.
A weaker Dollar would boost US exports and accelerate domestic growth. Strong bearish divergence between 13-week Twiggs Momentum and the Dollar Index warns of a reversal. Breach of support at 98 would indicate a test of primary support at 93. Failure of primary support remains unlikely, but reversal of 13-week Twiggs Momentum below zero would strengthen the warning.
Long-term interest rates remain soft despite the anticipated Fed rate hike. 10-Year Treasury yields respected support at 2.0 percent. Breakout above 2.50 percent would indicate a test of 3.00 percent.
Gold is headed for a test of support at $1000/ounce* after breaching $1100. 13-Week Twiggs Momentum peaks below zero confirm a strong primary down-trend. A weaker Dollar would increase support for gold but there is no sign of this yet.
* Target calculation: 1100 – ( 1200 – 1100 ) = 1000
China has chewed through close to half a trillion dollars of its foreign currency reserves (excluding gold) over the last year, supporting the Yuan.
But the Yuan continues to sink against the US Dollar.
When people don’t have a say in how the country is run, their capital tends to vote with its feet.
Marc Faber: China Has Credit Bubble of Epic Proportions https://t.co/pZtgampX6f
— Colin Twiggs (@Colin_Twiggs) October 30, 2015