Hong Kong’s Hang Seng Index is testing support at 23000. Reversal of 13-week Twiggs Money Flow below zero warns of a primary down-trend. Breach of support at 21000 would confirm.
China’s Shanghai Composite Index continues to test its new support level at 2340. Respect would suggest an advance to 2500*. Breach would warn of a correction. I remain wary because of weakness in Hong Kong.
* Target calculation: 2250 + ( 2250 – 2000 ) = 2500
The S&P 500 found support at 1820 and is testing resistance at 1900. Breach of resistance would suggest that the correction is over. 21-Day Twiggs Money Flow below zero, however, continues to warn of medium-term selling pressure. Respect of resistance is more likely, indicating another test of support at 1800*.
* Target calculation: 1900 – ( 2000 – 1900 ) = 1800
CBOE Volatility Index (VIX) retreated to 22, indicating moderate risk, but nowhere near the 30+ levels typical of a bear market.
Dow Jones Industrial Average recovered above resistance (the former support level) at 16300, the long tail indicating short-term buying pressure. Follow-through above the descending trendline would signal that the correction is over. Recovery above the recent highs at 25% on 13-week Twiggs Money Flow would suggest that buyers have regained control.
Germany’s DAX is retracing to test resistance at 9000. Respect would confirm a primary down-trend. 13-Week Twiggs Momentum below zero strengthens the bear signal. Target for the decline is 8000*. Recovery above 9000 remains unlikely, but would warn of a bear trap.
* Target calculation: 9000 – ( 10000 – 9000 ) = 8000
The Footsie displays a similar long tail, indicating buying pressure. Recovery above 6500 is unlikely, but would warn of a bear trap. Respect of resistance would offer a target of 6000*.
* Target calculation: 6400 – ( 6800 – 6400 ) = 6000
China’s Shanghai Composite Index is testing support at 2340/2350. Breach would warn of a correction. But the primary up-trend remains and rising 13-week Twiggs Money Flow signals medium-term buying pressure.
Japan’s Nikkei 225 Index plunged through support at 14800, warning of a test of primary support at 13900/14000. Reversal of 13-week Twiggs Money Flow below zero indicates (long-term) selling pressure.
The ASX 200 recovered above resistance at 5250 and the descending trendline, suggesting that the correction is over. Bullish divergence and a rising 21-day Twiggs Money Flow (above zero) indicates medium-term buying pressure. Recovery above 5350 would confirm that buyers are back in control, while reversal below 5250 would indicate another test of 5000/5050.
* Target calculation: 5350 – ( 5650 – 5350 ) = 5050
ASX 200 VIX remains below 20, indicating low risk typical of a bull market.
The quarter-end sell-off has been exacerbated by weakness in Europe.
Germany’s DAX broke primary support at 8900/9000, signaling a (primary) down-trend. Reversal of 13-week Twiggs Money Flow below zero strengthens the bear signal. Target for the decline is 8000*. Recovery above 9000 is unlikely, but would warn of a bear trap.
* Target calculation: 9000 – ( 10000 – 9000 ) = 8000
The Footsie displays similar weakness, breaching primary support at 6400/6500. Target for the decline is 6000*. Recovery above 6500 is unlikely, but would warn of a bear trap.
* Target calculation: 6400 – ( 6800 – 6400 ) = 6000
China’s Shanghai Composite Index is holding above its new support at 2340/2350, but expect retracement to at least 2250 in response to US/European weakness.
Japan’s Nikkei 225 Index broke medium-term support at 15500 and the rising trendline to warn of a correction. Reversal of 13-week Twiggs Money Flow below zero would strengthen the signal. Breach of 14800 would indicate a test of primary support at 14000.
The S&P 500 is testing primary support at 1900. Declining 13-week Twiggs Money Flow warns of selling pressure. Reversal below zero would indicate a down-trend, offering a target of 1800*.
* Target calculation: 1900 – ( 2000 – 1900 ) = 1800
CBOE Volatility Index (VIX) rose to above 20, indicating moderate risk, but nowhere near the levels typical of a bear market.
The ASX 200 broke support at 5250/5300, suggesting a test of long-term support at 5000. Declining 13-week Twiggs Money Flow below zero indicates strong selling pressure. Recovery above 5350 is unlikely, but would suggest that the correction is over.
* Target calculation: 5350 – ( 5700 – 5350 ) = 5000
Is the reserve currency status of the US Dollar a privilege or a burden? Michael Pettis suggests the latter and argues in favor of constraining unlimited purchases of US or other government bonds by international trading partners like China and Japan:
…it is actually quite easy to list the conditions under which reserve currency status encourages growth and the conditions under which it forces a rise either in debt or in unemployment. In advanced countries with deep and flexible financial markets, except in the case in which capital has become severely constrained by the need for money to be backed by gold, or real interest rates have been forced up to extremely high levels in order to break inflation as was the case in the late 1970s and early 1980s, the net inflows associated automatically with reserve currency status will not result in an increase in productive investment. They only result in an increase either in debt or in unemployment.
This is not an argument in favor of returning to gold, by the way. It is completely neutral on the issue. This argument simply restates the Keynesian insight that eliminating the discipline imposed by the gold standard is likely to become destabilizing unless there is another way to impose discipline…..
….the potentially destabilizing effect is no longer so distant. In a recent essay I tried to show that if we have not already reached the point at which the dominant reserve currency status of the US dollar is harmful to the US and potentially destabilizing to the world, logically we will inevitably reach that point, and probably soon….
I have frequently argued that capital account inflows into US Treasuries artificially inflate the dollar, give trading partners a competitive advantage, and cause the loss of millions of manufacturing jobs. Failure to address this issue is one of the major causes of low wage growth and rising inequality in the US.
Read more at Are we starting to see why its really the exorbitant “burden” | Michael Pettis' CHINA FINANCIAL MARKETS.
We are at the September quarter-end and stock weakness is likely to continue into October.
From the Wall Street Journal:
U.S. job growth rebounded in September and the jobless rate fell below 6% for the first time since mid-2008, suggesting the labor market is improving faster than previously thought. Nonfarm payrolls grew a seasonally adjusted 248,000 last month, the fastest pace since June, the Labor Department said Friday.
The S&P 500 broke downwards from its broadening wedge formation this week, warning of a correction to 1900. But Thursday’s long tail and Friday’s rally indicate buying support below 1950. Another test of 2000 is likely. Respect of resistance would warn of further weakness in October, while breakout would suggest a fresh advance; follow-through above 2020 would confirm.
* Target calculation: 2000 + ( 2000 – 1900 ) = 2100
CBOE Volatility Index (VIX) remains below 20, typical of a bull market.
Dow Jones Euro Stoxx 50 found support at 3100, but this is unlikely to hold. Expect another test of primary support at 3000. Breach would signal a down-trend. Fall of 13-week Twiggs Money Flow below zero would strengthen the bear signal.
* Target calculation: 3000 – ( 3300 – 3000 ) = 2700
Dow Jones Asia Index is headed for a test of 2800 on the weekly chart despite continued bullishness on the Shanghai Composite, reflecting strength in the US Dollar. Penetration of the rising trendline would strengthen the bear signal. Reversal of 13-week Twiggs Momentum below zero also signals a primary down-trend.
The ASX 200 found support at 5250. Recovery above 5350 and the descending trendline would suggest that the correction is over. But respect of resistance remains as likely and breach of 5250 would warn of a test of 5000/5050. Recovery of 21-day Twiggs Money Flow above zero would indicate short-term buying pressure.
* Target calculation: 5650 + ( 5650 – 5350 ) = 5950
The CCP is in a cleft stick over the protests in Hong Kong. Either they escalate and clear protestors with a massive show of force — which risks further escalation — or they wait patiently and let the protest run its course. Their problem is that there are more than 800 million Chinese citizens watching, who will take this as a precedent for future demonstrations in China. The shadow of Tiananmen Square will be replaced by the outcome of the current protests, whatever that is.
Perhaps most incredible photo of #HongKong you will ever see: protests last night via @hkdemonow pic.twitter.com/hSuYMXHTCF
— Jon Williams (@WilliamsJon) October 1, 2014
Hong Kong’s Hang Seng Index broke support at 24000, signaling a correction to 21000/22000. Reversal of 13-week Twiggs Money Flow below zero would warn of a bear market. Breach of support at 21000 would indicate a primary down-trend.
China’s Shanghai Composite Index, however, broke resistance at 2340/2350, indicating an advance to 2440/2450. Rising 13-week Twiggs Money Flow continues to indicate medium-term buying pressure. I would advocate caution, given the situation in Hong Kong and a negative outlook for the economy.
* Target calculation: 2250 + ( 2250 – 2000 ) = 2500
India’s Sensex is testing support at 26000. Bearish divergence on 13-week Twiggs Money Flow continues to warn of long-term selling pressure, but another trough above zero would suggest that buyers are regaining control. Failure of support would signal a correction to the primary trendline — around 25000 — while respect would indicate an advance to 28000*.
* Target calculation: 27000 + ( 27000 – 26000 ) = 28000
Japan’s Nikkei 225 index retraced to test support at 16000, but respect of this level would be a bullish sign, suggesting a breakout above its 2013 high of 16300 with a long-term target of 18000*. Reversal below 16000 is unlikely, but would warn of a correction. Another 13-week Twiggs Money Flow would signal long-term buying pressure.
* Target calculation: 16000 + ( 16000 – 14000 ) = 18000
A Coincident Economic Activity Index above 0.2 indicates the US recovery is on track. Produced by the Philadelphia Fed, the index includes four indicators: nonfarm payroll employment, the unemployment rate, average hours worked in manufacturing, and wages and salaries. Bellwether stock Fedex also suggests rising economic activity.
But contraction of the ECB balance sheet by € 1 Trillion over the last two years has pitched Europe back into recession.
Chart: ECB (Eurosystem) balance sheet. The target is to raise it by EUR 1 trillion – pic.twitter.com/ptoqLkNpxq
— SoberLook.com (@SoberLook) September 27, 2014
Weakness in Europe and Asia has the capacity to retard performance of US stocks despite the domestic recovery.
Dow Jones Europe Index is testing primary support at 320. Breach would signal a down-trend. Follow-through below 315 would confirm. Penetration of the rising trendline and 13-week Twiggs Momentum peak below zero both strengthen the bear signal.
* Target calculation: 320 – ( 340 – 320 ) = 300
Dow Jones Asia Index broke primary support at 3200 despite bullishness on the Hang Seng and Shanghai Composite. Expect a test of support at 3000 (at the rising trendline). Reversal of 13-week Twiggs Momentum below zero would further strengthen the bear signal. Follow-through below 3000 would confirm a primary down-trend.
* Target calculation: 3100 + ( 3100 – 2800 ) = 3400
Shanghai Composite Index, however, continues to test resistance at 2350. Breakout would confirm a primary up-trend. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure.
Bear in mind that Dow Asia and Dow Europe are priced in USD and reflect strength in the US Dollar as well as weakness in local markets — though the two are closely connected.
The S&P 500 is consolidating around the 2000 level in a broadening wedge formation. Do not be surprised if the index rallies early next week, to test medium-term resistance at 2020. Fund managers are normally willing to support the market at quarter-end and lock in quarterly performance bonuses. But this is likely to be followed by weakness in October as they sell off non-performing stocks and increase cash holdings until new opportunities present themselves. Breakout below the broadening wedge — and penetration of both support at 1950 and the (secondary) rising trendline — would warn of a correction. A large volume spike from triple-witching hour on September 19th, however, has exaggerated weakness on Twiggs Money Flow. Breakout above 2020 would signal a fresh advance.
* Target calculation: 2000 + ( 2000 – 1900 ) = 2100
CBOE Volatility Index (VIX) remains in the low range (below 20) typical of a bull market.
The ASX 200 is testing support at 5300/5350. Penetration of the rising trendline warns of a correction to 5000. Declining 13-week Twiggs Money Flow, below zero, after a long-term bearish divergence, also signals weakness. Breach of 5300 would confirm a test of 5000. Recovery above 5550 is unlikely, but would suggest another test of 5650.
* Target calculation: 5650 + ( 5650 – 5350 ) = 5950
From Joseph A. Bosco, senior associate at the Center for Strategic and International Studies:
Effective deterrence requires both the will and the capabilities — and the proper communication to the adversary that we are armed with both.
…several U.S. China experts publicly say otherwise, that the U.S. would not and should not intervene. Such talk, taken with other factors, encourages China’s planners to reach the same conclusion. I believe they are wrong, but a major strategic miscalculation is in the making — not because of U.S. capabilities, which are far more than adequate, but because of the perception of the lack of U.S. will.
Without the credible threat of war, the world becomes a dangerous place, with rogue states invading other territories in the belief that a response is unlikely.
As Henry Kissinger says of the Korean War, “We did not expect the attack; China did not expect our response.” Of such miscalculation, devastating wars are made.
It is evident that US foreign policy is based on President Theodore Roosevelt’s maxim: “speak softly, and carry a big stick.” But you must demonstrate that you are prepared to use the stick for it to be an effective deterrent.
Margaret Thatcher (Statecraft: Strategies for a Changing World) put it in a nutshell:
“Interventions must be limited in number and overwhelming in their impact.”
Read more at China's Deadly Miscalculation in the Making | RealClearDefense.
Hong Kong’s Hang Seng Index is testing support at 24000. Breach of the rising trendline warns of a correction. 13-Week Twiggs Money Flow holding above zero continues to indicate long-term buying pressure. Respect of support at 24000 would suggest another advance; confirmed if there is follow-through above 25000. Breach of support, however, would also warn of a correction — to the primary trendline around 22000.
* Long-term target calculation: 24000 + ( 24000 – 21000 ) = 27000
China’s Shanghai Composite Index is consolidating below resistance at its 2013 high. Rising 13-week Twiggs Money Flow continues to indicate medium-term buying pressure. Breakout above 2350 would signal a fresh advance, while reversal below 2250 would warn of a correction.
* Target calculation: 2250 + ( 2250 – 2000 ) = 2500
India’s Sensex recovered above 27000, suggesting an advance to 28000*. Rising 13-week Twiggs Money Flow suggests medium-term buying pressure. Breach of the secondary rising trendline is unlikely, but would warn of a correction.
* Target calculation: 27000 + ( 27000 – 26000 ) = 28000
Japan’s Nikkei 225 index is testing resistance at its 2013 high of 16300. Rising 13-week Twiggs Money Flow indicates medium-term buying pressure. Breakout above 16300 would offer a long-term target of 18000*. Reversal below 16000 is unlikely, but would warn of a correction.
* Target calculation: 16000 + ( 16000 – 14000 ) = 18000